A half century ago this month, 450,000 young fun-seeking 20-somethings gathered on the grassy hills of a Bethel, NY, dairy farm to share “3 Days of Peace & Music.” No one imagined it could happen. But it did. Now into their 70s, much of the Woodstock generation shares a less celebratory cause along the theme of “Many Years of Retirement & Healthcare Costs.”
Healthcare, predictably, is center stage and divisive as the 2020 election cycle heats up. Regardless of where one stands on how to fund it (public options, single payer, etc.), the heart of the issue is cost. As the clock ticks, healthcare is getting ever more expensive at every turn.
Rising Costs Strain Income
According to one study by registerednursing.org,1 Americans have spent an average of $11,300 annually on healthcare by age 65. Healthcare costs sharply triple after our 40s, and women will spend twice the amount as men and African-Americans even more, the report says.
Worse, the higher bills come at a time in many Americans’ lives when they have limited income to pay them. This has many retirees worried. Some 38% of baby boomers ─ born from 1945 to 1964 ─ said healthcare costs are their top fear, according to PwC’s 2019 Employee Financial Wellness Study.
So, what can one do to worry less about healthcare costs?
Here are 7 ways the Woodstock generation can tackle healthcare costs in retirement
1. Plan for Rising Costs
Wherever we end up in the healthcare debate, it’s important to plan for healthcare being your largest expense in retirement. One independent estimate shows a 65-year-old healthy couple will spend $363,946 during their non-working years on Medicare premiums, supplemental coverage and out-of-pocket expenses, according to Healthview Services, specialists in insurance cost projections.
2. Start with Medicare
Medicare provides baseline insurance for people 65 and up and those younger with special needs, and it comes in different plan types ranging from basic, prescription medicine coverage and other add-ons. These are labelled in “Parts”, such as Part A, B or D. Your choices should be based on your health needs, although it’s hard to know if you’ll get sick in the future. But if you begin with Medicare, you can fine-tune your strategy with the outliers that follow below.
3. Consider an HSA or FSA
If you’re among the nearly 300 million lucky Americans who get health insurance through their employer, you may also have access to a Health Savings Account (HSA) or Flexible Spending Account (FSA).
With both, you put money aside each paycheck on a pre-tax basis and use it for qualified healthcare expenses later. The accounts differ in that not everyone qualifies for an HSA, which are more geared to use alongside high-deductible coverage options. Another difference is that your HSA money stays with you, even if you change jobs or retire. Your FSA balance, however, needs to be used up by the end of the plan year, or it’s forfeited (with some exceptions).
Because you can take them with you, HSAs can help pay some healthcare costs in retirement too.
4. Delay Social Security
Most people can retire and start getting Social Security benefits at age 62. But the longer you wait, say to age 70, the higher your monthly payment will be for the rest of your life.
5. Keep Working
In a powerful 2018 study, “The Power of Working Longer,” the National Bureau of Economic Research calculated that delaying retirement just three to six months has the same impact on standard of living as saving 1% more of your salary for 30 years.
6. Access “Living Benefits”
If you own a life insurance policy, talk with your financial professional about extra product features that may let you access all or part of your death benefit to help financially during a qualifying serious illness. These living benefits can be used for any purpose and may help prevent draining your savings due to a terminal, chronic or critical illness.2
7. Stay Active, Live Healthy
Many pundits argue that our problem isn’t with healthcare, but with wellness care. Not eating well, exercising too little, or stressing too much is the root of the problem. It’s debatable. But it couldn’t hurt to take better care of ourselves. At the very least, you’ll at least feel better, which can help lead to better choices in diet and lifestyle habits. If it saves a trip to the doctor, all the better too.
Whether or not you were there 50 years ago to partake in those “3 Days of Peace & Music,” taking steps to help control your healthcare costs can be music to your ears.
1. RegisteredNursing.org, Here’s How Much Your Healthcare Costs Will Rise as You Age, 2016
2. Living benefits are provided by no-additional premium accelerated benefit riders.
Payment of Accelerated Benefits will reduce the Cash Value and Death Benefit otherwise payable under the policy. Receipt of Accelerated Benefits may be a taxable event, may affect your eligibility for public assistance programs, and may reduce or eliminate other policy and rider benefits. Please consult your personal tax advisor to determine the tax status of any benefits paid under this rider and with social service agencies concerning how receipt of such a payment will affect you. Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless you also have a need for life insurance. Riders are optional, may require additional premium and may not be available in all states or on all products. This is not a solicitation of any specific insurance policy.