Controlling Healthcare Costs in Retirement

In a recent study of persons nearing retirement age conducted by Bank of America affiliate Merrill Lynch, two of the top worries of respondents were health concerns and the cost of healthcare. Seventy-two percent of those polled indicated that serious health challenges were the main concern, with the closely related issue of having sufficient resources to maintain a comfortable lifestyle without becoming a burden on their families.

The fact that health matters rank near the top of the anxiety list for those nearing retirement should not come as a surprise. For decades, healthcare expenses, along with the cost of higher education, have inflated at a more rapid rate than the core rate of inflation in the United States. And with the Baby Boomer generation entering retirement and beginning to make up a majority of healthcare consumers, this trend is not likely to change.

The good news is that there are steps you can take to exert some measure of control over your healthcare costs in retirement. Some of these are simple, common-sense matters, and other, more complex decisions may call for the aid of a qualified and trusted advisor.

  1. Take care of yourself. This may seem obvious, but it is an all-important first step. Without question, we have no control over our genetics and other factors that play a part in determining our general health as we age, but each of us can exercise good stewardship over the health we have. Appropriate, regular exercise, controlling your diet, and following your doctor’s advice–including taking any medication as prescribed–will help you conserve your health and spend less time and money on healthcare.
  2. Learn about any retiree health benefits offered by your employer. This option is less common than it used to be, but some larger companies make available certain benefits to their retirees. Coverage, if it exists, can vary widely, so do your research well in advance of retirement in order to take maximum advantage.
  3. Do your homework on Medicare and Medicare supplements. Medicare is the number-one health benefit for most retirees, but the coverage structure is complicated. This is an area where a trusted advisor can be of tremendous help, since the ins and outs of Medicare coverage can create a number of confusing choices with regard to which Medicare supplement insurance plan is best for you.
  4. Investigate Health Savings Plans (HSAs). If you are eligible for an HSA, you can make pre-tax contributions. The funds in the plan can then be used to cover eligible medical costs, now or in the future. Funds can accumulate to offset future expenses, since these plans are not subject to the “use-it-or-lose-it” provision of Flexible Spending Accounts (FSAs).

One of the most important steps you can take, of course, is to simply be as well-informed as possible about your options for healthcare and related coverage. A recent study by Fidelity indicates that a couple retiring in 2014 could expect to spend $220,000 on healthcare during their retirement years. This makes advance planning, budgeting, and careful investment strategy all the more critical–now and later.

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