Preserving Health and Wealth: How to Plan for Healthcare Costs in Retirement

Retirement is a time meant to savor your successes from years of hard work, when you can focus on filling your bucket with meaningful experiences – travel, hobbies, volunteering, and spending time with loved ones. You want to live your retirement life to the fullest, and having a financial plan in place can allow you to enjoy financial security well into your golden years.

Whether you’re nearing retirement or decades away, a financial plan can act as a roadmap to help you prepare for the expenses you’ll have in retirement. One of the biggest expenses retirees may face is medical expenses.

According to an annual study on the average cost of healthcare in retirement, a 65-year-old who retired in 2023 can expect to spend an average of $157,500 on health and medical expenses throughout retirement. A couple can expect to spend $315,000 on healthcare costs throughout their retirement.

This cost becomes even greater for younger generations who aren’t retired yet – with rising healthcare costs and the impact of inflation, a couple in their mid-forties now may see their lifetime retirement healthcare costs grow by over $250,000, for a projected total of more than $1.7 million. That couple would likely spend more on their retirement healthcare costs than the total Social Security benefits they would receive.

While these future healthcare costs may seem daunting, they’ll vary based on when and where you retire, how healthy you are, and how long you’ll live. Also, these costs won’t be paid as a lump sum all at once, so you can plan for them as an ongoing expense in your retirement budget.

With strategic financial planning, you can be better prepared for the uncertainties of your future healthcare expenses and help ensure a more secure and resilient foundation in your retirement years.

Estimating the Average Cost of Healthcare in Retirement

As part of your planning, estimate your average healthcare costs when you’re retired so that you can have a general idea of what you can expect to spend.

Analyze your current healthcare expenses, including your insurance premiums, routine medical care, ongoing care for health conditions, prescription medications, and out-of-pocket costs. Seeing how much you currently spend on healthcare can provide a baseline for understanding your future needs.

Make sure to account for inflation and continued rising healthcare costs so that you have a more realistic projection of your future expenses. Looking ahead allows you to adjust your financial plan so that you can meet these potential increases.

Strategies to Manage Healthcare Costs in Retirement

How can you prepare for healthcare costs in retirement? In addition to using your retirement savings to pay for medical expenses, there are a few things you can do both before and after retirement to manage these costs.

Live a Healthy Lifestyle

Living a healthy lifestyle isn’t limited to just your retirement years, as prioritizing your health and well-being throughout your lifetime brings immeasurable benefits to you and your loved ones. Embracing a healthy lifestyle also contributes to your long-term financial well-being: being proactive about preventative care and committing to wellness can reduce the frequency of medical care and associated expenses.

Health Savings Accounts (HSAs)

While you’re still in your working years, consider contributing to a Health Savings Account (HSA) if your employer offers a HSA-eligible health plan. HSAs offer a convenient, tax-efficient way to save for healthcare costs in retirement.

You contribute to your HSA with pre-tax dollars through payroll deductions, and those contributions grow tax-free in your account. You can withdraw money, also tax-free, when used to pay for qualified medical expenses, both while working and in retirement.

You can also use HSA money for non-medical expenses after the age of 65 without any penalties (be aware, though, that you’ll be responsible for paying taxes on your non-qualified withdrawals).

HSAs are a valuable tool in planning for your healthcare costs in retirement, providing a dedicated vehicle to save for healthcare expenses.

Medicare and Medigap Insurance

The Medicare tax is a payroll tax that’s used to support healthcare costs for retirees and is paid by both employees and employers in the US. The current tax rate for Medicare is 1.45% each for the employee and employer (2.9% total). If you earn over $200,000 annually, you’ll be subject to an additional Medicare tax of 0.9%.

You’re eligible for Medicare at age 65, so consider familiarizing yourself and reviewing the different Medicare options before you become a beneficiary. Medicare has several elements: Part A, Part B, and Part D, as well as Medicare Advantage and Medigap.

● Medicare Part A covers inpatient care in hospitals and skilled nursing facilities after you meet a deductible (the deductible amount for 2024 is $1,632). You’ll be responsible for daily coinsurance after a certain length of time as an inpatient.

● Medicare Part B is optional coverage for services not covered by Part A, including physicians’ services, outpatient hospital services, and durable medical equipment. Part B requires a monthly premium, which is determined by your income, as well as deductibles and coinsurance you’ll be responsible for.

● Medicare Part D covers prescription drugs and also requires a monthly premium determined by income.

● Medicare Advantage plans are managed care plans that cover services under Part A and Part B and may cover additional services, including prescription drug coverage.

