- 2-Minute Article
- Dec 26, 2017
Options for Covering Healthcare Costs in Retirement
Take advantage of these tips to prepare for future medical expenses
Healthcare is a retirement expense many people underestimate.
Recent projections reveal that a couple aged 65 should prepare to spend $264,0001 on healthcare during their retirement. Fortunately, planning ahead can help cover those costs — without jeopardizing other retirement goals.
- Healthcare costs increase with age: For example, retirees over age 85 spend 22% more on routine doctor visits than those aged 65-74.2
- Medicare covers a portion of your healthcare needs, which means most retirees must secure additional insurance to cover remaining hospitalization, doctor visits, outpatient services, and prescription drugs. Combined, these premiums could cost around $168 per month, or just over $2,000 annually.3,4
- At some point, you or a spouse may need help with daily activities such as shopping, cooking, or bathing. The services of an in-home assistant cost on average $20 per hour, while an assisted living residence costs approximately $3,600 a month.5
Simply tapping into your investment accounts to pay for medical expenses isn’t ideal because you could lose out on future growth for those savings. For example, say you take $10,000 from your IRA to pay for a medical emergency at age 70. That same $10,000 might have doubled in value by the time you were 85 had you left it to grow.6
Instead of tapping into your savings, consider these options for covering medical bills:
- Contribute to a health savings account (HSA). Money invested through an HSA will grow tax-free until you withdraw it for eligible healthcare expenses. Although you can only contribute to an HSA until you’re age 65, these funds can be used throughout your lifetime.
- Purchase an annuity. Annuities provide a stream of guaranteed lifetime income payments
that can be allocated to cover fixed costs, such as insurance premiums or prescription drug plans.
- Buy a permanent life insurance policy. Some policies, while offering a death benefit, include options that provide access to the policy values in the event that you’re diagnosed with a terminal illness or need long-term care.
Talk with your financial advisor about how much to set aside for healthcare costs. Together, you can create a plan that can help you have the retirement you envision.
To better understand different types of annuities and related terms, download our Quick and Easy Guide to Annuity Terminology.
Easy Guide to Annuity Terminology