Planning for health care in retirement can help you be better prepared to handle the expected and unexpected costs. Medicare is a significant part of that planning.
Your advisor will provide personalized advice based on your financial goals and personal situation. Here are five key aspects of Medicare to consider in those conversations.
There’s a specific window to enroll initially, with penalties if you’re late
Most individuals become eligible for Medicare at age 65. There is a seven-month window for initial enrollment, which begins three months before the month of the 65th birthday and runs through three months after the birthday month. For example, the initial enrollment window for a July 15 birthday is April 1 – Oct. 31.1
If you don’t enroll during your initial window, you may face penalties for late enrollment. It’s important to know that the Medicare program doesn’t send reminders.
If you have employer-sponsored insurance, you may be able to enroll late in Medicare, without penalty. Be sure to check carefully, and keep in mind that COBRA coverage does not exempt you from the penalty.
It’s not uncommon to underestimate health care costs in retirement
The majority of U.S. workers and retirees feel confident about their ability to pay for medical expenses in retirement.2
However, health care costs in retirement can be substantial. According to a recent estimate, the average couple with median prescription drug expenses will need $270,000 to have a 90% chance of covering their health care costs in retirement.3 No matter your situation, it’s vital to save for projected medical expenses and assess your needs for long-term care coverage.
It’s easy to overestimate the coverage you might receive
Medicare is a valuable program for many retirees, but it was not designed to cover health care expenses in full.4 For example, it doesn’t cover vision or dental, and there is limited coverage for nursing home and other long-term care. In addition, premiums and co-pays for covered services may sometimes become significant.
Here are the parts of Medicare and what they cover:
- Part A: Inpatient care in a hospital or skilled nursing facility.
- Part B: Doctor visits, routine medical services (e.g., flu shots) and emergency medical services.
- Part C, or Medicare Advantage: Private insurance companies provide Medicare Advantage — the equivalent of Parts A and B coverage, combined — often along with some preventive services, vision and dental coverage. An alternative is Medicare supplement insurance or Medigap. A Medigap policy helps pay some of the health care costs that Medicare Parts A and B don’t cover, such as copayments and deductibles.
- Part D: Prescription drug coverage. Private insurance companies administer these plans, which you can purchase in tandem with Medicare Parts A and B.
The age you retire is an important factor
The age you choose to retire will have a significant impact on your health care options and financial implications in retirement. Should you decide to retire before you qualify for Medicare benefits, you’ll need to weigh your options. Coverage through private insurers is a cost you would need to consider.
Your income prior to retirement impacts how much you pay for Medicare
Your income is a primary factor in how much you will pay for Medicare. In general, you will pay more for Medicare if you haven’t paid into the Medicare system for a designated period of time — or if you exceed income limits (based on income two years before retirement).
If your income goes down because of a life-changing event — marriage, divorce or death of a spouse, for example — you can contact the Social Security Administration to request a reduction of your Medicare premium.
Talk to your advisor about retirement health care costs
Your advisor provides personalized financial advice for your retirement goals, including how to plan for health care and other costs. Your conversation will cover a number of questions, including:
- When do you plan to retire?
- Will you have employer-sponsored insurance (from you or your spouse) when you turn age 65?
- What is your estimated income two years prior to the time you enroll in Medicare?
- Have you thought about Medicare Parts A and B with a Medigap supplement versus Medicare Advantage plans?
- Do you need long-term care insurance?
Given the costs and milestones for Medicare enrollment, it’s important to meet with an advisor well before you retire. They will discuss solutions to cover the costs and walk through your Medicare choices.
2 2020 Retirement Confidence Survey. Employee Benefit Research Institute, April 2020.
3 “A Bit of Good News During the Pandemic: Savings Medicare Beneficiaries Need for Health Expenses Decrease in 2020.” Employee Benefit Research Institute, EBRI Issue Brief, May 28, 2020.
4 Employee Benefit Research Institute, Issue Brief No. 4.
Always consult a Medicare agent regarding your specific Medicare questions and decisions.