How to Pay for Healthcare During Retirement

It’s a sad fact of life: the more health care services improve, the more expensive costs become. Even in light of recent health care legislation, medical costs continue to soar, outpacing inflation for over two decades. In fact, industry experts predict that expenses related to health care will continue on this trajectory, increasing by up to 15% per year.

As nice as it would be to anticipate lower costs and increased cash flow in retirement, this is rarely the case. While retirement plans vary largely based on personal preferences, employment history, and life circumstances, an expectation of increased health care expenses cannot be ignored. It is prudent for aging adults to factor these expectations into retirement plans, but this is harder than it sounds.

With numerous ways to save and many expenses to save for, from standard medical expenses to long-term care costs, choosing the right approach can be very challenging. By understanding the available options and taking the benefits and risks of each into consideration, individuals young and old can take advantage of the best possible ways to save. These savings options include:

Annuity coverage: Annuities are insurance policies that pay regular distributions over a set amount of time based on mortality tables or predetermined fixed rates. Annuities can be safe, secure ways to guarantee cash flow later in life, especially when future medical coverage and personal health costs are unknown. Fixed indexed annuities, in particular, can provide a set amount of lifetime income in addition to providing an opportunity to participate in stock market gains, all without risking principal or any money earned along the way. In addition, annuities grow tax deferred, providing income without the burden of immediate taxation. Annuities provide numerous allocation options, allowing retirees to create a customized retirement income strategy. Some annuities even offer the possibility of death benefits, allowing financial security for friends and loved ones.

Long-Term Care InsuranceLong-Term Care Insurance: No one wants to end up in a situation that requires long-term care, but unfortunately, the possibility of critical medical issues increases in old age. Long-term health care coverage can provide you the flexibility of choosing the right care for you in case of extenuating circumstances, from providers to care facilities, without threatening your savings or your assets. Instead of ending up paying thousands for a bed in a sub-par facility, you can select the right doctor, the perfect location, and work on recovery without the stress of improper care. Learn more about long term care insurance here.

Investments and Equity: Most people save for retirement for decades. With the rising cost of health care, having access to cash flow is very important. If you anticipate substantial expenses later in life, saving now might be the right approach. If you have substantial assets, working with a financial advisor to set up a proper asset allocation designed to maximize retirement savings can offer additional incentives. Some advisors even advocate setting up a separate account designed for medical expenses. In addition, after years in a home, many retirees have accumulated substantial home equity. In emergency circumstances, this equity can be accessed by selling the home, using a reverse mortgage, or establishing a line of credit.

Medicaid: Medicaid is a government-run program that covers medical costs for individuals with limited assets and income. Federal poverty guidelines govern Medicaid, as well as additional state requirements. Medicaid is generally not expected to be an alternative care but rather a safety net for individuals no longer have the financial resources to cover medical expenses.

How to Pay for Healthcare During RetirementMedicare: Medicare is an insurance option for most Americans over age 65 intended to cover health care costs into retirement. A great resource, Medicare covers many essential costs, including annual exams, regular screenings, and certain procedures. However, Medicare does not cover all costs related to health care and without proper preparation, retirees may find themselves paying much more than they anticipated.

Medigap Insurance: Medicare supplemental insurance, known more colloquially as Medigap insurance, is a private insurance policy intended to cover the gaps in a Medicare policy. Although Medigap policies can be customized based on personal preferences and health care expectations, most policies cover expenses like hospital stays and prescription medications.

Returning to Work: In extreme situations, going back to work can be a viable option for younger retirees. However, returning to the workforce should be a last resort. Many older adults have trouble finding a job and generally must take low-paying temporary positions. Planning to continue to work should not be a fallback, but can be an alternative if absolutely necessary. In order to avoid returning to work, it is important to prepare using other measures, like increasing personal savings and securing proper insurance coverage.

With proper planning, paying for health care in retirement doesn’t have to be a struggle. Whether you’re just starting out in your career or are nearing retirement and want to take the proper precautions, it’s never too early to ensure your health will be in good hands, no matter what the future may bring.

Disclosure: For informational and educational purposes only. The information contained herein may contain information that is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor.

Guarantees are subject to the claims paying ability of issuing insurance company.


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