Five ways to prepare for future health care costs
The last thing you want after years of saving is to have all your hard work undone by unexpected health care costs. Here are five ways to prepare.
1. Plan to have health insurance until you're eligible for Medicare
If you retire before age 65, you'll need to cover costs until Medicare kicks in. Options include:
Health plans from the
Employer retiree insurance (This is most common with federal, state and municipal employers.)
Insurance from your spouse's employer
Working longer to keep health benefits, possibly in a different job or part-time (Most employers don't offer health benefits to part-time employees, but a few do.)
2. Know what to expect from Medicare, Medicare Advantage and Medigap
If you’re receiving Social Security at age 65, you'll be enrolled automatically in Medicare Parts A (hospital) and B (medical). You can also add Part D (drug coverage). If you’re not receiving Social Security, you’ll need to sign up on your own. Keep in mind, Medicare has special enrollment periods. Signing up late can lead to penalties or gaps in your coverage.
Tooltip is another option. It covers Medicare Parts A and B, and often includes services original Medicare doesn’t cover, like dental and vision, through a private company. With Medicare Advantage you don't need Medigap and you might not need Part D.
3. Be realistic about costs—even if you’re healthy
Be sure to include the costs of premiums and Tooltip in your retirement budget. In general, you can plan on spending about $850−$1,150 a month (or $10,200−$13,800 a year) before age 65. When Medicare kicks in at age 65, you can plan on spending about $450−$600 a month (or $5,400−$7,200 a year).1 For a more accurate estimate based on where you live, inflation and other factors, consider talking to a financial planner.
4. Use your Health Savings Account (HSA) to save for future out-of-pocket costs
If you’re eligible, an HSA lets you set aside pre-tax dollars to pay for Tooltip Money you save and invest in your HSA also grows tax-free. As long as you use it for qualified medical costs, you won’t owe taxes on it.
At age 65, you can no longer contribute to your HSA. But you can use any money you’ve saved in it to pay for health care costs (including Medicare premiums) tax-free. After 65, you can also use HSA money for non-medical expenses without a penalty—you’ll just owe ordinary income tax.
5. Consider how you’ll cover long-term care
Most people over 65 will need Tooltip at some point, and the costs can be high.2 Long-term care insurance can help cover costs if you or your spouse need in-home care or nursing, or care in a nursing or assisted-living facility due to a chronic illness or injury. If you’re not sure how you would pay for these costs, long-term care insurance might be an option.3