● Medigap policies are supplemental policies offered by private insurance companies to cover the “gaps” in Medicare. Medigap policies provide additional coverage for deductibles, coinsurance, and other expenses.

Long-Term Care Insurance

Medicare doesn’t cover long-term care, so you can consider purchasing long-term care insurance. Long-term care insurance policies offer protection against the significant financial impact of extended care needs, as prolonged medical care can be particularly costly.

Having long-term care insurance (or a long-term care insurance rider added to your life insurance policy) can not only help you plan for healthcare costs, but help preserve your retirement savings as well.

Planning for the Impact of Healthcare Costs

Healthcare costs can have a significant impact on your financial security during retirement. It’s important to account for these costs in your financial and retirement planning, so that you can align your financial goals with your future healthcare costs.

At Five Pine Wealth Management, we’ll work with you to develop a comprehensive financial plan and retirement strategy to address your present and future financial needs, including health and medical care.

As fiduciary financial advisors, we are legally bound to act in your best interest as we help you navigate the complexities of financial and retirement planning. We’ll work together with you to create a holistic, comprehensive plan that meets your unique needs and objectives.

To see how we can help you grow and preserve your wealth well into retirement, email us or give us a call at: 877.333.1015.

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Just Got a Raise? Implement These 5 New Strategic Wealth Opportunities

March 21, 2025

Getting a raise is an exciting moment in your career and financial journey. Maybe you’ve gone through an executive-level position change and received a 10% pay bump or an internal promotion yielded you an additional 15%. Regardless of how you got your raise, you’re now in a unique position to move the needle on your long-term financial goals (and maybe splurge a little, too). But before you pull the trigger on that major purchase you’ve been eyeing, it’s important to have a long-term plan for the extra money in your paychecks. Even a significant raise can erode quickly if you suddenly upgrade your home, start vacationing like a celebrity, or snap up that Mercedes you’ve been eyeing. Below are our top five strategic wealth opportunities for you to consider the next time you receive a raise. First Things First: Understand Your New Numbers A 10% or 20% raise may sound like a huge boost, but not all that money will land in your bank account. Before making any financial moves, it’s important to calculate your new take-home increase after taxes and contributions. For example, if you receive a $25,000 raise on a $175,000 salary, you might expect $2,083 more per month. However, after accounting for federal taxes, state taxes, and other deductions, your actual monthly increase might be closer to $1,500. Knowing your actual take-home pay helps you set realistic expectations and make informed financial decisions. Getting a Raise: 5 New Strategic Wealth Opportunities For high-income earners, getting a raise isn’t just more spending power—it’s an opportunity to build lasting wealth while minimizing taxes. Instead of falling into lifestyle creep, consider these five wealth-building strategies to maximize your higher income. 1. Grow: Maximize Tax-Efficient Investment Opportunities With your increased income, you now have more opportunities to maximize tax-advantaged accounts and investment vehicles. For 2025, you can contribute up to $23,500 to your 401(k), plus an additional $7,500 if you're 50 or older. If you weren't maxing out your contributions before, your raise provides an excellent opportunity to reach these limits. Let's say you direct $750 of your new monthly take-home pay to your 401(k). You not only build retirement savings but could save approximately $2,160 in federal taxes annually if you're in the 24% tax bracket. Consider increasing your retirement and investment contributions by the same percentage as your raise. For example, if you receive a 10% raise, aim to increase your contributions by 10% of that raise. This incremental adjustment will help ensure you can maintain the lifestyle you're accustomed to when you retire. 2. Save: Optimize Tax Strategies to Reduce Liabilities A higher income often means entering new tax brackets, making tax efficiency more crucial than ever. Without proper planning, you might find a significant portion of your raise going to Uncle Sam instead of building wealth. Consider switching to a high-deductible health plan (HDHP) for your family, which can lower your premiums while giving you access to a Health Savings Account (HSA). In 2025, you can contribute up to $8,550 for family coverage , potentially saving around $2,000 annually in taxes. Additionally, the money in your HSA grows tax-free and can be withdrawn for qualified medical expenses without tax liability. 