Health care costs in retirement
With some planning, you can be confident about your health care coverage in retirement.
Medicare: The basics
You'll qualify for Medicare, the federal health insurance program, once you reach age 65. (Certain people with disabilities may be covered before age 65.)
If you're already receiving Social Security benefits when you reach age 65, you'll be automatically enrolled in Medicare. If not, you'll need to apply for coverage 3 months before you turn 65.
Good to know!
Even if you have retiree health benefits through your employer or other coverage through a spouse who's still working, you'll still qualify for Medicare. Costs will be covered either by your other plan or by Medicare, depending on the situation.
Medicare doesn't cover everything
Medicare covers basic health services, including hospital stays, doctor visits, and prescriptions. Excluded from coverage are long-term care services, vision services, dental care, and hearing aids.
You may need supplemental insurance
Most Medicare recipients have some type of supplemental insurance to help pay Medicare's cost-sharing requirements and fill gaps in its benefit package. Primary sources of supplemental coverage include employer-sponsored plans, Medicaid, Medigap policies, and Medicare Advantage plans.
Consider how much you'll need to save
Your budget for health care will depend on your health and medical costs in the area where you plan to retire. And keep in mind that your expenses will likely increase as you get older.
For an estimated savings amount, see the table below.
Amount you'll need at age 65 to cover lifetime health care expenses
*Source: Employee Benefit Research Institute. Notes, October 2015. Amounts exclude long-term care costs.
Retiring before age 65?
If you plan to retire before you become eligible for Medicare and your employer doesn't offer coverage for retirees, you'll need to find your own coverage.
Start by finding out if any associations you belong to—for example, a professional association—offer coverage at a group rate.
You can also look into individual coverage that you can get on your own. Federal and state insurance exchanges make shopping for coverage simple.
Keep in mind:
If you plan to retire within 18 months before you turn age 65, COBRA insurance through your employer may cover you until you qualify for Medicare. You'll have to pay the cost of this insurance out of pocket, but it will offer the same coverage as your employer plan.
Long-term care insurance: Consider it now
While you're considering your retirement health care coverage, give some serious thought to your needs 20 or 30 years down the road. There may come a time when you need ongoing care in a facility or at home.
Medicaid will only pay for long-term care once you've exhausted most of your financial resources. So if you hope to leave a legacy for your children or other loved ones, look into long-term care insurance.
The costs for these policies will increase as you get older, and you may not qualify at all if your health declines—so it's smart to consider buying a policy now.
Need to save for health care expenses? Consider an HSA
A health spending account (HSA) lets you save pre-tax money for current and future health care expenses.
Withdrawals for qualified medical expenses (including Medicare deductibles and premiums) are tax-free, and nonmedical withdrawals are free from penalty once you turn age 65.
Keep your savings on track
Making the right decisions about health care is important, and so are the decisions you make about your savings in the last few years before retirement. Make sure you're doing the right things.
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