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 a $1,288 deductible and co-payments for hospital stays over 60 days.
–Part B medical insurance: Premiums rose in 2016 and now range from $121.80 to $389.80 per month depending on income and tax filing status. There’s also a $166 annual deductible, plus co-payments for some doctors’ visits.
–Part D prescription drug insurance: The monthly premium depends on your plan and income but the current nationwide average is about $34 a month. You may also have deductibles and co-payments. The highest allowable deductible in 2016 is $360.
There’s also the “doughnut hole” — the gap in coverage once drug costs reach a certain dollar amount ($3,310 in 2016), after which you pay a higher percentage for prescriptions until you hit the yearly out-of-pocket limit, which is currently $4,850. The doughnut hole currently decreases each year and will ultimately close in 2020.
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.
While types of plans and coverage are standardized and regulated by Federal and state laws, there’s no standardization of cost. Premiums depend on where you live and the type of policy you choose, but can range from less than $50 to over $300 a month. You can get the cost range for your zip code at medicare.gov.
–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.
These plans vary in terms of cost, services, deductibles and co-payments, but are generally a bit lower than Medigap policies. To compare the cost of Medicare Advantage Plans, try a site like ehealthmedicareplans.com.
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
Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER ™ is president of the Charles Schwab Foundation and author of “It Pays to Talk.” You can e-mail Carrie at askcarrie@schwab. com.