healthcare in retirement
According to the Fidelity Retiree Healthcare Cost Estimate, the average 65-year-old couple may need around $300,000 to cover healthcare in retirement, making it an expense worth planning for. That said, it may not be as bad as it sounds, which I’ll circle back to at the end.
There are many variables that can affect the cost of healthcare including your age, the age you retire, your health and your income. In this article I’m going to focus on a few items to consider as you plan for healthcare in retirement. Keep in mind, this is specifically related to healthcare and not long-term care, which is often thought of similarly but is in fact different (I wrote about it here http://blakegallion.com/LongTermCare.html). Long-term care provides care for activities of daily living when they can’t be performed on their own, which is separate and equally as important to consider when planning for retirement, but not the focus of this article.
About 96% of seniors are on Medicare, making it by far the largest provider of healthcare for retirees. In most cases you must be 65 to qualify. For early retirees, healthcare costs can be dramatically higher.
Health insurance considerations before age 65: If you retire before age 65 you will likely have to purchase your own health insurance. Some individuals, especially those with government or military careers, may be eligible for coverage through their employer prior to age 65, but most people are not. For those retiring before turning 65, I generally recommend that they check with their employer to see if they offer healthcare benefits to retirees, but again, most don’t, though many offer COBRA, which can provide a temporary extension of healthcare coverage of which you are usually responsible for the entire premium. If your spouse is still working, another option is to see if you can get coverage under their plan. The next path I recommend is to look at obtaining coverage through the health insurance exchange in your state, in California, this is called Covered California www.coveredca.com. States either have their own exchange or are part of the federally run marketplace, www.healthcare.gov. Either way, you can go online and get an estimate of costs for various plans and most states offer subsidies based on income of which many people qualify, not just very low-income earners. Given the subsidies available, proper income planning prior to age 65 can dramatically reduce your healthcare costs.
Health insurance at age 65 and beyond: The vast majority of people should sign up for Medicare to begin age 65 (3 months prior) www.medicare.gov. Medicare has several parts with different features, Part A for hospital coverage, Part B for medical coverage, part C is known as Medicare Advantage (private bundled plans that provide parts A & B) and part D for prescription drug coverage. Part A is free, and I generally suggest everyone that turns age 65 sign up for this, even if they are still working. If you are working you can wait to purchase additional coverage so long as you have coverage through your employer, but once again I suggest that you speak with your employer about your healthcare options now that you are eligible for Medicare. Medicare also has an open enrollment period beginning October 15th of each year, however, you can sign up at other times if you have a qualifying event such as retirement. Note, be sure to enroll on time or you can face gaps in coverage or premium penalties that last your lifetime. When you are approaching the point where Medicare will be your main source of health insurance, I suggest speaking with a Medicare specialist who can consider your personal situation such as preferred doctors, medications, etc., to help you find the right plan. Note that the premium for part B is $148.50 in 2021 for most individuals with income up to $88,000 single or $176,000 for a couple. Most people purchase supplemental coverage to help close the gaps that exist in standard Medicare coverage. Total cost when purchasing supplemental coverage and prescription drug plans is often $300-400/mo. As with many programs in the US, there are low-income options.
While all of this can sound expensive and complicated, planning ahead will help you prepare for the costs and select the right coverage for you. And while $300,000 as referenced by Fidelity is a large number, most of this is paid out over many years and not in a lump sum, so planning for it as a line item in your retirement budget makes it much more manageable.
If you have questions or would like to speak to me about planning for your healthcare in retirement or for a referral to a Medicare Insurance Specialist, feel free to reach out at firstname.lastname@example.org.
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