Getting ready for retirement can feel overwhelming and often requires many years of planning. We try to learn about the best investment options and save enough to enjoy our later years comfortably. One of the critical things we need to consider is our healthcare expenses during retirement.
During our working years, it’s easy to forget about future healthcare costs because employer health plans with low deductibles and shared costs usually cover us. However, as we grow older, our need for healthcare services often increases, making it essential to prepare well in advance. Here are some valuable tips to help keep medical debt under control as you approach retirement.
A common misconception among Americans is that Medicare covers all healthcare costs entirely at no additional expense. This is not true. It’s essential to plan for various healthcare expenses, whether visiting a dentist or seeing your family doctor.
While your FICA taxes during your working years help pre-pay your Medicare Part A hospital premiums, you will still need to pay monthly premiums for Medicare Parts B and D once you retire. These costs can vary due to changes in tax legislation. For instance, in 2018, the standard Part B premium for new enrollees was $134 per month, but those with higher incomes might pay more.
Medicare Part D is an optional program to help cover prescription costs. Despite being voluntary, it’s crucial if you want to safeguard against expensive prescriptions in the future. Part D premiums vary, but the national average is about $35 per month. Have you saved enough to cover these monthly expenses for the rest of your life?
Medicare has specific enrollment periods. You should enroll during your Initial Enrollment Period (IEP) unless you have other credible health insurance. Missing this can lead to unexpected penalties. Signing up late for Medicare Part B comes with a 10% penalty for each year you delayed. Similarly, enrolling late for Part D results in a 1% penalty of the national average premium for each month you delayed, and this penalty lasts as long as you’re enrolled.
To avoid these penalties, make sure to sign up for Medicare on time.
Also, remember that Medicare doesn’t cover all your healthcare costs. Like any other health insurance, there are deductibles, copayments, and coinsurance to consider. One of the most significant out-of-pocket costs for beneficiaries is the 20% of outpatient expenses, as Medicare Part B only covers 80%. This includes things like doctor visits, lab tests, diagnostic imaging, cancer treatments, and outpatient surgeries. These costs can be overwhelming, especially with long-term or chronic illnesses.
The best way to protect yourself from these expenses is to get supplemental health coverage. You can choose between Medicare Supplement and Medicare Advantage plans. Medicare supplements kick in after Medicare pays its share, making your expenses predictable and allowing you to see any provider who accepts Medicare. These policies might cost more upfront but help manage long-term costs better.
Medicare Advantage plans are network-based and provide an alternative to Medicare. They usually have lower premiums but require you to pay copays and coinsurance when you seek care. Each plan has a yearly out-of-pocket limit to protect you from excessive spending on Part A and B services. Some Advantage plans also include a Part D drug plan.
Both types of coverage will significantly reduce the deductibles, copays, and coinsurance you would otherwise need to pay.
So, as you get closer to retirement, have you properly planned for your expenses, especially healthcare?