The good news is that estimated health care costs for a 65-year-old couple retiring this year has decreased from last year, from $240,000 in 2012 to $220,000 in 2013. Part of the reason is that people put off routine health care and going to the doctor during tough economic times. The not-so-good news is that almost half of people age 55 to 64 greatly underestimate the amount of money they think they will need to pay for health care costs in retirement, believing they will only need $50, 000 instead of over $200,000.
After age 65, many retirees are surprised to discover that Medicare coverage is not as comprehensive as their former employer-sponsored health plan, resulting in more out-of-pocket expenses. And since most people cannot count on an employer-sponsored retiree health plan after they retire, they will have to rely on Medicare and supplemental coverage to cover health care expenses.
Here are three retirement income tips for people nearing retirement age and retirees to beat these expenses:
1. If possible, aim for a retirement income that stays below the high-income premium thresholds. For example, an individual whose income is above $214,000 pays $335.70 a month for Medicare Part B. An individual making between $107,000 up to $160,000 pays $209.80 per month, and someone making $85,000 or less pays $104.90 per month.
2. Consider assets or an income stream like an annuity that will last as you live. Designate that annuity or other retirement income stream income to cover health care expenses. If you live well into your nineties or beyond, you will still have money to cover rising health care costs.
3. Open a health savings account and take full advantage of the maximum levels. While you are still working, money contributed to a health savings account reduces your taxable salary, resulting in big tax savings for higher income workers. You can accumulate the money and take it out whenever you need it for medical expenses, either now or in retirement, and it comes out tax-free. For 2013 you can sock away $3,250 for individual coverage and $6,450 for family coverage. In 2014, amounts increase to up to $3,300 and $6,550.There’s a $1,000 a year catch-up provision for anyone 55 and older.
It can be an overwhelming task to try and figure out how to save enough to cover health care costs in retirement. Talk to your financial advisor for more ways to save- they can help you find a solution that is right for your individual needs. For more information, please contact us.