Health Care in Retirement: What’s Your Funding Strategy?

Think Medicare will cover all your health care expenses in retirement? Think again. Medicare is a valuable resource for retirees, but it doesn’t cover everything. In fact, even for covered services, Medicare doesn’t cover the full cost. In most cases you’ll have copays and deductibles.

In fact, Fidelity estimates that health care could be a major expense item for many retirees. A recent study found that the average 65-year-old couple can expect to spend nearly $280,000 on out-of-pocket health care costs in retirement. That figure largely consists of things such as premiums, copays, deductibles and costs for non-covered services.

If you haven’t included health care costs in your retirement strategy, now may be the time to do so. The good news is you can minimize your exposure to health care expenses by taking action early. Below are a few steps you can take now to better prepare for the future:

Take a Preventive and Proactive Approach

There may be no better way to reduce your health risk than by taking proactive, preventive measures today. For example, you could improve your nutrition or exercise routine to lose weight, improve your blood pressure and relieve pressure on your joints. You might cut back on unhealthy habits like smoking or drinking. Even simple changes like getting more sleep or taking up a new hobby could reduce your stress levels. Talk to your physician about how you can improve your health.

Also, try to become more informed as a health care customer. Once you switch to Medicare, it’s likely that you will have some out-of-pocket expenses for every possible drug, service or treatment. Make sure you understand why certain drugs or tests are being prescribed and if they are really necessary. The more informed you are as a patient, the more proactive you can be in managing your out-of-pocket costs.

Use a Health Savings Account (HSA) to Save

No matter which Medicare plan you choose, out-of-pocket medical expenses are likely to be a part of your retirement. While you can save for these costs with traditional retirement vehicles, you may want to use an account called an HSA. These accounts are designed specifically for saving for health care expenses.

You can make tax-deductible contributions to your HSA and then allocate the funds to meet your goals and risk tolerance. Your assets grow tax-deferred as long as the funds stay in the account. If you use the money for qualified health care costs, you can take tax-free distributions. That means you can start saving today to pay for your medical expenses in the future, and you can do so in a tax-favored manner.

Guarantee your Retirement Income

Perhaps the best strategy for funding your health care costs is to make sure you have a reliable stream of retirement income. As long as you have sufficient income, you can probably make most premium and deductible payments.

Of course, the danger is that market volatility could threaten your income, especially if your dependent on your retirement savings. Consider buying an annuity with some of your retirement assets. You can use an immediate annuity to create a stream of income that is guaranteed for life. Or you could use a variable annuity with an optional income rider. You still get exposure to market growth, but with the guarantee that you will always be able to withdraw income.

Ready to plan your health care strategy? Let’s talk about it. Contact us today at America’s Annuity. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

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1https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs