How Can I Create a Retirement Plan That Accounts for Rising Healthcare Costs?

Planning for retirement involves more than estimating how much you’ll need for housing, travel, or day-to-day expenses. Healthcare costs, which are often unpredictable and steadily rising, can become one of the largest expenses for retirees. Without proper preparation, these costs can place significant limits on your financial freedom. At Harvest Wealth Partners, we understand the importance of addressing healthcare expenses in your retirement plan, and we’re here to guide you through this critical aspect of planning.

Key Steps to Plan for Rising Healthcare Costs

1. Estimate your future healthcare expenses based on your needs.
2. Understand your insurance options, including Medicare and supplemental plans.
3. Leverage tax-advantaged accounts, such as HSAs, to offset healthcare costs.
4. Align your investments to support rising healthcare expenditures.

Dive deeper into these strategies to better prepare for a meaningful retirement.

Estimating Future Healthcare Expenses

The first step in building a retirement plan that accounts for healthcare costs is understanding how much you might need. According to industry estimates, the average 65-year-old retiring now could require at least $165,000 in after-tax savings to cover healthcare expenses throughout retirement. This figure, however, is influenced by factors such as when and where you retire, your overall health, and your life expectancy.

To get a clearer sense of your potential costs, consider the following:

• Review your current health conditions and medical history to anticipate future care needs.
• Consider the impact of inflation, as healthcare costs often increase faster than general expenses.
• Use planning tools or consult with a financial professional to forecast your healthcare spending accurately.

Consider Insurance Options

Determining the right insurance coverage is essential in managing healthcare costs during retirement. Medicare may be a significant component of your plan, but it’s crucial to understand what it does and doesn’t cover. For example:

• Medicare Parts A, B, and D: Cover hospital stays, outpatient services and prescriptions, respectively, but come with premiums, deductibles and other out-of-pocket costs.
• Medigap: Supplemental insurance that can help fill coverage gaps left by Medicare.
• Medicare Advantage Plans: Can offer more comprehensive coverage, including prescription drugs and additional health services.

For those retiring before age 65, bridging the coverage gap until Medicare eligibility is vital. Options such as COBRA, a spouse’s employer coverage, or plans through the healthcare marketplace may be worth exploring.

Leveraging Savings and Investment Strategies

Certain investment strategies can help you mitigate rising healthcare costs:

• Health Savings Accounts (HSAs): If available, an HSA is one of the most tax-advantaged ways to save for medical expenses. Contributions are pre-tax, and withdrawals for qualified care are tax-advantaged.
• Investments Designed With a Goal for Growth Potential: Consider allocating a portion of your portfolio to growth potential-oriented investments to counteract healthcare inflation. At the same time, balance growth potential with risk tolerance as you approach retirement.
• Catch-Up Contributions: Individuals aged 50 or older can make catch-up contributions to their retirement accounts, including 401(k)s and IRAs, which can aid in covering future medical expenses.

Tailoring Your Strategy to Your Journey

Your approach to mitigating healthcare costs will vary depending on where you are on your retirement planning path:

• Early in Your Career: Focus on making HSA contributions and investing for growth potential to build a robust healthcare fund.
• Mid-Career: Begin refining your cost estimates and evaluate insurance policies that may influence retirement planning.
• Near Retirement: Learn about Medicare options, assess gaps in coverage, and create a withdrawal strategy to seek tax efficiency for healthcare expenses.

Build Your Future with Confidence

Healthcare costs don’t have to derail your retirement dreams. With the right strategies in place, you can confidently prepare for and manage these expenses. At Harvest Wealth Partners, our mission is to help you construct a financial plan and bring you financial freedom. Contact us today to schedule a consultation and craft a retirement strategy that supports your healthcare needs.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. 

Investing includes risks, including fluctuating prices and loss of principal. No strategy assures success or protects against loss. 

Health savings accounts (HSAs) require enrollment in an HSA-eligible health plan and are subject to restrictions. Distributions for qualified medical expenses are tax-free; distributions for ineligible expenses are subject to income tax (and an additional 20% penalty tax if taken prior to age 65).