What To Do in Your 40 and 50s To Plan for Healthcare Costs in Retirement
Retirement might still feel a long way off in your 40s and 50s, but that day is going to arrive faster than you think. And the time to prepare financially and physically is now, not later.
While retirement advice often focuses on finances, adults also need to make plans for healthcare costs, since older age is when people are more likely to need these services. Here we get expert takes on the best strategies for preparing for retirement healthcare costs early.
Build Up Non-Retirement Savings
Though this tip is not specifically healthcare related, it’s a good idea to build up non-retirement savings as well as contributing to retirement accounts, says Corey Noyes, owner and financial advisor with Balanced Capital.
“If you retire at say 62, and have some years you need to pay for insurance before Medicare kicks in, your plan will be to live off of that savings you built up. If you are living off a non-retirement account, your earned income for the year will be very close to zero. That will then trigger substantial subsidies for health insurance through the Obamacare exchange.”
Take Care of Your Health Now
Taking care of your health now is an investment in your future that could save you on healthcare costs. David Edmisten, CFP, and founder of Next Phase Financial Planning, LLC, said, “Middle aged people should consider the current state of their health and their family medical history. Are there chronic health issues that need specific care? Are there common health issues in the family that could materialize later in life? Middle aged people should also consider how they prefer to manage their healthcare and lifestyle choices. Are there changes in diet, exercise or personal wellness that could prevent or reduce healthcare costs in the future? By maximizing healthy lifestyle changes now, one can potentially decrease their annual healthcare costs in retirement.”
Healthcare costs make up 9% to 14% of the average older household’s spending, a significant expense in retirement, Edmisten said. “Reviewing their current health status, making healthy lifestyle changes, budgeting for expected health costs, considering health coverage options before Medicare and evaluating savings options like a health savings account (HAS) can all help a middle-aged person plan effectively for health costs in retirement,” he said.
Find a Life Insurance Policy That Covers Chronic Illness
David Lewis, founder and owner of Monegenix, urges middle aged people to ensure that their life insurance covers chronic illness benefits. “[This] can help an individual save their precious assets if they encounter a serious health condition nearing/during retirement.”
Chronic illness can often prevent a person from working or even caring for themselves. In this scenario, the insurance company usually allows the individual to use a portion of their death benefit to meet the healthcare expenses, he explained. “Plus, they won’t be overspending on expensive long-term care premiums, which can go into the drain if any health-related issue doesn’t happen to the individual.”
Plan for Higher Healthcare Costs
As much as you think healthcare costs in retirement will be, they’ll probably be higher than what they currently are, and you should plan accordingly, said Andrew Rosen, CFP, president of Diversified LLC.
“It can be useful to work with a financial planner to map out various scenarios with cost estimations that can give you savings goals,” Rosen said. “There are a wide variety of ways to save for your healthcare costs, depending on your specific situation — if you have a health savings account, that may be a good option for saving, but there are also long-term care insurance plans, annuities and other options available. The amount you’ll need depends on your life expectancy, health and other factors.”