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4 Things You Need to Know About Healthcare in Retirement

By Maurie Backman - Nov 21, 2020 at 10:52AM

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Healthcare could end up being your most substantial senior expense. Here are some important things you need to know now.

Many seniors find that their expenses go down once they retire. But there's one exception to that rule -- healthcare.

Healthcare is the one cost that tends to rise during retirement, and often, seniors find themselves unprepared for it. To avoid that fate, here are a few points you should keep in mind about healthcare in retirement in the course of your financial planning.

1. Medicare doesn't start until age 65

Since Social Security eligibility begins at age 62, many people aim to retire at that point. Medicare, however, doesn't kick in until age 65, so if you're planning to leave the workforce on the early side, you'll need a plan for healthcare, whether it's retaining your employer plan through COBRA (which only works for up to 18 months) or buying a marketplace plan.

Older man holding water glass in one hand and pill in other

Image source: Getty Images.

2. Medicare doesn't cover everything

Some seniors are shocked to learn that Medicare won't pay for a host of common expenses. These include dental care, vision exams, eyeglasses, and hearing aids. Furthermore, Medicare won't pick up the tab for long-term care, so if you wind up in an assisted-living facility or nursing home, that expense is solely on you.

Read up on what Medicare will and won't cover so you know to save for the costs you'll be liable for. And also, look at getting long-term care insurance. The right plan could substantially defray the otherwise astronomical costs you might face if you need long-term care for an extended period of time.

3. You might spend a whopping $606,337 on medical care

Though there are different estimates as to what seniors can expect to spend on healthcare, one of the more daunting ones out there is $606,337, courtesy of cost projection software provider HealthView Services. There are lower estimates you can follow, but here's why it pays to use this number (which, to be clear, applies to the average healthy 65-year-old couple today and doesn't include long-term care).

Overestimating your healthcare costs is better than underestimating them. If you increase your savings to account for $606,000 and change, and your healthcare expenses come in lower, you'll have extra money to use for other purposes. That's not a bad thing.

4. An HSA can make senior healthcare costs far more manageable

While boosting your savings in a 401(k) or IRA will put you in a good position to cover your healthcare costs later in life, you should also look at funding a health savings account, or HSA, if you qualify (eligibility hinges on being enrolled in a high-deductible health insurance plan). Not only do HSAs offer a host of tax breaks on the money you contribute, but they can also serve as a dedicated source of healthcare funds when you're older. You can use an HSA to cover everything from Medicare premiums to copays to deductibles. You can even take funds from an HSA to pay for long-term care insurance.

Don't get caught off guard

The better you plan for healthcare in retirement, the less likely it is to become a source of stress. And that's something you don't need when you're trying to enjoy life as a senior.

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