As you get older, healthcare costs can skyrocket. Even with a proper Medicare Supplemental policy, health-related expenses can take a big bite out of your nest egg.

At Cooke Wealth Management, we often ask: How are you planning for healthcare expenses in retirement?

For many people, their initial answer is only Medicare.

As you'll discover below, that answer is woefully inadequate. Medicare often plays a key role in affording health care costs during retirement. But, you'll want to plan for some degree of uncertainty, especially when it comes to your healthcare needs.

Let's talk about effective healthcare financial planning.

How to Factor the Costs of Healthcare Inflation and Custodial Care

Inflation influences the price of everything from gas and groceries to surgeries and skilled nursing care. Let's assume you retire at age 65. In the first year of your retirement, your healthcare costs are $6,381 in our scenario. No problem — you budgeted for that.

Assuming your real healthcare expenses never rise — no unexpected surgeries, no rehab stays, no chronic diseases — apply an inflation factor and by the time you are 85 years old, you will have paid $208,000 for healthcare. More than $100 grand of that will be in inflation alone. Double that amount for a married couple. 

Have you budgeted for those costs?

Also, consider the price of long-term care. If you are 65 years old today, you have a roughly 70% chance of needing some version of support or long-term care in later life. If you're a woman, your chances are higher because you are expected to live about five years longer than a man. The majority of individuals may never need long-term care, but Around 20% of today's 65-year-olds will need long-term care support for more than five years. 

In Southern California, long-term care can cost anywhere from $5,000 to $12,000 per month. Simple math tells us that some people's long-term care bills will run north of $500,000. 

Have you budgeted for those costs?

You’ll likely want to do so because Medicare has not. Certainly, Medicare offers massive benefits, but it is not a perfect safety net.

What Does Medicare Actually Cover?

Medicare is mandatory. You have to enroll and do so on time or face penalties. But Medicare is also means-tested. Thus, high earners pay more for their coverage than low-earning Americans pay. If you fall into a high-earning category, you need to budget for higher healthcare premiums in retirement 

Medicare Part A covers hospital stays, some skilled home care, end-of-life hospice care, and the first 100 days of skilled nursing care. Medicare Part B pays for preventative care, outpatient surgery, and physician services. Both have deductibles and copays. Neither pays for prescription drug coverage. You have to add Medicare Part D for that. 

In addition, Medicare does not pay for long-term rehabilitation or care. If you need assisted living, memory care, or independent living in a community, you will have to pony up the money for that yourself. 

Should you or your spouse need nursing home care for the last several months or years of life, Medicare will not assist you. Again, you're on your own financially speaking. As a starting point for your budget, consider that the average private room in a nursing home runs $8,821 according to a study published by Senior Living.

That's not to say Medicare isn't a big help. It is. In fact, the new Medicare Advantage plans offer several excellent benefits. For instance, some of these plans incorporate drug coverage, dental care, or vision coverage into their policy. A Medicare Advantage plan may — or may not — be right for you. Talk to your financial advisor before committing to your plan.

Do You Need Long-Term Care Insurance?

Long-term care insurance can cover rehabilitation, assisted living, memory care, in-home assistance, or nursing home care. Depending on the specific policy, it may pay for care over a defined period of time — say 2-5 years — or it may cover the remainder of your lifetime.

In lieu of a full long-term care policy, some people choose to purchase a rider on their life insurance. As with most insurance plans, the longer you pay, the lower your monthly premiums. If you purchase long-term care insurance early, you'll make lower monthly payments.

But is a long-term care policy right for you? Christian financial advisor Dave Ramsey recommends that most people buy long-term care insurance around age 60. Your mileage may vary so be sure to consult with your wealth management professional.

What about Health Savings Accounts (HSAs)?

An HSA pays for certain medical expenses and can cover premiums. These accounts offer several tax advantages: Contributions are deductible. They grow tax-deferred. And you can withdraw money tax-free for qualified medical expenses. 

In order to contribute to an HSA, you must have a high deductible health insurance plan (HDHP). Many employers offer eligible health plans, and your insurance company can tell you fairly quickly if your plan qualifies. 

In 2022, the maximum HSA contribution is $3,650 for individual coverage and $7,300 for family coverage. People in their 50s may make catch-up contributions of an additional $1,000 a year. Those who are already enrolled in Medicare, however, can no longer contribute to an HSA. Here again, the earlier you invest, the greater the return and benefits you might enjoy.

What Else Can You Do?

Does your retirement plan account for the increasing cost of medical and long-term care expenses you may have to pay? Remember, these costs could be with you for several decades after you leave the workforce.

Planning for health care costs in retirement requires more than a financial strategy. Taking good care of your health is crucial. As you age, your nutrition, fitness, and spiritual plans grow increasingly important. Be sure to socialize frequently, exercise regularly, and build a strong relationship with your primary healthcare provider.

For a Christian staying grounded and connected to God can be just as important for our mental health and well-being. Staying in the community, going to church regularly, and volunteering are all ways in which you can continue to mature spiritually and build on your relationship with God and his followers. 

Chronic diseases cause much of the disability and death people to experience as they grow older. Many of these diseases can be delayed or avoided altogether through lifestyle choices. Proper health management and disease prevention may help extend both your healthspan and your lifespan. You can enjoy more years of serving God, your family, and our world — all without having to worry about money.

Would you like to talk to a Christian financial advisor about healthcare financial planning? Contact Cooke Wealth Management today to schedule an appointment.