Health Care Planning
Health Care Planning to Help Safeguard Your Retirement
Health care is among the largest expenses in retirement. Fidelity’s 2024 Retiree Healthcare Cost Estimate projected that a 65-year-old retiring today would need an average of $165,000 to cover medical expenses in retirement. That’s $330,000 for a married couple, not including long-term care costs. Those who spend 30 years paying down a mortgage could spend their remaining 30-plus retirement years paying the same amount toward health care. Unfortunately, many people are unaware of this and don’t have a plan. They may not understand Medicare’s limitations or haven’t considered their future health. However, planning for tomorrow begins today. Our five-part SHP Retirement Road Map© process includes a plan for funding health care to help protect your savings.
Managing the Costs of Health Care Before Age 65
Before age 65, for individuals who do not have health care coverage through their employer, insurance costs can range from $500 to $2,000 per month for an individual or couple. A health savings account (HSA) can help offset these costs for those still working. An HSA is triple tax-advantaged, with tax-free contributions, growth, and withdrawals as long as they are used for qualified medical expenses, like deductibles, co-pays, and coinsurance. The money in an HSA will roll over from year to year. Our SHP Financial advisors can explain how an HSA can benefit you (if you qualify) now and later in life.
Health Care after Age 65 – Medicare Explained
Medicare, a federal health insurance program for people under 65 with disabilities and those 65 and older, is less expensive than traditional health care coverage. The cost of coverage varies depending on the need for supplemental Medicare plans. It’s important to learn what medical expenses Medicare covers and what it does not.
Medicare Part A
(Hospital Insurance)
Part A is free for those who have worked and paid into Social Security and Medicare for at least ten years. It carries a monthly premium for those who have not. It covers hospital bills, hospice, home health, and access to a skilled nursing institution. It also includes hospital admission (minus copays and deductibles) and skilled nursing home care for 100 days maximum after a qualifying hospital stay.
Medicare Part B
(Medical Insurance)
Part B includes everything “medically necessary” that does not require hospitalization, such as outpatient preventative care, checkups, X-rays, medical supplies, and laboratory and ambulance services. It comes with an income-adjusted monthly premium, deductibles, and coinsurance. It also penalizes non-working people 65 and beyond who fail to apply for it within the first seven months of eligibility with a 10% premium increase for 12 months of eligibility without enrollment.
Medicare Part C
(Medicare Advantage — MA)
This plan offers alternative insurance for individuals enrolled in Medicare Parts A and B through Medicare-approved private health insurance companies. It bundles Parts A and B to cover the same services as Medicare (except hospice), often with additional coverage for prescription drugs, vision, hearing, dental, and health and wellness programs. This plan, along with the Medicare Part B, has a premium.
Medicare Part D
(Prescription Drug Coverage)
There are many medications Medicare Parts A and B do not cover. Part D is a voluntary prescription drug plan for anyone enrolled in Parts A and B. It covers most prescription drugs and vaccines, but there are still gaps. Like Part B, there is a penalty for eligible individuals without a credible prescription drug plan who enroll late.
Retirees can reanalyze their medical insurance annually and upgrade, reduce, or change it regardless of health status. While Medicare costs are more affordable than traditional insurance, they are not exempt from increases. They will consistently increase over time. Health care inflation rises at a higher rate than the Consumer Price Index, so having a plan to ensure you can afford the care you need is essential.
Plan for Out-of-Pocket Costs
- Deductibles and copayments
- Prescription medications
- Dental, vision, and hearing care
- Long-term care
Long-Term Care: 100 Days and Counting
Regardless of age or the type of health insurance, an individual usually has coverage for a rehab facility, nursing home, or home health care for 100 days or just over three months after a hospital release. This isn’t much time in the big scheme of things. But this is the point where insurance considers an illness or condition to be “chronic.” According to the U.S. Department of Health and Human Services, 7 out of 10 Americans will need long-term care in their lifetime.
Long-term care includes the health and medical services and equipment for an individual who cannot function independently over an extended period.
Funding Long-Term Care
The expense of long-term care can be staggering. A Genworth Financial survey from 2023 reported that the annual national median cost of a private room in a nursing home is $116,800 and $75,500 for a home health aide. The Federal Reserve estimates that the average median household has approximately $185,000 in retirement savings between ages 55 and 64, one-fourth of what most financial advisors recommend. So, how are people paying for long-term care?
Health Savings Account (HSA)
Those who established an HSA during their working years can use these funds toward long-term care, however, due to contribution limits, it’s unlikely that an HSA could fully cover the cost.
Medicaid
This program subsidizes long-term care for people with income and assets below a certain level or who first spend their savings. It requires an arduous verified “lookback” process that confirms applicants haven’t transferred their holdings within five years. A financial advisor can counsel individuals who exceed the income requirement and want to use this strategy, but those who do, as wards of the state, will have a limited say in where and how they receive care.
Traditional Long-Term Care Insurance (LTC insurance)
This is a well-known strategy for paying for long-term care. However, high premiums make it financially difficult for many to include LTC insurance in their retirement plan. Additionally, applicants must complete an underwriting process that bases eligibility and premiums on health status. A benefit of traditional LTC insurance is that it could help protect the equity in your property. The downsides are the long-standing premiums and its use-it-or-lose-it aspect.
Life/Long-Term Care Insurance
This hybrid insurance model has two pools of benefits—one for long-term care and one for life insurance. An advantage of this plan is the tax and probate-free death benefit that goes to the beneficiaries if the insured never needs care. Several pay schedules exist for this coverage, a key difference from traditional LTC insurance.
Consulting a financial professional who understands the options and strategies for achieving maximum savings is the best approach to saving for long-term care. Our SHP Financial team can recommend other methods to leverage assets within your portfolio to fund long-term care.
The Financial Advisor’s Role in Health Care Planning
- Estimating healthcare costs
- Evaluating Medicare options
- Developing strategies for saving and investing
- Recommending tax-advantaged solutions
- Navigating insurance policies
No matter what strategy or combination of strategies you choose, it’s vital to have a plan for your retirement health care. The clock is ticking, with rising healthcare costs and complex insurance options. We look forward to working on your future with you.
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All of the following testimonials are from current SHP Financial clients, and no compensation has been given for their statements.
