Getting old in America has its perks. No, I’m not just talking about the senior discount at the movie theater or having time to shop at the grocery store when it is less busy. I’m talking about Social Security, Medicare, and Medicaid. Of course, you have paid into the system throughout your working life, so it’s not exactly a freebie by any means, but it can still feel like a welcome reprieve.
Social Security gets most of the attention when it comes to developing a strategy to maximize its benefits, but Medicare affects tens of millions of people and has a cost. More than 60 million Americans are enrolled in Medicare, and according to AARP, half of all beneficiaries paid at least $3,100 in out-of-pocket costs, which amounted to about 17% of their income. In terms of when you need to look at signing up, it is wise to begin considering your Medicare strategy in advance of turning age 65. When you hit 65, you have a 7-month window to enroll (which begins 3 months before age 65).
Medicare has many facets that make it a complicated benefit you are entitled to. Medicare Part A covers items like hospital care, skilled nursing facility stays, hospice care, surgery, and even home health care (though you must first meet the deductible). Part B is optional and covers outpatient care as well as medical equipment expenses and some preventative services.
Parts A & B do not cover some big-ticket items, however. You are on your own when it comes to long-term care insurance, most dental care, eye exams, cosmetic surgery (that’s understandable, right?), hearing aids, and routine foot care (for you athletes out there). Researching what exactly Medicare will pay for and what you are left covering is important when it comes to retirement cash flow planning. The good news? TFC will help you understand your retirement cost concerns when it comes to insurance during your golden years.
You may have heard of Medicare Parts C &D. What are those? Medicare Part C is often referred to as a Medicare Advantage Plan. If you choose to join a Medicare Advantage Plan, then the plan will provide all of your Part A & B coverage. And Part C could cover some of the restricted products & services that I listed earlier. To make things a bit more confusing, Part C actually can cover Part D (detailed below).
So let’s talk about Medicare Part D – drug coverage. Get it.. D for drugs? So at least that part makes sense. Part D has four tiers with co-pays ranging from lowest (Tier 1) to highest (Tier 4 or Specialty Tier). If you require high-cost prescription drugs, you may choose the Specialty Tier, but if you don’t use expensive drugs, then Tier 1 may be for you. What your plan covers depends on your coverage (termed a formulary), so you want to carefully consider what coverage you need and how it fits your budget.
You may be asking “so how much is this going to actually cost me?” – that’s very difficult to determine at a high level. It really depends on your needs & coverage in addition to what financial assistance you will receive. And you have the option to enroll in Medigap insurance for things that Medicare does not pay for.
Perhaps it is better to take the approach of considering how much the average retiree will spend on health care throughout their remaining life – Fidelity provides an annual report on this. The investment firm estimates that the typical couple will need about $285,000 for medical costs during retirement (not counting potential long-term care needs). So like anything in your financial plan, it is best to start looking ahead now so you are prepared for what the future brings.
Here’s the point
- Americans are eligible to begin Medicare at age 65, though you want to plan ahead.
- Know the different parts of Medicare and what may suit you best.
- Health care costs are obviously a major expense in retirement, and you are on your own for long-term care insurance.
Action items
- Review how Medicare will fit into your retirement plan; know the benefits you are entitled to.
- Research sites like AARP and Medicare.gov to get the facts as the program can be quite complicated.
- General information is good to have, but this is YOUR retirement and YOUR financial plan. Sit down with us at TFC to guide you through your situation.
Photo by Petr Vyšohlíd on Unsplash