The average couple will need $295,000 to cover the medical expenses that they will face in retirement, according to a study by Fidelity Investments.
The study also covered that most retiree health care money goes to copayments, co-insurance, doctor’s visits, branded and specialized medicines – which could make healthcare one of the greatest financial challenges for retired Americans.
But even if you are planning to retire early, there are multiple options available to make sure your health costs are covered later in life.
Like saving: The earlier you start, the better off you will be in retirement. But even if you only start saving in your 30s through 50s, you have an opportunity to make up for lost time since you are at your peak in income each year.
Also, you can utilize catch-up contributions designed for working professionals to put more money in their 401(k).
Medicare Covers All Americans at Age 65
Most Americans are eligible for Medicare, the federal government health insurance program, when they turn 65.
You can enroll in Original Medicare, which includes Parts A and B to cover hospital care, outpatient treatments, equipment and services.
Medicare does not cover everything though – there are many limitations.
You could also opt for a Medicare Advantage plan provided by private insurers. These plans, which have doubled in enrollment in the last decade, include everything covered by Original Medicare as well as additional coverage and benefits.
These plans may also include Medicare Part D, which handles prescription drug costs.
COBRA Offers Those Experiencing Job Disruption
Another way to pay for your healthcare is COBRA insurance.
COBRA, also known as the Consolidated Omnibus Budget Reconciliation Act, allows you and your spouse to temporarily continue to receive group healthcare coverage even after you leave your job.
COBRA should be available if the company you worked for had at least 20 employees.
What Are Qualifying Events for COBRA Coverage?
- Job termination
- Job transition
- Work schedule reductions
Coverage can last 18 or 36 months, depending on the type of qualifying event that made you eligible.
COBRA purchasers are responsible for the full cost of continuation coverage.
Depending on when you leave your job, you could also use COBRA coverage while you wait to become eligible for Medicare at 65.
Use the Affordable Care Act as a Bridge to Medicare
If you retire early, you could take advantage of the Affordable Care Act (ACA) until you are eligible for Medicare.
You cannot be denied coverage if you have pre-existing conditions or other factors like gender, making the ACA an ideal option for seniors who have retired but do not qualify for Medicare yet.
You can get insurance through the ACA Health Insurance Marketplace or your state’s health insurance marketplace.
The cost of this option varies depending on the types of plans that you qualify for and select.
Spousal Plans, Remote Work and a Health Savings Account
There are other possible options to pay for your healthcare in retirement.
If your spouse is still working, you might be able to get onto their health insurance plan depending on their employer’s rules.
You could also consider using income from remote work as another route to Medicare. Instead of fully retiring, you could move to the less stressful – and less expensive – environment of telecommuting until you reach 65.
Another strategy is opening a health savings account to deposit untaxed money for your future health costs, like coinsurance and deductibles.