More and more baby boomers are deciding to delay retirement for as long as possible so they can continue to save for healthcare, living expenses, and more. Healthcare costs in retirement are more expensive than ever, and many baby boomers are finding their savings to be insufficient.
In fact, according to Investopedia, one-third of the 55-year-old and older people they surveyed claimed to have nothing set aside for retirement. Fidelity claims that a married couple retiring today will need at least $285,000 for healthcare alone.
With the average Social Security check being about $1,400 a month, these baby boomers will need to do some intense saving from now until they are 65.
Medicare Costs for 2019
Medicare will likely be your primary form of insurance in retirement, so you should understand your costs. You should factor in monthly premiums, deductibles, and other cost-sharing amounts. Let’s look at 2019’s Medicare costs.
Medicare Part A
Medicare Part A has the most expensive monthly premium. However, most people pay into it while working and end up earning premium-free Part A. If you have 40 quarters (10 years) of work experience where you paid Medicare taxes, then you will have premium-free Part A at 65.
However, there are other costs you do have to pay, such as deductibles and copayments. In 2019, Part A has a deductible of $1,364. This deductible isn’t annual either. If you’re admitted to the hospital multiple times in a year, you could end up paying the deductible more than once.
If you are hospitalized for more than 60 days in a single stay, you’ll also have a daily copayment amount.
Medicare Part B
Unlike its counterpart, Medicare Part B has a monthly premium everyone must pay. This premium is based on your income and can be higher if you make more than a certain amount. However, most people in 2019 pay the base premium, which is $135.50 a month.
The Part B deductible is annual and is $185. After you pay this out-of-pocket, Medicare will cover 80 percent of your outpatient services. You will be responsible for the other 20 percent.
Depending on how much time you spend at the doctor’s office or getting lab work done, you could spend quite a bit in one year. The premium alone will run you about $1,626 a year. That’s just for 2019. Premiums tend to go up from year to year due to inflation.
This doesn’t include other parts of Medicare, such as Part D, Medicare Advantage, and Medigap plans. These too have monthly premiums. However, there is a way you can make up for lost time and start saving up for these healthcare costs.
The Solution: A Health Savings Account
A health savings account (HSA) is a type of account you can invest in pre-tax until you need it for qualified medical expenses, such as Medicare premiums, deductibles, and copayments.
As of 2019, the maximum allowed contribution by an individual is $3,500 a year, and the maximum for a family is $7,000 a year. Once you reach 55, you can contribute an extra $1,000 a year. If you are 55 and enrolled in an HSA today and contributed the maximum amount, you could have about $80,000 saved up by the time you reach 65.
Can you imagine not having to rely on your monthly Social Security check for necessary healthcare expenses?
How to Enroll in an HSA
There are just a few steps to enrolling in an HSA. To ensure you set up your HSA the best way, follow these steps.
- Enroll in a high deductible health plan (HDHP): Most employers offer HDHPs, so you should have easy access to one.
- Evaluate available HSAs: HSAs are offered by some employers, banks, and other creditors. Be sure to evaluate each option’s interest rate, accessibility, and other important factors.
- Enroll: The next step is simply to enroll in the HSA of your choosing.
- Automate monthly contributions: For a hassle-free process, set up an auto-deduction from your monthly income to be transferred to your HSA. That way, you can save without thinking.
- Retire with extra savings: If you follow the steps above, you should be able to retire with a substantial amount of savings to help pay for healthcare costs.
Remember, the more you can save before retirement, the less stressful enrolling in Medicare will be.