Dangers of Ignoring Healthcare Costs in Retirement

Oh, the golden years of retirement. Boating, knitting, quiet hours of gardening, long chats with friends, and… lots of hospital visits?

Yes, healthcare is one of those retirement realities that most people would rather not think about. As life expectancy creeps up, we may have to budget for 30+ years of healthcare expenses post-retirement. Doctor visits, lab tests, medications – medical expenses can really add up, and that’s before we consider hospital stays! The numbers can get scary quickly, so much so that there are online healthcare cost calculators to help you be better prepared (try this one from the AARP).

No matter what your projected expenses look like, I find that being well-informed is the first step towards being well-prepared. Here is what your need to consider.

Medicare is available to those aged 65 and over.

Given that you (or your spouse) have sufficient working history, Medicare is an option to help you cover the costs of healthcare.

Medicare Part A covers some of the expenses associated with hospital stays and is free to those who qualify (typically, those who have paid Medicare taxes for at least 30 quarters).
Medicare Part B is for supplemental insurance for dental, vision, and eye care; it has a premium associated with it. The 2017 monthly premium is $134 or higher, depending on your income.
Medicare Part C or Medicare Advantage (also known as Medigap) provides additional insurance for costs not covered under basic Medicare. It, too, has a monthly premium; amounts vary depending on the plan you select.
Medicare Part D is for prescription drug coverage.

There are two important points to remember when it comes to Medicare. First, not all of it is free. Medicare Parts B, C, and D have monthly premiums associated with them. Then there are coinsurance payments and deductibles. A key take-away here is to budget for those premiums and additional out-of-pocket expenses, even if you qualify for free Medicare Part A.

Second, you should sign up for your Medicare Part A three months before your 65th birthday. You only have a seven month window to sign up, which begins three months before your birthday, includes your birthday month, and extends for three more months. I recommend putting a reminder on your calendar, because this deadline is easy to miss.

Use your Healthcare Savings Account (if you have one).

An HSA or Healthcare Savings Account is a great way to accumulate funds towards future healthcare expenses. You make pre-tax contributions, the money can be invested, and you can roll the balance over from year to year (unlike the money in the flex spending accounts that must be used up each year). The top limit of annual contributions to an HSA is $3,400 for an individual and $6,750 for a family. Those 55 and older can add another $1,000 as a catch-up contribution. There are no taxes on HSA withdrawals and no age limit, as long as you are using the money to pay for qualified medical expenses.

The downside? You can only open a Healthcare Savings Account (and make contributions) if you are enrolled in a high deductible healthcare plan. That can be a good fit for those who are generally healthy, and not great for those who have an illness or a chronic condition with high medical bills that they cannot cover out of pocket.

Stay healthy.

The best way to keep medical expenses down is to not need medical care! Staying healthy is the name of the game. Even if none of us can completely control our health (accidents, unexpected diagnoses and genetics all play their part), there are things you can do to improve your odds. First off, schedule regular physician and dentist check-ups. Certain diseases (like cardiovascular issues) will show up in the gums first, and an experienced dentist will spot them before your doctor. Eat well. Take charge of your medical care, ask lots of questions, and do your research. Health or disease does not just happen to you, you get to have a say in what happens!