Wednesday, March 29, 2017

How to Control your health care

It's no secret that health care becomes a bigger concern for most of us as we grow older. More ailments are likely to develop, which means more money spent to visit health professionals and buy medication. Even if you remain healthy through your later years, the costs of preventative care and preparing for potential unexpected health situations are rising.
Health-related expenses will likely be one of the biggest components of your retirement budget. You need to be prepared to pay for comprehensive insurance coverage and potential out-of-pocket costs for care. Here are three strategies to help you manage this critical expense in retirement.
Understand how Medicare works
The good news for Americans age 65 and older is that you qualify for Medicare. That makes increased dependence on health care services more affordable. At age 65, most people automatically qualify for Medicare Part A at no cost, which primarily provides coverage for hospital stays and skilled nursing care. Medicare Part B must be purchased (approximately $109 per month in 2017 for most retirees). Part B covers the costs of visiting a physician, but with some deductibles. Many people purchase additional coverage to use for out-of-pocket expenses, such as a Part D prescription drug plan or a Medicare Supplement policy.
With Medicare, timing is important. Signing up when you first qualify for coverage will keep costs at the lowest level. If you maintain insurance through your employer after turning 65, you can delay Medicare enrollment without risking late penalties.
If you retire prior to age 65, you will need to purchase insurance on the open market to cover health-related expenses until you become eligible for Medicare. Individual coverage tends to get more expensive as you grow older, so work the cost into your retirement budget. Some employers offer retiree health insurance as a benefit. Check with your human resources department to see if this option is available to you.
Allocate sufficient funds for health care costs
As you develop your retirement income strategy, make sure you have money set aside for health expenses that will be your responsibility. By one estimate, the average 66-year-old couple will need to tap more than half of their lifetime pre-tax Social Security benefits to pay for health care expenses throughout retirement. Most people will likely have to rely, in part, on their own savings to help offset some medical expenses.
Along with other retirement savings, you may want to establish a health savings account (HSA) during your working years. HSAs are designed to help build tax-advantaged savings to pay for out-of-pocket medical expenses you incur during your working years. However, any leftover funds can be applied to health expenses later in life, including premiums for Medicare and long-term care insurance. Keep in mind that you must be enrolled in a high deductible health plan to open an HSA.
Focus on your own health
One way to potentially keep health care costs under control in retirement is to create or maintain a healthy lifestyle. Small changes you make today, such as eating right or prioritizing sleep, could reduce the likelihood that medical issues will impact you later in life. Being physically active may also benefit your finances in retirement - according to the American Heart Association, it could potentially help you save $500 a year today on health-related expenses.
Having a plan doesn't guarantee that you will avoid heath issues, but you may find comfort in knowing how you can tackle health care costs in retirement.
Scott D. Serfass, CFP®, CRPC®, CDFA™, CLU®, ChFC® is a financial advisor and senior partner of Serfass, Phillips & Associates, a financial advisory practice of Ameriprise Financial Services, Inc. His team specializes in helping people retire confidently and develop a plan to effectively share wealth across multiple generations. Throughout his career, he has witnessed many families continue to grow despite global and economic turmoil. This experience and research paved the way for his book, Family Success.


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