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    How Much Does Getting Older Cost?

    By Brandon Miller, CFP–

    65 is the magic number when Medicare can kick in, but just what does that cover? And how much might you need for what it doesn’t?

    A single person age 65 in 2023 may need about $157,500 saved after taxes to cover health care expenses in retirement, according to Fidelity. In 2023, their estimate for an average retired couple aged 65 is around $315,000.

    Welp, that’s a lot! Now, these are just estimates and the actual amount you’ll need will depend on many variables, including where you live during retirement, your health, and how long you may live.

    First, let’s unpack Medicare.

    Medicare Part A covers treatment in a hospital. It’s free for most folks.

    The premium for Medicare Part B, which covers doctor visits and lab tests, is currently $165 a month (or more, depending on your income). There’s usually a 20% cost share when you receive treatment.

    With traditional Medicare you may consider purchasing what’s called a Medigap policy. A Medigap policy helps plug “gaps” in traditional Medicare coverage. These policies are offered by private insurance companies.

    The premium varies for Part D, which covers prescription drugs. Beginning in 2025, out-of-pocket costs for prescription drugs will be capped at $2,000 a year.

    Medicare Part C is growing increasingly popular. Also known as a Medicare Advantage Plan, Medicare Part C wraps Parts A and B into a single plan. Many offer vision, hearing, dental, and health and wellness programs. Most include Medicare Part D.

    Private health insurance companies offer Medicare Advantage plans. They must follow rules set by Medicare. But much like an HMO or PPO, you’ll be funneled into in-network doctors or your out-of-pocket costs will be much higher. In 2023, the out-of-pocket limit for Medicare Advantage plans may not exceed $8,300 for in-network services and $12,450 for in-network and out-of-network services combined.

    Planning Smart for Healthcare in Retirement

    So how can we plan in advance for these future costs?

    1. Obtain the correct Medicare plan that best suits your needs.

    Research the right insurance and Medicare plan given your health, circumstances, and related costs.

    2. Take advantage of a Health Savings Account.

    You must have a high-deductible plan, but you may contribute up to $3,850 pretax to a Health Savings Account (HSA) as a single person and up to $7,750 if you have family coverage.

    Much like an IRA, capital gains and earnings in an HSA are sheltered from taxes. Moreover, you may withdraw from an HSA and pay no taxes if the funds are used for qualified medical expenses.

    Other HSA advantages:

    • You may use your HSA to pay certain Medicare expenses, including premiums for Part B and Part D prescription drug coverage.
    • Your HSA can be used to cover part of the cost of a tax-qualified long-term care insurance policy.
    • Your HSA is a retirement savings account, too. In other words, an HSA becomes a viable tool that can be used to save for retirement as well as a savings account for health care expenses.

    For example, let’s say you are 68 years old and withdraw $1,000 from your traditional IRA to pay for qualified medical expenses. You’ll pay federal and state income taxes on that withdrawal. If you pull $1,000 from an HSA for the same expenses, you won’t pay any taxes.

    Consider maxing out your IRA and HSA if possible. If you can’t max out both, consider placing some of your retirement savings into an HSA.

    3. Plan for long-term care.

    Long-term care is a difficult topic many would rather avoid. A person turning 65 has about a 70% chance of needing long-term care at some point, according to the Department of Health and Human Services. Medicare covers skilled home healthcare if it’s required. However, coverage for skilled nursing home care is limited. Medicare pays for the first 20 days in a nursing home. You’ll pay a $200/day co-payment for days 21 to 100. After day 100, you’ll be responsible for 100% of the cost. You may consider a long-term care policy, which can be quite expensive.

    To address this potential obstacle, you may look at hybrid insurance, which is a combination of permanent life with a long-term care rider. Another option is self-insurance, where you set aside funds that may be used for long-term care.

    Assessing your situation is the most important factor in determining the correct approach to healthcare. It’s a complex issue. It sometimes feels as if you are untying a knot when you are planning for healthcare coverage. We are here to help walk and talk you through it.

    Brio does not provide tax or legal advice, and nothing contained in these materials should be taken as such. The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. 

    Brio Financial Group is a registered investment adviser. SEC Registration does not constitute an endorsement of Brio by the SEC nor does it indicate that Brio has attained a particular level of skill or ability. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.  

    Brandon Miller, CFP®, is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals. For more information:

    Money Matters
    Published on September 21, 2023