With concerns about the rising costs of health care in recent years and uncertainties about the future, it's easy to understand the worries some people might face. These problems are compounded with age - and they get even worse as you start to approach retirement.
How can you ensure that you have enough saved to cover your health care expenses when you finally retire? What can you do to plan for any emergencies or unexpected costs that may occur? Moreover, how can you start saving money now without negatively affecting your current lifestyle?
Understanding health care costs during your retirement
According to a recent report by Fidelity Investments, the average couple who are 65 years of age currently requires at least $280,000 set aside for health care costs during their retirement. Single males require a minimum of $133,000 and females need $147,000. The difference is explained by average life expectancies. Since females tend to live longer, it's assumed they'll need more money in their health care savings accounts than their male counterparts.
But these numbers apply to those who are ready to retire immediately - and they don't include factors like over-the-counter medications, dental services or extended care and treatment. Those who are approaching their retirement age can expect even higher costs.
In fact, Fidelity's report indicates an increase of two percent - from the $275,000 needed by couples - from just a year ago. Although this represents the smallest annual increase the industry has seen over the last five years, experts predict rising costs in the coming years.
Planning for variances and unexpected costs
Many different factors contribute to unexpected or unplanned fees variances and the rising costs of health care, in general. Some of the major factors include:
- People are living longer. In addition, the older population tends to seek health care treatment and services more than younger people.
- Chronic illnesses are becoming more prevalent. The increasing prevalence of chronic illnesses, including cases of back or neck pain, high blood pressure and depression, are pushing health care costs higher than ever before.
- Drugs are becoming more sophisticated. As today's drugs become increasingly complex and sophisticated, the amount of research and development required to support their release grows, too. All these contribute to rising health care costs across the globe.
- Service costs are increasing. Additional services, like long-term hospital stays and ambulatory care, also play a factor in rising health care costs. According to a study published in 2017, annual outpatient costs nearly doubled between 1996 and 2015.
Unexpected costs are difficult to plan for. They are, after all, unplanned by their very nature. Many people, especially soon-to-be retirees, find that it's helpful to understand the basics of Medicare coverage before they begin planning for the future.
Understanding the basics of Medicare - what it covers and what it doesn't
Generally speaking, Medicare coverage isn't as complicated as it seems. Most individuals become eligible for Medicare when they turn 65, although some don't enroll right away. Others receive Medicare eligibility earlier, which is typically the result of a disability.
Regardless, Medicare comes in three different formats: Original Medicare, Part A and Part B. The notable differences include:
- Part A. Also known as hospital insurance, Medicare Part A provides free coverage for most patients. Those who aren't eligible for this plan will have to a monthly premium up to $437.
- Part B.Also known as medical insurance, Medicare Part B always requires a monthly premium on your behalf. While this tends to vary significantly between patients, the standard cost as of 2019 is $135.50 per month.
- Original Medicare. If you're not eligible for Medicare Part A or Part B, you might still qualify for Original Medicare. However, you'll still be responsible for many out-of-pocket costs, including monthly premiums, copayments, deductibles, coinsurance and more. Most prescription drugs, as well as dental and vision services, aren't covered with an Original Medicare plan, either.
Now that you have a better idea of how Medicare works in 2019, you'll be able to adjust your future plans and better prepare for your upcoming retirement. However, Medicare isn't the only solution that's available to you upon retirement.
Lowering your out-of-pocket expenses with Medigap
Medigap solutions, sometimes referred to as Medicare Supplement insurance plans, provide a means of covering some or all of the out-of-pocket costs that aren't covered by your Original Medicare plan. To benefit from the best possible pricing, try to sign up during the Medigap Open Enrollment period and only after you've hit 65 years of age and secured your Medicare Part B plan; otherwise, you might be stuck with late fees and other penalties that drive your costs even higher.
In most states, Medigap coverage is available in one of 10 different plans - labeled A through N - which provide varying degrees of coverage at a wide range of costs. With Plan F, for example, the total deductible is $2,300. Plan N, on the hand, only requires minimal co-payments for office and emergency room visits.
How you can start planning and saving now
It doesn't matter how old you are; it's never too early to start planning and saving for your retirement. Some of the most effective and efficient methods include:
- Opening a health savings account (HSA).
- Securing long-term care insurance.
- Utilizing catch-up contributions in your 50s and beyond.
Arm yourself with valuable information about how you can use these tools to shockproof your retirement health care costs. Consulting with a professional who has your best interests in mind is a good first step.