6 tips to be prepared
No matter how you look at it, retirement health care costs are significant. But with good planning, you can be prepared. Here are six steps to make sure you have the coverage you need for retirement health care costs.
1. Maximize your savings. The earlier you begin planning and saving for retirement, the better off you’ll be. Make maximum contributions to a 401(k), IRA, health savings accounts, and any other tax-deferred savings plans for which you qualify.
2. Don’t count on employer benefits. If you happen to be one of the few lucky people whose employers offer retiree health coverage, that’s great. But don’t count on it, because employers may modify or stop giving benefits. Save as if you don’t have retiree health coverage.
3. Consider long-term care insurance. Medicare covers medical care in a skilled nursing facility for a limited time. But if you need long-term custodial care — help with eating, bathing, dressing, and other daily living activities in addition to medical care — you’ll have to pay for it yourself. Care like this can be incredibly expensive.
Long-term care insurance can be expensive. Try to buy it early, when you’re younger and healthier, because premiums are linked to age and health status. “We generally suggest that clients take a look at coverage in their 50s,” says Donna Peterson, Retirement Income Strategist and Senior Vice President at Wells Fargo Advisors. “The longer you wait, the more expensive it typically is.”
4. Look at “hybrid” insurance options. A typical long-term care base policy without additional benefits is pure insurance — you basically use it or lose it. But hybrid products, such as life insurance policies that combine both a death benefit and a potential long-term care benefit, can allow greater flexibility, because benefits can be used for long-term care or life insurance payouts.
5. Learn about the ABCs (and D) of Medicare. Medicare covers just about everyone starting at age 65. But there’s a lot it doesn’t pay for, and there are many choices to make and fees to pay for supplemental coverage and optional insurance to cover Medicare gaps. And don’t forget, you’ll need to add the Medicare Prescription Drug Plan (Part D) to help cover prescription drugs.
“People think Medicare covers more than it does,” Peterson says. “But one thing everyone should know is, it doesn’t cover any custodial care.”
6. Get help from a professional. Planning for health care costs during retirement is complicated. “The most important thing is to sit down with a Financial Advisor and go through all of these issues,” Peterson says. “Few people approaching this time in their lives have all the answers. A Financial Advisor can help you make more informed and realistic decisions by providing a better understanding [of] how health care costs can affect your retirement.”