When planning for retirement, far too many seniors fail to address one of the single most important expenses they're likely to incur: healthcare expenses.
While close to three fourths of affluent older adults have expressed concerns about affording healthcare in retirement, far too few are actually making plans to cover their costs. Most don't understand how to make these plans, or even how to estimate the money they'll need for care. In fact, 53% of affluent older Americans responding to a recent Nationwide survey didn't know how to estimate their future healthcare expenses, and 65% had no clue how to estimate long-term care costs.
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You can't afford to go without a plan for healthcare as a senior. In fact, you need to start planning as early as possible to set aside funds you're likely to need to cover care expenses during your golden years. If you don't have savings for care, you're making a major mistake.
Most people don't understand how much to save for healthcare
One big reason why so many people make the mistake of not planning for healthcare costs during their senior years is because they think Medicare will cover much more than it does. In fact, Medicare has major coverage limitations and, despite what more than half of affluent older adults believe, Medicare Part B coverage is not free.
Older adults also underestimate likely costs of care, and most aren't talking with their financial advisors about planning for healthcare costs. More than half of survey respondents with financial planners hadn't broached the subject of healthcare, often because they consider care costs to be a personal issue.
Unfortunately, not talking to an advisor or learning the truth about Medicare leads to seniors saving far too little. The reality is that a senior couple with high prescription drug expenses will need as much as $370,000 to cover care costs during their senior years -- yet 27% of affluent older adults told Nationwide they couldn't cover more than $1,000 of unplanned expenses, and 60% couldn't cover more than $5,000.
You don't have to make this major retirement planning mistake
While most people aren't doing enough to save for healthcare costs during retirement, you don't have to be one of them. In fact, you should start investing for healthcare as early as possible.
If you're eligible, one of the best ways to invest for future care costs is to put money into a Health Savings Account each year. A HSA is available if you have a high deductible health plan. You can put funds in the account with pre-tax dollars, invest the money, and leave it to grow. If you withdraw funds for qualifying healthcare expenses, you won't pay taxes when the money comes out -- so you get an even better tax break than with a 401(k) or IRA.
Despite the fact HSAs are a valuable tool for saving for healthcare in retirement, just 30% of affluent older adults who have access to an HSA contribute to one. If you can contribute to a health savings account, start doing so today. If you aren't eligible, increase the contributions you're making to your 401(k) or IRA so you have additional funds for healthcare above and beyond what you need for routine living expenses.
When you're nearing retirement, you should also carefully research what Medicare does -- and doesn't -- cover, and look into Medigap and Medicare Advantage plans to find coverage best suited to your needs. Long-term care insurance to cover the costs of nursing home care could also be an option to protect your finances, although you'd need to shop very carefully for a policy to get the coverage you need.
Don't let healthcare costs ruin your retirement plans
By making a plan to deal with costly healthcare services you're likely to need in retirement, you can avoid a major retirement mistake that could derail your future. Start planning today by investing for healthcare and researching options so you can enjoy your retirement instead of spending it worrying that you'll incur care costs you can't afford to pay.
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