By Mary Harris, CFP®

Did you know that half of all monies spent on healthcare is spent during our retirement years? According to the New York Times, total healthcare spending for Americans 65 and older is about $15,000 per year — nearly three times that of working-age Americans.

But many people do not prepare for these steep healthcare costs and instead believe that Medicare will cover everything or that they can just omit end-of-life spending. According to a 2018 Employee Benefit Research Institute (EBRI) and Greenwald & Associates survey, four out of five people have not calculated how much they will need for healthcare costs.

It’s important to start preparing now for healthcare costs. The first step is knowing the facts about healthcare expenses in retirement.

6 Common Misconceptions about Healthcare Costs

1. “Medicare will cover everything.”

Medicare, which starts at age 65, will not cover all your retirement healthcare needs and medical bills. According to EBRI, Medicare generally covers only about 62% of the cost of healthcare services. Medicare doesn’t cover long-term care or dental and vision coverage. That’s why it’s so important to include healthcare costs in your retirement strategy.

2. “Medicare is free.”

Medicare is not free. AARP includes a great explainer of Medicare’s options — Parts A, B, C, and D. You are automatically enrolled in Part A when you apply for Medicare. Part A includes hospital coverage. While most people don’t have to pay a premium for Part A because you already paid for this during your career through Medicare taxes, you still have to pay the deductible.

Part B covers doctor and outpatient services and has a monthly premium. Part C is known as Medicare Advantage; it’s the private health insurance alternative. However, with Part C, you still need enroll in Parts A and B, pay the Part B premium, and then choose a Medicare Advantage plan and sign up with a private insurer. Lastly, Part D covers some of your prescription drugs; you buy the Part D plan through a private insurer.

How much is your premium? The standard Part B premium amount in 2020 is $144.60, the Medicare.gov website reports. If your modified adjusted gross income, as reported on your IRS tax return from two years ago, is above a certain amount, you will pay this premium, as well as an Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium. If you had a major life-changing event and your income has decreased, you can complete and submit Form SSA-44 to request a reduction in your IRMMA.

3. “I have no control over my healthcare costs.”

The Journal of the American Heart Association found that if you exercise at least 30 minutes a day for five days a week, you can expect to spend $2,500 less on healthcare every year than someone who doesn’t stay physically active.

As well as exercising and eating healthy, you can take small financial steps today that will help you build your retirement fund. A financial advisor can help you create an effective retirement planning strategy.

4. “I’m healthy now. My spouse and I won’t get sick.”

It’s hard to anticipate what will happen in the future. According to the National Council on Aging, approximately 80% of older adults have at least one chronic disease, and 77% have at least two. Four chronic diseases (heart disease, cancer, stroke, and diabetes) are the cause of nearly two-thirds of all deaths each year. It’s important to plan and prepare for any potential health issues later in life.

5. “I don’t need to plan for a long life.”

Even though life spans are increasing by about three years every generation, people often underestimate life expectancy when it comes to retirement planning, Barron’s reports. It’s important to talk with a financial advisor so your retirement funds cover healthcare costs for the decades ahead.

6. “Long-term care policies are too costly. It’s better to age at home.”

Having a long-term care insurance policy may ultimately save you money. It also can greatly ease the decision-making process, which can be emotionally exhausting. Use Genworth’s annual Cost of Care tool to calculate the cost of long-term care for assisted living, home care, and nursing home care across the U.S.

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It’s important to take care of your health now and prepare for later healthcare costs. Account for healthcare as a separate expense with unique factors that increase costs more rapidly than other living expenses. Ensure your retirement plan includes a source of funding that can keep pace with these higher costs.

Learn about different types of senior healthcare options and discuss your preferences and affordability with your family long before it’s needed. You can overcome healthcare fears by creating a retirement plan with a trusted advisor. Take the next step and talk to a financial advisor at Harris Financial Advisors today.