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The High Costs of Healthcare in Retirement

Planning for Healthcare Costs

For baby boomers thinking about retirement in the next year or two, or for those who have recently left the workforce, it can be an exciting time. Whether you are planning for travel you simply didn't have time to take during the peak of your career, completing that lengthy list of upgrades to your home, or spending unlimited time relaxing with your spouse, there is no better feeling than knowing retirement is on the horizon. For some retirees, though, the worry surrounding the question, "Did we save enough?" can give reason to pause putting the finishing touch on those final plans.

Most retirees have taken the time to crunch the necessary numbers before pushing the retirement button, taking into account standard living expenses and plans for travel in order to determine if they are able to make that move. Unfortunately, one of the greatest costs in retirement is often overlooked – the need to cover rising healthcare costs.

According to Fidelity Investment's annual study on healthcare costs in retirement, a couple retiring in 2013 at age 65 will spend, on average, $220,000 for insurance premiums, deductibles, copayments for doctor's visits and prescription drug coverage; most retirees only budget an average of $50,000 for these costs. This can be attributed to the misunderstanding that Medicare insurance will cover the majority of healthcare costs for retirees, which simply is not true. Retirement savings can take an unexpected and devastating hit when the cost of healthcare is underestimated due to progressive disease diagnoses such as Alzheimer's or dementia. In order to combat the staggering costs of healthcare during retirement years, individuals should get educated on options available and devise a plan prior to or shortly after leaving the workforce. Here are a few cost saving strategies to consider.

Medicare Supplement Plans

Retirees can save a substantial amount of money by seeking out a Medicare supplement plan, known as Medigap. This type of plan is a fee-for-service insurance that can help retirees pay for co-pays for doctor visits, coinsurance as well as a broad range of deductible costs that Medicare alone will not cover. In order to be eligible for a Medigap policy, retirees must already have Medicare Part A and Part B in place. It is also important to note that this type of insurance bridge comes at a cost, and will not cover ancillary care, including dental or vision, hearing impairment aids or long-term care costs. Medigap insurance plans also do not cover prescription drug costs.

Consider Medicare Part D

In addition to a Medigap insurance plan, retirees may also want to consider purchasing Medicare Part D for prescription drug coverage. The majority of Part D plans will cover a big portion of prescription drug costs, but it is important to know that each plan also requires a monthly insurance premium and most likely, a deductible. There may also be a gap in coverage for some Medicare Part D plans, but substantial savings can be acquired through the use of discount programs on name-brand drugs. If a retiree has a lengthy list of prescriptions he or she must take on a regular basis, researching a Medicare Part D plan will provide savings on healthcare costs in retirement.

Stay Active and Healthy

Although none of us can predict with great accuracy what health issues may arise later in life, retirees can do themselves a great deal of good by staying active during retirement. Physical activity can promote higher levels of energy, improved heart health and overall longevity; each of these leads to fewer visits to the doctor and can reduce the potential for chronic illness as you age. Although diseases like Alzheimer's cannot be planned for, leading a healthy lifestyle can drastically limit the total amount of medical expenses during retirement years. In fact, according to the American Heart Association, those who remain active later in life can save, on average, $500 each year in healthcare costs.

Although it may seem as though healthcare costs will take a bite out of your heard-earned retirement savings, there are numerous ways to reduce to cost for medical care once retirement begins. Consider your options when it comes to additional insurance coverage, including Medigap policies and Medicare Part D, and try to maintain a healthy lifestyle well into your retirement years. If these action steps are taken early in your retirement planning, the healthcare costs you must pay in retirement may not be as much of a surprise.



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