3. Diversify: Explore Alternative Investments A higher income can open the door to new investment opportunities, allowing you to diversify beyond traditional stocks and bonds. Alternative investments like real estate investment trusts (REITs) can provide exposure to different asset classes, potentially offering both passive income and long-term appreciation. These types of investments often move independently of the stock market, helping to balance overall portfolio risk. They can also offer lower barriers to entry compared to direct property ownership or other traditional alternatives. The key is to align your investments with your risk tolerance and liquidity needs while taking advantage of opportunities that complement your existing strategy. 4. Strengthen: Build Your Estate With more income comes greater potential for building generational wealth. Investing half of your $25,000 raise annually for 20 years with a 7% return could add over $500,000 to your estate. This makes it essential to have proper structures in place for efficient wealth transfer. To ensure your wealth transfers efficiently, consider: Trusts to protect assets and minimize estate taxes Life insurance strategies for wealth preservation Family-limited partnerships for multi-generational wealth planning These structures become increasingly valuable as your wealth grows. 5. Impact: Upgrade Your Philanthropy & Social Impact There's something powerful about reaching a place in life where you can give back meaningfully. Beyond the personal satisfaction of a higher income, this new chapter brings an opportunity to create lasting positive change in your community and the causes closest to your heart. Maybe you still remember the community college professor who believed in you when you weren't sure about your path. Now, twenty years later, by creating a donor-advised fund (DAF) to support student scholarships, you're not just making education more accessible—you're giving another student their own life-changing mentor. By thoughtfully structuring your charitable giving through vehicles like DAFs or qualified charitable distributions from retirement accounts, you can maximize both the impact of your generosity and the tax benefits that come with it. After all, effective philanthropy isn't just about giving money away—it's about creating meaningful change in the ways that matter most to you. Red Flags: Top Signs of Lifestyle Creep While getting a $25,000 raise provides excellent opportunities for wealth building, it's important to avoid (too much) lifestyle creep. That upgraded car lease might cost an extra $200 monthly, the bigger house another $800 in mortgage payments, and the premium credit card's annual vacation package another $400 monthly in travel costs. Before you know it, your entire raise can get absorbed by new expenses. While there's nothing wrong with enjoying the fruits of your hard work, the key is being intentional about which lifestyle upgrades truly matter to you. Here are some common warning signs that lifestyle creep might be eroding your raise: Your monthly expenses rise automatically with your income You upgrade multiple lifestyle aspects at once (housing, car, travel, dining) Your savings rate remains unchanged despite higher earnings Luxury spending becomes your new normal Your cash reserves aren’t growing despite a higher paycheck Instead of automatically increasing spending across the board, take time to identify the one or two changes that would bring the most joy and fulfillment to your life. Then, invest the rest. Put Your New Money to Work with Five Pine Wealth While these strategies focus on wealth building, don't forget to invest in yourself through continued education, health, and meaningful experiences. The key is finding the right balance between growing your wealth and enjoying the fruits of your success. Whether you've recently received a raise or are anticipating one soon, having a plan in place can help you maximize this opportunity. Our team can help you evaluate which of these strategies would work best for your unique situation and create a customized plan to help you reach your financial goals. At Five Pine Wealth Management , we can help you implement these strategies in a way that aligns with your personal goals and values. To learn more about making the most of your increased income, schedule a meeting with us. Email us at info@fivepinewealth.com or call us at 877.333.1015. Let's work together to transform your raise into lasting wealth.

