How to Deal with Healthcare Costs in Retirement

Regardless of the number…whether it’s $250,000 or $400,000 for healthcare (plus long term care), there’s several strategies that pre-retirees and retirees can implement to help cover the costs.

Let’s take a look at Medicare and Medicaid first.

Medicare certainly can help, but only covers 51% of costs on average. Also, Medicare covers short-term services for conditions that are expected to improve, not long term care services or personal care.   Without the add on supplemental coverages, retirees will have to pay for dental care, vision, copays and assorted out-of-pocket expenses.

The estimates for retirement health care costs factor in the cost of buying insurance coverage, which assumes that a couple purchases Medicare parts B, D and a supplemental insurance policy or Medicare Advantage, known as Part C. All this insurance isn’t cheap, but is important to have (note: Part A of Medicare has no premium for people who worked, as well as their spouses).

Medicaid is really just a government program for the impoverished and won’t help a high percentage of baby boomers that are in the the mass affluent group – the group of people whose nest egg could be decimated by improper planning.

Medicaid is a program of last resort for people with limited assets

  • You may have to spend down your assets to qualify

Ø  Married couple $117,240

Ø  Single person $2,000

  • For long term care benefits, Medicaid limits where you can receive care
  • The state may seek reimbursement from your estate for benefits paid to you

So how can an advisor help a pre-retiree or retiree handle the healthcare burden?

First, it’s important to work with a “retirement specialist” who can help plan for “all” the risks one will face in retirement. Obviously, healthcare and long term care are one of the biggest risks. Not just any advisor is equipped to do the right planning with the proper software and strategies to help mitigate risks, while making a retirement income last throughout retirement. With the right planning, a retiree’s income can be optimized in a tax efficient manner. The monies “found” through better planning strategies, including tax efficiency can be used to fund healthcare.

It’s critical for the retirement specialist to use software to create a retirement income projection that accounts for the “worst case” scenario for all the risks (longevity, inflation, sequence of return, volatility and healthcare/long term care). The goal of the income projection is to create the most efficient retirement income possible so that the monies can cover not only basic living expenses, but the high cost of healthcare in retirement.

The income projection should also maximize a retiree’s Social Security filing, as well as getting the tax rate as close to zero as possible. With proper Social Security and tax planning it’s possible to extend the life of a portfolio by 10 or more years. These additional savings and optimization can be used to cover healthcare costs.

Other strategies to cover healthcare costs include:

Reverse mortgages

Annuity products

Increase 401(k) contributions

Other ways to plan for healthcare costs include:

Eat right and exercise…avoid healthcare costs by living a healthier lifestyle

Setting up a health savings account 

Drug savings

Medigap plan can make your costs more predictable

Use doctor’s in your plan network

A Retirement Solved RetireMentor can help you coordinate a Healthcare Assessment with one of our affiliated healthcare specialists. CLICK HERE to fill out a consultation form. If you have any questions feel free to email us at help@yourretirementsolved, or give us a call at 508-798-5115.