No one wants to spend their retirement worrying about medical bills. But the truth is, even with Medicare, health care in retirement can be costly, and you can bet it won’t get cheaper. In Springfield and across the country, retirees face rising costs for premiums, prescriptions, and long-term care. You must plan ahead. Here are four strategic ways to prepare for these expenses with confidence.
- Use a Health Savings Account (HSA) to Your Advantage
If you’re still working and enrolled in a high-deductible health plan, an HSA can be one of the most powerful tools in your retirement plan. It offers a triple tax advantage:
- Contributions are tax-deductible.
- Growth is tax-deferred.
- Withdrawals for qualified medical expenses are tax-free—even in retirement.
After age 65, you can withdraw HSA funds for non-medical expenses without penalty (though they’ll be taxed like regular income). More importantly, you can use HSA dollars tax-free to pay for Medicare Parts A, B, and D, as well as Medicare Advantage premiums. Just note: HSA funds can’t be used for Medigap premiums.
In other words, an HSA can become your go-to account for handling many of your medical costs later in life.
- Plan for the Gaps in Medicare
Medicare is valuable, but it doesn’t cover everything. In fact, it covers only about two-thirds of the average retiree’s total medical costs. That means you’ll still be responsible for premiums, deductibles, copays, and coinsurance.
Also, be aware of IRMAA—the Income-Related Monthly Adjustment Amount. This extra charge applies to higher-income retirees and can significantly increase your Part B and D premiums. Large withdrawals from a traditional IRA or 401(k) could push you into this territory, so it’s critical to plan distributions wisely.
In Springfield, we’ve seen many clients caught off guard by these surcharges—but with the right strategy, they can often be reduced or avoided.
- Diversify Your Account Types for More Flexibility
Your 401(k) and traditional IRA may be doing the heavy lifting in your retirement plan, but don’t overlook the benefits of Roth accounts. Since Roth withdrawals are tax-free, they don’t affect your adjusted gross income—and that can help you avoid crossing into a higher Medicare premium bracket.
By creating a mix of taxable, tax-deferred, and tax-free accounts, you gain more flexibility when it comes to covering unexpected costs without jeopardizing your long-term income plan.
- Prepare Now for Long-Term Care
One of the most underestimated threats to retirement savings is long-term care. A Fidelity study estimates that a 65-year-old couple may spend around $330,000 on health care, not including long-term care. That’s a serious blind spot if you’re not protected.
Long-term care insurance is one option—but the key is to purchase it early, when premiums are lower and your health history works in your favor. Hybrid policies that combine life insurance with long-term care benefits are also worth exploring. And, yes, you can use HSA funds to cover qualified long-term care insurance premiums.
Start the Conversation Right Now—Before Costs Catch Up
Health care in retirement is too important to leave to chance. If you’re in Springfield or the surrounding area, let LaTour Asset Management of Springfield help you build a retirement plan that accounts for every stage—including the unexpected. Call us at (877) 888-5724 to schedule a conversation. The earlier you plan, the more confident you can be about the future.
