3 ways to prepare for future medical costs

Mature man in wheelchair sitting at desk using laptop

Some medical events and circumstances in life may be unexpected, but it’s still possible to prepare financially. According to the 2021 Ameriprise Financial study, Financial Priorities: 62% of respondents said financially preparing for uncertainty is more important now, and 47% said this will be of long-lasting importance.

Planning for medical expenses — unexpected or not — is one of many important steps to help preserve your income and retirement savings. Here are three ways to help you prepare for future health care costs now:


Consider disability income insurance

What would you do if your income stopped for a period because of illness or injury? According to the Social Security Administration, more than one in four of today’s 20-year-olds will become disabled before reaching age 67.1

Disability income insurance can help protect you from an unexpected disruption in income. It can also help you avoid having to take early or unexpected withdrawals from your retirement accounts — a potential way to protect your future retirement income.

If your employer offers group disability income insurance, you may want to consider enrolling in coverage — but also think about if coverage through your employer provides an appropriate safety net for your needs. Depending on your situation, you may want to consider supplementing your group coverage with an individual policy.


Contribute to a health savings account (HSA)

If you contribute to an HSA,2 you can use your savings to pay for a range of eligible health care services tax-free — such as doctor’s office visits and co-pays, dental expenses, vision care and even Medicare premiums.3

If your employer offers an HSA, your paycheck contributions will accumulate and roll over every year. There is no annual “use it or lose it” provision, and you take your HSA with you if you move to a new employer.

An HSA offers three main tax advantages:

  1. Your contributions are pre-tax, which reduces your taxable income.
  2. Your account grows tax-free.
  3. Distributions from an HSA are tax-free, if used for qualified medical expenses.


Learn about what Medicare does and doesn’t cover

Planning for health care in retirement can help you prepare for both the expected and unexpected costs. Medicare is a significant piece of that planning.

Medicare is a valuable program for many retirees at age 65, but it wasn’t designed to cover health care expenses in full.4 For example, it doesn’t cover vision or dental, and coverage for nursing homes and other long-term care is limited. Consider these various expenses when saving for your health care in retirement.

Keep in mind that once you enroll in Medicare, you can no longer contribute to an HSA — but you can use both Medicare and your HSA savings to pay for qualified medical expenses. You can also use your HSA to pay Medicare premiums for Parts A, B, C and D, though you cannot use your HSA to pay for supplemental policy premiums. Your advisor will discuss solutions to cover the costs and walk you through Medicare choices.


How your Ameriprise advisor can help

Your future health care and Medicare costs are important parts of the bigger picture in planning for retirement. Your financial advisor can help you prepare for your expenses by recommending solutions based on your individual financial goals and needs.