retirement income planning

Number 1 Expense to Derail Your Retirement in 2023

Are you retiring soon? While you might think you’ve covered all the bases, there’s a certain expense that has a tendency to sneak up on seniors.

What is the number one expense that could derail your retirement in 2023? Healthcare. Losing your employer-sponsored healthcare coverage can leave you scrambling, especially if there’s an emergency or you’re in need of long-term care. Planning and understanding your options can save you from a disastrous future.

Healthcare will always be one of the largest expenses in retirement. But unlike past generations, we likely won’t have access to employer- or union-sponsored retiree health benefits. With health care costs likely consuming a large portion of your retirement budget, it’s essential to have a plan.

How much does healthcare cost in retirement? 

It’s estimated that, this year, an average 65-year-old retired couple will need approximately $315,000 to cover health care expenses in retirement. This amount may vary based on when you retire, where you retire, your health and how long you live. This amount also depends on which accounts are used to pay for them – 401(k), HAS, IRA, etc.

This amount also doesn’t include long-term care costs. An estimated 70% of today’s 65-year-olds will need long-term care at some point and costs can be staggering. In 2022, the average monthly cost of care was $4,000. Medicare and Medicaid only cover so much in some circumstances, so retirees must have a plan for covering these costs.

Planning for Retirement Health Care Costs:

Health Savings Accounts (HSAs)

An HSA is a tax-advantaged account created for individuals covered under high-deductible health plans to save for qualified medical expenses. Contributions are made to the account by the individual or their employer and are subject to a maximum amount each year. The contributions are invested over time and can be used to pay for medical expenses such as medical care, dental care, vision care and prescriptions. 

To qualify for an HSA, you must meet eligibility standards established by the IRS. To be eligible you must have a qualified high deductible health plan, have no other health coverage, not be enrolled in Medicare and are not claimed as a dependent on someone else’s tax return.

An HSA can also be opened at a financial institution. Although, contributions can only be made in cash, while employer-sponsored plans can be funded by the employee and their employer. Any other person, such as a family member or spouse, can also contribute to the same HSA as an eligible individual.

Long-Term Care Insurance

As we mentioned previously, many individuals end up needing long-term care at some point after retirement, and these costs can be substantial. One way to plan for this is to purchase long-term care insurance. In this type of policy, you’ll pay premiums in return for the insurance company covering costs related to long-term care for a period of time.

These premiums can be expensive, so some opt for purchasing a life insurance policy with a long-term-care rider. By adding a long-term-care rider to a life insurance policy, you’re able to use some or all of the death benefit while you’re still alive to pay for long-term care costs not covered by health insurance.

Consider Medicare

Medicare is the federal health insurance program for people 65 and older. There are many different plans, and they can get complicated quickly so it’s important to know what’s covered and what’s not. Here’s what is covered by different parts of Medicare.

  • Medicare Part A: This relates to hospital insurance and covers inpatient hospital stays, skilled nursing facility care, hospice care, as well as some home health care. Typically, you won’t pay a monthly premium for Part A if you or your spouse paid Medicare taxes while working for a certain amount of time. You do have to meet a deductible with this plan.
  • Medicare Part B: This deals with medical insurance and covers certain doctors’ services, outpatient care, medical supplies and preventive services.
  • Medicare Part D: This covers prescriptions, shots and vaccines.
  • Medicare Advantage: These plans are offered by private companies that are Medicare-approved as well as an alternative to Original Medicare and typically includes Medicare Part A, B and D. You can also get additional coverage like vision, hearing or dental care that aren’t covered by Original Medicare.

How APO Financial Can Help

No matter where you’re at in your retirement journey, APO Financial is here to help, no matter the economic conditions. Through bull markets and stock market dips, we help our clients stay on track and reach their retirement goals.

As Fiduciaries, we work to help protect you against many of the risks you may face as you get older. We’ll help you look at the money you’ve saved and create a way to distribute or invest it, so that you have the most money to live on year by year while paying the lowest amount of taxes possible. Our goal is to ensure you never struggle financially throughout your retirement.

Ready to Take the Next Step?

Contact us today for more information about our services, products and approaches. We’ll schedule a meeting that is most convenient and comfortable for you, whether it’s in person, virtually or by phone.

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