The older you get, the more likely you are to run up high healthcare expenses. Retirees would be wise to budget a substantial amount for medical costs; indeed, the average retiree spends hundreds of thousands of dollars on healthcare during the course of his retirement. Here are four ways to put yourself on track to be able to pay such a sum if and when the time comes.
Choose the right Medicare plan
The year you turn 65, you'll need to make some important decisions regarding Medicare. Whether you choose original Medicare plus a Medigap plan, or you go with a Medicare Advantage plan, consider choosing one of the more comprehensive (albeit expensive) plans. This can keep your budgeting simpler because insurance premiums are much easier to predict and plan for than the healthcare expenses themselves. Look for a plan that has a deductible you can easily afford in any given year, a reasonable out-of-pocket limit, and (if applicable) a network you're happy with.
Get long-term care insurance
Medicare is great for most healthcare expenses, but unfortunately, long-term care doesn't qualify as a "medical expense," so it typically isn't covered by Medicare. That's why a separate long-term care insurance policy is a good idea for many retirees.
It's important to at least consider long-term care insurance and price a few policies way before you retire – premiums on policies you get in your 50s are substantially lower than the same policies would be if you waited until over 60 to enroll. When comparing policies, check the fine print to confirm that they have similar benefits – these policies can vary widely in their terms and benefits, so you need to be sure you're really comparing apples to apples.
Check out assisted living
If your health declines, you may have trouble with basic day-to-day activities – but not so much trouble that you need nursing home care. An assisted living facility can provide a nice compromise both in care options and in price.
One particularly flexible option is the continuing care retirement community (CCRC). CCRCs have campuses that include both standard apartments and assisted living apartments. Retirees can start out in the standard apartments and then shift over to a higher level of care if they need it later, which can save you a lot of money since you're not paying for the extra help until you actually need it. However, CCRCs generally won't accept retirees who are already in poor health, so it's important to buy your place early.
Self-insure with an annuity
The big benefit of fixed annuities is that they will pay you a set amount every month for as long as you live. This extra income can literally be a lifesaver if you run into a medical crisis unexpectedly.
Buying an annuity specifically intended for medical expenses is a sort of self-insurance policy. However, it's important to save that money only for medical expenses – if you don't have any such expenses in a particular month, set your monthly annuity check aside in a dedicated savings account and don't touch it until you do have such an expense. With this approach, the annuity will not only cover ongoing medical expenses, it will allow you to build up a nice cushion while you're still in good health.
How to plan for the unexpected
While some medical conditions build up gradually over time, many others will simply explode in your face with little or no warning. And the longer you live, the more likely you are to run into such a medical crisis. Finding ways to save up or otherwise protect yourself from the inevitable high expenses of retiree healthcare can help keep you from ending up broke after suffering such a crisis.
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