As you strategize for the future, it’s crucial to acknowledge that healthcare costs during retirement will be a substantial expense in your golden years. Unlike past generations, many retirees today lack access to employer- or union-sponsored retiree health benefits. Consequently, in your retirement planning, it’s essential to factor in the potential impact of rising retiree healthcare costs on your financial health. This article offers four tips to assist you in proactively planning for and meeting these anticipated expenses.

By the Numbers: Rising Retiree Healthcare Costs

Research by Fidelity shows that an average retired couple aged 65 should prepare to spend around $315,000 on healthcare expenses in retirement. The rising challenges posed by longer lifespans, healthcare inflation, and early retirement have intensified the healthcare cost hurdle. While some retirees may believe that Medicare covers all healthcare costs, the reality is different. It’s imperative for retirees to actively develop a dedicated plan within their overall retirement strategy, specifically addressing how they will manage rising retiree healthcare costs once they exit the workforce.

Here are four helpful tips on how to plan for these expenses to help you maintain financial independence in retirement:

Rising Retiree Healthcare Costs Tip 1: Budget for Health Expenses

Frequently, retirees and those on the brink of retirement overlook the importance of budgeting for healthcare expenses when estimating their retirement costs. Neglecting to factor in healthcare costs can have significant consequences, as retirees are responsible for covering both premiums and out-of-pocket expenses. It’s crucial to research the available healthcare options, understand their associated costs, and incorporate these details into your retirement budget for accurate financial planning.

Rising Retiree Healthcare Costs Tip 2: Learn About Various Health Care Premiums

Typically, there are five types of healthcare premiums you’ll find yourself paying in retirement:

• Medicare Part B: The premiums attached to this package are tightly tied to your income. You can find specifics for 2024 here. Generally speaking, higher earnings equal higher premiums.
• Medicare Advantage (Part C): Medicare Advantage plans offer valuable coverage, encompassing prescription drugs and additional benefits such as dental, hearing, and eye care. Despite these advantages, it’s essential to note that they may not cover all aspects of recurring conditions or prolonged hospital stays. In the event of chronic or severe illnesses within your family, there is the potential for substantial healthcare expenses that may not be fully addressed by Medicare Advantage policies.
• Medicare Part D: This aspect of Medicare primarily covers prescription drugs that are self-administered. Typically, drugs that are given by a doctor are covered by Medicare Part B. Just keep in mind that this coverage doesn’t necessarily cover all drugs, so you’ll want to do research to make sure it meets your needs.
• Medigap: For retirees seeking coverage beyond basic Medicare (Part B), a Medigap plan can be a valuable option. However, it’s crucial to be aware that Medigap policies may not extend coverage to dental, hearing, and eye care expenses. Therefore, when budgeting for rising retiree healthcare costs, allocate separate funds for these specific needs.
• Long-Term Care Insurance: Note that the premiums for these policies are costly and this option is not right for everyone. However, as you’re planning for healthcare needs in retirement, you may find that long-term care insurance is optimal for your needs – especially because Medicare does not cover the majority of long-term care costs.

Rising Retiree Healthcare Costs Tip 3: Commit to Preventive Care

Although certain illnesses and diseases may be beyond our control, proactively managing your health and adopting a healthy lifestyle can be a wise strategy. This approach serves as a proactive measure to mitigate rising retiree healthcare costs as you age. Try to get at least 30 minutes of exercise each day and be sure that you’re incorporating natural and healthy foods into your diet as much as possible. Additionally, make an effort to visit your doctor regularly – should something come up, the earlier your doctor can identify what’s going on, the sooner you can get treated. This helps to reduce your expenses in the long run and is likely to give you a better quality of life, too. The AARP shares helpful healthy lifestyle tips here.

Rising Retiree Healthcare Costs Tip 4: Use a Tax-Savvy Distribution Strategy

There’s no way around it; if you’re a high-income taxpayer, you can expect to pay more for your Medicare Part B and Part D premiums. Helpfully, though, distributions from Health Savings Accounts, Roth IRAs, or cash value from life insurance policies don’t count in the formula that Medicare uses to determine premiums. So, a smart distribution strategy can often offset high premium costs.

Don’t Let Rising Retiree Healthcare Costs Threaten Your Financial Independence

As healthcare costs continue to escalate without a foreseeable slowdown, it’s prudent to invest time while still employed in crafting a robust plan for covering retiree healthcare expenses and maintaining financial independence during your golden years. Given the typical rise in healthcare utilization as we age, it’s crucial to comprehensively incorporate future healthcare expenses into your overall retirement income planning.

At Cornerstone Wealth Management, our team is committed to taking a comprehensive approach to retirement planning to help ensure that all of your financial bases are covered. Contact the Cornerstone Wealth Management team today to learn more about strategies to prepare for rising retiree healthcare costs and maintain long-term financial health.

Registered Representatives offer securities through Independent Financial Group, LLC (IFG), Member FINRA/SIPC. Investment Advisor Representatives offer Advisory services through Independent Financial Group, LLC (IFG), a Registered Investment Adviser. Cornerstone Wealth Management, Cornerstone Tax Advisory and IFG are unaffiliated entities. Investors should be aware that investing based upon a strategy or strategies does not assure a profit or guarantee against loss. There is no assurance that any strategy will achieve its objectives. Insurance and annuities are products of the insurance industry. Guarantees are subject to the claims-paying ability of the insurance company and surrender charges may apply if money is withdrawn before the end of the contract. Please keep in mind Insurance companies alone determine insurability, and some people, for their own health or lifestyle reasons, are deemed uninsurable.