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Retirement Planning

How to budget money for health costs in retirement

Estimating future healthcare costs for retirement can be challenging. With rising costs and unknown medical needs, it is natural to have concerns about managing it all.

Nearing retirement and wondering how you are going to afford healthcare? For seniors, the soaring cost of medical care means less money in their pockets and can force hard choices about balancing food, rent, and other needs.

How critical is the situation? In a survey conducted by the Henry J. Kaiser Family Foundation, 45 percent of uninsured adults cited high cost as the reason for not having coverage.1 As concerns continue to grow, pre-retirees are taking proactive steps that include health care as part of their financial planning efforts. Consider the following when crunching your health care numbers.

Estimate your health costs in retirement.

You can't plan for how you'll pay for your healthcare if you don't realistically look at costs you may face in retirement, and create a budget. Make sure your financial plan accounts for these expenses, and don't forget to account for inflation which can rise faster for health care compared to the general inflation rate.

Account for unexpected costs.

Be sure that your estimated health care costs account for unexpected expenses. This means reserving an emergency fund that goes above and beyond what you calculate for expenses. The fact is, Medicare doesn't cover dental or vision care. It also doesn't cover any long-term care. So if you have an injury or illness that requires after care for any length of time, you could be paying those bills out-of-pocket.

Fill in the gaps with Medigap.

If you have traditional Medicare, then you may need to consider buying a private Medigap supplemental insurance policy. These private plans may cover many of the costs that Medicare doesn't, including deductibles and co-payments, and may help to reduce your health care costs. They can be very affordable, and you could shave even more off of your monthly premium by selecting a higher deductible.

Cut your health care spending.

Under the Affordable Care Act, Medicare offers free coverage for a multitude of preventive services, including an annual wellness exam; screenings for colorectal, prostate and breast cancer; and flu vaccines. And although they won't be free, you can save as much as 70 percent on brand-name prescriptions.

Consider in-network providers.

If you're buying coverage in the individual market, you may be able to save by sticking with in-network providers. You may be partial to a provider outside of your plan, but it can cost you - sometimes the full cost of services.

Use life insurance as a resource.

Some types of permanent* life insurance policies will allow you to take partial withdrawals or policy loans which could be used to pay for health care and other expenses. However, if you take a withdrawal or don't pay back the loan, your death benefit will be reduced. Many policies may also allow you to use your death benefit for medical expenses in the event you are diagnosed with a terminal illness if your policy includes an accelerated death benefit rider.


*As long as required premium payments are timely made.




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