Planning for Healthcare in Retirement in San Diego

Navigating healthcare costs in retirement can be challenging, particularly in San Diego, where the combination of high living expenses and evolving medical needs makes careful planning essential for a financially secure future. Surprise medical expenses, rising healthcare costs, and longer life spans can affect your retirement planning and quality of life, underscoring the importance of integrating healthcare into your overall plan. Learn more about the key elements of healthcare planning in retirement that are particularly relevant for San Diego retirees and those approaching retirement.

Why is Healthcare Planning Important in Retirement?

There are several reasons San Diego retirees should include healthcare costs in their overall retirement plan, including:

• Rising Healthcare Costs: Retirees must plan for potentially decades of medical expenses, including routine checks, chronic conditions, and long-term care. According to the American Medical Association, the average annual cost of healthcare services, including physician services, hospital care, and prescription drugs, has steadily risen, with medical inflation often outpacing general inflation. A 2023 Fidelity study also estimated a retired married couple can expect to pay around $315,000 on healthcare throughout their retirement. Ignoring these costs could lead to significant financial strain.  
• Unpredictable Healthcare Needs: As you age, the need for healthcare tends to increase along with costs for issues like chronic conditions, unexpected illnesses, or long-term care needs. Planning ahead helps mitigate the risk of being unprepared.
• Out-of-Pocket Expenses: Medicare provides good essential coverage for most people over 65 but it doesn’t cover everything. Out-of-pocket expenses, including premiums, deductibles, copays, and services like dental and vision can add up quickly. A comprehensive plan should address the cost of supplemental coverage to cover any plan gaps.
• Increasing Life Expectancy: With the average life expectancy in the U.S. around 78 (as of 2022) and more people living to their 100th birthday, retirees may face a retirement lasting up to 30 years or longer. Longer retirements require more funds to help ensure retirees won’t outlive their savings. Adequate planning can help retirees enjoy their lifestyle in retirement without unexpected healthcare costs later in life.
• Likelihood for Long-term Care and Assisted Living: The possible need for long-term care increases with age and as life spans increase, so does the potential duration and cost of care. Planning for this contingency, whether through long-term care insurance, dedicated savings, or other means, is essential to safeguard against high expenses. 

When Should I Start Healthcare Planning for Retirement?

Planning for healthcare in retirement should be part of the conversation early in the retirement planning process, alongside other key factors like income needs, savings, and investment strategies. Healthcare costs are often significant in retirement, so understanding potential expenses for insurance, long-term care, and out-of-pocket medical costs is crucial for drafting a well-rounded retirement plan. Your company-sponsored healthcare plan may offer the benefit of insurance during retirement, so it’s essential to understand how or if you may qualify for this type of benefit well before you need it.

Addressing healthcare planning early ensures you can make informed decisions about savings, insurance options, and risk management. 

How Can I Calculate Healthcare Costs for Retirement in San Diego?

Estimating healthcare costs is critical in financial planning, especially in high-cost areas like San Diego. While predicting exact costs can be challenging due to variables like health status, age, location, and evolving healthcare policies, you can make informed estimates by considering the following:

• Current Health: Assess your health and family history, especially regarding cognition. This type of care tends to be costly in high-cost cities like San Diego and other parts of California.
• Medicare Coverage: Understand what Medicare will and won’t cover, including potential premium surcharges based on your retirement income. 
• Supplemental Insurance: To help manage healthcare costs in retirement, you may consider a supplemental insurance plan that fits your needs.
• Out-of-Pocket Expenses: Estimate the cost of prescription drugs, copays, or a supplemental plan that will help manage expenses.
• Dental, Vision, and Hearing: Budget for care and treatment with limited or no Medicare coverage, such as dental, vision, and hearing care. Even routine expenses for check-ups, eye exams, and hearing tests can add up over time. Consider the premiums for these plans as part of your retirement expenses, as well as costs related to more extensive treatments or specialized care, such as dental surgery or hearing aids.
• Long-Term Care Housing: Long-term care housing, such as assisted living facilities, nursing homes, or in-home care, can be one of the most expensive aspects of retirement.  Costs vary depending on the type of care, location, and level of assistance required but can reach tens of thousands of dollars annually. In San Diego, where home equity can be a significant part of net worth, consider how you might use it to pay for long-term care if needed.  
• Long-Term Care Insurance: Long-term care insurance can help cover the costs of long-term care housing and services but it comes with high premiums and must be purchased well before care is needed. You may consider alternatives, including hybrid life insurance policies with long-term care riders or earmarked savings specifically for long-term care. 

