It is said that it’s harder to get through retirement than it is to get to retirement.

A 2018 Fidelity study estimated that a 65-year-old couple retiring in 2018 would need $280,000 of savings ($133,000 for men and $147,000 for women) to pay for 20 years of out-of-pocket retirement health-care costs.

Understanding the current health care environment, and identifying a few ways to help meet those surging costs, can give you more peace of mind.

The two most popular programs to cover healthcare costs 

Medicare

Medicare, a standardized federal insurance program, provides hospital and medical insurance coverage to people aged 65 and older, those younger than 65 with certain disabilities, and dialysis patients.

Monthly premiums in 2018 ranged from $135.5–$460.50 per month, based on income, according to the U.S. Department of Health and Human Services.

Medicare has three parts: Hospital insurance (Part A), medical insurance (Part B), and prescription drug coverage (Part D).

You can choose from original Medicare and Medicare Advantage coverage. Original Medicare includes Part A and Part B coverage as standard; you have to add Part D coverage separately.

Medicare Advantage programs, which are similar to managed health care insurance programs, bundle Part A, Part B, and Part D. They may also include additional benefits, depending on the insurance provider. (Get more program details in Medicare and You1)

Medicaid

With Medicaid, states establish and administer their own assistance programs for low-income people of any age. The federal government provides some funding.

States determine the type, amount, duration, and scope of services within broad federal guidelines. Federal law requires states to provide certain mandatory benefits and allows states the choice of covering other optional benefits. (Get more program details at MEDICAID.gov)

Many people turn to Medicaid to cover long-term care costs. Of the $553.8 billion total Medicaid in 2015, more than 20% of it was spent on long-term care services.2

Combining the programs

Depending on a retiree’s situation, either—or both—Medicare and Medicaid may be used to cover health-care costs.

More programs that can help 

There are a number of programs you can explore to help cover health care costs, such as:

  • Health Savings Accounts (HSAs), which are tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP)
  • Aid and Attendance support for veterans and their families
  • Long-term care insurance to pay for personal and custodial care in settings including your home, a community organization, or other facility

Health Savings Accounts (HSAs)

HSAs are triple tax free:

  1. Contributions are tax deductible.
  2. Earnings accrue tax free.
  3. Withdrawals are also tax free, with one exception: Once you reach age 65, while you can withdraw for nonqualified expenses without penalty, you are required to pay income tax on that amount. No RMDs are mandated.

The individual maximum you can contribute to a health savings account (HSA) in 2020 is $3,550 in 2019, while the family maximum is $7,100.

Additional Benefits for Veterans and Their Spouses

Aid and Attendance is a benefit paid by Veterans Affairs (VA) to veterans, veteran spouses, or surviving spouses. The program is for applicants who need financial help for in-home care, or to pay for an assisted-living facility or nursing home.

Benefits are paid to veterans (and living or surviving spouses) who:

  • Are eligible for a VA pension
  • Meet service requirements
  • Meet certain disability requirements
  • Meet income and asset limitations

For 2020, the benefit amounts were $1,912 per month for a qualifying veteran, $2,266 per month for a veteran and living spouse, and $1,239 per month for a surviving spouse.

Additional funding choices for long-term care costs 

There are a variety of long-term care (LTC) insurance policies, such as traditional LTC policies, life insurance with LTC riders, and asset-based annuity plans.

Costs vary based on the type of coverage you choose. (Learn more about long-term care coverage at LongTermCare.gov.)

Two other common options to cover long-term care costs are spending down your assets and then applying for government programs such as Medicaid or self-insuring through your savings or investments.

Deciding which solutions fit you 

Because health care and long-term care costs can have such an outsized effect on your comfort in retirement, it’s wise to include them in your financial plan. Talking through the various choices with a Financial Advisor can help you sort through the complexities, so you make an informed decision that suits your situation.

1 Source: Medicare and You; Department of Health and Human Services; https://www.medicare.gov/sites/default/files/2019-09/10050-medicare-and-you_0.pdf

2 Source: 2016 Actuarial Report on the Financial Outlook for Medicaid, Department of Health and Human Services; https://www.medicaid.gov/medicaid/finance/downloads/medicaid-actuarial-report-2016.pdf

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About the author

Jack Cintorino

Vice President & Senior Financial Planner

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