Worried About Retirement Healthcare Costs? 3 Key Moves to Make

One of the things that makes healthcare such a daunting expense for retirees is that it can be unpredictable. After all, you never know what specific health issues might arise as you age.

It's important to make room in your retirement budget for healthcare costs. But if that budget is limited to a modest Social Security check and retirement plan withdrawals, you may be worried about how you'll cover all of your medical bills. If that's the case, here are three key moves to make ahead of retirement if you're concerned with your future healthcare costs.

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1. Understand what Medicare does and doesn't cover

Many people assume that once they enroll in Medicare, all of their health-related needs will be covered. But you should know that there are a number of key services that Medicare will not pay for. These include dental care, eye exams, and hearing aids.

Of course, even within the realm of covered Medicare services, you might still face various costs, like copays and deductibles. But it's important to read up on what Medicare will and won't cover so you can make a plan and know exactly what to expect.

Part of that plan may be to buy a Medigap plan, or supplemental insurance, right away for added protection. Or, you may decide to sign up for a Medicare Advantage plan for expanded benefits you may get as a result. The more you understand about Medicare, the easier it becomes to make these decisions.

2. Plan ahead for long-term care

One of the biggest financial shocks you might face in retirement is long-term care. And unfortunately, it's not something Medicare will typically pay for.

Medicare is meant to cover costs that are strictly medical in nature. So if you break a bone, Medicare will typically pay for your surgery to fix it and subsequent rehab in a nursing facility. But if you start to have trouble walking due to aging and need a home health aide to feel more comfortable getting around, that's not something Medicare will typically pay for.

That's why it's so important to purchase long-term care insurance ahead of retirement. A long-term care policy could help cover some of your future needs, like assisted living, so they don't end up bankrupting you.

3. Fund an HSA and save the money for your senior years

If you're enrolled in a high-deductible health insurance plan, you may be eligible to make contributions to a health savings account, or HSA. And while you're allowed to take withdrawals for near-term medical bills, an even better bet is to save your HSA for retirement, when your healthcare costs may be highest.

As a reminder, HSAs are funded with pre-tax dollars, and they can be invested tax-free. HSA withdrawals are also tax-free as long as the money is used to pay for qualifying medical expenses.

Now if you aren't eligible for an HSA because your health insurance plan doesn't meet the requirements, a very reasonable alternative is to simply put more money into your IRA, 401(k), or general retirement account of choice. But if you're able to utilize an HSA, it pays to. That way, you'll not only enjoy more tax breaks on your money, but you'll also have a dedicated pool of funds for your future healthcare needs.

It's easy to get nervous about the idea of paying for healthcare in retirement, especially given the rapid rate at which those costs tend to rise over time. But with the right strategy, you can address that concern head-on and set yourself up to be able to better afford whatever future medical bills come your way.

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