Navigating Health Care Costs During Retirement: A Comprehensive Guide

Preparing for retirement can be really challenging and often takes many years. We learn about different ways to invest and try our best to save enough so we can live comfortably in our later years.

One major cost to plan for is healthcare in retirement. It’s easy to forget about future healthcare costs because during our working years, we usually have employer-provided health insurance with low deductibles and shared costs. But as we get older, we’ll likely need more healthcare services, so we have to be diligent in our planning. Here are some useful tips to help keep medical debt under control as we approach retirement.

A common misconception is that Medicare will cover all healthcare costs at no charge. This is far from true. It’s crucial to consider all healthcare expenses, whether you’re visiting a dentist or your family doctor.

Although your FICA taxes during your working years help cover Medicare Part A hospital premiums, you’ll need to pay monthly premiums for Medicare Parts B and D during retirement. These amounts can change with new tax laws. In 2018, the standard Part B premium for new enrollees was $134/month, but higher-income individuals may pay more.

Medicare Part D helps cover prescription costs and, while optional, it’s essential if you want to protect yourself from high drug costs in the future. Part D premiums vary, but the average is about $35/month.

Have you saved enough to cover these monthly expenses for the rest of your life?

Medicare has specific enrollment periods. You need to sign up during your Initial Enrollment Period (IEP) unless you have other qualifying health insurance. Missing this can result in unexpected penalties when you eventually enroll. For instance, enrolling late in Part B results in a 10% penalty for every year you delayed, and delaying Part D incurs a 1% penalty for every month you waited, based on the national average premiums.

Even though Part D is optional, delaying enrollment means paying a penalty as long as you have Medicare in the future. Avoid these penalties by enrolling in Medicare on time.

Medicare doesn’t cover all healthcare costs. Just like with previous insurance plans, you are responsible for some out-of-pocket costs through deductibles, copayments, and coinsurance.

One of the largest out-of-pocket costs for Medicare beneficiaries is 20% of outpatient expenses since Part B only covers 80%. This can include doctor visits, lab tests, cancer treatments, and outpatient surgeries. These costs can be overwhelming, especially with long-term or chronic illnesses.

To protect yourself against these expenses, consider buying supplemental health coverage. You can choose between Medicare Supplement and Medicare Advantage plans.

Medicare Supplement policies help cover what Medicare doesn’t pay. These cost more upfront but can make your out-of-pocket expenses more predictable and allow you to see any provider who accepts Medicare.

Medicare Advantage plans are private, network-based plans that replace Original Medicare. They have lower premiums and some copays and coinsurance when you need care. These plans have an annual out-of-pocket limit to protect you from excessive spending. Some Advantage plans even include Part D drug coverage.

Both types of plans help cover deductibles, copays, and coinsurance that you would otherwise pay yourself.

As you get closer to retirement, have you thoroughly planned for your healthcare expenses? It’s a critical part of ensuring a financially secure and comfortable retirement.