By Eric Reich
One of the biggest concerns for retirees is the cost of healthcare, and rightly so. Medical expenses are estimated to run a retired couple around $315,000 over their retirement. This can obviously take up a significant portion of a retiree’s budget, making it essential to plan ahead.
Understanding Medicare, supplemental insurance and out-of-pocket costs can help individuals better prepare for a financially secure retirement. Medicare is the primary health insurance program for retirees in the U.S., but it does not cover everything. Here are the key components:
Medicare Part A: Covers hospital stays, skilled nursing facilities and some home healthcare services.
Medicare Part B: Covers outpatient care, doctor visits and preventive services.
Medicare Part C (Medicare Advantage): Private insurance plans that offer an alternative to traditional Medicare and often include additional benefits.
Medicare Part D: Covers prescription drugs and requires separate enrollment.
Since Medicare does not cover all healthcare costs, retirees often rely on supplemental insurance. Medigap policies help cover out-of-pocket expenses like copayments and deductibles. These policies are typically more expensive than Advantage plans. Personally, I prefer them, because while they might cost more up-front, they cover more when you need it the most, which is later in retirement. We don’t get healthier as we age. There are also employer retiree plans, in which an employer offers supplemental insurance for former employees. Medicare Advantage Plans often provide broader coverage, including vision and dental care. These are cheaper than supplemental plans, but beware, they also can ultimately leave you with higher out-of-pocket costs. Again, I prefer a supplemental plan instead.
As mentioned above, according to research, the average 65-year-old couple may need around $315,000 to cover medical expenses in retirement. Key factors that influence costs include chronic conditions, ongoing treatments, prescription drug costs and long-term care needs. Of these factors, long-term care can be a major financial burden for many retirees. It is important to consider ways to cover long-term care costs. This includes long-term care insurance; hybrid policies, which combine life insurance with long-term care benefits; or self-funding strategies, such as savings set aside specifically for long-term care needs.
Lastly, there are several ways to save for healthcare costs efficiently. Health Savings Accounts (HSAs) provide tax-free savings for medical expenses if enrolled in a high-deductible plan. Funds deposited in an HSA, once you turn 65, can be used for anything. Prior to age 65, they must be used for qualified medical expenses. Flexible Spending Accounts (FSAs) allow pre-tax savings for healthcare costs, but funds must be used within the year. Roth IRA withdrawals can be used tax-free for medical expenses if needed.
Planning for healthcare expenses is a crucial aspect of preparing for retirement. By understanding Medicare, securing supplemental insurance and setting aside funds for medical costs, retirees can reduce financial stress and ensure they receive the care they need. Taking proactive steps today can make a significant difference in the quality of life during retirement. While we don’t handle Medicare insurance ourselves, if you need a referral to a Medicare insurance specialist, just reach out. We can point you in the right direction to someone who can help.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
