Health care costs should be top of mind for soon-to-be retirees. Here’s why.

Retiring this year? Here are five steps you can take to protect your retirement savings against the unexpected.

If you are like most Americans, health care will be one of your largest expenses in retirement. But, unlike your parents’ generation, you’re likely to lose your employer-sponsored retirement health care coverage after you retire. Experts estimate that health care expenses will take about 15% of a retiree’s annual expenses, so it’s highly likely that a large portion of your retirement budget will likely go to health care expenses in late retirement and long-term care costs, and you will need to plan for that.

According to a report by HealthView Services Financial, a healthy 65-year-old couple who retired in 2019 could expect to spend more than $387,000 for health care expenses in retirement, not including long-term care. That amount of money can easily derail – or possibly even drain – your retirement savings without proper foresight and planning.

Though preparing for health care expenses in retirement is, of course, a more detailed process that a financial professional can help with, consider the following quick tips before taking the leap to help ensure you stay financially fit.

  • Understand your plan: Get a clear and thorough understanding of the health insurance coverage available – be it through the Affordable Care Act, private health insurance, Health Savings Accounts (HSAs), Medicare and/or med-sup policies, or an annuity with a long-term care enhancement – and make sure to review it annually. Know and budget for your deductibles, co-payments and co-insurance.
  • Save With HSAs: Consider investing in an HSA, which gives you a tax-advantaged place to save money for future medical expenses. Like some tax advantaged retirement accounts, through HSAs you can make pre-tax contributions in an interest-bearing account or investment portfolio, and you can make tax-free withdrawals at any time to cover qualified health care expenses.
  • Follow your doctor’s orders: Take medication as prescribed and maintain a healthy level of physical activity to avoid and reduce out-of-pocket health care costs. It’s one of the easiest and simplest ways to save on health care costs.
  • Address the elephant in the room: No one likes discussing topics like illness and end-of-life care but having a plan for long-term care can help you and your family mitigate unforeseen issues and expenses in the future.
  • Consider utilizing annuities in your retirement plan: Annuities can provide a steady stream of protected income to help cover some of your monthly health care expenses, giving you peace of mind knowing there is a set amount of income you’ll be able to count on. You can even transfer money from some annuities to pay long-term-care premiums without owing taxes, and the providers will continue to provide payments even if you outlive the average life expectancy. Some annuity products have riders that can help with medical expenses and provide needed funds for end of life. For example, some innovative annuity products allow you to withdraw money, without paying surrender fees, if you or your spouse becomes seriously ill. There are a variety of annuity options available– including immediate and deferred long-term care annuities – so contact your financial professional to help evaluate what’s right for you.

To help determine the best plan for long-term care needs, consult a financial professional today, and see if an annuity with long-term care features may be right for you.

For more on this topic, see the Your Money Map conversation with Jean Chatzky featuring Carolyn McClenahan on the Alliance for Lifetime Income Facebook page.

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