Keep Healthcare, Long-Term Care From Derailing Your Plan

Note: This video is part of Morningstar's 7 Days to Retirement Readiness week special report.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Fidelity estimates that the average 65-year-old couple will need $280,000 to cover health and medical expenses during retirement. But that's an average; many retirees will spend much less than that, and many will spend much more. High healthcare costs have the potential to derail your retirement plan, so it's important to keep close tabs on them.

One of the best things you can do is to buy a good quality supplemental insurance plan, and reshop your Medicare coverage each fall. During open enrollment, you can switch from original Medicare to Medicare Advantage, and you can also investigate whether you're in the best prescription drug plan for you. These plans can change from year to year, and so might the list of drugs that you're prescribed.

Healthcare expenses are still deductible under the new tax laws, to the extent that they exceed 7.5% of your adjusted gross income in 2018. But thanks to the new tax laws and higher standard deduction amounts, most taxpayers won't be itemizing their deductions. If you have heavy healthcare costs in one year, you may be able to bunch together a number of other health-related expenses in that same year, so that you'll be able to deduct something on your tax return.

It's also important to develop a plan for long-term care expenses. With long-term care insurance premiums rising dramatically over the past decade, many people have decided they'll self-fund long-term care costs with their own assets. That can be a sound strategy for people with a lot of wealth, but just make sure you're setting aside enough. The average nursing home in the U.S. costs almost $100,000 a year, and care in urban centers costs more than that. In addition, make sure to segregate any long-term care assets from your spending money. Because this is the pool of assets you'd likely spend at the end of your life, it can be invested pretty aggressively, especially early in your retirement.

Thanks for watching. I'm Christine Benz for Morningstar.com.