Mortgage-Free Retirement: Is It Really Your Best Move?

March 7, 2025

Meet Sarah and Tom, both successful professionals in their mid-50s. Like many of our clients, they're wrestling with a common retirement planning question: should they pay off their mortgage before retirement? With $200,000 left on their home loan, they love the idea of entering retirement debt-free but wonder if their money could be better used elsewhere. This scenario plays out in countless pre-retirement conversations, and the answer isn't always straightforward. According to the Federal Reserve’s Survey of Consumer Finances, approximately 38% of homeowners aged 65-74 still carry mortgage debt, a significant increase from previous generations. This trend reflects changing attitudes toward retirement debt and more complex financial considerations in today’s economy. So, let's explore the various factors to consider when making this important financial decision. Why More People Are Considering to Pay Off Their Mortgage Before Retirement The decision to pay off your mortgage before retirement is deeply personal, influenced by both financial and emotional factors. Let's explore the various pros and cons of paying off a mortgage that can help guide your decision-making process. The Pros of Paying Off Your Mortgage Before Retirement Reduced Monthly Expenses : According to the Federal Reserve , homeowners' median monthly mortgage payment was $1,500 in 2023. Reducing or eliminating this cost can significantly impact your financial freedom during retirement. Guaranteed Return on Investment : Paying off your mortgage provides a guaranteed return equal to your interest rate. If you’re paying 6% interest, eliminating that debt is like earning a risk-free 6% return which can be attractive when markets are volatile. Tax-Efficient Withdrawal Strategy : With the standard deduction now at $30,000 for married couples (2025), many retirees don’t itemize deductions anyway, making the mortgage interest deduction less valuable than in previous years. Peace of Mind : An immeasurable sense of security comes with owning your home outright. Some clients report sleeping better at night, knowing they'll always have a roof over their heads, regardless of market conditions. Cons of Paying Off Your Mortgage Before Retirement Tying up Liquidity : A paid-off house is great, but you can’t buy groceries with bricks. If you drain off your savings to pay off your mortgage, you might find yourself “house rich, cash poor.” Emergencies could force you to dip into retirement accounts at inopportune times. Opportunity Cost : Using a large sum of money to pay off your mortgage means those funds aren't available for investment. Historically, the S&P 500 has returned an average of about 10% annually over the long term, potentially outperforming the interest saved on many mortgages. Impact on Retirement Savings : If paying off your mortgage requires withdrawing from tax-advantaged accounts like a 401(k) or IRA, you may trigger capital gains or incur higher taxes due to increased income in the withdrawal year. Inflation Benefit : Over time, inflation erodes the real value of debt. That fixed mortgage payment becomes easier to manage as your income and the cost of living rise (assuming your income adjusts accordingly). Paying it off early eliminates this potential advantage. Diversification : Keeping a mortgage while maintaining a robust investment portfolio might provide better risk management through diversification. Emotional Considerations For many, the decision is as emotional as it is financial. Some retirees sleep better knowing they own their home outright. Others find comfort in having a robust investment portfolio and a manageable mortgage. Owning a home outright often provides a deep sense of security. It represents stability, independence, and the comfort of knowing you have a place to live without the worry of monthly payments. This emotional relief can significantly reduce stress, especially during market downturns or economic uncertainty. The idea of having a fully paid-off home can also foster a sense of accomplishment—a tangible reward for years of hard work and financial discipline. On the other hand, maintaining a mortgage while having substantial liquid assets can provide a different kind of emotional security. Knowing you have cash readily available to cover emergencies, opportunities, or unexpected expenses can create a strong sense of financial freedom. It allows for flexibility in decision-making without the pressure of having all your wealth tied up in a single asset. Ultimately, the emotional factor is deeply personal. It’s about identifying what gives you peace of mind—whether that's seeing a zero balance on your mortgage statement or knowing you have a healthy, diversified investment portfolio that offers both growth potential and accessibility. Key Questions to Ask Yourself What is my current cash flow? Can I comfortably afford my monthly payments alongside other expenses? Do I have enough liquid savings for emergencies? Aim for at least 6-12 months’ worth of expenses. How will paying off my mortgage impact my taxes? Consult with a financial adviser to understand potential changes. Does debt cause me stress? If the emotional burden outweighs potential financial gains, paying it off could be the right move. What’s my retirement income plan? Will eliminating your mortgage reduce the need for withdrawals from tax-advantaged accounts? A Balanced Approach: Partial Payoff The right choice often lies in finding a middle ground. Consider a middle-ground approach if you're torn between paying off your mortgage completely or keeping it into retirement. You might want to consider one of these options: Make extra mortgage payments to reduce the principal but maintain investment contributions. Pay off a portion of the mortgage to lower monthly payments while keeping some assets liquid. Refinance to a shorter term if rates are favorable to accelerate payoff while maintaining investments. Let's return to Sarah and Tom's story. After carefully weighing their options, they chose a hybrid approach. They decided to use a portion of their savings to pay down half of their mortgage principal, reducing their monthly payments significantly. This approach allowed them to maintain a healthy investment portfolio while decreasing their monthly expenses in retirement. The decision gave them the best of both worlds—they kept their investment strategy intact while gaining more monthly flexibility and peace of mind. Today, they're confidently moving forward with their retirement plans, knowing they've struck the right balance for their unique situation. Everyone’s situation is different, but Sarah and Tom's story shows you can find the right balance between financial security and optimization of your resources to create an ideal solution for your retirement journey. Making Your Decision: Should You Pay Off Your Mortgage Before Retirement? The bottom line is there’s no one-size-fits-all answer. What works for one person might not be the best choice for another. It depends on your financial picture, risk tolerance, and emotional comfort. If you're wrestling with this decision, we're here to help you look at the comprehensive picture. At Five Pine Wealth Management , we can help you evaluate how paying off your mortgage before retirement fits into your broader investment strategy. Would your retirement feel more carefree with a paid-off home? Or would the funds be better off in a low-cost, diversified investment? Together, we can analyze both the emotional aspects and the financial impacts of this decision. Let’s sit down, run the numbers, and find the best path for you. Call 877-333-1015 or email us at info@fivepinewealth.com to schedule a meeting today! Your retirement peace of mind is our priority. Let's work together to ensure your mortgage strategy supports the retirement lifestyle you've worked so hard to achieve.

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