How much will health care cost you during retirement? If you guessed around $280,000 for a couple retiring today, you might be right. That’s what a study from Fidelity estimated as the amount the average couple could expect to spend on medical expenses. The typical retiree spends about $5,000 each year on premiums and out-of-pocket expenses.
If you guessed less, you’re not alone. A report from Voya Financial found that two-third of people think they’ll need $100,000 or less, a figure that’s significantly below the actual amount most people will need.
This is a serious problem. If people don’t have a realistic picture of the true cost of health care in retirement, they won’t be able to budget well. When the costs end up being higher than expected, their retirement lifestyle is going to take a hit – possibly a devastating one.
Don’t let that happen to you. Understand the facts so you can plan accordingly.
Long-term care increases expenses.
People who are surprised by the above numbers will be shocked to learn that these figures don’t even include long-term care expenses. Long-term care covers assistance with the activities of daily life, such as eating and bathing.
According to the U.S. Department of Health and Human Services, 70 percent of today’s 65-year-olds will need long-term care services at some point, and that care is expensive. One month in an assisted living facility costs an average of $3,628, and one hour of assistance from a home health aide costs an average of $20.50.
Many people expect Medicare to cover the costs of long-term care services, but this is not what happens. Although Medicare does include coverage for skilled care that is medically necessary, it only does so for a limited amount of time, and it does not cover other long-term care services. To obtain coverage for this, individuals should look into long-term care insurance.
Medicare leaves many out-of-pocket expenses.
Because people have been paying into Medicare for their entire working lives, they might assume that they’ve already paid everything they need to by the time they retire. This is not the case.
The Medicare payroll deductions you make do result in important benefits. By paying Medicare taxes for at least 10 years, you’re entitled to premium-free Medicare Part A. Otherwise, you’ll have to pay a monthly premium.
Either way, you can expect to pay for coinsurance and deductibles out-of-pocket. In 2018, the deductible is $1,340, and the coinsurance is hundreds of dollars for each day in the hospital after the first 60 days.
You can also expect to pay for the other parts of Medicare. Medicare Part A only provides hospital coverage. For other medical care, like regular appointments with your doctor, you need Medicare Part B. For prescription coverage, you need Medicare Part D.
In 2018, the standard monthly premium for Medicare Part B is $134. Individuals earning more than $85,000 per year and couples earning more than $170,000 per year will pay more based on their income bracket. On top of that, you pay a deductible of $183 per year and a 20-percent copay for most Medicare-approved services.
According to the Medicare Rights Center, the average premium for Medicare Part D in 2018 is $35.02. As with Medicare Part B, the costs are higher for people in higher income brackets.
You’ll pay more if you enroll late.
If you think you can save money by delaying enrollment, think again. Medicare charges hefty penalties for late enrollment.
For every 12-month period you delay enrollment in Medicare Part B, you’re changed a 10 percent penalty. This isn’t a one-time fee, either – it’s a lifetime fee.
Some people, such as those who are insured through a qualifying employer-sponsored plan, are exempt from the late charge. Before you delay enrollment, make sure you’re exempt from the late penalty. Otherwise, plan on enrolling when you turn 65.
What if you can’t afford the high costs?
Some people qualify more low-income subsidies. Extra Help lowers prescription drug costs for qualifying individuals, while state-run Medicaid and Medicare Savings Programs provide help with the costs of Medicare Parts A and B.
If you don’t qualify for low-income subsidies, the best thing to do is to shop around.
Some people can save money and control their out-of-pocket expenses by enrolling in private plans. Medicare Advantage plans, also called Medicare Part C, are private plans that replace Medicare Parts A, B and (usually) D. Medicare Supplement plans, also called Medigap, are used in combination with Medicare Parts A and B. Long-term care insurance can help you plan for non-medical care.
Don’t be caught off guard by health care costs. Make sure retirement goes smoothly by calculating your costs and creating a realistic budget.
Read more articles about Medicare Insurance.