And How to Plan for These Retirement Expenses
Healthcare is one of the largest retirement expenses faced by most Americans.1 While Medicare offers extensive coverage for many health services, it doesn’t cover all medical expenses. This coverage gap can result in significant out-of-pocket expenses that may surprise you if you’re not prepared. Here, we highlight several expenses not covered by Medicare as well as strategies to help you plan for them.
Expenses not covered by Medicare include:
- Long-term care – Medicare does not cover long-term care expenses, such as nursing homes, assisted living facilities or in-home care. These services can be extremely expensive and can quickly deplete your savings if not properly planned for.
- Dental care – While some Medicare Advantage plans offer dental coverage, traditional Medicare does not cover the cost of routine dental care, such as cleanings, fillings and extractions.
- Vision care – Medicare typically does not cover the cost of routine eye exams, glasses or contact lenses.
- Hearing aids – Medicare does not cover the cost of hearing aids or hearing exams.
- Prescription drugs – While Medicare Part D offers prescription drug coverage, there are still out-of-pocket expenses associated with the program, including deductibles, copayments and coinsurance.
- Deductibles and copayments – Medicare Part A covers hospital stays, and Part B covers doctors’ visits and outpatient care. However, you’re responsible for paying any applicable deductibles and copays.
- Overseas care – If your retirement dreams include moving or traveling abroad, it’s important to know that Medicare typically doesn’t cover the cost of care for Americans outside the United States.
Ways to pay for expenses not covered by Medicare include:
- Purchasing private insurance –If it makes sense for your particular situation, you may consider purchasing private insurance, such as a long-term care policy or dental insurance. Your wealth manager can help you determine whether purchasing private insurance is worth the added cost.
- Saving in an HSA –Health savings account (HSAs) can be a tax-efficient way to save for medical expenses in retirement. In 2023, individuals can contribute up to $3,850 per year, while families can contribute up to $7,750. If you’re age 55 or older, you’re eligible to contribute an additional $1,000 as a catch-up contribution.
HSAs offer three distinct tax advantages:
- Because contributions are made with pre-tax dollars, they reduce an individual’s taxable income
- HSA funds grow tax free in the account
- When used to pay for eligible medical expenses, HSA withdrawals are tax-exempt
In addition, HSA contributions made via payroll deductions aren’t subject to Social Security and Medicare taxes and, unlike 401k contributions, there are no required minimum distributions (RMDs) from the account. Also, because HSAs allow for investments in mutual funds (once certain asset levels are achieved), assets invested have the potential to grow over time and enhance your overall retirement savings.
It’s important to note that in order to contribute to an HSA, you must be participating in a high-deductible health insurance plan that offers an HSA option.
- Enrolling in Medigap coverage – Medicare supplement insurance, also known as Medigap coverage, is private insurance that can help pay for uncovered healthcare expenses, such as copayments and deductibles.
- Purchasing a travel insurance policy – If your retirement plans include traveling overseas, it may be worth purchasing a travel insurance policy to cover any unexpected medical expenses while you’re outside of the country.
Need help planning for healthcare expenses in retirement? Creative Planning is here for you. Schedule a meeting with a member of our team. We look forward to getting to know you.