Want to know a troubling fact? Retiree health care costs are on the rise. In fact, couples retiring in 2019 will need about $285,000 in order to pay for health care costs alone. This number assumes the couple is eligible for Medicare. Medicare Part A and Part B will cover hospital stays, doctor visits, physical therapy, and lab tests.
While you’re planning your retirement bucket list, you may need to accelerate your savings rate to account for these extra expenses. Wealth management is challenging as it is, and is even more so when taking into consideration these extra and unexpected costs. Don’t worry though, in this post we have broken down the costs you can expect and we provide an action plan for ways you can pay for them.
Retiree health care costs
Retiree health care costs are numerous and intimidating. The best way to overcome any hesitancy you may have is to have a firm grasp on what you can expect. Here are some retiree health care expenses you can anticipate once you reach your golden years.
Medicare Part B premium
Medicare coverage has two main parts: Part A and Part B. Part A helps pay for any hospital service you may need. This part of Medicare is free as long as you and your spouse paid payroll taxes for at least 10 years. If you’re not eligible for the free version, you can pay a monthly premium which may be several hundred dollars.
Part B assists with covering doctor office visits and any outpatient services you need. Part B can sometimes come with a hefty price tag. The standard 2019 Part B premium was about $135.50 per month. The majority of taxpayers pay this amount. However, if your adjusted gross income has surpassed a certain threshold for the past 2 years, you’ll pay the standard premium amount and Income Related Monthly Adjustment Amount (IRMAA).
Medicare Part D premium
You’ll also have to pay a monthly premium on your Medicare Part D plan. This plan is to supplement your prescription drug costs. Plans may vary depending on your specific needs. Along with paying your monthly premium you must pay your deductible amount. According to Medicare, no drug plan deductible exceeded $415 in 2019.
Deductibles and copayments
For Medicare Part A, you must pay a $1,364 deductible for each benefit period. Additionally, depending on your time at the hospital, you may need to pay a fee for coinsurance. For example, if you stay over 91 days in a hospital, you may have to pay $982 in coinsurance per each “lifetime reserve day” after your 90-day period. Once you’ve used all your lifetime reserve days, you will have to pay all costs involved.
In addition to the monthly Part B premium, your 2019 deductible is $185. Once you meet this deductible, you may have to pay 20% of the Medicare approved amount for most doctor services, outpatient therapy services, and durable medical equipment (DME).
For prescription drugs, you will pay a copayment for your prescription drugs on the drug tier. For example, if you’re purchasing generic drugs, your copayment could be less than other alternatives.
Medicare Supplement Insurance (Medigap)
Medigap insurance helps cover some of the expenses that Medicare will not. These expenses include copayments, coinsurance, and deductibles. These policies also help cover services Medicare doesn’t offer, like medical attention when you’re traveling out of the country.
Medigap coverage can drastically fluctuate from one insurer to the next. However, the 2018 Part A Medigap Plan average is $360 while the Part B average is $449.
Long-term care insurance
According to the U.S. Department of Health and Human Services, 70% of retirees turning 65 will need some form of long-term care service. Long-term care consists of nursing home care, assisted living, and at-home care expenses. Long-term care coverage can help assist consumers with these costs. This type of insurance may help ease the financial burden you and your family face in the future. If you’re banking on Medicare covering the cost of long-term care, you’re out of luck. Medicare doesn’t offer extended long-term care coverage unless you require medical care.
Long-term care insurance tends to be expensive. Currently, a 60-year old couple’s average cost is $3,381 per year. Most policies have an average of a $150 daily benefit for a three year period. Rates vary depending on age, health, and insurer.
How to plan for retirement health care costs
Is your head spinning from all the different costs retirees face? If you’re overwhelmed by all the health care expenses you have on the horizon, don’t panic. There are plenty of solutions for planning for these extra costs.
Focus on your health
Prioritize and focus on your health. This is one of the most important things you can do to minimize your retiree health care costs. Be sure to ask questions and schedule regular doctor and dental visits. Your doctors can help you create a health care plan to maintain a healthy lifestyle.
Also, make sure to stay active and participate in a variety of active hobbies. For example, you may want to take up tennis on the weekends with a few of your friends. Not only will this keep your cardiovascular health in check, but it gives you time to socialize and interact.
You can also focus on managing your distributions in a tax-efficient manner. For example, high-income taxpayers (for 2018 that means singles with expected income of $85k or more, married couples with an expected income of $170k or more) tend to have a higher Medicare Part B and Medicare Part D premium. Partnering with a financial planner and tax strategist can help you tackle your distributions in order to minimize your premiums.
Distributions from Health Savings Accounts (HSA), Roth IRA accounts, and your cash value of your life insurance policies aren’t included in the formula used to calculate your Medicare Part B premium. If you have a large traditional IRA account, you may want to start converting some of your assets to Roth dollars prior to reaching the age of 65. While you may have to pay taxes on your conversions, you can minimize your premium amount.
Do your health care research
The rising cost of retiree health care is a reality. It’s wise to make health care costs a line item in your budget and make a plan for addressing these future expenses. If you plan on retiring before you reach age 65 or are forced into early retirement, be sure to understand the cost of carrying your own insurance premium, since you’re not eligible for Medicare if you’re under age 65.
Partner with a financial planner and tax strategist
The best way to plan for the rising cost of health care is to partner with a financial planner and a tax strategist who you can trust. Health care is a crucial element to your retirement planning puzzle. You need to understand how it fits in your future financial picture. A financial planner can help you evaluate your financial situation and determine the best plan of action for addressing your health care needs during your golden years.
The bottom line
While you may still feel intimidated by the task of preparing for your retirement health care costs, we hope that we’ve given you a good foundation of knowledge to start with. Don’t be afraid to ask questions and research all of your options. The more prepared you are, the better you’ll be able to manage your retiree health care costs.
It’s also wise to consult with a financial planner for guidance. When it comes to choosing a financial planner, it’s a big decision. Take your time and do your research to ensure you find someone who can become more than your advisor. Choose someone who can become your trusted friend.