How to Plan for Rising Healthcare Costs in a Sonoma County Retirement

How to Plan for Rising Healthcare Costs in a Sonoma County Retirement

The cost of healthcare has increased enormously over the last few decades. To say that healthcare prices far outpace inflation is an understatement. So, what does this mean for your retirement, especially a Sonoma County retirement that can already be expensive?

According to reports, between 2000 and 2018, the average out-of-pocket costs for prescription drugs alone skyrocketed 188 percent for people 65 and over, and their out-of-pocket medical expenses climbed 117 percent. Insurance costs, such as Medicare and Medigap plan premiums, also increased by triple digits. And unfortunately, price increases show little sign of slowing down. 



Healthcare costs are one of the biggest expenses for a lot of retirees, so it’s important to plan ahead of time to avoid any big financial surprises later on. When planning, be sure to consider the following categories:


Know What Medicare Covers (and Doesn’t Cover)

When it comes to healthcare in retirement, many people rely on Medicare, so it’s crucial to be up-to-speed on what it covers and, perhaps more importantly, what it doesn’t. Many retirees are surprised to learn that Medicare isn’t free! 

Medicare covers a great deal, including hospital and inpatient medical care, from screenings and doctor’s visits to major surgery. But not for free! If covered by Medicare, you’ll still have to pay premiums, deductibles and copays, just as you do with any other insurance coverage.

Another shock for many: Standard Medicare coverage (Parts A and B) does not include prescription drug coverage. If you want a plan that covers prescription drugs, you’ll need to purchase this separately. Medicare also doesn’t cover vision, hearing or dental. These services can be covered under a Medigap plan or Medicare Advantage plan. Be sure to carefully consider all aspects of these plans to find one that meets your needs.

For more on Medicare, read our recent blog post: Sonoma County Wealth Advisor Weighs in on Healthcare in Retirement.


Planning for retirement can be difficult. Schedule a no-obligation conversation with the Sonoma County wealth advisors at Montgomery Taylor Wealth Management to see how we can help.


Consider Your Longevity and Long-Term Care 

People are living longer than they ever have. The average life expectancy in 2020 was close to 80 years versus just 69.7 in 1960. This is important to factor into your retirement plan, and oddly, often overlooked. Will your retirement plan cover you for life?

Although many people want to age in place, you may need home care to do that. Plus, some conditions that impair your cognitive or physical functions may require long-term care. These are other components that aren’t covered by Medicare.

Long-term-care needs can be expensive, especially if two spouses require support, and plans can be complicated to understand in full. Talk to a financial advisor about any health concerns you have so you’re property covered. We’ve heard many stories of aging parents having to move in with their children to get the care they need, and this too can provide financial challenges. Discuss your situation as a family and have a plan should the need arise. Having a plan ahead of time can help alleviate the financial concerns you may have during an emotionally taxing time.


Saving for Healthcare Expenses

Health Savings Accounts (HSAs) are a savings account for healthcare expenses. As the first Sonoma County CPA Certified Financial Planner (CFP), HSAs can offer many benefits, because you can fund them with pre-tax contributions, which offer tax benefits in the year of contribution, and your money can be invested in a wide variety of assets. Another perk: You can roll the funds over year to year; something you can’t generally do with a Health Flexible Savings Account (FSA), which carries a use-it-or-lose-it policy.

An HSA is only available to you if you have a high-deductible health insurance plan, meaning a deductible of at least $1,400 ($2,800 for a family) in 2021. You can save up to $3,600 annually ($7,200 for a family plan). 


What Your Retirement Date Means for Your Coverage

When deciding on a date to retire, talk to a financial advisor about your health coverage. The team at Montgomery Taylor Wealth Management can recommend different strategies you may not have thought of on your own. For example, you may be able to stagger your retirement with your spouse, so you’re covered by your spouse’s employer-sponsored healthcare plan, which can be a huge financial benefit. Our team can help you address the cost of long-term-care insurance and discuss other savings plans.

Finally, as a financial planning firm in Sonoma County that specializes in tax planning, the financial advisors at Montgomery Taylor Wealth Management can make sure you optimize your taxes while planning for healthcare expenses. Many healthcare expenses are tax-advantaged. Expenses for healthcare itself are also deductible, if they equal a certain percentage of your income. You may be able to reduce your cost through tax deductions on some medical expenses.

If you are self-employed, which many people are in Sonoma County, you may qualify for a tax deduction on your health insurance premium. You can make this deduction regardless of if you itemize your deductions, provided you’re not eligible to participate in an employer’s plan, do not have another job that offers health coverage, and are not eligible to receive health insurance through a spouse’s employer-sponsored plan.

When it comes to healthcare in retirement, there are a lot of factors to consider. A seemingly small oversight can make a big impact on your future. 


Montgomery Taylor Realistic Financial Planning