Planning for retirement is a tedious process that usually caught many retirees off guard. It’s said that most retirees are confident that they have enough savings to cover all their healthcare expenses, which is seriously alarming. One of the possible reasons for this is the overestimation that many people have with the coverage of Medicare. This health insurance program is designed for people with disabilities and those aged 65 and up.
But just like any other insurance program, Medicare also falls short in various areas. If you are one of those who plan to rely on this healthcare insurance for your retirement medical expenses, you should now start budgeting for premiums, deductibles, and various out-of-pocket costs.
Build a solid retirement plan
Building a personal retirement plan is highly individual but can give you tons of benefits if constructed properly. To start, gather all your financial documents to get a better picture of your assets and things, including medical costs, that you may need to save for. These include your bank account statements, pension plan paperwork, tax-free savings account, tax returns, and investment statements.
Use your bank and credit card statements to see at least three months of your expenses and list down your loans and debts as well. This will enable you to see how much money you may need for your future healthcare needs and overall retirement. In case there is a gap between what you need and what you’re currently saving, you should plan. You can add new income streams, defer more money into your retirement plan, or make catch-up contributions to your IRA or 401k if you are age 50 and over and if your plan still allows it.
Start saving early
If you’re looking to reach your retirement goals, especially have enough money for medical expenses, you need a proper savings strategy. It’s a golden rule that your retirement and savings plans are based on what you need the most. You can start with as small as $250 and make it a habit. A savings strategy doesn’t need to be complex. Instead, it must be a continuous lifelong habit. Consistently save on your retirement or personal savings account and tap into it during extreme healthcare needs.
To make the savings an easier habit to sustain, advisors recommend automating your savings. You can automate regular contributions to your retirement fund, personal savings, emergency fund, or other savings account that you have. If you have a 401k or an individual retirement account, be sure you contribute to them first.
Look beyond your savings
If you want to start a personal savings account, that’ll be great. But be sure to acquire a health savings account (HSA). This account is popular for helping individuals save for medical expenses with three different tax benefits: (1) Contributions are tax-free; (2) Qualified distributions are tax-free; (3) Gains within the account grow tax-free. With such perks, it’s undeniably an amazing addition to your retirement or personal savings plan.
In opening an HSA, it’s vital to learn about the kind of healthcare expenses that are covered. Some costs that are likely to be qualified include prescriptions, surgeries, dental needs, home health care, vision care, and more. If you plan to utilize your HSA funds for a non-quality medical cost, the Internal Revenue Service can issue a 20% penalty plus income taxes on the distribution amount.
Assess your current health needs
Take note that your ongoing medical care can largely account for your retirement health spending. For such reason, it only makes sense to evaluate your current health and family medical history to identify any long-term medical concerns that can occur as you grow old. For instance, conditions such as osteoporosis, dementia, arthritis, diabetes, heart disease, and high blood pressure are common for people age 50 and above.
Assessing your current medical needs and family history will provide you with a clearer picture of how much you could be spending on ongoing and potential health needs. At the same time, this also gives you a better sense of your lifestyle. Maybe you need to switch to healthier lifestyle habits and minimize the risks of medical issues.
Medical costs, especially during retirement, can be enormous. This is why it’s necessary to be properly prepared for those expenses even before they come your way. Start a strong retirement plan right now using the tips we’ve mentioned in this blog. Establish proper medical planning and ensure that you will live out your retirement goals and other dreams in the future! In case you’re still uncertain how to get started, we strongly advise that you talk to a trusted retirement and financial plan advisor to get the best out of your money.