Dear Carrie,
My husband and I are both in our sixties with no immediate plans to retire, but trying to plan our finances for when that day eventually arrives. A big question mark is healthcare expenses. We're both healthy now, but of course, who knows what the future holds. Can you provide some guidance on how we can plan?
--A Reader
Dear Reader,
There's only one thing certain about healthcare costs in retirement--you will have them. Even if you're lucky enough to be consistently healthy, you'll have to pay insurance premiums plus possible co-payments, as well as costs for things that insurance doesn't cover. So factoring healthcare expenses into your retirement planning is smart--and absolutely essential.
For a dose of reality, consider this stat from a 2016 report from Health View Services, a company that provides detailed projections of healthcare costs in retirement. For an average, healthy 65-year-old couple retiring this year, healthcare costs including insurance premiums, deductibles, co-pays, and costs not covered by insurance could total $377,412 in today's dollars. Factor in inflation, and the figures go even higher.
That might sound a bit over the top, but when you consider that this represents only an annual cost of $6,290 per person over a 30-year retirement, it's probably realistic. Here's why.
Medicare costs you
You don't say if either of you are already on Medicare, but for the record, Medicare isn't free. This takes some people by surprise. Here's a rundown of costs:
- Part A hospital insurance--For most people, there's no premium for Part A, but there is a1,288 deductible and co-payments for hospital stays over 60 days.
Supplemental insurance increases the bill
Medicare only covers about 60 percent of healthcare costs, so you'll want to have supplemental insurance as well. There are two basic types. You must be enrolled in both Medicare Parts A and B to qualify for either.
- Medigap policy--Sold by a private insurance company, Medigap pays for things that Medicare doesn't cover, such as co-payments and deductibles. Some polices offer added coverage for services not included in Medicare, but generally don't cover prescription drugs, dental or vision.
- Medicare Advantage Plan--Called Part C, this is an alternative way to receive Medicare benefits, and can be structured as an HMO or PPO. Medicare Advantage Plans are offered by private insurance companies and must include all benefits provided under Medicare A and B. Many also cover prescription drugs, vision, hearing, dental care, and health and wellness programs.
There's a lot that isn't covered
No matter the type of supplemental insurance you have, there will be things that aren't covered or are only partially covered--dentists, vision tests, eyeglasses, hearing aids and especially long-term care.
Most people don't realize that Medicare only pays for medically necessary skilled nursing and home care, such as giving shots and changing dressings, not for "activities of daily living" like bathing and eating. So give some thought to long-term-care insurance (LTCI). It can be expensive, but could protect your retirement savings down the road.
It adds up quickly
To help you plan, I would suggest that you create a few possible scenarios. For example, let's say you and your husband each paid base amounts for Medicare Parts B and D and each had a supplemental policy costing $125 a month. Premiums alone for the two of you would average around $562 a month ($6,744 a year). Then, you'd have to add in estimated costs for dental, vision, deductibles, co-pays, etc., to come up with a yearly total.
Or let's say you chose a Medicare Advantage Plan with prescription drug and vision coverage that costs, for example, $99 per month per person. You'd lower your premiums and potentially costs for eye doctors, but you'd still have to factor in deductibles and co-pays.
Of course, your own health and longevity will determine how much money you'll ultimately need. But with realistic numbers in front of you, you can start to plan in a way that will best protect both your physical and financial health.
Looking for answers to your retirement questions? Check out Carrie's new book, "The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions."
This article originally appeared on Schwab.com. You can e-mail Carrie at askcarrie@schwab.com, or click here for additional Ask Carrie columns. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Asset allocation and diversification cannot ensure a profit or eliminate the risk of investment losses. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. Diversification cannot ensure a profit or eliminate the risk of investment losses.
The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.
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