How do you account for the costs of health care alongside planning for your retirement? If you're like the others, you are underestimating these expenditures.
While Medicare Part A, which includes some hospitalization rates, is free (assuming you have been employed in the U.S. for long enough to qualify), the majority of Medicare coverage is not free. With Medicare Part B, and for supplementary benefits or prescription policies, you must pay premiums. You'll also have out-of-pocket costs.
When you take all these into account, Medicare is expected to cover just between 50-60% of your healthcare needs. And over time, there will be a rise in premiums and out-of-pocket costs.
Most seniors and individuals who are ready to move out of the workforce forget about the healthcare budget as they estimate their retirement expenses. What's the reason? Their employer often picks up most of the tab (usually around 75%) and the remaining cost (about 25% on average) comes out of their paycheck. They think they need the same amount of take-home pay they already have, but they forget that in addition to the out-of-pocket costs, they are now going to be responsible for paying their health care premiums.
You are likely to have four forms of healthcare premiums after retirement:
Medicare Part B: As the income increases, so does this. If you made less than $85,000 in 2018, you'd pay $134 a month. You'd pay more if you made more.
Medigap (referred to as Medicare Supplemental Insurance) or Medicare. If you want insurance for the costs that are not covered by Medicare, you should consider purchasing either a Medigap Policy or a Medicare Advantage Program, as well as prescription drug coverage. It may not cover dental, hearing, and eye care costs if you have a Medigap Policy, potentially leaving you with some large expenses, particularly for dental needs.
Advantage Premiums (referred to as Medicare Part C). If you have a Medicare Advantage Package that covers dental, hearing, and eye care, it may not provide as much extra hospitalization coverage, potentially leaving you and your family with a large bill in the event of chronic or serious disease.
Coverage of Medicare Part D (drug coverage) includes self-administering prescription drugs. Drugs prescribed by a specialist such as a nurse or a doctor are usually covered by Medicare Part B. Patients protected by Part D benefits must make a co-payment on a prescription basis. Many drugs are also exempt from coverage.
Medicare does not cover most of the long-term care costs that you might experience. Consider long-term care insurance if you want to be assured that you have funds to cover these costs.
So how much could this plan add up to and the associated out-of-pocket costs?
Use HVS Financial's online healthcare cost calculator to forecast your own current and future healthcare costs.
The calculator estimated total premiums and out-of-pocket costs at approximately $4,500 a year for a male aged 65. This means you'll find yourself short on cash if you haven't put around $375 a month into your health care cost budget. It is also possible that these healthcare costs will rise at around twice the rate of inflation, suggesting ten years after retirement that $375 a month maybe nearer to $675 a month (using an inflation rate of 6 percent).
You need to double these figures for a married couple.
In order to avoid the burden of mounting medical bills, many doctors encourage patients to lead a healthy lifestyle. Take responsibility for your medical care. Do the research and ask questions. You're going to want a good dentist, too, and go see them every six months. Cardiovascular diseases appear in your gums first. A dentist who pays attention can find something even before your doctor does.
For high-income taxpayers, the more you receive (for 2018 this means people with expected income of $85k or more, or married couples at $170k or more), the higher your Medicare Part B and D Premiums are. Consult with a good tax manager or insurance planner to more effectively handle contributions and potentially keep the Medicare premiums from increasing.
In the Medicare calculation, which specifies the final amount of your Medicare Part B premiums, contributions from HSA accounts, Roth IRA plans or cash value life insurance policies do not count. Revenue from a reverse mortgage also doesn't count. Deductible health care expenses can often compensate for funds withdrawn from traditional retirement accounts.
If you have substantial balances of standard IRAs, this ensures that at 70 years of age and beyond, you will have a significant amount of minimum required distributions. Until you reach age 65, you might want to consider transferring part of your IRA to a Roth.
The rising cost of health care will be a reality. Make a line item for them in your budget. If you plan to retire early (before 65) make sure that you understand the cost of carrying your own insurance premiums until you reach the age of Medicare.
YourIRSTaxAdvocate.com