Take these actions in your 50s and reap the benefits
When we dream of retirement, the images that rush to mind tend to be things like luxury cruises and walks on the beach—and no work. It’s a beautiful vision, but there is one other major thing to also keep in mind: your health care and how to pay for it.
After all, health care is one of the biggest expenses people face when they turn in their work badge for good. A recent calculation suggested that a healthy couple retiring at age 65 in 2018 would need nearly $300,000 to cover health care for the remainder of their lives! Of course, if you add on some chronic conditions, those costs go up accordingly.
And if you are planning to stop working before the age of 65—when you are finally eligible for Medicare—you may need to budget an extra $12,000 to $20,000 per year to pay for health insurance, unless you have a spouse who will still be working and taking care of your health coverage.
The costs are substantial. The good news: If you’re in your 50s, good planning can help it all go smoothly. Just take these three important actions.
Take Care
Good health pays. The healthier you are, the less you spend on health care. Of course, it can’t always be controlled, but do your best to stay healthy. Experts say that you should expect about 10% of your yearly retirement income to go to health-care costs if you:
- Are healthy
- Exercise regularly
- See a doctor only once or twice a year
You’ll likely need double that if you already have a chronic disease or condition.
Stash Money in Your HSA
You won’t be able to put money into an HSA (health savings account) once you’re on Medicare. An HSA allows you to set aside money today to cover medical bills in the future. That’s a good idea because you likely have more income when you’re younger (and healthier) than you will when you’re older (and retired). HSA funds can be used for all sorts of things, including out-of-pocket expenses, eyeglasses, prescription medicines, and even health insurance payments (once you are over 65). And it won’t go away, so it’s there when you need it—whether that’s in one year or 10.
Bonus tip #1: Consider funding your HSA before your 401(k). Because you have more money now, you may be better off investing in the HSA first, then putting what’s left into your retirement fund (which is taxed upon withdrawal—likely when you’re on a fixed income). Unlike the 401(k), when you withdraw the money from the HSA for a qualified medical expense, you won’t see your tax bill (or bracket) go up.
Bonus tip #2: Make sure you’re in the right health plan. To put money into an HSA, you must first be enrolled in a qualified high-deductible health plan (HDHP). Only about 20 percent of employers offer this type of plan, according to the Kaiser Family Foundation. Ask your HR representative at your workplace (or your spouse’s) if an HDHP is an option for you. Once you transition to Medicare, HSA plans are not available, although you can use the money you’ve previously saved toward your medical expenses once you retire.
Do Your Medicare Homework Early
Don’t wait until you’re just about to turn 65 to start reading up on Medicare. It’s not as simple as you might be hoping—there are several plans, and you will need to consider all the options before making a choice. So it’s best to think it over now, while you have time. Talk to your health-care provider—and friends or family who have retired—and peruse the resources on the Medicare website.
Bonus tip: Know the ABCDs of Medicare.
· Parts A and B(aka Original Medicare). These cover inpatient and outpatient health care, such as doctor’s visits and overnight hospital stays.
· Part C(Medicare Advantage).This covers benefits beyond Plan A and Plan B, such as dental and vision.
· Medigap.This is named for its ability to fill in the gaps left by A and B. You can’t have both Part C and Medigap, though: You need to select one.
· Part D. This plan covers prescription medications. Note: If you have Part C (Medicare Advantage), you may alreadyhave Part D coverage, so you will not need purchase this plan.
