We all know that you need to save up a lot of money to retire comfortably.
Many people can account for fixed expenses like property taxes and utility bills in their retirement budget, but one item that’s difficult to plan for is medical expenses. Medicare benefits can be complicated and often don’t cover 100% of your health care costs, so you’ll need to anticipate your out-of-pocket expenses as you plan.
There are a lot of misconceptions about medical spending during retirement, so it’s important to educate yourself now and understand how to minimize your financial risks. Here’s how the members of Forbes Finance Council recommend doing that, no matter how far away from retirement you are.
1. Choose a Healthy Lifestyle Now to Reduce Medical Costs in the Future
Everyone assumes that their future health care cost is some set number, but anyone can drastically decrease that cost, as well as the chance of incurring it, by choosing a healthy lifestyle. However, most people look for external factors instead of asking, “What can I do today (i.e., exercise and eat healthily) that will ensure vibrant health through retirement?” – Vlad Rusz, Vlad Corp. USA
2. Contribute as Much as You Can to a Health Savings Account
HSAs have many rethinking how they prioritize their retirement savings. Instead of just “max out the 401k,” for many it’s now “get the 401k match, max out the HSA, then go back to maxing out the 401k.” The advantages of this approach can add up. When you contribute money, it’s tax deductible. That money’s growth is also tax-deferred, and you can spend your HSA savings on medical expenses tax-free. – Gregory Ostrowski, Scarborough Capital Management
3. Invest in a Whole Life Insurance Policy
Because Americans live in a country without universal health care, an ordinary health insurance plan or Medicare doesn’t cut it sometimes. When approaching retirement planning, you should consider investing in (or overfunding) a whole life policy. This can create wealth but also build into something you can use in the form of a loan against your policy if you ever need cash to pay for unexpected health care costs. – Jared Ross Weitz, United Capital Source Inc.
4. Factor in the Expense
People often underestimate the cost of medical expenses during retirement and near the end of life. To prepare, I recommend adding a separate line item to your written financial plan for health care expenses. This expense could equate (paywall) to $122,000 or more during retirement in addition to your living expenses. Consider seeking advice from a professional when calculating this major expense. – Justin Goodbread, Heritage Investors
5. Enroll in a Medicare Supplement Plan
Naturally, your healthcare costs are going to increase as you age. Many retirees assume that when their Medicare kicks in, they’ll be 100% covered. Unfortunately, that’s not usually the case. Traditional Medicare only covers part of your healthcare costs. To avoid this risk, Medicare beneficiaries should enroll in a Medicare Supplement plan to cover the remaining portion. – David Haass, Elite Insurance Partners, LLC
6. Plan Diligently and Start Early
Don’t underestimate the number of health care costs after retirement. As incomes dry out and expenses start adding up, you may be unable to keep the same level of comfort you are used to unless you have carefully planned your retirement. Start planning for health care costs during retirement as soon as possible, and remember that $1 invested today is far more valuable than $1 invested 10 years from now. – Atish Davda, EquityZen
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