According to Social Security Administration, every day, approximately 10,000 baby boomers in the United States hit their retirement age. Unfortunately, many are unprepared for retirement, lacking sufficient retirement savings or a retirement budget.
While many soon-to-be retirees will face financial issues, there’s one issue that stands out for the majority of baby boomers … The cost of Healthcare!
When surveyed, 65% of non-retired Americans ages 50 and over stated they had no plan at all to handle unforeseen health-related expenses.
No plan is a bad plan
Many pre-retirees think they don’t need to worry about healthcare because they anticipate Original Medicare will cover healthcare costs covered by Original Medicare.
The reality is that Original Medicare makes seniors responsible for picking up a significant percentage of their cost of care. They may face high deductibles, coinsurance costs, premiums, and coverage limitations.
Below is a simplified version of what Medicare covers and what it doesn’t.
Medicare Part A, which provides hospital coverage, has a $1,364 deductible — seniors hospitalized for more than 60 days during the year must pay a daily coinsurance cost.
Medicare Part B, which provides routine care, has a 20% coinsurance cost.
Medicare Part D, which provides prescription drug coverage, has a coverage gap you fall into once you exceed $3,820 in covered drugs in 2019.
There are also many services Medicare doesn’t cover, including hearing aids, long-term care, vision, and dental care.
Because of coverage limitations, seniors must pay a portion of routine costs. It’s estimated that seniors with Original Medicare only pay 13% to 20% of healthcare expenditures out-of-pocket. This may seem fine if you have minor issues, Still, serious health problems are expected, with 34% of current retirees responding to a nationwide survey reporting health issues that interfere with retirement.
If you have a severe health issue, such as a stroke, could you afford 20% of $60,000 in treatment costs? The Fidelity Retiree Health Care Cost Estimate is even more overwhelming that determined that a couple of age 65 in 2019 may need approximately $285,000 saved (after tax) to cover healthcare expenses in retirement. Of course, the actual amount you’ll need will depend on when and where you retire, how healthy you are, and how long you live.
How to make a plan to cover healthcare
The numbers above should have you convinced you to need a plan to cover healthcare costs, but it can be difficult to know where to start. First, if you’re eligible for a high-deductible health insurance plan, contribute to a health savings account (HSA). You can contribute up to $3,500 as an individual and up to $7,000 if you have family coverage for 2019. Better yet, HSA holders 55 and older get to save an extra $1,000, which means $4,500 for an individual and $7000 for a family.
Contributions to an HSA are made with pre-tax funds, and the money can grow and be withdrawn 100% tax-free, as long as it’s used for qualifying health expenditures. If you contribute and invest when you’re young and leave HSA money alone until you’re a senior, you should have a significant nest egg to cover your healthcare costs.
If you’re already retired or nearing retirement, you may not have time to build up a significant balance in your health savings account. If that’s the case, consider whether your other retirement savings provides enough money to cover care costs.
You can also look for ways to cut or completely cover your healthcare costs by purchasing a Medicare Advantage or a Medicare Supplement plan which is likely a good investment.
Qualifying for Medicaid could also help you afford care costs by subsidizing Medicare premiums and paying for some services not covered by Medicare, such as routine nursing home care. While there are strict asset limits to obtain Medicaid, an attorney can help you develop a plan that protects your wealth and still allows you to get coverage.
It would help if you had a plan for healthcare
So, now you know why it’s so important to have a solid health care plan, especially as you age. Routine visits to the doctor, pre-screening tests, and overall preventative health care play an essential role in improving and maintaining your quality of life.
The correct information at the right time could make all the difference with your Medicare Plan choices.