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3 Reasons Healthcare Might Cost More Than Expected in Retirement

During your working years, you may find that housing is your single largest monthly expense. In fact, a recent Ascent survey confirms this.

But once retirement rolls around, your greatest monthly expense may be none other than healthcare — so much so, that it quickly becomes a burden. Here are a few reasons healthcare might end up costing you more than expected.

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1. Medicare isn’t free

It’s a big misconception that health coverage via Medicare won’t cost you a dime. Not only does Part B, which covers outpatient care, charge a monthly premium — one that will be deducted from your Social Security benefits if you’re receiving them — but Part D, which covers prescription drugs, also charges a premium.

You can opt for a Medicare Advantage plan as an alternative to original Medicare. But in that case, you might face premium costs, too.

Premiums aside, there are deductibles and copays that come into play when you’re enrolled in Medicare. Those could surpass what you’re paying in premium costs.

2. Medicare won’t pay for everything

You might assume that Medicare will pick up the tab for all of the healthcare services you need in retirement. But original Medicare will not shell out money for basic services like dental cleanings, eye exams, and hearing aids.

The good news is that many Medicare Advantage plans do cover these specific services. But the cost of care under an Advantage plan could end up being very expensive if you have a lot of health issues, so you can’t assume that will be a perfect solution.

3. Your personal health might deteriorate

Aging tends to bring about health issues, and sometimes, there’s no getting around that. Even if you do your part to eat well and exercise, you might still end up spending more money on medical bills later in life.

How to cope with healthcare costs in retirement

Fidelity reported that the average 65-year-old couple retiring last year would spend a whopping $315,000 on healthcare costs in retirement. If that’s a number you’re worried about managing, it’s a good idea to pad your savings while you can.

You actually have a few different options to look at in this regard. You could clearly pump more money into your 401(k) or IRA. But if you have access to a health savings account, or HSA, then it makes sense to fund it.

HSAs let you set aside pre-tax dollars for healthcare spending, and you can tap your HSA at any time. Since HSA funds don’t expire, and you’re allowed to invest money you don’t need right away, it pays to contribute to one of these accounts while you’re working. Then avoid taking withdrawals, grow your balance, and carry it with you into retirement, when the cost of healthcare might really be a burden.

Best of all, HSAs allow for tax-free withdrawals when you remove funds to pay for qualified medical expenses. And once you turn 65, there’s no penalty for taking a non-medical withdrawal from an HSA (though in that case, taxes on your withdrawal will apply).

Like it or not, you may end up spending a large chunk of your senior income on healthcare. The more steps you take to prepare, the less of a financial shock your future medical costs will be.

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