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3 Tips for Your Retirement Health Care Funding Plan

What’s your plan to pay for out-of-pocket health care costs in retirement? While Medicare will cover many of your expenses, it doesn’t cover everything. You will likely face premiums, copays, deductibles and other costs. According to a study by Fidelity, the average married couple will pay $275,000 for out-of-pocket medical expenses in retirement.1

As you age, you may face an increasing number of injuries and illnesses. You could develop chronic conditions that require ongoing care. In the later years of retirement, copays for prescription drugs and medical treatment may eat up a big chunk of your monthly income.

The good news is you can take action today to manage your health care expense risk in the future. Below are three strategies to pay for out-of-pocket costs and protect your retirement assets. If you haven’t yet developed a strategy to pay for your out-of-pocket health care costs, now may be the time to do so.


Contribute to an HSA.

Do you have access to a health savings account (HSA)? Many people use their HSA to pay for immediate medical expenses. However, it can also be a powerful long-term savings tool to fund your medical needs in retirement.

An HSA is an effective retirement funding tool largely because it benefits from unique tax treatment. Your contributions are tax-deductible, and all growth in the account is tax-deferred. You can take tax-free withdrawals from the account as long as the distribution is used for a qualified medical expense.

This means your HSA can serve as a tax-advantaged long-term savings tool. By using HSA tax-free distributions to pay for your medical expenses in retirement, you may be able to reduce your withdrawals from IRAs and other assets.


Tap into your life insurance cash value.

Do you have a life insurance policy with a significant amount of cash value? If you’re like many Americans, you bought life insurance early in life, perhaps when you first got married or had kids. As you approach retirement, however, you may feel that you no longer need that life insurance protection.

You may want to hang on to that policy, though. The cash value in the policy could help you pay for medical or long-term care costs in a tax-advantaged manner. You can withdraw your premiums tax-free from your life insurance policy, or you can take tax-free distributions in the form of a loan. Those tax-free distributions could serve as a helpful emergency reserve to cover health care expenses.


Consider buying long-term care insurance.

According to the U.S. Department of Health and Human Services, many retirees will need long-term care. The agency estimates that today’s 65-year-olds have a 70 percent chance of needing long-term care at some point in their lives.2

Long-term care can be provided in a facility or in the home, but it’s usually costly in either case. Care can often cost thousands of dollars per month, and it could be required for several years, especially if it’s needed for a cognitive condition like Alzheimer’s. It’s easy to see how such care can become a drain on your retirement assets.

You may want to consider purchasing long-term care insurance. You pay premiums to an insurer, which then pays some or all of your long-term care costs. Most policies cover care provided either in a facility or in your home. Some even cover home modifications or reimbursements to family members for care they provide.

Ready to develop your health care funding plan? Let’s talk about it. Contact us today at Wise Wealth. We can help you analyze your needs and implement a strategy.





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17508 – 2018/3/26