Healthcare is an unavoidable expense. But when it comes to covering this expense, many American retirees worry about covering their costs. According to the July 2020 Retirement Confidence Index, 47% of Americans worry about covering their medical expenses after retirement. If you fall under one of these statistics, you can look at these simple things to make your life easier.
1. Estimate your costs
The money that you will spend on your medical care as a senior will largely depend on how well you manage yourself and take care of yourself both during work and your senior years. But did you know, according to cost projection software provider HealthView Services, the average spending of a healthy 65-year-old couple in retirement is expected to be $387,644 on healthcare? This number is just an estimated amount but can be used as a reference to come up with a retirement budget that can help you to cover the necessary expenses.
2. Learn more about your Medicare
Many American seniors were shocked when they realized that Medicare isn’t free and doesn’t cover dental care, eyeglasses, vision exams, and hearing aids. There are services under Medicare that are subject to deductibles, copays, and coinsurance.
Did you know that Medicare Part B charges a standard premium of $144.60 per month this year? And it may increase in the future, and this is in addition to the premium that you will pay for your Part D drug plan. Only part A is free for most seniors, and it covers hospital care. You need to learn about your program and check to find out what your Medicare will look like when you need it the most.
3. Maximize your health savings account
If you have enrolled in a high-deductible health insurance plan – launched this year as a deductible of $1,400 – $2,800 or more for you and your family – you can contribute to a Health Savings Account. If you are healthy enough, it pays you to maximize. The money you put into this account can be used immediately, but you can also keep it aside, invest, and carry it to your retirement when you need it the most.
The contribution amount to an HSA varies from year to year, but it’s $3,550 if you’re putting money on your behalf or $7,100 if you’re contributing on your family’s behalf. And if you’re age 55 or older, you can add $1,000 as well. By maximizing your HSA balance, you’ll get a trustworthy income source to cover your healthcare expenses during your retirement years.
4. Contribute more to your IRA or 401(k)
The more money you contribute to your IRA or 401(k), the easier it will be to pay your medical expenses. You can contribute the maximum to any of these accounts to add more flexibility to your financial stability. If you’re under age 50, you can make annual contributions of up to $6,000 for an IRA and $19,500 for a 401(k). If you’re age 50 or more, this limit is $7,000 up to $26,000, respectively.
You may find an IRA or 401(k) better than an HSA because you get an option to use your funds as you like. But don’t forget, an HSA gives you added tax benefits. When you contribute to an HSA, your contributions are tax-free, investment gains are tax-free, and withdrawals are tax-free if you use that money for healthcare expenses. But with a traditional IRA or 401(k), contributions are tax-free, but investment gains are not, and withdrawals are not tax-free during retirement. Roth IRAs and 401(k)s are different: Contributions are made with after-tax dollars, while investment gains and withdrawals are tax-free. But when we look at these plans from a tax perspective, the HSA is the winner.
When you are retired, it’s natural to worry about paying for medical care, but rather than worrying, start contributing early and prepare yourself to cover it. Try to learn about the workings of Medicare so that you know how to maximize your benefits.
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I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
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