Be Your Best Financial Self! Are you spending too much on health care?
Win the Battle Against Retirement Health Care Costs
When you think about how much money you'll need in retirement, you may consider your living costs, travel expenses and hobbies you'd like to enjoy. But you may be overlooking one of the largest costs for most retirees: health care.
Couples who retired last year will need an average of $275,000 to cover medical costs over the course of their retirement, according to research by Fidelity Investments.
Here are some tips to meet the challenge of rising health care costs without compromising your other retirement goals:
Save more now.
The best way to manage rising health care costs is to save more money before you retire. Consider maximizing your annual contributions to your tax-advantaged employer 401(k) plan and your IRAs.
Use health savings accounts.
If you're eligible, save money in health savings accounts (HSAs). HSAs allow you to contribute pre-tax money to an account that can be invested like a 401(k) or IRA. HSA funds are not taxed as long as the funds are used to pay for qualified medical, dental or vision expenses. You can contribute up to $6,850 a year in a family plan or $7,850 if you are age 55 or older.
Be network smart.
Out-of-pocket health care costs rise considerably if you use doctors or facilities out of your insurer network. Even if your primary doctor and clinic is in your insurer's network, a specialist or testing center may fall outside of it. Be sure to check your insurer's network rules before each visit to a new doctor or location.
Use alternative providers.
Consider avoiding hospital visits and emergency rooms when practical. If you have the option to go to a clinic or urgent care center, out-of-pocket costs there are often a fraction of the out-of-pocket costs at a hospital.
Reduce Medicare premiums.
A large portion of the cost of retiree health care comes from Medicare premiums, which rise according to several tiers of income brackets. To pay the lowest rate, keep your adjusted gross income below $85,000 if you are single or $170,000 if you are married filing jointly. There are various tax planning strategies you can use to stay below the threshold, including managing required minimum distributions from retirement accounts and Social Security payments.
Planning that takes into account rising health care costs can save you the added financial burden upon retirement, leaving more funds for the things you look forward to doing during your golden years.