Now that I’m a certain age (cough, cough) articles regarding retirement are showing up more frequently on my news feed. At least that’s how it seems. Maybe they’ve always been there, but now I’m paying closer attention to them. Anyway, I recently read an article in Wealth Management that reported that half of retirees said they didn’t calculate their medical expenses before retiring. And more than 40 percent of these retirees said their healthcare expenses were higher than they expected. Ouch!
So, how do you calculate your health care costs when planning for your retirement? I read a great article by Dana Anspach in The Balance that answers this question.
First, let’s start with a quick tutorial on Medicare.
Medicare has four parts:
Part A – Hospital stays
Part B – Physician Fees
Part C – Medicare-approved private health insurance plans (Medicare Supplemental Insurance) for people enrolled in Medicare Part A and Part B.
Part D – Prescription Medications
Medicare Part A which covers hospitalization is typically free (99% of Medicare beneficiaries do not pay a premium for Part A) but the other parts are not. You’ll be paying premiums for Medicare Part B, supplemental insurance, (often referred to as Medicare Part C) and for drug coverage (Part D).
This year, 2018, Medicare Part B costs $134.00/month (If your income is $85,000 or less per year). If you make more, you’ll pay more.
My understanding is that Medicare Part A and Part B will cover about 50 percent of your medical expenses. If you want insurance to help with the other 50 percent that’s where a Medigap policy or Medicare Advantage Plan (Part C) as well as a prescription drug plan (Part D) comes in.
This is where it can get tricky. Not all supplemental insurance plans are created equal. If you get a Medicare Advantage policy that includes dental and vision coverage, it might not provide as much hospitalization coverage. This could leave you holding the bag if you get a severe or chronic illness. Make sure you understand the pros and cons of each policy before selecting one.
Medicare also does not cover the majority of long-term care costs. To make sure you have the ability to cover these costs, you might want to consider a long-term care insurance policy too.
The cost is sure adding up, isn’t it? What’s the bottom-line?
There are many healthcare cost calculators online that can help you estimate your premium and out-of-pocket costs. Anspach used the healthcare cost calculator at HVS Financial to calculate the example she used in her article. It estimated total healthcare expenditures to be about $4,500 a year ($375/mo). Keep in mind this is for one person. For a married couple you’ll need to budget double that.
It’s a lot to swallow, I know. But forewarned is forearmed.
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