Is Social Security enough to cover your medical care in retirement? Do you have a plan to cover retirement medical costs?
According to Healthview Services, the average 66-year-old couple will require 57% of their lifetime, pre-tax Social Security benefits to pay for health care costs.
If you’re close to retirement, you’ve probably spent some time thinking about the total costs of continued care, how much coverage you will have, and how much you will need to pay out of pocket.
But chances are, there are some things you may have overlooked. Here’s what you need to know if you’re trying to plan for long-term medical care in your golden years.
Understand What’s Covered
When budgeting for long-term medical care, it’s important to understand exactly what is covered by your insurance and what will need to be paid out of pocket.
Most retirees have their Medicare premiums deducted from their Social Security payments, which will cover things like doctor visits and most tests and prescription drugs.
But Medicare won’t cover co-pays or other out-of-pocket expenses like eyeglasses, contact lenses, dental care or hearing aids.
It’s possible to purchase supplemental insurance policies, like Medigap, which will cover some of these additional services and provide a more predictable health insurance bill, but keep in mind that more comprehensive coverage will come with larger premiums.
It’s also important to note that Medicare only covers up to 100 days of nursing home care, after which you will be responsible for all further long-term care costs.
Know Where You Will Live
Because Medicare will not always cover ongoing costs of nursing homes or other assisted living facilities, you will most likely need separate funds to handle incurred costs.
According to Genworth’s Annual Cost of Care Survey, the median cost of a private nursing home room in the U.S. in 2016 increased to $92,378 a year, up 1.24% from the previous year.
Living costs can also fluctuate based on which state you live in. The U.S. states with the most expensive median monthly assisted living costs are:
- Alaska – $6,000
- New Jersey – $5,994
- Delaware – $5,533
- Connecticut – $5,000
- Massachusetts – $4,950
The U.S. states with the least expensive median monthly assisted living costs are:
- Missouri – $2,288
- Alabama – $2,600
- Georgia – $2,703
- Kentucky – $2,720
- Michigan – $2,850
Other important factors to consider include apartment size, the level of care you will require, and any additional non-refundable fees like new resident enrollment or renovation to the living space.
If you choose home care instead of assisted living, you may also need to calculate the costs of rent or mortgage, utilities, maintenance, as well as things like meals and a personal care assistant, if necessary (most PCA’s charge between $10-25 per hour for at-home care, which can quickly add to your budget).
Consider Additional Expenses
You should also take into consideration life events that are not directly related to healthcare but could affect your healthcare costs, like travel.
That could include things like local travel to doctor’s appointments, to visit family, or even longer trips across the country or around the world. Retirees account for around 80% of all leisure travel worldwide.
You may even be one of those retirees that decide to live abroad for some time, in which case you may not have access to local health care unless you have international health insurance on top of your regular coverage.
Even if you don’t plan on travelling during retirement, other things may affect your healthcare costs like alternative medicines, supplements, meals, exercise programs, and other forms of fitness or wellbeing activities.
You may also save up for emotional needs, such as social events and activities, therapy or mental health treatment, stress management, or other forms of self-care.
In one study, 44% of retirees experienced increased stress during a long-term care situation, and in another study by Genworth Financial, 55% of all respondents reported that their greatest fear regarding long-term care was being a burden on their family.
Emotional, spiritual, and mental health are equally as important as physical health during retirement. You may require additional care and services beyond the occasional doctor’s visit to keep yourself healthy.
Brush Up On Tax Laws
While the Affordable Care Act may not be around forever (at least not in its current form), there are still some tax considerations you will need to take into account when planning for healthcare in retirement.
Currently, Premium Tax Credits are awarded based on income, regardless of medical needs. However, your income is judged differently for these tax credits than it is for your regular income. At incomes above 400% of the Federal Poverty Level (FPL), subsidies are completely eliminated.
This means that you will have to pay close attention to your overall income during retirement. If you make too much money, you risk losing subsidies, but if you make too little, you may need to enroll in Medicaid or suffer coverage loss.
There are other forms of investment income that will affect these subsidies (along with healthcare costs), like capital gains. (We’ve written about those tax considerations here).
Essentially, if you’re retiring soon, and think you need to rely on the ACA and you want to minimize your expenses, you will need to do some research into how taxes will affect your overall costs, or consult a tax expert.
Thinking of healthcare in retirement isn’t always easy. There are always medical emergencies that happen that may throw you for a loop.
Yet the best way to overcome any healthcare obstacles is to plan for cost coverage as much as possible before retirement.
Take some time to calculate how much you will need for living expenses, how much your Social Security will cover in terms of Medicare, whether or not you will need to purchase supplemental insurance, and any additional tax considerations based on your income.
Remember that there will be more healthcare costs than just simple dentist or doctor’s bills. You may also want to budget for any mental health care as well as things like exercise and travel that may affect your health.