Some will argue that health care is not a basic human right. I disagree.
I think that society, you and me and everyone else, has a built in obligation, if not an absolute mandate, to preserve itself. In other words, a biological imperative to bring new humans into society and protect them. It’s how evolution works, unless you choose to believe evolution is fake news.
Every society since the dawn of man has had those who survive to reproduce and those that don’t. This truth has resulted, over time, in societal rules that dictate we provide care mechanisms for those who are healthy and those who are not. And it’s evolved to where that includes everyone, from the newly born to the elderly.
Most retirees are elderly. As one of those people, I can tell you that health care is far more important to my well being today than it was 50 years ago. I spend far more time in doctors offices today than I used to spend in movie theaters. And it all costs money.
Last Monday, I went in and had a second total knee joint replacement procedure. The first one happened a year ago and it cost over $50,000. Fortunately I have Medicare and what is known as a medigap policy that pays most of the 20% not covered by Medicare. Whether I can walk properly again remains to be seen. But I hope so, since I’m not ready to hang it up and leave the building.
If you expect to remain alive for any length of time in retirement, you’re going to have to figure out how you’re going to pay for healthcare.
by Matthey Frankel on April 5, 2019
Each year, financial services provider Fidelity conducts an estimate of how much a newly retired couple can expect to spend on health care throughout their retirement. And not surprisingly, the expected tab has increased for 2019 retirees.
According to the newest estimate, a 65-year-old couple retiring in 2019 can expect to spend a staggering $285,000 on health care expenses throughout their retirement – a $5,000 increase from the 2018 estimate. On an individual basis, this breaks down to $150,000 in health care expenses for the average retired woman and $135,000 for the average man. And it’s worth pointing out that these are out-of-pocket expenditures beyond what is covered by Medicare.
Also, keep in mind that these are just averages. If your health turns out to be worse than the average retiree’s, or if you end up living significantly longer than the average American, your out-of-pocket health care costs could end up being significantly higher. Furthermore, if you end up retiring before you reach 65, you won’t be eligible for Medicare, so it’s important to have a plan for health care expenses in the pre-Medicare years.
If you’re still decades away from retirement, the $285,000 figure in Fidelity’s estimate likely won’t apply to you – at least not exactly. There are simply too many variables that can change the cost of health care between now and when you retire.
Having said that, there’s nothing to indicate that health care costs are going down anytime soon, so this cost estimate should serve as a wake-up call. After all, this is $285,000 that today’s retirees will spend on health care in addition to the amount that they’ll need for all of their other expenses.
Hands down, the best way you can prepare for health care expenses in retirement is by maxing out your contributions to a health savings account, or HSA, if you qualify for one. These accounts are available to Americans with qualifying high-deductible health plans and have a unique triple tax benefit for health care expenses.
You can read our 2019 guide to HSAs for a thorough discussion of how these accounts work, but the general principle is that money is contributed on a pre-tax basis, so you don’t pay any tax now on this portion of your income. The money in the account can be invested, and all dividends and capital gains are tax-deferred. Finally, any withdrawals used for qualifying health care expenses are 100% tax-free. So you can place some of your retirement savings in an HSA to reduce your tax liability, and therefore your cost burden, in retirement.
If you don’t qualify for an HSA, it’s still important to contribute aggressively to other tax-advantaged accounts, such as your 401(k) or 403(b) at work, or to a traditional or Roth IRA.
What you can do if you’re ready to retire
If you’re getting ready to retire, it’s obviously not an option to attempt to set aside hundreds of thousands of additional dollars in tax-advantaged accounts. But there are still a few things you could do.
First, it’s worthwhile to arm yourself with a good working knowledge of what Medicare Part A and Part B do and do not cover, so you’ll know what to expect. You also may want to consider a Medicare Supplemental Insurance plan, also known as a Medigap plan, which can help keep your costs more predictable.
Also, if you’re worried about having enough retirement income to cover your health care expenses, it can make a big difference to delay retirement (and Social Security) by a few years. Though not the most popular option, it can make a world of difference in your financial well-being after you retire. Not only will your Social Security benefit end up being larger for life, but postponing retirement gives you more time to stuff your tax-advantaged accounts with as much money as possible.