How prepared are you for retirement? Many of us who are proactively planning and building savings for retirement tend to only think about saving for the cost of travel and living expenses such as rent and utilities. A lot of Americans forget to factor in the cost of their medical care during retirement.
There have been many surveys in which an alarming percentage of baby boomers admit that they haven’t set any money aside for medical expenses in retirement. They simply aren’t prepared for one of retirement’s biggest expenses.
Here’s what you should know so you can be better prepared for your own golden years.
Medicare is Not Free
One of the biggest mistakes you can make when you start financing for retirement is to go into planning thinking that when you enroll in Medicare, all of your medical expenses will be covered with no cost to you.
Unfortunately, this is not the case. Many people enroll in Medicare when they turn 65 and are completely caught off guard when they find out they still have to pay for Medicare Part B and Part D coverage. This means that retirees will still have to pay monthly premiums, deductibles, copays and coinsurance.
It’s very important to note that the payroll taxes we pay per earned paycheck only pay for our Medicare Part A inpatient hospital expenses. They do not cover outpatient or drug expenses.
Common mistakes to Avoid
1. Assuming that you’ll be healthy forever.
This may seem obvious, but a lot of people will opt out of dealing with planning for potential medical emergencies in the future due to the fact that they are currently healthy and live a fairly healthy lifestyle.
Aging is inevitable, and when we age our health declines. That’s just how life works. It’s unwise to think that you will never have a medical emergency that you need to pay for in retirement.
2. Skipping the health talk with your fiduciary or financial advisor.
Your financial advisor doesn’t need to know everything about your health, but they should know anything health related that you could be paying for later in retirement.
You should request that your financial planner assist you in estimating your potential costs for Medicare in retirement. Don’t forget to estimate costs for supplemental coverage, Part D medications, and long-term care, too. Medicare does not cover expenses for assisted living. This is something you will pay for privately so it’s important to plan ahead.
3. Don’t assume that you will be employed forever.
Your job is not guaranteed to last for as long as you would like. Layoffs happen sometimes and often come without warning. It can be difficult to find a new job when you are nearing retirement age, so you should never count on your ability to work as long as you like.
If you happen to lose your primary source of income sooner than you planned, be sure to have a backup plan.
How to Save for Healthcare Expenses in Retirement
We all want a quick and easy fix when it comes to do-it-yourself matters. Financial planning is no different. Here are some ways that you can build yourself a good medical “rainy day fund” for when you finally get ready to retire.
- Check with your employer to see if they offer a high-deductible health plan that you can enroll in that is compatible with a health savings account (HSA). If so, sign up for this coverage.
- Open a health savings account so that you can begin contributing tax-deductible dollars into the account that you can later use for qualified medical expenses.
- Set up a payroll deduction or automatic bank draft to begin socking away savings every month into your HSA. This will grow and earn interest over time.
- Get ready to retire with a healthy nest-egg of medical savings. You’ll be able to use this savings in retirement to pay for your Medicare Part B and D premiums as well as any deductibles or copayments and also for routine dental, vision and hearing expenses.
There is no better time than today to start financially planning for the unexpected before you are on a fixed income. It’s always better to know the ins and outs of how to save and what to avoid when trying to build retirement savings before it’s too late and you get stuck paying for things you weren’t prepared for.
Don’t be afraid to consult a professional if you are ever feeling insecure about your retirement savings. A professional can review your progress and help you set attainable goals.