Financial advisors warn that relying exclusively on Medicare to cover health care costs isn’t going to cut it. Benefits under the Medicare program often aren’t enough to pay for all of a retiree’s needs. There may be gaps for chronic treatment of illnesses and specialty treatment for certain conditions. Long-term care services also typically are not covered. It’s important to note that Medicare will cover general doctor’s visits, but it does not cover the cost of deductibles or copays.
Individuals need to be proactive and plan for medical expenses in retirement. After housing, healthcare is the most significant expense for retirees. Health spending accounts and long-term health insurance are two options for people looking for ways to cover their health care costs in retirement.
As of 2022, people can contribute up to $3,650 for an individual or $7,300 for a family per year into a health savings account. After age 55, an additional $1,000 per year is allowed. Money in an HSA grows tax-free and it can be spent tax-free on qualified medical expenses. Once a person has Medicare, he or she no longer is eligible to contribute to the HSA, but can use money already in the account to pay for qualified medical expenses that are not covered by Medicare.
Long-term care insurance is another option, and many people invest in such an account during their 50s or 60s. The earlier an individual enrolls in a program, the lower the premium. According to Personal Capital, most policies will not start until a patient has needed assistance for 90 days and other qualifying guidelines are met. Generally speaking, long-term care insurance also is use-or-lose. If there’s never a need to use the insurance, it will not be refunded. This is a risk that certain people are willing to take.
In addition to these options, people may consider gap insurance programs. When putting together a retirement plan, it can be wise to speak with financial advisors who can customize products based on their expected needs.
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