Health care costs should be an important part of your retirement planning. It’s hard to estimate just how much your health care will cost you in your retirement years, and it’s easy to grossly underestimate. Nobody wants to be left without the coverage and care they need, so the more planning you can do in advance, the better equipped you’ll be for your golden years.
While Medicare offers a level of coverage through its many parts, this coverage isn’t always what you think.
You’ll still have to account for premiums, out-of-pocket costs, and unexpected fees. Too many retirees forget to include these costs in their retirement budget, and that can be catastrophic if you aren’t careful. Keep reading to learn how to best plan for health care costs in your retirement.
The Cost of Healthcare
The main reason so many aging people struggle to understand the full cost of health care is because they’re so used to employer healthcare. When your company covers a percentage of the expense, that can account for up to 75% of your coverage. You’ll be left paying just 25% or a little bit more in your paycheck.
What this all translates to is needing more than your average take-home pay to cover your healthcare costs. You’ll also be responsible for premiums and out-of-pocket costs that can’t always be anticipated. It’s always better to be safe than sorry when it comes to your health!
Understand the Premiums
So what exactly will you be paying for when you start Medicare? There are four types of premiums you’ll see during your retirement: Medicare Part B, Medigap or Medicare Part C, Medicare Part D, and long-term care.
Medicare Part B depends on your income. That means if you made under $85,000, you’d be expected to pay the average of $134 each month. If you made over this amount, you can expect to pay more. People with higher incomes (in general above $85,000) pay higher Part B premiums.
If you think you’ll need additional coverage or you want more control over your health care costs, consider reading further about what is Medicare Part C. This might give you a plan that is more budget-friendly without compromising on quality.
Many of these Medicare Part C Plans will also include things like dental, vision, and more that aren’t covered in traditional Medicare plans. You want to make sure you figure out what Medicare covers so you can choose the right plan for you.
Medicare Part D includes the costs of prescription drugs. These can still involve out-of-pocket costs, depending on the yearly changes in the price of your medications. Finally, Medicare does not cover all long-term care costs you might encounter, so it’s best to have your own funds to fall back on.
Anticipating the Costs
Now that you understand what goes into the costs, it’s time to break them down as they’ll most likely apply to you. You should always speak to your health care provider who can give you a more comprehensive health check and analyze potential risk factors. A great starting point is the AARP Health Care Cost Calculator which will give a rough number of what you could expect to pay going forward.
According to this calculator, the average male at age 65 can expect to pay about $4500 a year for premiums and out-of-pocket costs. For a married couple, this number would need to be doubled. You’ll also need to keep inflation in mind and realize that costs will likely only become higher in the next ten years. Based on these numbers, you would need close to $400 a month in your budget for health costs alone.
Being Prepared
While it’s impossible to know just how much you’ll need as you enter your retirement, there are steps you can take to stay prepared every step of the way. The best way to keep costs as low as possible is to stay healthy. Eat a healthy diet and commit to a healthy lifestyle. Even if you haven’t taken good care of your body up until this point, today is a great day to start.
Being healthy goes beyond eating right and staying active. Also take care of potential problems early, like visiting the dentist twice a year and checking your eyes. The sooner problems are taken care of, the less likely they’ll cost an arm and a leg.
Another way to prepare is to include these costs in your budget as early as possible. Learn more about your options like an HSA or a Roth IRA account. The reason so many retirees struggle is because they’re caught off guard. As long as you’re proactive and educated, you’re in a good space to budget for everything you’ll need.
It’s better to stay prepared as you approach your best years. Your retirement is a time for relaxation and reflection. Don’t be caught unaware when it comes to your own healthcare. Medicare is a great way to make healthcare more affordable, but it isn’t a band-aid solution. Take your health and wellness isn’t your own hands, and include these costs above in your budget.
