I know we all have COVID-19 fatigue, but given the current pandemic and increasing medical costs, it is more important than ever to ensure proper planning for medical expenses in retirement. Many financial plans do not consider the day-to-day costs let alone the potential of a financially catastrophic long-term care stay. Many working people are missing out on opportunities to save for these expenses.
Medical Premiums and Medicare
Many people fail to include medical insurance in their budget because the expenses are automatically deducted from their paychecks in their working years. In retirement, not only do you have to pay for Medicare Part B, but you also have to pay for a supplement. And if you are above a certain income threshold, your Part B premium will increase.
Advantage Plans are getting a lot of attention because of their low premiums, but you may find yourself with high medical bills if you need services they don’t cover. Use an insurance agent to ensure you select the best plan for your situation. Your insurance cost does not increase if you use an agent, and their knowledge and expertise can lead to significant savings in the long run. And of course, don’t forget to include the cost in your retirement budget.
Long Term Care
Many retirees think they have enough assets to retire comfortably, but when their plan is stress tested for a long-term care incident, it often leaves the healthy spouse having to make significant lifestyle adjustments. Insuring for long-term care creates a more solid and holistic plan, as well as offering assistance during difficult times. There are two types of plans: The traditional plan works like liability insurance in that if you don’t use it, you lose it, and it comes with high premiums. The newer, hybrid plan provides a life insurance component that pays your beneficiary if you don’t use the long-term care insurance. You can also get most, if not all, of your money back from these policies if you change your mind.
Health Care Savings Accounts
During your working years (and while you are healthy), you should consider contributing to an health savings account. Your employer has to offer high deductible medical plans that qualify for this type of account. Once the account is established, you will get a tax deduction for your contributions. The strategy is to invest the contributions in the account in lieu of using them to cover current medical expenses. The investment growth is not taxed when there is a distribution as long as it is used to pay for qualified medical expenses. Often, the employer will also contribute to the HSA on your behalf – free money.
Not planning for medical expenses in retirement is one of the biggest omissions I see. These expenses are not only going to stay with you throughout retirement, but they are likely to increase as you age. Start saving today for a more secure tomorrow!
Jasmina Tadic, CFP®, CDFA®
Senior Financial Advisor
As of January 1, 2022, Jasmina Tadic is currently employed with Sequoia Financial Group. NCA Financial Planners, LLC is now Sequoia Financial Advisors, LLC. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC registered investment advisor. Registration as an investment advisor does not imply a certain level of skill or training. Sequoia Financial Group is not affiliated with RAA.