Health Care Costs in Retirement

The Best Way to Prepare for Health Care Costs in Retirement


Health care in retirement is a big expense, and it could cost you a large chunk of your retirement money. Smart planning for health care ahead of time will help you better prepare to handle these retirement expenses. Planning a budget for health care costs and enrolling in a health savings account are two ways you can be ready to handle health care costs in retirement.

Plan for health care costs

Planning to save for health care costs should be a big part of your retirement plan. Sadly, health care costs add up for retirees thanks to inflation and will only continue to increase. To get an idea of the health care costs you should plan for, a couple retiring in 2019 at the age of 65 can expect at least $387,000 in health care expenses.

So, as you begin planning for health care costs in retirement, be sure to include all your expenses. These might be premiums, supplemental insurance, long-term care and out-of-pocket costs such as co-pays and deductibles.

  • Insurance premiums. Health care costs include insurance premiums. While you’re employed, insurance premiums are withdrawn from your paycheck, and your employer covers a portion of them. However, in retirement, you will pay the whole insurance premiums.
  • Supplemental insurance. Other insurance coverage, such as for dental and vision, is supplemental. There is also a Medicare Supplemental Insurance plan that covers the portions that Medicare does not cover. Supplemental insurance coverage varies, but generally, you should budget at least $200 in monthly premium costs.
  • Long-term care insurance. Long-term care covers nursing homes, adult daycares, or assisted living expenses. It can be quite expensive, and you can expect to pay at least $2,000 a year for these services. There are several alternative options to help provide the income needed for long-term care expenses. Talk with one of our Financial Advisors to learn more.

Start a health savings account

If you want to set aside money in a separate account solely for medical expenses, a Health Savings Account (HSA) is worth considering. Enroll in a high-deductible health plan to start a health savings account.

A Health Savings Account helps you save money to cover your medical expenses. The money you withdraw from an HSA is tax-free when you use it to pay for qualified medical expenses. Also, you can use the funds to pay for what Medicare does not cover or for long-term insurance (which can be costly).

  • Withdrawals from an HSA are tax-free. When you withdraw funds you’ve added to a Health care Savings Account, that money is tax-free when you pay qualified medical expenses, such as office co-pays, deductibles, and dental or vision visits.
  • HSA covers costs not normally covered by Medicare. Although you might think Medicare will cover your medical expenses, you’ll find that it does not cover as much as you thought. This is because Medicare has several parts or coverages (Part A, Part B, and Part C). Further, certain coverages may not include prescription drugs, dental, or vision. So, you can use money from your HSA to pay for any expenses that your Medicare coverage does not provide.
  • Long-term care insurance premiums can be paid from funds out of an HSA. Long-term insurance includes home health care, nursing home care services, and living assistance or adult daycare. Medicare does not cover long-term care, and the cost can go up with a longer lifespan.

Other ways to manage health care costs

If you’ve maxed out your HSA contributions or are not eligible, you can use other options to manage your costs. For example, you can separate funds for medical expenses, delay receiving Social Security benefits, maintain your health to reduce your medical costs.

  • Devote one source of income to health care expenses. Maintaining a separate account strictly for medical expenses is a way to budget your health care costs. Some retirees decide to return to the workforce (for different reasons). If they do, that extra income can go solely toward health care expenses.
  • Wait to receive Social Security benefits. When you delay receiving Social Security benefits, the percentage you’ll receive increases. For example, the Social Security Administration explains that you’ll receive about 132% of benefits when you retire at 70.
  • Stay healthy and take medications as prescribed. Listen to your doctor and keep taking your medications. Staying healthy is one simple way to reduce your health care expenses.

Are you ready for the health care costs in retirement? Start planning for health care expenses today and include them in your budget and retirement plan. If you want to learn more about creating the income you deserve in retirement and learn how to cover medical expenses like those described, join us at one of our upcoming  Retirement 101 classes.

