Many people assume that their living expenses won't be as high in retirement as they are during their working years. And for many expense categories, that's a fair assumption.
If you no longer have a job to commute to, you might save a fair amount of money on gas, vehicle maintenance, parking, and even auto insurance. And if your mortgage is paid off by the time you retire, the amount you spend on housing might shrink substantially as well.
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But there's one expense that has a tendency to go up in retirement, not down -- healthcare. This stems from a combination of the health issues that tend to arise with age, and certain limitations on the part of Medicare.
If you're worried about paying for healthcare in retirement, you're no doubt in good company. But there are a few key steps you can take to ease that burden.
1. Sock money away specifically for medical bills
It's a good idea to have funds earmarked specifically for healthcare expenses so you don't have to stress about draining your general savings when medical bills start to mount. To that end, make an effort to fund a health savings account (HSA) during your working years if your health plan allows you to do so.
But remember, you don't want to contribute to an HSA and then take withdrawals as healthcare bills pop up. Rather, your goal should be to pay for near-term medical bills out of pocket and keep your HSA funds intact. That way, you can invest that money and, ideally, carry a large sum into retirement.
2. Sign up for Medicare on time
You can sign up for Medicare during a seven-month window surrounding your 65th birthday. But if you wait too long to enroll in Medicare, it might cost you in the form of surcharges on your Part B premiums for life.
If you're still working and/or covered by a qualifying group health plan at the time that you become eligible to enroll in Medicare, you won't have to worry about that penalty right away. In that case, you'll get a special enrollment period to sign up after separating from your employer and/or losing your group health coverage. But do pay attention to the timing of your enrollment in either scenario to avoid having to pay more for coverage.
3. Choose the right Medicare plan
Seniors get a choice between original Medicare (Parts A and B plus a Part D drug plan) versus Medicare Advantage. The latter is an all-in-one plan that's more similar to the private insurance workers tend to get through their employers.
It's important to not only review your Medicare plan choices carefully upon enrolling initially, but continue to do so each year during fall open enrollment, which runs from mid-October through early December. To be clear, if you're on original Medicare, Parts A and B are your only choice for hospital care and outpatient services, respectively. But you can switch Part D plans from one year to the next as your needs change, or as your costs under your plan change.
And with Medicare Advantage, you can certainly start out with one plan and swap it for another later on. You can also move from Medicare Advantage to original Medicare if you determine that's most cost-effective.
There's no getting around the fact that healthcare in retirement can be expensive. But if you save accordingly and are savvy with Medicare enrollment, you may find that the cost is manageable.