What Type of Medical Insurance Do Most Retirees Have?

In 2024, there are different insurance options for retirees before and after age 65. 

Retiring After Age 65

• What is Medicare? Medicare is the federal health insurance program for individuals 65 and over. Medicare has different plans, including:
  • Medicare Part A for inpatient services like hospital care
  • Medicare Part B (income-based) for outpatient services like doctor visits
  • Medicare Part C or Medicare Advantage, combining coverage from Parts A and B plus prescription drug coverage, offering more comprehensive insurance
  • Medicare Part D, a prescription drug plan
  • Medigap, supplemental insurance that helps cover out-of-pocket costs not included in traditional plans, such as copays and other expense.
• How do I budget for Medicare? Depending on your needs, you should consider Medicare costs, such as:
  • Premiums for Medicare Parts B and D, and Medicare Advantage and Medigap, if you select additional coverage
  • Out-of-pocket costs under Part A and Part B, such as deductibles and copays for prescription drugs under Part D  

Note: The Income Related Monthly Adjustment Amount (IRMAA) for high-income retirees adds costs to Parts B and Part D.

• How do I enroll in Medicare? Enroll in Medicare during your initial enrollment period around your 65th birthday to avoid late enrollment penalties, which can increase your premiums permanently. Each year during Medicare’s open enrollment (October 15 to  December 7), review your coverage to ensure it meets your healthcare needs and financial situation.  
• Do I need to enroll in Medicare if I’m on COBRA? Yes, if you have COBRA from a former employer, you still need to enroll in Medicare to avoid penalties or higher premiums. COBRA works differently than Medicare, and the only way to delay Medicare enrollment without penalty if you are no longer employed is to be insured by a working spouse’s employer-sponsored insurance.

Retiring Before Age 65

If you plan to retire before age 65, you are ineligible for Medicare. When considering how to insure yourself or others, you may explore:

• Private Insurance: Explore and compare individual health plans
• Employer Benefits: Review any retirement healthcare benefits your employer may offer
• Spousal Coverage: Consider benefits through your spouse’s employer-sponsored plan

Before 65 is a good time to familiarize yourself with Medicare. A professional can help guide you through the different components of the program, what they cover, and how premiums are affected so you’re well-informed when you become eligible.

Additional Insurance to Consider:

• • Supplemental Insurance: Supplemental insurance helps fill the gaps left by Medicare, providing retirees with more comprehensive healthcare coverage.
  • Health Savings Account (HSA): You can use HSA funds tax-free for Medicare premiums (except Medigap), deductibles, copays, and other qualified medical expenses in retirement. You can also use them for long-term care expenses, including long-term care insurance premiums, home healthcare, and nursing home costs. Note that once you enroll in Medicare, you can no longer contribute to an HSA but you can still use existing funds for qualified expenses. 

Healthcare Planning for Retirement in San Diego – How CCMI Can Help

At CCMI, we don’t sell insurance products but we collaborate closely with top insurance professionals to help ensure our clients have access to the best options available. Here’s how we can assist you:

• Collaboration with Insurance Specialists: We partner with leading insurance experts who stay current on the latest and ever-changing insurance industry, allowing us to provide customized, unbiased recommendations to our clients.
• Retirement Planning Expertise: Our fee-only team specializes in guiding clients through retirement transitions, providing guidance free from conflicts of interest that considers your entire financial situation, including healthcare and life insurance needs.
• Local Knowledge: As retirement specialists in San Diego, we’re familiar with navigating healthcare expenses here and can help you plan effectively, whether you’re based here or elsewhere.
• Estate Planning: We can guide you on essential parts of your estate plan as it relates to the healthcare section of your financial plan, including required minimum distributions that may be affected by your Medicare premiums, advanced healthcare directives, living wills, and healthcare power of attorneys.

Healthcare planning in retirement is crucial, and we’re here to help guide you through the complexities and options available. Learn more about how we help pre-retirees and retirees build plans that not only meet their healthcare needs but support their goals.