A 65-year-old couple in 2020 can expect to pay nearly $300,000 in health costs in retirement. However, American women, on average, live five years longer than men, which means that many women will face higher health care costs in retirement than men. Coined the 'longevity gap,' it's crucial to prepare for this period of time when you may have to cover health care costs and medical bills without the assistance of a spouse or partner.
According to some experts, that additional amount could be as much as $200,000 more for a woman. To help you plan for these additional costs and make sure you are prepared for the additional medical costs associated with a longer lifespan, ask yourself these questions:
At what age should I plan to retire?
The age you plan to retire makes a huge difference in how much you need to budget. At age 65, you become eligible for Medicare; the standard monthly premium for Medicare Part B (which covers doctor visits) is currently $198.
If you retire before then, you will need to find your own health insurance until you reach 65.
Your employer may offer retiree health coverage — allowing you to continue your pre-retirement plan until you're eligible for Medicare — which can save you significant money. If you retire before your spouse, you may be able to join their plan.
Remember it's better to have saved too much than to run out of money partly through retirement. AARP recommends budgeting for at least 25 years of retirement expenses.
Will Medicare cover all my health care expenses?
No. Even after you become eligible for Medicare, many health care costs will still not be covered. There are a variety of items, including prescription drugs, that aren't covered under the plan. That's what Medicare Supplement insurance is for. Under most Medicare supplemental insurance plans, also known as "Medigap" coverage, you'll pay for things like dental care and hearing services out-of-pocket. Medicare will also not pay for long-term-care costs, such as extended nursing home stays or a home health aide. Consider buying long-term care insurance, which does cover these costs.
What are Medicare Advantage programs?
Medicare Advantage programs bundle in hospital and physician networks, along with a variety of other services, including (for some patients) carpet cleaning. The biggest difference between original Medicare and Medicare Advantage is the doctor and hospital networks. With Medicare, you can choose any doctor or hospital in the country that accepts Medicare. With Medicare Advantage, you will pay much more for out-of-network doctors and hospitals.
Health industry experts say that nearly 50 million Americans will be enrolled in Medicare Advantage plans in the next few years.
How can I plan for unexpected health care costs in retirement?
The greatest health care costs are usually the most difficult to predict. For example, you can't anticipate needing a hip or knee replacement in 20 years.
Since you don't know what you'll spend, you might think about protecting yourself by buying extra forms of insurance. Investing in long-term care insurance can be a valuable option for many women, especially if you buy a policy that has a cost of living adjustment (COLA) from a reputable company.
Calculating the costs of health care in retirement can get complicated. But once you decide at what age you want to retire and which type of insurance coverage you'll need, you can begin planning for your ideal retirement.