Health care isn’t cheap, even if you have insurance. According to The Street, many Americans grossly underestimate the amount of money they’ll need to spend on health care during retirement. The Employee Benefit Research Institute estimates that a 65-year-old man will need $127,000 for health care expenses, while a 65-year-old woman will need $143,000. But two-thirds of Americans think they’ll need less than $100,000, and almost one-third of Americans think they’ll need less than $25,000.
This gap can wreak havoc on your retirement. To plan for the high cost of medical insurance, you need to understand the facts.
If You Retire Early, You Won’t Qualify for Medicare Yet.
Americans age into Medicare when they turn 65. If you retire early – before you turn 65 – you will not qualify for Medicare yet.
This surprises some people, probably in part because it is possible to start claiming Social Security benefits early. Although doing so will result in a reduction in benefits, people can start claiming Social Security benefits before they reach full-retirement age, as early as 62.
If you want to retire early, make sure you consider how you’ll obtain health insurance.
Medicare Is Not Free.
Medicare Part A, which covers hospital care, is free for most people. However, individuals who don’t qualify for free Medicare Part A will need to pay a premium. In 2018, the monthly premium is $232 for people who paid Medicare taxes for 30 to 39 quarters and $422 for people who paid Medicare taxes for less than 30 quarters.
The rest of Medicare – including Medicare Part B, which covers medical insurance, and Medicare Part D, which covers prescriptions – is not free. In 2018, the standard premium for Medicare Part B is $134.
On top of the premiums, expect to pay deductibles and copays for your services and prescriptions.
If You Earn More, You’ll Pay More.
The amount you pay for Medicare is based on your income bracket. For 2018, these are the monthly premiums for Medicare Part B for the different brackets:
- $134 (the standard premium) for individuals earning $85,000 or less and couples earning $170,000 or less
- $187.50 for individuals earning more than $85,000 up to $107,000 and couples earning more than $170,000 and up to $214,000
- $267.90 for individuals earning more than $107,000 and up to $133,500 and couples earning more than $214,000 and up to $267,000
- $348.30 for individuals earning more than $133,500 and up to $160,000 and for couples earning more than $267,000 and up to $320,000
- $428.60 for individuals earning more than $160,000 and for couples earning more than $320,000.
Starting in 2019, a new income bracket will be added for individuals earning more than $500,000 and couples earning more than $750,000. These individuals will pay even more.
Compare Your Options Carefully.
When you enroll in Medicare, you have choices.
- You can obtain coverage through separate Medicare Part A, Medicare Part B and Medicare Part D plans. If you do this, you can also choose to buy a private Medicare Supplement plan.
- You can obtain coverage through Medicare Advantage. These are private plans that combine the coverage offered through Medicare Part A and Medicare Part B. Many also provide prescription drug coverage.
It’s important to compare your options carefully. You may be able to reduce your out-of-pocket expenses by purchasing a private plan. Low-income individuals may also qualify for help through Medicaid. Read more about how Medicare, Medicare Advantage and Medicaid differ.
Don’t Forget About Long-Term Care.
Many people assume that Medicare will cover long-term care, but this is not true.
Most retirees will need long-term care at some point. In fact, today’s 65-year-olds have a 70 percent change of needing long-term care, according to the U.S. Department of Health and Human Services. At the same time, long-term care is expensive. One month in a semi-private nursing home room costs around $6,844 a month.
Due to both the high prevalence and the high cost, planning for long-term care is important. In addition to health insurance, look into long-term care insurance. And don’t wait until you retire. Buying long-term care insurance when you’re younger – say, in your 50s – and still in good health will help you lock in a better rate.
Need help planning for health care spending in retirement? Contact PTT Financial.