- The average couple will spend at least $280,000 on healthcare in retirement, but only about half of American adults have a financial plan in place.
- Expected out-of-pocket medical costs for retirees include Medicare premiums, deductibles, copayments, and co-insurance.
- Some overlooked health costs in retirement include vision and hearing exams, supplemental health insurance, prescription costs, and dental services.
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Many Americans are stressed about paying for late-in-life healthcare.
Studies show that over a third of US adults are more concerned about covering health costs in retirement than paying off debt and affording lifestyle expenses right now, but only about half have a financial plan in place for the future.
The average retired couple today will spend at least $280,000 to cover healthcare costs until end of life. While the most basic Medicare plan is free for most people over 65, there are still out-of-pocket costs, such as deductibles, copayments, and coinsurance, to factor in.
Experts recommend saving for these and other future medical costs in a health savings account (HSA). Available only through high deductible health plans (HDHP), HSAs and are a triple tax-free investment account – contributions are made pretax; earnings and interest on investments are tax-free; and withdrawals made for qualified medical expenses are tax-free.
In 2019, a single person can contribute up to $3,500 and a married couple can contribute up to $7,000 to an HSA, plus a $1,000 catch-up contribution for folks over 55. Financial planner Eric Roberge and his wife Kali max out their HSAs every year and plan to leave the money untouched until retirement in order to “make the most of compounding returns,” while using current income to cover medical expenses now. This strategy won’t work for everybody, Roberge said, but HSAs are an excellent tool for socking away cash, tax-free, for retirement.
Here are a few of the most overlooked health costs in retirement:
Supplemental health insurance
Most retirees opt for supplemental health insurance, called Medigap, to “fill the gaps” for some costs not covered by Medicare. This includes excess doctor’s fees, foreign travel coverage, and co-insurance and co-payments for hospice or skilled nursing facilities, usually after you meet the deductible.
Medigap plans are administered by private insurance companies and monthly premiums are based on the type of plan and coverage you buy, your age, and where you live. The 10 plans are standardized across insurers, though, making them fairly easy to compare.
The only medical coverage free of cost to retirees is Medicare Part A, which is hospital insurance. Retirees who opt for Medicare Part D, which covers some prescription drug costs, must pay a monthly premium. Part D is used in conjunction with Medicare Parts A and B. A Medicare Advantage Plan, also known as Part C, may cover prescription costs on its own.
The monthly cost for Part D depends on the specific policy and can be deducted directly from Social Security if desired. High earners (above $85,000 for single filers and $170,000 for married filers, based on income two years prior) pay an extra monthly fee between $12.40 and $77.40 on top of the monthly premium.
The types of drugs covered by each policy can change annually, so most retirees have to shop around regularly to make sure they’re getting the best deal.
Any retiree who goes without prescription drug coverage, whether from Part D or elsewhere, for more than 63 consecutive days before enrolling in Part D will get a late enrollment penalty – an extra fee tacked on to the original monthly premium lasting indefinitely.
Vision and hearing exams
According to the National Institute on Deafness and Other Communication Disorders, nearly one-fourth of Americans aged 65 to 74 and half of Americans 75 and older have disabling hearing loss. Meanwhile, millions of retirement-age Americans report vision loss. Unfortunately, costs for these impairments often fall upon the individual.
Medicare Parts A and B usually don’t cover the cost of vision and hearing exams, unless the patient needs it for a medical treatment, and even then Medicare will only cover a portion. Eyeglasses and hearing aids aren’t covered by Medicare Parts A and B at all, though some Medicare Advantage Plans (Part C) will help cover costs.
Dentist visits aren’t cheap in retirement. Though Medicare Part A may pay for some dental services if the patient is in the hospital, specifically in emergency situations, and some Medicare Advantage Plans (Part C) offer dental coverage, most retirees will need to pay out-of-pocket or turn to supplemental insurance to cover the cost of dental services.
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