Sonoma County Wealth Advisor Weighs in on Healthcare in Retirement

Sonoma County Wealth Advisor Weighs in on Healthcare in Retirement

Retirement can be complicated. Healthcare costs can be expensive. Put the two together, and navigating healthcare costs in retirement can be a tricky task.

The Sonoma County wealth advisors at Montgomery Taylor Wealth Management help our clients balance these elements (and many other complex features of retirement) in advance. You don’t want to find yourself without a plan for how you’ll cover health insurance and often high-priced expenses when you’re no longer bringing home a paycheck or covered by your employer.

If you’re between the ages of 40 and 60 in Sonoma County, it’s prudent to start thinking about healthcare in retirement, if you haven’t already, for several reasons.

First, healthcare – including the cost of health insurance and medical treatment – can be a major expense in your retirement years. Illnesses and chronic conditions are more frequent among the elderly. Studies show that an average couple can spend $295,000 in healthcare costs over the course of their retirement. With that said, it’s crucial to be prepared so you have money to pay your healthcare expenses.

Second, healthcare costs continue to rise – and often, at a pace that’s far faster than the pace of inflation.

Third, healthcare and its expenses can be complicated in retirement. You may have to navigate several different insurance systems, staying on top of both your coverage and your costs.

At Montgomery Taylor Wealth Management, we’re asked about healthcare costs often, so we’ve compiled a few prime factors everyone should know about these costs in retirement. If you have a concern that is not addressed here, contact us! We’re here to help!


Have retirement questions? Contact the Sonoma County wealth advisors at Montgomery Taylor Wealth Management and get the conversation started!


What You Need to Know About Medicare

The first thing you need to know about Medicare is that it isn’t free! That’s one of the biggest misconceptions folks have about retirement and the government-sponsored insurance program – and it’s false.

Medicare is open to people 65 and older who have worked and paid Medicare taxes for a minimum of 10 years. You do not need to be retired to enroll in Medicare.

Medicare coverage is divided into several parts. Standard coverage (known as “original Medicare” in the parlance of the trade) comes in two parts. Part A covers hospitalization. Part B covers medical treatment out of the hospital, such as doctor’s appointments.

The myth of “free Medicare” perhaps arises from the fact that Part A has no premium. But it does have a deductible: $1,484 for each benefit period. You will have copays of up to $742 per day if you are hospitalized for longer than 90 days.

Part B does have a premium, of $148.50 per month. The deductible is $203 annually, and you will pay a 20 percent copay for any treatment.

Note that neither Part A nor Part B covers prescription drugs, which can be an important part in any comprehensive insurance plan in retirement. You can enroll in prescription drug coverage via Part C, which is elective and offered via private healthcare insurers in partnership with Medicare. Part C requires premiums, copays and deductibles.

“Original Medicare” also doesn’t cover dental or vision (and in some cases, a hearing-care plan). If you want this coverage, you will need to shop around for it. Medicare also does not cover long-term care.

What You Need to Know About Medigap

Because the cost of Medicare can add up (a 20 percent copay alone for a large medical bill can climb to a considerable sum), many retirees purchase supplemental plans known as Medigap plans. These, too, are offered through private insurers in partnership with Medicare.

Several different Medigap plans exist. Some will cover almost all out-of-pocket costs that Medicare doesn’t cover; others only cover certain expenses.

It’s important to realize several things about Medigap plans or it can cost you both in coverage and finances.

First, the insurers must enroll you, if you choose, in the first six months that you have Medicare Part B and are 65. (To actually enroll, you must have both Medicare Part A and Part B.)

Second, if you don’t enroll during the first six months and want to purchase a Medigap plan afterward, insurers are not required to enroll you. You are in a general pool, and insurers can deny you coverage if they choose. It’s therefore a good idea, if you want a Medigap plan, to choose it within the six-month enrollment window, in which you cannot be denied coverage.

Medigap plans do charge a deductible. Each lettered type of plan must charge the same deductible regardless of insurance provider.

Note that these plans are quite different from Medicare Advantage plans. Advantage plans are designed to be less expensive than original Medicare and to offer services such as vision. But be sure to research them thoroughly; these plans can offer less coverage for serious illnesses or extensive care.

What You Need to Know About HSAs and Other Healthcare Benefits 

If you are eligible for a Health Savings Account (HSA), it can help you save for healthcare expenses in retirement.

HSAs are a fringe benefit for individuals enrolled in a high-deductible health insurance plan. If you pay a deductible of at least $1,400 for an individual plan or $2,800 for a family plan, you are eligible for an HSA. If you are 55 years of age or older, you can contribute an additional catch-up contribution of $1,000. (These are 2020 levels and could increase in the future.)

An HSA is a tax-deferred health savings plan, so your contributions are taken out tax-free. This can save you on taxes and can place you in a lower tax bracket.

Even more advantageous, you can roll your HSA account over year to year, and save all of it or some of it to use for healthcare expenses in your retirement. These plans are portable: You can take them with you should you leave the job in which it was initially offered. (You can also open an HSA yourself if you are self-employed.)

There is also no time limit about when you withdraw money from an HSA. You can roll the funds over indefinitely.

The current maximum contributions are $3,550 for individuals and $7,100 for families. This money can be used for a wide variety of healthcare expenses.

HSAs can also be placed in a variety of accounts, ranging from cash to bonds and stocks. The interest and any other appreciation occurs tax-free. Qualified withdrawals for health expenses are also tax-free.

In some ways, HSAs are similar to Flexible Spending Accounts (FSAs), which are another fringe benefit that employers may offer for tax-advantage healthcare savings. FSAs, however, are “use it or lose it” funds. They have to be used within the year of contribution or a short time after.

As a result, FSAs can be advantageous if you are working and eligible when you reach your 60s. But they are generally not as advantageous for retirees as HSAs, because FSAs do not have the portable feature.

If you’re married and plan to retire before your spouse, see if you will still be covered by his or her plan when you retire. Having employer-sponsored healthcare coverage in retirement can be a huge financial benefit. (For other considerations for married couples, read our recent blog post: Retiring Before (or After) Your Spouse: 7 Questions to Ask.)

For more information on healthcare expenses and retirement, talk to a fiduciary financial advisor. If you’re not currently working with a financial advisor or feel it’s time to make a change, contact the team at Montgomery Taylor Wealth Management. Our Sonoma County wealth advisors have been serving families in the Sonoma County area since 2002. Schedule a no-obligation conversation with us today.

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