When we think about retirement, we often picture leisurely days and new adventures. But there’s one aspect that can quickly turn that dream sour: unexpected healthcare costs. For child-free retirees, planning for these expenses is even more crucial. Without children to potentially help with care or finances, you need to be extra prepared.
Let’s dive into how you can get ready for healthcare costs in retirement. We’ll look at the numbers, explore your options, and give you practical steps to secure your health and wealth.
Understanding the Costs: What Are We Up Against?
Before we talk strategy, let’s look at the reality of healthcare costs in retirement:
- The average 65-year-old couple retiring in 2024 can expect to spend about $395,000 on healthcare throughout retirement.
- This doesn’t include long-term care costs, which can add significantly to the total.
- Healthcare inflation often outpaces general inflation, meaning costs rise faster than other expenses.
For child-free retirees, these numbers might seem even more daunting. But don’t worry – with the right preparation, you can handle these costs.
Medicare: Your Foundation, But Not Your Whole House
Medicare is a great start, but it’s not enough on its own:
- Medicare Part A (hospital insurance) is usually free if you’ve worked for at least 10 years.
- Medicare Part B (medical insurance) has a monthly premium – about $170 for most people in 2024.
- Medicare doesn’t cover everything. There are deductibles, copayments, and some services aren’t covered at all.
Action step: Learn about Medicare well before you turn 65. Know what it covers and what it doesn’t.
Supplementing Medicare: Medigap and Medicare Advantage
To fill the gaps in Medicare coverage, consider these options:
- Medigap policies help cover out-of-pocket costs like deductibles and copayments.
- Medicare Advantage plans offer an alternative way to get your Medicare benefits, often including prescription drug coverage.
Each option has pros and cons. Medigap policies typically have higher premiums but lower out-of-pocket costs. Medicare Advantage plans might have lower premiums but could restrict your choice of doctors.
Action step: Compare Medigap and Medicare Advantage plans. Choose based on your health needs and budget.
Don’t Forget About Drugs: Prescription Drug Coverage
Prescription drugs can be a major expense in retirement:
- Medicare Part D provides prescription drug coverage.
- Premiums vary, and there’s an additional cost for high-income earners.
- The “donut hole” coverage gap has been closing, but you might still face higher costs for expensive medications.
Action step: Estimate your prescription drug needs and costs. Choose a Part D plan that covers your medications.
The Power of HSAs: A Triple Tax Advantage
Health Savings Accounts (HSAs) are a powerful tool for saving for healthcare costs:
- Contributions are tax-deductible.
- Money grows tax-free.
- Withdrawals for qualified medical expenses are tax-free.
If you’re still working and have a high-deductible health plan, max out your HSA contributions. Unlike Flexible Spending Accounts, HSA funds roll over year to year.
Action step: If eligible, open an HSA and contribute the maximum amount allowed.
Long-Term Care: The Wild Card
Long-term care is a major concern, especially for child-free retirees:
- About 70% of people over 65 will need some form of long-term care.
- The average cost of a private room in a nursing home is over $100,000 per year.
- Medicare doesn’t cover most long-term care expenses.
Consider long-term care insurance or hybrid life insurance policies that include long-term care benefits. Start looking into these options in your 50s or early 60s when premiums are lower.
Action step: Research long-term care insurance options. Decide if it’s right for your situation.
Healthy Habits: Your Best Investment
One of the best ways to reduce healthcare costs is to stay healthy:
- Regular exercise can help prevent or manage chronic conditions.
- A healthy diet can lower your risk of heart disease, diabetes, and other expensive health problems.
- Regular check-ups and screenings can catch issues early when they’re easier and cheaper to treat.
Action step: Develop and maintain healthy habits now. Your future self will thank you.
Building Your Healthcare Savings
Aside from HSAs, consider these strategies to build your healthcare savings:
- Increase your retirement account contributions.
- Set up a separate savings account specifically for healthcare costs.
- If you’re still working, take advantage of catch-up contributions to IRAs and 401(k)s after age 50.
Action step: Review your current savings strategy. Adjust to include healthcare cost planning.
Stay Informed: Knowledge is Power
Healthcare policies and costs change frequently. Stay informed about:
- Changes to Medicare and Social Security
- New healthcare technologies and treatments
- Local healthcare options and costs
Action step: Set up news alerts for healthcare and retirement topics. Review your plans annually.
Work With Us
Preparing for healthcare costs in retirement is a complex but crucial task, especially for child-free adults. From understanding Medicare to exploring long-term care options, there’s a lot to consider. But with careful planning and the right strategies, you can build a secure financial foundation for your healthcare needs in retirement.
At Purposeful Wealth Advisors, we specialize in helping child-free retirees and near-retirees create comprehensive plans for healthcare costs. We understand the unique challenges you face and can help you navigate the complexities of healthcare planning.
Don’t leave your health and financial well-being to chance. Contact Purposeful Wealth Advisors today for a personalized consultation. Let’s work together to create a robust plan that protects your health and your wealth in retirement.
Every investor’s situation is unique, and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. It is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Redfern Media and not necessarily those of Raymond James.
This information was provided in part by Redfern Media.
