Planning for Health Care expenses in Retirement

What’s the best way to wreck your retirement budget? How about unexpected medical expenses?

Ask any financial planner and, he or she will likely say that most couples are not prepared for the financial disruption that could come with an expected or catastrophic illness.

Twenty-eight percent of Americans said their greatest fear in retirement is the worry about high medical costs in retirement, according to a survey by The number – and the worry – is even higher for people 50 and older – 33%.

It turns out there is a good reason for that concern. A 65-year-old couple retiring in 2016 will need an estimated $260,000 to cover health care costs in retirement, according to Fidelity’s Retiree Health Care Cost Estimate. That’s up 6% from the previous year and the highest estimate since calculations began in 2002.

Fidelity says that estimate applies to retirees with “traditional” Medicare insurance coverage and provides a general idea of the monthly expenses associated with Medicare premiums, Medicare co-payments and deductibles, and prescription drug out-of-pocket expenses.

Meanwhile, financial planners say one of their biggest concerns is that people just don’t understand Medicare. And some of them think it’s free.

“A lot of people don’t understand about Medicare. They don’t understand the different types of Medicare,” says David Blackston at Blackston Financial Advisory Group in The Villages, Fla.

Dawn-Marie Joseph, president of Estate Planning & Preservation in Williamston, Mich., says the education needs to begin before you retire.

“Before you retire, get on webinars, get on the Social Security website and check on Medicare,” she says. “The Social Security website is easy to use. You can look up anything about retirement. And you need to find out about Medicare Part B and Part D. What will you need in supplemental insurance.”

Also, she says, companies like Humana have good online programs and seminars.

Joseph says some people will have insurance when they retire. They need to make sure that their spouse has insurance. She also recommends that people have a health savings account. Look at your insurance options and know when open enrollment is. And set aside money so you know your health insurance will be covered, she says. “You have to have health care, and Medicare is not likely to be enough. That’s a big part of planning.”

“They (clients) realize how much health care costs when we start asking,” she says. “I go over how much I pay a month. I don’t expect when I retire for those costs to come down. Right now I pay $730 a month in health care. Used to pay over $1,000. I show them those numbers and then do an annualized number. Medicare will save me a little money, still, that’s a lot of money.”

Medicare, meanwhile, is a “big misunderstanding,” Blackston says.

  • Part A, is the hospital portion of Medicare. It is free and pays for the hospital and skilled care (which is not the same as convalescence care), he says. “Skilled care is anything you are doing that will improve your health. If you break a hip, Medicare will pay up to 100 days because you will get better. But if you are in a nursing home and have Alzheimer’s, you won’t get better.”
  • Part B is the doctor portion. “The amount you pay for that depends on your income,” Blackston says. If they sell a house and have this huge gain, the next year part B will go up in cost. If they don’t understand that they can appeal that to Medicare, Medicare keeps charging them.”
  • Part C is the Medicare Advantage plan. The government has paid the insurance company to take over Medicare. They pay the fee directly to the insurance company which administers the plan. The problem with it is you, as a retiree, are limited to the places they say you can go to. You are restricted on where you can go, and which hospitals you can go to. In traditional Medicare you can go where you want to. You will pay a co-pay.

‘If you are a person sick a lot, Medicare Advantage is not the kind of plan you want to be  in,” Blackston says. “If you are healthy and don’t take a lot of medications, Medicare Advantage may be the place. So, it’s important that people check with an expert in Medicare.”

  • Then you have part D, the drug plan. Under traditional Medicare, drug plans will cost anywhere from $20 to $80 (monthly) Under the Medicare Advantage plan, drug plans are a part of it.

“When it comes to the financial part, everybody assumes when I turn 65 and I go on Medicare, health care costs are covered,” Blackston says. “That is not the case.

“I went to a conference, and one of the things we talked about is people not understanding about the cost of health care when they retire,” he says. “On average, a person will pay $5,000 to $7,000 a year out of pocket. They’ve got to be prepared for that.”



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