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Five Ways to Prepare for Retirement Health Care Expenses

After 65 years of toiling in the business world and providing for your family, you’ve earned the right to a peaceful, stress-free existence. While that may not happen for everyone, there are steps you can take to help ensure a well-resourced retirement. If you are like most Americans, you probably have about $104,000 in retirement savings. That may sound like a lot, but the truth is it probably isn’t enough for the average length retirement.

The average life expectancy in the U.S. is 78 years, so if you retire at 65, you can expect more than a decade to enjoy your senior years. That gives you about $666 a month if you ration your savings religiously. While that may seem like a lot, especially if you factor in Social Security, it is probably only enough to eke by on a subsistence living.
You may get lucky and avoid any major financial problems in your retirement, but chances are you will encounter at least one type of significant expense—medical care. According to one estimate by a prestigious financial analyst, a retired couple will need at least $245,000 to cover all of their health care expenses.

You probably don’t have that much saved, but there are some important strategies you can use to cover that gap.

1. Health savings account: If you haven’t set up a health savings account, you should do so as soon as possible. These accounts allow you to deposit funds from your paycheck, before they are taxed, that you can later withdraw to pay for out-of-pocket expenses your health plan doesn’t cover. These are pre-tax funds that might be tax-free if used for certain medical expenses. More employers are setting these up for employees to help pay for high deductible employer health plans, but you can set one up even if your employer hasn’t. There is an annual limit on how much you can deposit (this is increased by $1,000 if you are between 55 and 65), but you can roll over the savings and interest from year to year. You cannot deposit into HSAs after the age of 65.

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2. Obtain a Medicare supplement policy: If you have been paying into the Social Security system, you automatically qualify for Medicare when you turn 65. This is an outstanding federal insurance program, but traditional Medicare Parts A, B and D (which is optional) will only cover about 80 percent of your total medical expenses. To help you cover the remaining out-of-pocket costs, you should strongly consider a Medicare supplement policy. While this may cost you a few dollars more per month in premiums, most Medigap policies will cover the remaining 20 percent of many medical expenses. This extra coverage is extremely important if you have an expensive procedure that could leave you responsible for thousands of dollars.

3. Medicare Advantage: Medicare Parts A and B constitute hospital and outpatient services, while Part D covers prescription medications. Medicare Part C, however, allows you to obtain all of the benefits found in Parts A and B through a private insurer. Also known as Medicare Advantage plans, this program is one of the most popular because these private health plans often offer additional benefits like out-of-pocket maximums, dental, vision and prescription drugs. The premiums for Medicare Advantage plans are primarily paid by Medicare, although some may be slightly more costly and require a modest monthly payment from you. Not only do these plans offer added convenience by providing all of your health benefits from one source, but they may also limit your financial responsibility.

4. Update your policy regularly: If you have traditional Medicare, a Medicare Advantage plan, or a supplemental policy, be sure to analyze the costs and benefits annually. You should match up these against your current and potential health needs, to determine if you are paying for something you don’t need or if you need to enroll in a broader plan. You should know that there is an Open Enrollment Period for Medicare Advantage and Medigap plans; Medigap enrollment is open for six months after you turn 65 and enroll in Medicare Part B, while the Open Enrollment Period for Medicare Advantage plans is from October 15 to December 7 ever year. If you fail to enroll during this period, you may not be able to afterwards or must pay a higher cost. During this period you may switch between traditional Medicare and Medicare Advantage plans.

Open Enrollment

5. Long-term care policy: One of the most expensive parts of health care as a senior is long-term care. These policies will cover services like assisted living residency, nursing and other at-home medical assistance. While Medicare may cover a short period of nursing home or at-home care, it won’t cover an extended period. So if you require assistance in your twilight years, you will probably be footing the majority of the bill yourself, unless you purchase a long-term care policy. These supplemental health plans come in a wide variety of coverage types, so examine each one closely. You should also keep in mind that these policies are cheaper if you get them while you are younger and healthier, so enroll as early as possible. Choose a plan well within your budget because if you stop paying the premiums and let the policy lapse, you lose all the coverage that you have paid into.

Retirement can be an anxious time for many people, but it doesn’t have to be. With a little preparation and a minor investment in the right health insurance policy or health savings account, you can face your time as a senior with confidence. If you need more assistance in preparing for retirement, you may wish to consider speaking with a retirement planning professional who can design a customized financial plan for you.

If you would like more information about available Medicare Advantage, Medicare supplemental, or long-term care plans, please speak with one of the insurance specialists at Boost Health Insurance.

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