Retirement health care is more expensive than ever, which means that saving for such care is crucial. Fidelity Investments contends a couple, both of whom are about 65 years old, will require $240,000 to cover their medical expenses in the years to come. These costs do not include long-term care, nor do they account for the gap left when someone is forced into early retirement prior to Medicare activation. Here are five tips to help you effectively save for retirement health care.
Clearly understand your insurance choices
Learn about your options for medical expense coverage. Consider your personal needs and the cost of insurance that covers those needs. Compare providers in an apples-to-apples fashion so that you know how much money you will need to cover your health insurance when you are retired.
Examine other potential funding sources
You may have access to other funds to help you pay for your retirement health care. One example is a health savings account. You may legally make pretax contributions to this account to be used later to cover your medical expenses. As long as you use the funds for that purpose, withdrawals are not subjected to federal taxes. You may also have access to a voluntary employees' beneficiary association plan through your employer. These trusts cover medical costs for a number of employees, including many public school employees and those who belong to certain unions.
Max out on other savings plans
Contribute the maximum to any tax-deferred retirement savings plans, including an individual retirement account and a 401(k). If you are 50 or older, you may contribute an additional $5,500 on top of the annual $16,500 contribution limit to such accounts.
Incorporate health care expenses into general income planning
When performing general retirement income planning, do not compartmentalize your anticipated health care expenses. As an essential expense, health care costs should be factored in along with estate planning and other expenses.
Look into Medicare options
The federal government's Medicare Part A health insurance program remains the chief source of health care coverage for most retirees in the United States. It is free for anyone aged 65 or older who paid into Medicare prior to retirement. However, Medicare Part B, which is available for a relatively affordable monthly premium, covers services not covered by standard Medicare. Another option is Medicare Advantage, which combines Medicare parts A and B along with supplemental coverage in one policy. However, this option is not for everyone.
With people living longer lives and spending more years in retirement, it is vital that everyone plan for their medical care costs while they are still employed. If you have questions about how to position yourself to pay for your medical expenses in your golden years, contact an Atlanta area financial advisor.