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How to Plan for Rising Healthcare Costs

Vicco von Bülow, MBA, CFP®, CPA

Director of Financial Education

Last Updated
March 18, 2022
Husband and wife reviewing expenses

Tips to Help You Plan Today for Healthcare Expenses in Retirement

In today’s inflationary environment, the cost of everything from gas to groceries to cars is rising, and the cost of healthcare is no exception. Healthcare is one of the biggest expenses most people face in retirement. In fact, a 65-year-old couple that retired in 2021 can expect to spend approximately $300,000 on healthcare and medical expenses throughout retirement.1 What’s the best way to plan for your future healthcare expenses? The following tips can help.

Tip #1 – Understand your potential costs.

The first step toward planning for healthcare costs in retirement is to gain an understanding of what those costs might be. Fidelity provides an interactive calculator to help estimate your monthly healthcare costs in retirement, and AARP also provides some helpful resources. Of course, your wealth manager is a great source for a personalized estimate based on your particular financial situation.

Tip #2 – Compare your estimated costs to your estimated income.

The next step is to compare your estimated annual healthcare expenses to your estimated annual income. Will you have enough to cover your costs and still live your desired lifestyle? If not, it may be time to work with your wealth manager to make some adjustments. In addition, if your retirement income exceeds $170,000 modified adjusted gross income (married filing jointly limits based on the current IRS threshold), you will likely pay more for Medicare Part B and prescription drug coverage. Your wealth manager can help you establish a tax-efficient plan to cover these additional costs.

Tip #3 – Save in an HSA.

One of the most tax-efficient ways to save for healthcare expenses in retirement is by contributing to a health savings account (HSA). 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 deduction are not subject to Social Security and Medicare taxes and, unlike 401(k) contributions, there are no required minimum distributions 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.

Tip #4 – Consider a Medicare supplement plan.

Medicare supplement insurance can help pay for retirement healthcare expenses not covered by Medicare. There are many options for supplement plans, and it’s important to make sure you have a clear understanding of your coverage, deductibles and out-of-pocket costs in order to choose a plan that meets your specific needs. Your wealth manager can help you evaluate your options and select a plan that’s right for you.

Tip #5 – Maintain a healthy lifestyle today to save on costs in the future.

It’s never too early to improve your overall health and well-being, and making simple, healthy lifestyle changes today can have a big impact on your future medical expenses. Make an effort to eat healthy, remain active and maintain a healthy weight. Visit your doctor and dentist as recommended, and take time to relax and destress on a regular basis. Need help planning for your future healthcare expenses? Creative Planning is here for you. Schedule a meeting with a member of our team. We look forward to getting to know you.

Footnotes

  1. https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
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This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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