Gren Invest: Plan healthcare needs for a secure retirement
When it comes to saving for retirement, I think most people plan on building up a nest egg that will see them through their traveling, activities and living costs. But one of the biggest and hardest to plan for is healthcare. As we get older our medical needs inevitably grow and if not planned for properly, these costs can eat away at a lifetime of savings. “Knowing all [the ins and outs of Medicare, supplemental insurance plans, long-term care] isn’t just a money issue; it is central to having peace of mind in retirement. The path to a healthy retirement isn’t about just accumulating money, it’s about actively gaining an understanding of what your needs will be and the options available to serve those needs. We are here, at Gren Invest, to make sure this does not become a factor of stress for you by guiding your thought process and decision-making both through providing clarity on the complexities in our world today and empowering you with tools that count.
Health care costs in retirement are simply a given. From preventive services and routine medications to surprise surgery and chronic condition care, the out-of-pocket expenses can be high even with Medicare coverage. What many retirees find surprising is that Medicare doesn’t cover everything, including gaps for dental and vision care, hearing aids and perhaps most notable of all long-term care services. This reality, of course, underscores the urgency of a specific health care budget in your ”whole” equation. Creating this budget calls for honest evaluation of these factors in your life today and what you may need in the future. You don’t want to have a long-term care event derail your financial plan, and be faced with significantly higher medical bills, even if those costs were planned for in the budget. By taking on planning early about how you'll fund these costs; various savings vehicles including HSAs can be tapped along with insurance solutions that offer a safety net to ensure your overall health needs will are met now while still allowing for maintaining a goal of leaving money behind.
This planning isn’t just entirely daunting, it’s also doable and empowering. It starts with beginning early and staying informed. The first basic step is to learn about the various parts of Medicare (A, B, C and D) and the enrollment periods. From there you can determine whether a Medigap policy is more to your individual liking, in terms of risk tolerance and choice about health care providers or the way Medicare Advantage plans are designed to work. More importantly, the money talk around long-term care including whether it's something your parents want to invest in through insurance, setting aside specific savings for later-life needs or any other strategy should not be put off. By taking the overwhelming financial concern out of the equation and breaking this challenge into smaller, achievable parts, you can establish a healthcare plan that serves your health needs while also fitting within your budget and giving you peace of mind so that you can enjoy a vibrant retirement.
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Top Questions Answered
Health care estimates in retirement are such a big and variable piece of your financial planning puzzle. An exact number is impossible to forecast, but respected financial studies estimate that a typical couple of 65-year-olds retiring this year would need hundreds of thousands of dollars to cover health care costs over their retirement. This figure includes what they spend on their Medicare premiums, deductibles, co-pays and services not fully covered (like dental and vision care) out of pocket. Some reasons why your own estimate varies are how it does not guarantee life time rates, it also depends on your health and length of recovery from along with the amount of policy you want. For a customized budget, add in your estimated costs for supplemental insurance and long-term care, to ensure you are working with the most realistic and durable plan for your financial future.
Medicare is separated into a number of parts, each covering particular types of services. Medicare Part A, commonly known as hospital insurance, assists in covering expenses for inpatient care at hospitals, skilled nursing facility care, hospice care and some home health services. Medicare Part B is your medical insurance, and it covers doctors’ services, outpatient care, medical supplies and preventive services. Combined, Part A and Part B are referred to as Original Medicare. Anymoment/ Getty Images Medicare Part C, also known as Medicare Advantage, is a choice presented to you by a private insurer who combines Part A and Part B, along with perhaps some additional benefits. It’s important to note, that Medicare Part D focuses on covering the price of medications. To help you choose the best balance of coverage to protect your particular health needs, it is important to have some understanding of these elements.
Medigap and Medicare Advantage are two different types of plans for those who want to supplement their Original Medicare, and they work in very different ways. Medigap, also called Medicare Supplement Insurance, is a policy you buy from a private company that pays for the “gaps” in Original Medicare: deductibles, co-payments and coinsurance. You are free to see any doctor who accepts Medicare. On the other hand, a Medicare Advantage Plan (Part C) offers an all-in-one alternative to Original Medicare. These plans, offered by private insurers, wrap together Part A and Part B coverage and most also include Part D (prescribed drugs). They generally come with a specific network (like an H.M.O. or P.P.O.), but could provide additional benefits that Original Medicare does not cover, such as dental care, vision and hearing aids.
This is a misunderstanding -- regular and fatal. Medicare does not cover long-term custodial care, like help with bathing, dressing and eating. Medicare coverage only includes short-term, medically necessary care in a skilled nursing facility, usually after the person has spent time in a hospital under treatment or rehabilitation for an illness or injury. It will not cover routine, ongoing personal care you might need because of chronic conditions or cognitive decline. Given the fact that long-term care services can come with a sizable price tag, it’s important to include at least some consideration of this potential need as part of an overall retirement plan. People have to use other assets personal savings, long-term care insurance or Medicaid (which is available to those who meet income and asset eligibility requirements) to pay these costs.
What Is A Health Savings Account? A health savings account (HSA) is a tax-advantaged savings account for people who are enrolled in a high-deductible health plan. It has a triple-tax benefit: Contributions are tax-deductible, the money grows tax-free and withdrawals to pay for qualified medical costs are also tax-free. Although you can only contribute to an HSA only while enrolled in a HDHP, the contributions can be used at any time so it serves as a great healthcare savings vehicle even for retirement use. Once you’re in Medicare, you can’t contribute but you can use the money to pay for Medigap premiums as well as Medicare Part B premiums (not supplements), deductibles, copays and other qualified medical expenses… tax-free!
