Why Budgeting for Healthcare Expenses is Essential for Retirement Planning

Why Budgeting for Healthcare Expenses is Essential for Retirement Planning

Retirement begins a new stage of life – one without work, endless free time, and more time to travel, spend time with family, or pursue hobbies and interests. While all of these endeavors cost money, retirees also have to consider the costs of home and vehicle repairs, everyday expenses, and most importantly, rising medical costs.

As you get older, your healthcare needs will likely increase making healthcare costs one of the biggest expenses you’ll have in retirement. Planning ahead is important, and there are many steps you can take today that will enhance your retirement funds and cover the cost of increasing medical expenses. Read below to learn more.

Budgeting for Healthcare

Every year, Fidelity completes a Retiree Health Care Cost Estimate, helping retirees plan expenses for the future. Currently, the average 65-year-old couple will need $315,000 post-tax dollars saved to cover healthcare expenses during retirement. While that number continues to change (and grow), the amount you’ll spend will depend on when you retire, your health, life expectancy, and other factors.

Keep in mind, the $315,000 does not account for everyday expenses, travel, loans, home and vehicle repairs, and other necessary and discretionary spending. That’s why it’s important to account for healthcare costs in your budget today and adjust over time.

A retirement budget considers how much money you will have each month from income outlets, including Social Security, pensions, distributions, and more. Once you understand your financial snapshot, you will need to review expenses to learn where you can make reductions or adjustments. Tools like the 50/30/20 budget rule can help you divide your income and expenses into categories so you know where you can afford to decrease spending and increase savings.

Additionally, you can amplify retirement savings by adding an IRA to your savings portfolio, contributing more to your 401(k) each month and meeting or exceeding your employer-match dollars. If you’re age 50 or older, maximize your savings with catch-up contributions, allowing you to contribute additional funds to your 401(k) and IRA annually. Learn more about maximizing your retirement savings today to enhance your future nest egg.

Medicare Coverage

Medicare is health insurance provided by the government for individuals 65 and older. Coverage is divided into four parts – A, B, C, and D and includes hospital insurance, long and short-term care, doctor’s visits, medical equipment, prescriptions, and more.

Medicare coverages have different premiums, copays, and out-of-pocket maximums, so make sure you review plan options before selecting one that works for you. In most cases, you have paid for Medicare coverage through taxes while working, but when you’re retired, you may still incur monthly costs and will have annual deductibles and coinsurance to pay, meaning more funds to account for in retirement. Learn more about Medicare in retirement here, or visit medicare.gov.

Open a Health Savings Account (HSA)

Health Savings Accounts (HSA) are a great way to save for future healthcare expenses while reducing taxable income today.

As a tax-advantaged savings account, an HSA provides a way for participants to set aside funds for future procedures, copays, surgeries, medications, and other health-related expenses. The funds roll over from year to year, providing a way to save for the future without losing the funds you’ve contributed. It’s important to note that once you reach age 65, you can no longer contribute to the fund, though you can still use the funds.

Learn more about how an HSA works, tax advantages, contribution rules, and how to use the funds in Slavic401k’s blog.

Retirement has many positive aspects, and with proper planning, financial stability won’t be a concern. Meet with a financial advisor or utilize resources such as the Slavic401k blog, financial planning videos, podcasts, and books, to learn more about preparing for the future.

Related Articles

Subscribe to the Slavic401k Blog

Be the first to know when new content is available.


Language / Accessibility Tools