Can You Afford Health Care In Retirement?

Does Your Retirement Savings Factor In Health Care Costs?

retirement and health careAs a younger person, I rarely think about myself becoming ill or incurring major health care costs.  I’m active, not overweight, and never sick.  My ideas of health care bills include annual physicals, and possibly the occasional sick visit for a child.  However, as the population ages and as people are living longer, the costs of health care incurred during retirement are increasing astronomically. Statistically, there will be a point in time in my life that I will lose my health and because of that will incur significant medical expenses.  No one wants to entertain the possibility of getting cancer or another serious illness, but one sure thing in life is that there will be an end to our lives, and the process usually is accompanied by health expenses.  According to recent information out there, the average retired couple will need to add in an additional $220,000 to their retirement fund to just cover health care expenses.  This number does not even include the cost of a nursing home or long-term care.

Why Will Retirement Health Care Cost So Much?

Unfortunately, most places of employment have gotten away from retiree medical benefits.  As a result, most retirees have to rely on Medicare for medical insurance.  Medicare coverage is just simply not as good as many other insurance packages.  Here’s the breakdown of the 220k:

-33% of the cost goes towards premiums for Medicare B and Medicare D (Doctor’s and Prescription plan)

-44% goes towards co-pays, deductibles, and excluded benefits

-23% towards out of pocket expenses on prescription drugs.

How Do I Cover These Health Care Expenses During Retirement?

Being prepared for these additional health care expenses during retirement is absolutely imperative if you hope to enjoy a financially secure retirement.  Following are some suggestions on how to pay for these higher health care expenses:

-If you’re on the fence, try to keep your individual income blow 85k/year.  If you go above this your insurance premium doubles from 104.90/month to 209.80/month!

-Max out your health savings account!  Many employers still offer a health savings account that reduces tax liability on the money put into the savings account.  If you leave it alone and allow it to accumulate you could have a nice little savings when you actually need it for health expenses.

-Save!  Put money into your Roth IRA, or 401(k) plan.  The average American only has 80k in their 401(k).  That is hardly enough to cover living expenses during retirement, much less health care expenses.  A Roth gives you tax free benefits that you can tap into down the road!  There are income limits on these accounts, but if you qualify, it’s a great thing to look into.

-Consider an annuity for a guaranteed stream of income, specific towards covering health care costs.

Whatever your needs may be during retirement, it’s going to require some diligent saving and planning to make sure you are well prepared and well cared for during retirement.  The last thing you want is to be forced to make a decision on whether or not to receive health care when you really need it simply because it’s not in the budget.  For more information on preparing for retirement, speak to a Redhawk Wealth Advisor near you today.

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