Along with basic living expenses such as food, housing, and utilities, many retirees also have to plan for medical expenses–especially as they get older. While no one enjoys thinking about the possibility of a future medical emergency, it is imperative to plan ahead and be prepared in case the need for medical care does arise.
With that in mind, it is critical that you start preparing for medical expenses as early as possible. Even if your health is in its best condition today, there is no guarantee that you won’t need medical interventions in the future. Here are some of the best ways you can plan for medical expenses in retirement:
1) Use the Health Insurance Marketplace
If you retire before age 65, you may lose your job-based health plan before becoming eligible for retiree health benefits. However, this is not always the case so be sure to speak with your employer if you plan to retire before 65.
If you do lose your job-based health plan, the Health Insurance Marketplace (created in 2014 through the Affordable Care Act) allows you to buy health insurance even if you enroll outside of the Open Enrollment Period. You can also utilize this program if you are unemployed, self-employed, work part-time, or are not eligible for Medicare and Medicaid.
Depending on your income and household size, you may qualify for a private plan with premium tax credits and lower out-of-pocket expenses.
All health plans offer coverage for essential health benefits, pre-existing conditions, and preventive services. See plans and estimated prices here.
2) Find Out if you are Eligible for Medicaid and Medicare
Medicare is a federal health insurance program for individuals aged 65 and older, as well as young people with disabilities and End-Stage Renal Disease. Medicaid is a public healthcare program for low-income families of all ages. You can find out if you are eligible for these programs here.
It is recommended to sign up for Medicare benefits at least three months before you turn 65. If you are eligible for Medicaid, sign up for benefits as early as possible.
If you are eligible for Medicare, there are four parts you should be aware of:
Medicare Part A: covers care at a hospital, skilled nursing facility, or nursing home, as well as home care services. If you or your spouse has paid for benefits for at least 10 years and are at least 65 years old, you don’t have to pay premiums for Part A. You are also eligible for premium-free Part A if you are receiving benefits from Social Security or Railroad Retirement Board (or are eligible for them but haven’t filed yet) or you or your spouse had Medicare-covered government employment.
Medicare Part B: covers medical services, outpatient services, and other necessary services that are outside of Part A’s coverage. This part is optional.
Medicare Part C: is optional and offered by Medicare-approved private companies. It is referred to as a Medical Advantage plan.
Medicare Part D: covers prescription drug expenses.
3) Have a Separate Savings Account for Medical Expenses
Sometimes, health insurance coverage won’t be enough to cover your medical expenses, especially if you incur costs that are not covered by your health plans. In this case, you would have to pay out-of-pocket to settle the rest of your bill. Obviously, this can pose a problem if you don’t have enough cash flow or have little to no savings.
That said, start a savings account dedicated to medical expenses as early as possible. Even just saving $10 per week in your 20s or 30s can make a significant difference when you need money in retirement. Separating your medical expenses account from your emergency fund helps keep your savings intact when you have to pay for non-medical emergencies, like car or home repairs.
You can also save with a Health Savings Account (HSA) if you are not yet enrolled in Medicare. HSAs are available with high-deductible health plans (HDHPs) and benefits include deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical costs. If you are 55 and older, you can make catch-up contributions of $1,000 per year plus the maximum contribution limit.
4) Consider a Home Equity Conversion Mortgage (HECM)
A HECM loan allows you to access your home equity while giving you the option of eliminating your monthly mortgage payments. HECM loan proceeds can be paid out in a lump-sum payment, scheduled term or tenure payments, or through a line of credit. The loan balance only becomes due when you pass away, move permanently, or are no longer able to comply with loan obligations – allowing you to stay in your home for life.
Taking out a HECM loan can provide additional income that you can use for medical expenses. If you choose the line of credit option, you may also be able to grow your line of credit if you leave it untouched, which can give you more money to use when the time comes.
If you have more questions about this program, don’t hesitate to contact us today.
5) Buy Long-Term Care Insurance
Medicare fails to cover all expenses for seniors who end up requiring long-term care later in life. Buying long-term care insurance is one of the best ways to address that gap and allow you to pay for long-term medical care if you end up needing it.
It is best to buy long-term care insurance as early as possible because premiums are cheaper when you are younger. If you already have life insurance, ask your provider if you can add long-term care to your coverage. If they don’t offer it or you don’t have life insurance, you can also purchase long-term care coverage as a stand-alone policy.
These are some of the best ways to plan for medical expenses in retirement. Along with these strategies, it pays to be mindful about your health in order to reduce the chances of needing expensive medical care–perhaps for the rest of your life.