If you are retired, you probably already know that health care costs can put a big dent in your budget. If you are not retired, you may still be in the dark about what the costs will actually end up being.
Wait a minute. At age 65 everyone is required to enroll in Medicare, which is a free benefit in retirement, right? Wrong! At 65, most people do enroll in Medicare (unless they are still working and covered by an employer plan), but unfortunately it is not free. We will get to how much Medicare costs in a bit, but let’s first get an idea of how much health care might cost in retirement.
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According to a Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Cost and Use File in 2006, people age 65-74 will spend, on average, about $3,500 per year on a combination of insurance premiums and services. As you get older it may be more likely you will need health care and therefore likely that you will spend more money to get it. In the same analysis, people age 75-84 may spend $4,664 per year and those 85 and older approximately $7,487.
Beware if you’re married because this is per person. Depending on how much money you have saved and how well you have planned your budget in retirement, this chunk of change can cause financial stress. That is the last thing we want in retirement. We all would like a happy and relaxing retirement. The point here is to spend some time and get familiar with what to expect in retirement health care costs and how you will pay for them.
Some people may not be aware that Medicare is not free. Part of the insurance premiums included above, Medicare Part B (doctors’ services, tests, etc.), is currently $104.90 per month. This amount is typically deducted from your Social Security check. In addition to this premium Medicare Part A (hospital services) currently has a deductible of $1,216 per spell of illness.
Part B also has an annual deductible of $147. Then there is the cost of prescription drugs. There is a $310 per year deductible that many drug plans may cover, but you do have to pay for the Part D drug plan itself. This can vary in cost depending on how may drugs you take and what they are.
Then there is this thing called the doughnut hole. Doughnut hole? I am getting hungry now thinking about the old commercial with the guy waking up and saying over and over “Time to make the doughnuts.” Sorry, I have a tendency to digress with random thoughts.
Once your drug costs have reached $2,850, there is a coverage gap (“doughnut hole”) that requires the beneficiary to pay the entire costs of medications. Catastrophic coverage then starts when total drug costs have reached $4,550. Confusing, huh? Wow. We have not even gotten to the fact that Medicare will only pay for up to 60 days of hospitalization before you must pay more money and 80 percent of Part B. This means you are exposed to the other 20 percent, whatever that may be. What to do?
Here are some important tips:
1. If you do not enroll in Medicare on time, you will pay a monthly penalty.
2. If you do not get the right private insurance to go with Medicare, you may pay too much in premiums or out-of-pocket costs.
3. If you do not plan for higher health care costs in retirement, you could run out of money or not be able to get the care you need.
All this stuff can be very confusing and overwhelming. The main point is to start educating yourself as to what your costs may be so you are better prepared to pay them. Find an adviser who can be helpful with information on what to look for.
The Retirement Guys would be glad to send you a copy of The Baby Boomer’s Guide to Medicare Planning. Just go to www.retirementguysnetwork.com and request a copy, or call us at (419) 885-0550 and we will send it to you. As always we wish you a happy and relaxing retirement.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on Newsradio 1370 WSPD or visit www.retirementguysradio.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. (419) 842-0550.
