Many of us look forward to the lower overhead of our retirement years. We can right-size our home, lowering the cost of maintenance, utilities and taxes. The kids are typically out of the house lowering our grocery bill (Can I get an amen?), auto insurance, and costs for things like music lessons and sports clubs.
It’s fun to plan for spending that found money on things like travel and indulging in high end hobbies. But for many of us, that money is going to have to go straight to paying medical bills. It’s the one cost that is almost certain to rise during our retirement years.
The Cost of Healthcare During Retirement
According to Fidelity Benefits Consulting, a 65 year old retiring today will need $220,000 to cover medical bills during retirement. This doesn’t include nursing home costs, which are not covered by Medicare. So where will this money go?
Medicare Part A This is the part that covers things like hospital stays and hospice care. Most people won’t pay a premium for part A, but they do pay a $1,216 deductible for inpatient care. In addition, if you spend too many days in the hospital over your lifetime, you will pay a significant amount toward your copay and eventually have to pay all hospital costs if you exceed the limit.
Medicare Part B This is your typical medical insurance. You will pay $104 per month for your Part B premiums if you are single and have income to $85,000 per year. The premium rises for couples filing joint returns if their income exceeds $170,000. The premiums then increase with your income. Your deductible is $147 per year.
Medicare Part D This is the prescription drug plan. Typically this will run about $40 per month, with additional costs as your income rises above that $85,000/$170,000 threshold.
But, if you have expensive prescription needs, this coverage only applies to the first $2,850 of prescription costs. Then you are responsible for 47.5 percent of the cost of brand name drugs. This coverage gap can end up being costly if you take even one or two brand-name drugs that aren’t available in a generic form.
Not covered You are also going to need to go to the dentist, the eye doctor, and pay for your own hearing aids.
The total for a single person will come to about $3,000 a year; over $4,000 if you spend the night in the hospital (one night is all it will take to eat up that Part A deductible.) And potentially much more if you take expensive prescription medications or have an extended hospital stay.
How You Can Save
Supplemental (Medigap) Insurance This insurance will cover the costs you are responsible for in your Part A, and B coverage•. The premiums for these plans average over $2,000 per year. You may consider it worth the cost to cover the years when major medical events happen and you would be exposed to a larger out-of-pocket expense. These plans are medically rated, so you may face higher premiums or rejection if you have certain pre-existing conditions. In addition, only two of the ten policies, K and L, have specific annual out-of-pocket limits.
Medicare Advantage (Medicare Part C)Medicare Advantage Plans offered by private insurers provide your Part A and B benefits. These are more like standard insurance plans with HMO, PPO and fee-for service options. There is usually a prescription drug benefit associated with these plans as well. Again, you will likely pay higher premiums for these plans, but you have the benefit of a maximum out of pocket cost of $6,700,or lower, depending on the plan.
Prevention is Always the Best Medicine
Of course the best way to avoid unnecessary medical expense is to stay as healthy as possible. If you don’t need prescription drugs, you are in no danger of reaching the prescription benefit gap. If you keep your heart healthy, you won’t end up hospitalized for a heart attack.
There are simple steps you can take right now that will help you have a longer life with lower medical costs in retirement. The following three are my favorite changes you can make. Skeptics should visit any of the online life expectancy calculators. You can quantify the years gained from these and other lifestyle adjustments.
Add a variety of vegetables to your diet. By consuming these nutrient-rich foods you are supplying your body with many components it needs to fight disease. You will also have a tendency to consume less of the bad stuff like sugars and processed foods if you are filling up with vegetables.
Get adequate sleep. The research keeps rolling in on the benefits of a good night’s sleep. Lack of sleep is linked to heart disease, diabetes and other significant health problems. It is also associated with obesity and decreased brain function. Improving your sleep habits is one of the most pleasant ways to keep yourself healthy as you age.
Use your muscles. Maintaining a healthy body mass is associated with a longer life. No need to become a body builder, but some squats and lunges and push-ups – even against a wall or table – can help you maintain that critical muscle mass that keeps us youthful.
The reality is that almost all of us will fall ill at some point in our later years. Having a plan to pay those costs can reduce some of the financial stress of retirement. And developing healthy habits today is the best way to postpone the need for medical care. So go have some zucchini.
• - Correction: This article incorrectly stated that Medigap plans cover the costs you are responsible for in your parts A, B, and D (prescription) coverage. Some Medigap plans purchased prior to 2006 cover the costs associated with prescription medication, but Medigap plans since that time do not offer prescription coverage. Medicare prescription coverage is available to purchase today through part D or a Medicare Advantage (part C) plan.
Amy Rogers MD is not a practicing physician and nothing written here should be taken as medical advice from either Amy or AssetBuilder. Medical decisions should be made with care in consultation with your health care provider.