Keeping your prescription drugs costs in check is top of mind for most retirees. The most important step you can take to prevent late enrollment penalties is to enroll in a Medicare Part D plan or a Medicare Advantage plan that covers drugs as soon as you are eligible. If you have already enrolled in coverage, at the start of every year during the Open Enrollment Period, check your plan to be sure it still covers your medications at the lowest cost; formularies and prices can change. Also ask your doctor whether a generic or lower-cost therapeutic alternative is appropriate. Use prescription comparison tools to find the cheapest prices at a pharmacy in your area. Some drug manufacturers have patient assistance programs, and there are state programs that may help lower the cost of essential medications.
Long-term care insurance is a product that was specifically created to help individuals cover the expenses of long term services they may require when assistance with activities of daily living such as bathing, dressing, or eating is needed because of a chronic illness disability. or cognitive impairment (such as Alzheimer’s disease). Because such costs are not covered by Medicare, this coverage can be an especially important means of maintaining retirement savings from being wiped out due to costly care. Whether it will be “worth it” for you depends on your financial situation, health history and risk tolerance. Premiums can be pricey, so it’s important to consider the cost in relation to the potential payoff of growing old and preserving your nest egg while getting a say in the quality and location of your care.
How healthy and what kind of lifestyle you had for the few years leading in to retirement will dictate just how broke you're gonna be. Being proactive about managing chronic conditions, like diabetes or high blood pressure, can cut the need for higher-cost treatments and hospitalizations in the future. It reduces your risk factors for all sorts of diseases as well, which will lead to decreased healthcare costs. In addition, your health could play a role in whether and how much you pay for supplemental insurance and long term care policies. Taking control of your health now rather than when you reach retirement age is not only the right thing to do, it’s also one of the most powerful financial investments you can make in controlling future medical expenses.
Many retirees are shocked when they face large out-of-pocket costs not covered by Original Medicare. Dental work from cleanings, fillings and especially major procedures like crowns or implants is one of the big ones. The cost of routine vision exams and glasses or contact lenses is another costly out-of-pocket expense. Hearing aids, which may cost thousands of dollars even with insurance are also not covered. It is perhaps the greatest financial shock and certainly one of the most predictable: the cost of long-term care, in or out of a nursing home, which Medicare does not cover. Knowing these coverage gaps in advance can also help you budget for them and consider options such as Medicare Advantage plans or supplemental insurance policies to offset those surprise costs.
You get a one-time chance to join Medicare during the Medicare Initial Enrollment Period (IEP). This 7-month period starts 3 months before the month you turn 65, includes the month you turn 65, and ends 3 months after the month you turn 65. It is also very important to enroll in these programs at this time, otherwise you may be subject to lifetime late enrollment penalties (especially for Part B) and in some situations a delay in coverage. If you are still working and get health coverage through your job, you might be able to put off signing up without a penalty, but it’s important to know the particular rules that apply in your case so that the process runs smoothly.
Key Strategies for Managing Healthcare Costs in Retirement
One of the core elements in a successful retirement healthcare plan is a close-to-the-ground understanding of Medicare. Yet all too many people turn, a little dazed, to Medicare at age 65 with only a hazy idea of what it is and how it works and as you can guess, confusion and mistakes are sure to result from either poor coverage choices or a misunderstanding about the best time to enroll. Part A for hospital stays, Part B for medical services and Part D for prescriptions should be your first priority to figure out. That first choice, to stay with Original Medicare (enhanced by a Medigap policy and a different Part D plan) or selecting bundled Medicare Advantage (Part C) plans is key. This decision influences your out-of-pocket costs, selection of doctors and access to extra benefits. And it is not a one-size-fits-all calculation as you weigh your own health needs, budget and desire for network flexibility against lower premiums. Be sure to research your options each year during open enrollment, since your health can change over time and better plans come out. Deciding here sets the stage for your financial security when it comes to health.
Proactive financial planning is needed beyond Medicare, using special savings funds. The pre-retires, that is: the Health Savings Account (HSA) is the best thing ever. Providing the triple-tax advantage tax-deductible contributions, tax-free growth and federally non-taxed withdrawals for medical expenses it is a great dedicated account for your retirement health savings. The logic behind this is that if you’ve maximized contributions to your HSA while working, you can build up a large pool of tax-free money to pay for premiums, deductibles and other expenses in retirement. It’s important to note this is different from a Flexible Spending Account (FSA), which doesn’t roll over year after year and is not yours. But even if an HSA would not work for you, earmarking a portion of traditional retirement savings say, in a 401(k) or I.R.A. for medical expenses could at least impose discipline to make sure money is saved in earnest. Running such projections that take into account increasing medical inflation will enable you to set a more realistic savings target and help avoid having medical costs knock its wheels off your overall retirement income plan or erode down assets destined to fill other buckets.
Acknowledging that long-term care may be necessary is an absolutely-essential component of a comprehensive plan. The truth is most retirees will need long-term care in some capacity and the costs of long-term care either at home or in a facility are unaffordable and Medicare does not cover these expenses. This financial peril must be met head-on. Long term care insurance is, for many people, an answer to transfer this risk and safeguard a lifetime of savings. While premiums can be a big expense, they are often dwarfed by actual costs of care. It’s fair to compare different types of policies - destructive sales techniques like that. For some, it may be a self-funding approach supported by an investment enriching portfolio. That is going to depend on your assets, your health and your family situation. The bottom line is that you want to have this conversation early and in detail, do your homework and work a long-term care strategy into your financial plan (after all, it will be there) so that you take control now while you can still choose the path that works best for you.