Follow These 5 Steps to Full Health Care Coverage in Retirement

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Are you sure you'll be able to afford healthcare in retirement? Positive?

Consider this: A recent report analyzing the rising out-of-pocket Medicare costs estimated that people retiring 10 years from now will spend $9 of every $10 they receive from Social Security on health care, in the form of copays, supplemental insurance premiums, prescription drugs, and things not covered by Medicare such as visits to the dentist.

This means that the cost of medical care is something everyone should factor into their retirement saving plan. But this is no ordinary expense — there are specific strategies for saving for health care that can put you in a much better position in your golden years.

1. Maximize Your Social Security Benefits

"The number one thing people should do — most people aren't aware of this — is optimize Social Security," says Ron Mastrogiovanni, founder of HealthView Services, which issued the alarming report.

The main way to maximize benefits is to wait as long as possible to start receiving Social Security. A couple retiring 10 years from now at age 65 will receive $142,000 less in lifetime benefits than they would if they worked until age 67, he said.

"If you're capable of working, why would you throw away $142,000?" Mastrogiovanni says.

2. Start a Roth IRA

"Under Medicare, they have something called means testing; the more you earn, the more you pay," Mastrogiovanni says. "Here's the kicker: Those income brackets are not indexed to inflation." That means that if the government doesn't adjust the income at which retirees are considered affluent, many middle earners of today will end up paying more once they retire.

But not all retirement income is counted in this calculation. Money drawn from a traditional 401(k) counts, but money drawn from a Roth IRA or a Roth 401(k) doesn't. So if your regular 401(k) is building up towards a high income in retirement, you might want to divert some of your contributions to a Roth, or convert the account to a Roth, to keep your income below the level where you'll be considered an affluent retiree.

3. Consider a Health Savings Account

Health savings accounts are not generally considered a retirement savings vehicle — they are meant to help people pay high medical care deductibles with certain insurance plans. But Medicare expert Katy Votava advocates saving excess contributions to HSAs for retirement health care needs.

"You can put in significant money and it grows tax free. Most people don't need to spend their full health savings account every year to meet their full health insurance needs," Votava says.

4. Consider Long-Term Care Insurance

The high out-of-pocket costs outlined in the HealthView report do not include the cost of nursing homes or other long-term care, but those are obviously a major concern when looking at lifetime health care costs. Some advisors recommend purchasing insurance that would protect your savings if you go to a nursing home, while others warn against it. This Wall Street Journal report explores both sides of the long-term care insurance issue.

5. Purchase the Right Supplemental Plan

Your parents or grandparents may not have had to pay anything out of pocket once they qualified for Medicare, but people retiring now and in the future need supplemental insurance to cover the copayments, coinsurance, and deductibles that Medicare doesn't cover. You'll also have to pay for a prescription drug plan. Choosing the right plan can be so complicated that many people turn to consultants like Votava to help them figure out which to pick. Before signing up for a plan, make sure it covers your doctors and your medications, because not all plans cover everything, Votava warns.

What are you doing to ensure sufficient health care coverage in retirement?

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