Look Ahead to the Cost of Health Care in Retirement

Planning for retirement sounds great. Dreaming about this time of life may be exciting, but anxiety can set in when you consider the cost of health care.

Worry can begin when you realize you don’t know how much your medical care might cost.

• According to the 2019 Fidelity Retiree Health Care Cost Estimate: If you can wait until age 70 to collect Social Security, the more you’ll collect.
• Consider supplementing your Original Medicare Plan (Parts A and B) with a supplemental Medicare Advantage plan. These plans can provide you with additional coverage for things like prescription drugs and travel coverage.

If you aren’t quite there, how you plan your next steps can help. Small steps can produce big results, offering financial security in retirement. Here are six ways you can put your mind at rest.

1. Boost your retirement savings

With retirement right around the corner, now is the time to add to your savings. Increase or max out contributions to your employee savings plan. The IRS also allows adults over the age of 50 to make annual catch-up contributions to some accounts:

• 401(k) – You can contribute an extra $6,000 each year.
• 403(b) – Employees with 5 years of service can contribute up to $6,000 annually.
• IRA – For a traditional or Roth IRA, you can make up to $1,000 more each year.
  

2. Open a health savings account (HSA)

Consider enrolling in a health plan that is HSA-eligible. You can contribute to a health savings account (HSA) without a tax penalty. Your contributions are made pretax. Your savings then grow tax-free. And you can withdraw money tax-free as long as it is used for qualified medical expenses.

3. Prepare for Medicare enrollment

The more you understand Medicare, the better prepared you will be for the cost. Take time to consider all your Medicare options. Consider a Medicare Advantage or Medigap plan. It requires less out-of-pocket spending than Original Medicare. Talk with a licensed Medicare insurance advisor to review specific plans and their price.

No matter what Medicare plan you choose, be sure to sign up during the initial enrollment period when you turn 65. The seven-month enrollment period begins three months before your birthday month. Joining during this period will help you avoid financial penalties.

4. Review our Medicare eligibility age chart

You may ask yourself; can I retire at age 62? The short answer is yes. The average age of retirement is 65 for most Americans. While three extra years of retirement may sound good, there are some serious drawbacks. For example, you can't contribute to employee-sponsored savings plans. You won’t have steady income. You also won’t be eligible to enroll in Medicare until you are 65. The question of can I retire at age 62 may be a moot point. Because it means you’ll be paying out of pocket for health insurance for three years. Refer to our Medicare eligibility age chart to determine when you can enroll.

Medicare Eligibility Age Chart

5. Put off Social Security benefits as long as possible

Another reason to put off your retirement is Social Security. Claim Social Security later and you'll receive more benefits. Each year you delay after turning 62, yearly Social Security payments increase by 6 to 8%. Even delaying for a year or two could pay off during retirement.

6. Live like you are already retired

An easy way to boost your savings is to cut back on your spending. Start by envisioning your retirement and look for costs to cut. Perhaps you can downsize your home or cook healthier meals at home. Limit the career clothing you buy. Consider purchasing a more practical car. These changes will save you money right away. They will also make the transition into retirement easier.