When planning retirement expenses, couples need to take an honest look at their expected health expenses during their later years. Even if one person is healthy and the other has chronic illnesses, the costs will impact both. Just because one is well and healthy at age 65 does not necessarily mean that their good fortune will last. Illness and injury can strike at any time.
Planning for medical expenses is a critical piece of planning finances for retirement. One of the largest healthcare data providers, HealthView Services, determined that in the best of circumstances—a healthy 65-year-old couple, for example—couples should expect to spend more than $400,000 to cover their healthcare costs. That includes premiums, deductibles, copays and out of pocket costs for hearing, vision and dental costs.
Even if your family is doing better than average in savings, deciding how you’ll handle health expenses in retirement is a critical task for any couple. Investopedia’s recent article, “A Couple's Guide to Healthcare Costs in Retirement,” provides us with several things you need to consider when planning a happy and healthy retirement for you and your spouse.
- Have You Timed Retirement with Healthcare Costs? If your current health insurance is a family plan through your employer, retirement will affect your entire family. Consider all the options and select the ones that work best for everyone.
- Delay Retirement: You may want to undergo a “big ticket” medical procedure covered by your current insurance. Working longer will allow you to save more to cover your future healthcare costs. Your current plan may offer more than Medicare or Medicare Advantage plans.
- Move to Your Working Spouse's Plan: when you retire, move to your still-working spouse’s employer healthcare plan to delay applying for Medicare. If you don’t, you must apply during the seven-month period beginning three months before the month you turn 65 and ending three months after the end of the month you turn 65.
- Check with Medicare: if your spouse works for a small company (fewer than 20 employees), you still may have to apply for Medicare or pay a penalty.
- Examine Non-Medicare Coverage: if both you and your spouse plan to retire at the same time, and one is too young for Medicare, he or she will need individual coverage. If you have children under 26, who are still eligible to be covered under your insurance, remember that Medicare doesn’t provide family coverage.
- COBRA: you could purchase COBRA under a former employer’s plan for up to three years. However, it’s expensive, since you have to pay the full premium. You could also get coverage for your spouse or kids under the Affordable Care Act provided through the health insurance exchange in your state.
- Budget Each Spouse’s Insurance Needs. Many people forget that their former employer paid for a large part of their previous health insurance premiums. In retirement, you’ll likely be paying the full amount. When you’re on Medicare, each family member will need individual insurance, because Medicare doesn’t offer family plans.
- Retiree Health Insurance: if you or your spouse will have access to retiree health insurance through your employer, see how much it costs, what it cover, and how it works with Medicare before signing up. Most retiree plans aren’t employer-subsidized.
- Medicare Part A: most people qualify for Part A (hospitalization) at no cost, but if you do have to pay a premium, add it into your budget.
- Medicare Part B: most individuals pay a monthly premium for Part B (Medical) of $134 a month. If your combined income is more than $170,000, you’ll pay more.
- Medicare Part C: Medicare Advantage replaces Parts A, B, and often D. It’s private insurance, and prices vary based on coverage offered, which can include vision, hearing and dental. With Part C, you will pay a premium in addition to your Part B premium.
- Medigap: This supplements Part A and Part B, so you must also have A and B to have Medigap. These policies don’t offer prescription drug Part D coverage. If you buy Medigap during your six-month Medigap open enrollment period, you can buy any level of coverage you want without a health exam. It may be worth purchasing the best plan that each of you can afford.
- Medicare Part D: this is prescription drug coverage under Medicare. Premiums vary by provider. If the couple’s combined income is above $170,000, you’ll pay a surcharge.
- Long-Term Care Insurance: Medicare long-term care coverage is limited and doesn’t pay for long-term custodial care in a nursing home.
- Retirement Savings Resources. You and your spouse should have individual retirement accounts, in addition to any property or investments you own jointly. Withdrawals from these accounts can see that you have enough to pay health-insurance premiums, co-pays and other healthcare expenses. You may want to consider these savings options:
- 401(k) Plans: if both you and your spouse work, you should take advantage of available workplace 401(k) plans and max out your plans each year. If company matching is available, make it as high as possible.
- IRAs (Roth or Traditional): if you meet the income requirements, open a Roth IRA for each of you. Qualified distributions are tax-free for both contributions and earnings with no required minimum distributions (RMDs). If your combined income is too high to invest in a Roth IRA, you can still invest in a traditional IRA.
- Spousal IRA: a working spouse can take out a spousal IRA in a non-working spouse’s name to effectively double the amount your family can invest in IRAs.
- Saver’s Credit: if you are a married couple with a joint income less than $61,500, you might qualify for a saver’s credit of between 10 and 50% of your IRA or 401(k) contributions up to $4,000. The amount you can take, is based on your adjusted gross income and is subtracted directly from what you owe the IRS.
- Paying for Medical Expenses. Finally, decide how to pay for everything, including an allowance for inflation and unexpected medical expenses. Plan for these expenses with the right products, investments, and strategies, which may include:
- Investments: these may include mutual funds and stocks. While they have no guarantees, their potential growth can help offset the effects of inflation, and they have the potential to create capital growth for late-in-life healthcare costs.
- Health Savings Account: if you are in a high-deductible health plan at work, open an HSA and fund it while still working. This will give you funding for healthcare in retirement.
- Annuities: this can provide an income stream for medical expenses.
- Life Insurance: some policies can be used for medical expenses, such as combination policies with long-term care coverage and accelerated death benefit insurance. You can also use the cash value of a permanent life insurance policy to pay for care or expenses. However, if you do, it reduces the cash value and death benefit.
- Convert to a Roth IRA: If you have large RMDs from traditional IRA accounts, look at converting some or all of those funds to a Roth IRA before you turn 70.
All of this may feel overwhelming, but with a head start on planning, you will be able to enjoy your golden years without overly worrying about any large medical costs. Speak with an elder lawyer who will help you understand all of these moving parts, and make sure that you and your spouse are prepared in the best possible way.
Reference: Investopedia (July 10, 2018) “A Couple's Guide to Healthcare Costs in Retirement”