Health care costs: Tips to help you save now

Key Points

  • The focus on health care costs has intensified around recent legislation efforts
  • A 65-year-old couple is expected to need $265,000 to cover future medical expenses
  • Making strategic moves leading up to retirement could help manage rising costs

The back and forth on new health care legislation and Affordable Care Act (ACA) repeal efforts in Congress has turned up the spotlight on rising medical costs. While any new bill seems to be on hold for the moment, larger questions around insurance premiums, Medicare solvency and types of coverage remain unanswered.

So, what can you do? If you begin preparing now, you’ll already be a step ahead: Only 17% of workers have calculated how much income they’ll need based on health care coverage options, according to the Ameriprise Health, Wealth and Retirement study.¹ No matter where you are in planning, there are actions that can be taken at all phases of life to help manage future health care costs and prepare for the unexpected.

Key steps to consider during the countdown to retirement


Health savings accounts (HSAs) allow you to set aside pre-tax dollars to pay for eligible medical expenses. To contribute to an HSA, you must be enrolled in a high-deductible health plan. What’s more, unused funds in an HSA can be tapped at age 65 without penalty to supplement your retirement income. The withdrawals will be taxed the same as an IRA, but you won’t pay a penalty for using them for nonmedical expenses.

The 2017 annual contribution limit is $3,400 ($6,750 for a family), with a catch-up allowance of $1,000 a year for those ages 55 and older. Those modest savings can really add up — after 10 years contributing the family maximum amount at an estimated 5% rate of return compounded annually, you’d have an extra $89,000 socked away for health care expenses.

Buying a long-term care (LTC) policy in your 50s may mean lower premiums as well as a greater likelihood of passing health care exams required by most providers. By age 65, you’ll have a 70% chance of needing LTC in the future.²

The good news?

Stand-alone LTC with its “use it or lose it” drawback is becoming a thing of the past with the advent of a hybrid model that attaches an LTC rider to an individual life insurance policy at an additional cost: If you don’t end up needing LTC, unused funds pass on to heirs via an income-tax-free death benefit.

Now’s the time to revisit your plan and make any necessary changes in anticipation of retirement. In 2016, a couple age 65 with median drug expense needs was predicted to need $265,000 for a 90% chance of covering future health care costs.³ By the time you’re closer to retirement, that number is likely to have gone up with the trend toward rising health care costs. When you’re just a few years out, you’ll also have a better idea of current medical costs, any ongoing health concerns and your financial situation.

Nearly 6 in 10 people expect Medicare to cover most or all of their health care costs in retirement.² Yet current Medicare benefits don’t cover routine dental care, eye exams, hearing aids and some of the other most common medical services in retirement. Supplemental Medicare coverage (“Medigap”), Medicare Advantage or private insurance can help pay for these costs, but a wide range of options means you’ll want to begin comparing plans well in advance of Medicare eligibility — currently age 65.

Your advisor can help

You don’t have to go it alone: More than half of those surveyed plan to reach out to a financial advisor to help prepare for health care costs in retirement, according to the Ameriprise Health, Wealth and Retirement study.


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