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Financial Planning

Medicare Part B, Medicare Part D, Medicare Advantage Plans- Ways To Save For Healthcare In Retirement

Jul 17
10 min

Let’s say a 65-year-old retired in 2020. That person can expect to pay about $150,000 in medical expenses and health care throughout their retirement. Not to mention the substantial costs of nursing homes or home-health professionals.

Planning for medical expenses in retirement can be something we forget about quickly. Why does this happen? Nearly 75% of employers pay for their employee’s health care, leaving them with 25% coming out of their paycheck. This realization can come as a rude awakening for some who are uncertain of where to begin and how to save for qualified medical expenses in retirement. Even for those who save, some individuals still cannot afford medical costs in retirement.

We’ll explain what health care insurances are available for retirees, how much you should be saving, and other ways to save through your retirement plan.

Health Care Premiums Available To Retirees

When planning for medical expenses in retirement, there are four types of health care premiums you should know about if you’re age 65 and older.

Medigap (Medicare Advantage Plan)

Medigap or Medicare Advantage Plan is supplemental insurance from private insurers that pays for things that the original Medicare does not cover. Remember that these plans have to be Medicare-approved and do not cover vision and eye care or dental costs.

Medicare Part B

This insurance plan is paid monthly based on your income. The standard Medicare Part B premium amount is $148.50 (or higher depending on your income). This health care premium medically necessary services such as labs and tests, doctor’s visits, outpatient care, durable medical equipment, home health services, preventative care, and more.

Medicare Part C (Also Known As Advantage Premiums)

This insurance plan covers vision and eye care, and dental. However, it might not give you sufficient hospital coverage, which can be difficult if you get severely ill or injured. Please refer to medicare's cost breakdown here.

Medicare Part D (Prescription Drug Coverage)

Medicare Part D insurance plan covers self-administered prescription drugs. Other prescribed medicines that are administered by a health care professional will usually be covered under Medicare Part B. However, there is a co-pay for prescriptions in addition to some drugs that are not covered.

Take the time to examine your expenses and annual income when deciding what plan is best for you.

How Much Should You Save?

What is the optimal amount you should save when planning for medical expenses in retirement? There are two main things to look at when deciding how much to budget for qualified medical expenses: your monthly income and total expenses.

Now, take into account your medical care costs in retirement in addition to other expenses. For an average 65-year-old male, it’s estimated he will spend about $4,500 yearly on total health care premiums, including out-of-pocket costs. You will be short on money if you don’t save for healthcare costs. And due to inflation, these numbers can double in ten years. That’s about $675 monthly if we observe inflation at 6%. If you’re married, expect to spend double this amount.

Other Ways To Save for Retirement

Planning for medical expenses in retirement is a big deal and can be tricky to navigate. Not only can you prepare for health care insurance for retirement, but there are also other ways you can help save for these expenses early.

Health Savings Account

Setting up an HSA can help you save for health care expenses in retirement. These funds can help pay for expenses that Medicare doesn’t pay for, and they’re tax-free. If you build up your HSA account year after year, it will help you pay for retiree health expenses. This saving method can help you pay for short-term expenses or long-term ones.

In 2021, reports say HSA contributions reach $7,200 for family coverages and $3,600 for individuals. Keep in mind these limits are for both employer and employee combined contributions. Also important to note is those enrolled in Medicare cannot make new contributions to an HSA account; this is why it’s crucial to save early.

Long-Term Care and Life Insurance

Another way you can save for retirement could be the use of long-term care insurance. This option is another excellent way to pay for expenses that Medicare won’t. You can pay monthly, of which those funds will benefit your insurance plan, with some being lifetime or between two to five years.

Some may not be able to afford long-term care insurance. In this case, a life insurance policy with the addition of a long-term care rider can suffice. This approach benefits younger people to get a jump-start on their retirement savings, given the sooner an individual buys long-term care insurance, the lower their premiums can be.

Prioritize Your Health

Staying healthy in general helps with many factors such as mental and physical wellbeing, thriving and staying active, and the prevention of medical bills piling up due to illnesses. Many health care workers advocate the importance of staying healthy for not only your wellbeing but the stability of your budget. Take care of yourself and pay attention to your medical needs before it’s too late so that you’re not left with medical bills and health problems you don’t want to deal with in retirement.

Contact Fulfilled Finances

Are you ready to start saving for medical expenses in retirement? At Fulfilled Finances, our wealth management experts can help you on the path to financial freedom in retirement. One of our financial planners will sit down with you to create a plan for any part of your retirement savings, fee-free!

Our services include organizing medical expenses in retirement, family funds, tax planning, investment management, and more. Go online to schedule your call today, or call the office of Fulfilled Finances in Sacramento, CA at (916) 745-5783.

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