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Health Care Costs in Retirement: Are You Prepared for the Expected & Unexpected?

Retirement Planning
happy senior couple walks along the beach and reflects on health care costs in retirement

No one can predict the future, and costs in retirement can be hard to anticipate — especially with life's unexpected changes. Even with a financial cushion, things like health care could impact your carefully designed retirement plans. And leaving your loved ones with the responsibility of paying for your funeral could leave them undue financial strain.

Having a bit of leeway in your budget could allow you to save for these expenses now, so you don't have to rework your budget later. Consider your health and final expenses, and learn how you could prepare for both the expected and unexpected — just in case.

Health & Your Money

Even if you have a family history of longevity and health, it's impossible to know if a serious physical or mental illness will arise and create new challenges. Who would you trust to manage your finances? Now could be the time to think about examining this question. Many people turn to their spouse, adult children, other relatives or closest friends. It might be better to avoid leaving that decision for another day when you might not have an option to choose.

Once you've chosen a person you trust, and he or she has agreed to the role, you might want to make sure that person is familiar with how you record and track your finances. Writing down a step-by-step list of how that designated person could access your records, including passwords and security codes, could help. You could list what banks you use, what payments you receive — pension, Social Security, 401(k) and others — and what expenses you have. Updating that list at least once a year would help keep it current.

You might also benefit from planning now so you (or your trusted relative or friend) can cover any additional health care that might be needed someday. This could involve understanding exactly what insurance you're entitled to from your employer or what other resources are available to you upon retirement. An employee representative might be able to help you establish a baseline.

It might also be worth learning about Medicare Part A (inpatient costs), Medicare Part B (doctors' visits and home care) and Medicare Part D (the prescription plan), as well as how they differ from Medicare Part C, which is akin to a health maintenance organization (HMO) — not to mention Medicare supplement insurance, which could help cover additional health care expenses. The rising costs of Medicare plans and your individual finances could end up dictating which of the plans are right for you.

After learning about the basic coverage you can expect to receive, consider planning how to cover any other unexpected health care costs. There are many options to think about, including investing in a 401(k), purchasing an annuity, choosing a long-term care insurance policy or selecting another form of stable investment.

Establishing coverage for these unexpected costs is additionally beneficial because it frees you up to deal with the equally important issue of final expenses.

Pay It Forward

When it comes to the question of those final expenses, there's quite a debate on about how people should pay. Settling an estate is often time-consuming, so you might not be able to count on your beneficiaries having access to your savings to pay for your funeral, burial and other final needs. And rising health care costs could mean there won't be enough left to pay for those final expenses when the time comes.

Just as you may choose a trusted relative or friend to oversee your finances if you're incapacitated, you could also choose someone to oversee your final disposition and expenses.

There are also many items to mull over: Would you like to be buried, cremated — or do you have another option in mind? Would you like a wake, a funeral, a casual ceremony — or no service at all? Additionally, some people choose to pay for their funeral expenses ahead of time.

So, what are some of the options available to pay for your final expenses? There are several things you could consider, including the following methods:

  • One method is preplanning and paying for your funeral and burial or interment. Think about doing extensive research before deciding on this option to find a funeral home with a credible and established history. You could also ask about things like additional fees or whether the money is held in trust, and it might be worth getting the answers in writing before paying. Remember that a life insurance plan could also be used to cover final expenses.
  • Another method is setting up a pay-on-death or transfer-on-death bank account. This would allow your designated beneficiary to access money set aside for your final expenses. The funds are released to them once they show their identification and your death certificate, which means they wouldn't have to wait for your will to go through probate.

Even if you have a solid financial basis for retirement, you might take the next step to prepare for unexpected health care costs. Doing so could help ensure you remain financially solvent and able to weather all the expected — and unexpected — costs in retirement.

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