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Preparing for the Cost of Health Care in Retirement 

Retirement Planning
A retired couple sitting on a couch and discussing health care in retirement

After you retire, health care will likely continue to be a large expense. The average 65-year-old couple pays roughly $280,000 combined for their health care in retirement, according to Money. To help prepare for these costs, there are a few strategies you could consider implementing in to your financial plan while you're still working.

Open an HSA

A health savings account (HSA) may be an effective way to help save for health care in retirement because this account combines multiple tax benefits. When you add money to an HSA, you receive an immediate tax deduction for your contributions. Then, whenever you take money out to spend on health care, your withdrawals are completely tax-free.

In 2019, you can put up to $3,500 per year into an HSA when you're single or $7,000 for family coverage, according to the Internal Revenue Service (IRS). You can also add another $1,000 per year if you are 55 or older.

The money in your HSA is for health care expenses such as deductibles, dentist visits and medical supplies. If you use your HSA funds for nonmedical expenses, the IRS charges income tax and a 20 percent penalty on whatever you take out.

This penalty only applies when you're younger than 65. Once you turn 65, you can use your HSA for nonmedical spending. You'll owe income tax for these withdrawals but not the penalty.

Add to Your Retirement Savings

As you get closer to retirement, you might consider putting aside as much money as you can to help prepare for health care costs and everything else. This strategy could be even more important if you don't have an HSA because you won't have a separate account for health care and will need to cover costs with your savings.

Remember, after you turn 50 you can contribute more per year to both an individual retirement account (IRA) and a 401(k). As of 2019, you can put an additional $1,000 a year into an IRA, maxing it out at $7,000, and an additional $6,000 per year into a 401(k), maxing it out at $25,000, according to the IRS.

If you're not sure whether you've saved enough for health care in retirement, these catch-up contributions may help make a difference.

Consider Medicare Supplement Insurance

While Medicare helps cover the majority of your health care expenses, it won't cover everything. For example, Medicare states they only pay 80 percent of most doctor services, leaving you to cover the remaining 20 percent, which can add up.

There is another type of insurance you can buy when you retire, known as Medicare supplement insurance. These policies help cover some of the health care costs that aren't paid for by Medicare in exchange for a monthly premium. When you first join Medicare, you receive a six-month open enrollment period, during which you can purchase a Medicare supplement policy without any sort of medical underwriting.

Consider Long-Term Care Insurance

Besides medical expenses, another major health care cost in retirement is for long-term care, like home visits from a health care worker or a stay at a nursing home. According to U.S. News, more than two-thirds of Americans 65 and older will need long-term care in some form, and the average cost of a private room in a nursing home is more than $92,000 per year.

Medicare does not pay for long-term care, so expect to cover these costs on your own. One option is to build up more savings in your retirement plan and/or HSA. Another option is to buy long-term care insurance, which helps cover these types of costs.

Finally, you could buy a life insurance policy with a long-term care rider. If you end up needing long-term care, these policies may pay out some of the death benefit toward the costs. For example, if you buy a $300,000 life insurance policy, it might distribute up to $200,000 to long-term care and then you would have $100,000 left as a death benefit. If you don't end up needing long-term care, your beneficiaries receive the entire $300,000 life insurance payout.

Maintain a Healthy Lifestyle

Beyond preparing for the cost of health care in retirement, you could also help lower your expenses by maintaining a healthy lifestyle. Consider keeping up with your doctor's recommendations, staying active, following a healthy diet and scheduling regular visits to the eye doctor and dentist.

This lifestyle may help prevent costly medical problems at all stages in your life. By regularly visiting your medical provider, they may be able to treat issues before they become more serious and more expensive.

Like anything else in life, the sooner you prepare for health care expenses in retirement, the more options you will likely have to help build your savings and prepare your budget. These strategies can help you be prepared for both the expected and unexpected health care costs in retirement.

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Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.