Of all the financial challenges today’s retirees face, healthcare might be the most difficult. Various sources estimate that a 65-year-old couple, retiring today, will spend around $260,000 to $275,000 on medical care over the course of their retirement years. You don’t have to come up with that money in one lump sum, of course, but it’s still a daunting figure.
As with any other budgetary item, solutions range from reducing expenses to increasing income. Most of you will need to address both of those avenues, in order to become more financially stable in retirement, but for the purposes of this blog we will focus on reducing healthcare spending.
Contribute to a health savings account (HSA). An HSA allows you to stash pre-tax dollars (and earn a tax deduction) for qualified healthcare expenses. If the money isn’t used in a particular calendar year, it continues to roll over to future years. Essentially, an HSA functions as another way to save for healthcare expenses in retirement.
Apply for health insurance subsidies. The Affordable Care Act established subsidies to help Americans afford their health insurance premiums. If you find yourself needing to retire before age 65 (the age of Medicare eligibility), you should investigate these subsidies. Health insurance benefits for retirees are becoming increasingly rare, so you will likely need to provide your own health insurance plan if you retire before your 65’th birthday.
Identify opportunities in your community. Many communities offer free health screenings or operate free or low-cost walk-in clinics for routine illnesses. A nearby dental school might also provide inexpensive care for your teeth and gums. But in most cases, these opportunities aren’t widely advertised, so a little research is in order.
You can deduct some medical expenditures on your taxes. According to the recent tax overhaul, you can now deduct medical expenses that exceed 7.5 percent of your gross income for the year. This limit is in place through 2018, but is set to rise again (to a 10 percent threshold) in 2019. Hopefully, the short life on this deduction threshold means that Congress is trying to identify ways to lower healthcare expenses for everyone, but nothing is decided at this point. We will keep you informed of any changes to that deduction rule.
Call us if you have any questions about your retirement preparedness. We can help you decide if, and when, you’ll be ready to retire – and help you find ways to generate income.