The first step in understanding potential healthcare costs is to examine the three main categories of healthcare expenses in retirement and begin budgeting.
In a 2021 survey, 32% of all workers reported they were either “not too” or “not at all” confident that they would have enough money to pay for their medical expenses in retirement.1
Regardless of your confidence, however, being aware of potential healthcare costs during retirement will help you understand how much you should budget for healthcare in your retirement income planning.
The first cost in healthcare to consider is your Medicare Part B premium. According to Medicare.gov, your premium amount depends on your adjusted gross income (AGI) as reported on your IRS tax return.2 Most people pay the standard premium amount of $148.50/month, but the premium can go up to $504.90/month depending on your AGI.
In addition to your premium, you’ll also have to consider the Part B deductible which, in 2021, was $203. After you meet your deductible for the year, you will likely pay 20% of most doctor services, outpatient therapies and some durable medical equipment (walkers, wheelchairs, canes, etc.).
The next healthcare cost in retirement that you should consider are any copayments related to Medicare-covered services that are not paid by Medicare Supplement Insurance plans (aka Medigap) or other health insurance.
These copays can relate to specialist visits, prescription costs and other healthcare needs that aren’t completely paid for by your insurance. Drug costs can vary by pharmacy, supplier costs, whether there is a generic option and more.
Speaking of prescription drug costs, once you and your plan spend a combined $4,130 (including deductible) on drugs in 2021, you’ll pay no more than 25% of the cost for prescription drugs until your out-of-pocket spending is $6,550.3
Expenses Not Covered by Medicare
Lastly, there are the healthcare expenses which may not be covered by Medicare and this is where your healthcare costs in retirement have the potential to skyrocket.
One example of a service that may not be covered under Medicare is long-term care. This includes medical and non-medical care for people who are unable to care for themselves. Medicare and most health insurance plans don’t pay for long-term care.
In addition to long-term care, Medicare may not cover expenses related to4:
- Most dental care
- Eye exams related to prescribing glasses
- Cosmetic surgery
- Hearing aids and exams for fitting them
- Routine foot care
While Medicare is a great option for many healthcare expenses for retirees, some people also choose to purchase a Medicare health plan to cover some of the above rather than paying out of pocket. Medicare health plans are health plans offered by a private company that contract with Medicare to provide health benefits.5 They may cover expenses that the regular Medicare plan doesn’t.
One example of a Medicare health plan is a Medicare Advantage Plan. Medicare Advantage Plans are offered by Medicare-approved private companies and may offer a higher level of coverage depending on your needs.6 Sometimes, Medicare Advantage Plans are called Medicare Part C.
The costs associated with a Medicare Advantage Plan will vary depending on the health insurance company you purchase your policy from. You can also choose between a Health Maintenance Organization (HMO) plan and a Preferred Provider Organization (PPO) plan. You must have Medicare Part A and Part B coverage to apply for a Medicare Advantage Plan.
There are many healthcare costs in retirement, from routine checkups to unexpected medical expenses. Building the cost of medical insurance into your retirement plan is an important part of retirement income planning. For more information on Medicare costs in retirement and how to strategize around them, feel free to contact us today at California Retirement Advisors for advisement and assurance for the best years of your life.
By Christian Cordoba
CERTIFIED FINANCIAL PLANNER™
Founder, California Retirement Advisors
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.