Making smart choices for retiree health insurance can save you money and keep you healthy and alive.
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Are you a retiree or pre-retiree who’s worried about health care costs in retirement? You’re not alone. According to a recent survey by the Nationwide Retirement Institute, almost two out of three (62%) boomer respondents reported that expensive health care costs is a top retirement fear. And more than two-thirds (68%) of all respondents worried that a single large health care issue could ruin their finances for years to come.
However, “worry” is not a strategy! The best way to deal with this concern is to inform yourself and make smart choices to address your fears.
Let’s look at five mistakes that pre-retirees and retirees often make about health care and how to correct these mistakes.
Mistake #1: Not Budgeting For Increased Health Care Costs
Many new retirees are unpleasantly surprised to learn that their health insurance premiums and other out-of-pocket health care expenses have skyrocketed, compared to the costs they paid when they were covered by an employer-sponsored health insurance plan. According to the Nationwide survey, 40% of retirees don’t know how much they’ll expect to pay for health care costs in retirement.
This mistake is particularly acute for people who want to retire before they’re eligible for Medicare at age 65. For those retirees, monthly premiums for health insurance that they buy on their own can easily exceed $1,000 per person. As a result, it’s critical to understand if these premiums will fit in your retirement budget before you decide to retire.
Mistake #2: Not Planning For Medicare’s High Out-Of-Pocket Expenses
Many people mistakenly assume that Medicare is just like the employer-sponsored health insurance plan they had while working, but that’s not the case. Medicare has three parts, each with their own deductibles and copayments, which are typically much higher than the amounts you paid while you were covered by your employer-sponsored plan.
As a result, you’ll want to estimate the amounts of deductibles and copayments you might incur after you retire to see if they’ll fit into your retirement budget.
Mistake #3: Overlooking Expenses That Medicare Doesn’t Pay
Medicare doesn’t cover most costs for vision, hearing, and dental conditions. In particular, Medicare doesn’t pay for eyeglasses, hearing aids, or dental procedures. All these common conditions can be very expensive. If you expect to incur expenses in these areas, you’ll want to understand their potential costs to determine if they’ll fit within your retirement budget or emergency fund.
It’s also important to note that Medicare doesn’t cover long-term care expenses, a fact that only about one-third (34%) of the Nationwide survey respondents knew.
Mistake #4: Avoiding Lifestyle Decisions That Can Improve Your Health
Half of the survey respondents who were age 65 and over said they would advise their younger selves to maintain a healthy diet and take care of their health to help save on health care costs in retirement. No matter your age now, it’s a great idea to improve your diet, exercise, and sleep habits, which can certainly benefit your health and might save you money. However, there’s no guarantee that you won’t still incur expensive medical conditions, so you’ll still want to plan ahead for obtaining health insurance that fits your budget and prepare for some out-of-pocket expenses.
Mistake #5: Not Seeking Professional Help
The Nationwide survey clearly demonstrates the importance of planning ahead for health care costs in retirement and working with a financial professional (FP) to help manage these costs. The survey reported that respondents who work with an FP are more than twice as likely to have a plan to pay for health care costs in retirement compared to respondents who don’t work with an FP (62% vs. 25%). Similarly, respondents who work with an FP are more than twice as likely to have estimated their costs for health care in retirement (52% vs. 25%).
Unfortunately, only about one-third of respondents work with an FP. So, one smart move would be to work with an FP to develop a plan to address your health care costs in retirement. But buyer beware: Not all financial professionals help their clients with retirement health care costs. As a result, a key question to ask a potential FP is whether they’ll help you develop plans to manage health care costs in retirement.
Addressing these five mistakes might seem like a lot of work. However, ignoring these issues can have unpleasant or even serious consequences. Survey respondents reported that if they incur high medical expenses in retirement, they might need to cut back on travel and other nonessential expenses, take on a part-time job, or cut back on health care. Planning ahead for health care costs can help you avoid these consequences and stay healthy and alive.