Charitable Giving

Benefits of Charitable Giving in Retirement


As you planned and saved over the years of your working life, you might have also considered those in need. By year-end, you may have made enough charitable donations to qualified organizations to also enjoy the benefits of charitable giving. You felt good by doing good.

Now that you’ve retired, you can still take advantage of many charitable giving tax benefits. Here are some of the ways to do that.

Plan for giving

To start taking advantage of charitable giving during retirement, calculate your taxable income for this year and how much you can afford to give. You can use the standard deduction, which has increased considerably. You can deduct up to $600 in cash contributions to eligible organizations for the 2021 tax year. The maximum deduction for 2022 has not been determined but is likely to be either $300 or $600.

In any case, if you’re not sure how you’ll file or what your income might be, the best place to start is last year’s return. Unless your income or employment status has changed markedly, your prior year return is a good initial guide.

As noted, the IRS permitted standard-deduction taxpayers to deduct charitable donations of $300 in 2020 and $600 in 2021. The deduction should be available for 2022 gifts, although the IRS has not determined the allowable deduction.

Maximize your benefits

Here are other donation types which benefit not only the target organizations but also your own tax bill and pocketbook.

Qualified charitable distribution

You have the option to make a qualified charitable distribution directly from your IRA  to the charity of your choice. By contributing directly from your IRA, you can avoid paying income tax on the distribution. It also works when you must take Required Minimum Distributions (RMD) but don’t need the distribution for your daily living expenses. You can contribute up to the full amount of your RMD avoiding any tax consequences on the RMD for that year.

Form 1040 instructions explain how to account for charitable deductions. If the contribution came from a non-deductible IRA, additional tax documents may be required. Consult your tax professional for additional information.

Charitable gifts of assets

You can also make charitable gifts of assets, such as appreciated stocks or bonds. You won’t have to pay capital gains taxes on those instruments. By donating them, you deduct their appreciated fair market value without raising capital gains by selling them to donate cash to the qualified charitable organization. This allows the amount you would have paid in taxes to stay with the charity, which doesn’t pay taxes.

Once again, you’ll want to consider whether the standard deduction makes this a useful strategy for you or not. If you’re not itemizing, a $300 or $600 stock donation won’t avoid a lot of capital gains taxes.

Donor-advised funds

If you’re planning a lot of charitable giving and have sufficient assets, you can consider creating a donor-advised fund. This method lets you make distributions to the charitable organizations of your choice. A donor-advised fund is a separate account operated by a qualified charitable organization, called the sponsoring organization. The account includes contributions made by various donors.

As the donor, when you make a contribution, the organization has legal control over it. However, you or your representative can still advise about the distribution of funds and the investment of assets in the account.

You can deduct a significant portion of your donor-advised fund contribution. However, you should know that the IRS is aware of abuses related to the use of donor advised funds. So, do your due diligence and talk to your financial advisors to find the best options for you.

Charity still begins at home

As you can see, retiring doesn’t mean you can no longer make contributions to qualified charitable organizations. In fact, with IRAs and other retirement vehicles, it can even be easier to make them.

Another benefit of retirement is that you can make a gift that most charitable organizations are desperate for in today’s busy world — your time. At the beginning of this century, one in four Americans volunteered. Today that number is far less, especially since the pandemic began. Think about ways that you can be of value, both as a giver and a volunteer or even a cyber-volunteer. You’re still feeling good by doing good.

From the Desk of Gordon Haave – April 2022

Do you pay income taxes in retirement

Do You Pay Income Taxes in Retirement?

Do you pay income taxes in retirement? Retirees no longer earn a steady income. However, taxes are inevitable. With proper planning, you can lower your tax burden during retirement.

From the Desk of Gordon Haave – March 2022

Market Update February 2022

From the Desk of Gordon Haave – February 2022

From the Desk of Gordon Haave – January 2022

How Retirees Are Spending Their Retirement Funds