Tips for Managing Health Care Costs After Retirement

With so many factors in play and different working components to consider, the concept of saving for retirement can become a great source of anxiety. There may be no greater cause of stress when it comes to saving for your golden years than the cost of medical expenses, and with good reason: Fidelity’s 2016 Retiree Health Care Cost Estimate reports that a 65-year-old couple retiring last year could expect to pay approximately $260,000 in health care costs over the remainder of their lifetimes.

This reflects a six percent year-over-year increase from Fidelity’s 2015 estimate of $245,000 in lifetime health care costs, which was in turn up 11 percent from the 2014 estimate of $220,000. What this should tell prospective retirees is that the cost of health care is likely to continue skyrocketing. What it should not tell them is to give up hope that comfortable retirement is attainable.

With so many factors in play and different working components to consider, the concept of saving for retirement can become a great source of anxiety. Open a Health Savings Account

There are a number of steps that you can take to ensure that you have the money you need in retirement. Kimberly Lankford, contributing editor at Kiplinger and contributor to “Kiplinger’s Retirement Report,” names supplemental savings in the form of a health savings account (HSA) as one of the surest ways to make sure that you are covered.

Lankford notes that HSAs offers tax-deductible contributions (pre-tax if you are contributing through an employer), tax-deferred growth and tax-free withdrawals in any year. The money withdrawn from your HSA can be used for any number of medical expenses up to and including deductibles, copays and Medicare premiums, and contributions can be made up until the time that you go on Medicare. If you play it savvy, that adds up to a stress-free retirement.

“Say you contribute the 2016 maximum $7,750 a year from ages 55 to 65, and the money earns 3 percent a year,” posits Lankford. “At 65, you go on Medicare and don’t touch the account for 10 years. At 75, you’ll have more than $120,000 tax-free to pay for medical expenses.”

Katie Lobosco, writing for CNN Money, also points out that HSA funds can be invested in stocks and bonds as one would with a 401(k), making it an all-around viable retirement and savings solution.

Consider Going Roth

Carla Fried, writing for Consumer Reports, cites the input of certified financial planner and founder of Bedrock Business Results Peter Stahl in suggesting that retirees favor Roth IRAs and Roth 401(k)s over their traditional counterparts. Reason being, all withdrawals from a Roth IRA or Roth 401(k) in retirement are tax-free, meaning that you will both pay less in taxes and keep yourself in a lower tax bracket, effectively helping lower your monthly Medicare Part B and Part D premiums.

“Managing your tax bracket in retirement will have a direct impact on your expenses,” says Stahl. With additional Medicare Part B monthly charges of up to $268 on top of the average $121.80 monthly premium for individuals with income greater than $85,000 and couples with income greater than $170,000, this may very well be an understatement.

If you have a traditional IRA and wish to convert your assets into a Roth IRA, Fried recommends paying a financial advisor to assist you in the process.

Save More Than You Think You’ll Need

But for as much as one might be tempted to err on the side of adhering to expert projections, Lobosco suggests that it is wise to save more than you think you would need. Citing HealthView, Lobosco writes that a couple’s average monthly health care costs—estimated at $583 for a couple aged 65 years—can more than double on a monthly basis by the time they reach the age of 85. Further, longer estimated lifespans suggest that women can expect to pay $22,000 more in health care costs over the course of their retirement.

There is no denying that the cost of health care in retirement is imposing, and that those costs are liable to become more imposing as the years roll on. But with savvy planning and financial know-how, you can ensure that you have all the money you need to live out the rest of your days in peace and good health.


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