How to plan for medical costs in retirement

retirement_readinessRecently I discussed the benefits of retiring debt-free and why it’s important to eliminate credit card debts, mortgages and auto loans. Not only will you have more financial flexibility, but high medical costs will seem more affordable. The point of this article is to factor in health care costs with your retirement planning.

In retirement, health care is likely to be the biggest expense that most of us face. Many seniors tell me that medical costs are their biggest concern. Imagine facing large medical expenses plus a mortgage, car loan, and credit cards. If that’s your future, it is very possible you won’t have enough money to go around.

I am about to share a startling statistic…so hang on to your seats. According to The Employee Benefit Institute, by 2020 a 65-year-old married couple without health insurance and average prescription costs will need at least $365,000 to cover Medicare Part B and D premiums, out-of-pocket drug costs, and a supplemental insurance policy for the rest of their lives. This figure could be higher if you’re in poor health or have high medication costs. Other experts estimate this cost as less – around $250,000. But even at the lower number, over 20 years the annual cost per couple is roughly $12,500 or $1042 a month. Therefore, careful planning today is essential to prevent financial crisis due to medical costs tomorrow.

Be sure to sign up for Medicare

There is a 7-month enrollment window to sign up for Medicare. The window runs from 3 months before and 3 months after the month you turn 65. It is important to enroll in both Parts A (hospitalization) and B (doctor and outpatient services), and perhaps D (prescription drug coverage) if you take medications.

If you enroll late, you will face penalties, plus you’ll have to wait for the general enrollment period which is January 1 – March 31. In addition, your benefits will be postponed until July 1. Therefore, enroll on time to avoid delayed benefits.

If you’re already collecting Social Security when you become eligible for Medicare, you’ll automatically be enrolled in Parts A and B.

Look into supplemental policies like Medigap and Medicare Advantage

Beware that Medicare does not pay for all medical costs so you will likely need a supplemental policy. Two basic types of supplemental coverage are discussed below, but you must be enrolled in Medicare Parts A and B to be eligible for either coverage.Medical costs

  •  Medigap Policies cover co-payments and deductibles that Medicare does not pay. These policies are sold by private insurance companies. Although Medigap policies are standardized by plan types and coverage, costs are not standard. Typically, Medicare pays first up to the amount approved for covered costs. Then the Medigap policy kicks in to pay its share.
  • Medicare Advantage Plan is an alternative way to receive Medicare benefits. Similar to Medigap policies, the Medicare Advantage Plan is also offered by private insurance companies. This plan must include all services that Medicare covers. Many policies also offer coverage for prescription drugs, and extras such as vision, hearing, and dental care. Plans vary by costs, services, deductibles, and co-payments.

Be sure to comparison shop

Researching your options is always best. A good resource is, which provides comprehensive information on basic Medicare and how it works with Medigap or Medicare Advantage plans. Another helpful website is which offers more detailed information, and a tool to compare programs and policies in your area.

You should be aware that monthly premiums for Medigap policies vary depending on where you live, and the type of policy you buy. General prices range from $50 to more than $300 a month. Medicare Advantage plans start around $50 a month.

I often hear from seniors who have problems trying to figure out the best supplemental plan. So let me give you a tip: If you live in Minnesota, I encourage you to contact the Senior Linkage Line at 1-800-333-2433 or visit its website. While this agency offers many senior-related services, it also offers trained volunteers who can review supplemental insurance plans to help you find the one that best suits your medical needs. Why guess when you can get expert help?

Factor in premiums + out of pocket costs

PrescriptionAlthough Medicare Part A is free for most people, there are premium costs for Part B. Those costs range from roughly $100 – $320 a month, depending on your income and tax filing status. There will also be premium costs for any supplemental policies you buy to cover co-pays and out of pocket costs.

If you opt for Medicare’s drug plan, there is an additional cost. For 2012, the base premium was about $31 a month. But beware! There is a gap in this coverage known as the “donut hole.” Once your medication costs reach $2,930 you may pay a higher percentage for your prescriptions until you reach the annual out of pocket limit of $4,700. Fortunately, the donut hole is scheduled to be phased out by 2020 under President Obama’s Affordable Care Act.

Finally, don’t forget to include costs for dental visits, eye exams, and glasses if those items are not covered by a supplemental policy. By being prepared, you can relax and enjoy your golden years free of stress and worry over the cost of medical care.

LSS certified Financial Counselors have lots of great information and options that may help you plan for medical costs during retirement. Just give us a call at 888-577-2227 or start here to complete online counseling. Take action today to secure your financial future!

Author Barbara Miller is a Certified Financial Counselor with LSS and specializes in Bankruptcy Education and Counseling.

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