Plan for Increased Medical Expenses During Retirement
Fidelity estimates that the average American will need about $220,000 in retirement for health care costs alone. This isn’t the most pleasant part of retirement planning, but it is important to be prepared for these kinds of expenses.
Medicare: What it is and what it isn’t
While your parents may have counted on the same health insurance in retirement as they did during their working years, you may not be so lucky. The truth of the matter is that only around 25% of companies with more than 200 employees offer health insurance to retirees. Depending on the age at which you plan to retire, Medicare might not be an option either. You’ll only be eligible for emergency hospital coverage (Medicare Part A) when you turn 65 years old.
What’s more, Medicare Part B (Medicare’s health insurance program) isn’t a free government service -- it’s a for-pay program that requires a monthly premium payment. And, Medicare Part B doesn’t have a cap on your out-of-pocket expenses. As such, relying upon Medicare Part B alone isn’t a viable plan for your retirement.
Medicare Advantage (Medicare Part C) combines the best of both worlds into something resembling a real health insurance plan at lower premiums, but it limits your choice of providers.
This is a lot of information to wrap your head around, so we’ve outlined your options with age and income in mind:
- Buy your own health insurance on the open market. This option isn’t cheap. If you retire before you’re 65 years old (when Medicare kicks in) this could cost you more than $500 per month.
- If you can get on a group plan, the cost drops to the mid-$200s after age 65, thanks to the Medicare supplement.
- If the options above don’t work for you, you’ll either have to enroll in Medicare Part B or C, or get a Medigap insurance plan that covers what Medicare doesn’t. However, bear in mind that Medigap plans won’t cover anything if you have Medicare Advantage.
Don’t put yourself in a position that will leave you counting your pennies in old age—calculate out-of-pocket health care expenses now. In retirement, you’re likely to spend more on healthcare than ever before, and these variable expenses can really throw a wrench into a fixed-income budget. The more money you save while you’re still working, the less you’ll have to worry about health care expenses that arise in retirement.