You Need to Understand This About Medicare

Whether you are nearing 65, or an adult child of someone who will soon be eligible for Medicare, I want you to be clear-eyed about how much healthcare will cost you in retirement.  

You do know Medicare is not free, right?   

Most everyone pays a monthly premium for Part B of Medicare. Part B covers your doctor appointments, exams, and tests. The premium is set by the government each year. For 2021, an individual with modified adjusted gross income below $88,000 and married couples with joint income below $176,000 pay $148.50 per person per month. If your income is higher, your premium will be higher. 

Part B is just the start. Depending on the type of Medicare plan you choose—Original Medicare or Medicare Advantage—you are likely going to want to add complementary policies to cover expenses not part of Medicare Part B. That includes prescription drug coverage. If you choose Original Medicare, it’s also smart to purchase a Medigap policy to cover the 20% of tests and doctor visits that Medicare Part B doesn’t cover. (You don’t have the 20% issue with Medicare Advantage, but the tradeoff is that MA works like an HMO: coverage is limited to the doctors, testing facilities and hospitals that are part of your MA network.) 

The upshot is that even with Medicare, retirees still need to budget for out-of-pocket costs. According to a government report, the average out-of-pocket cost for people at least 65 years old is more than $6,800. And that’s just in today’s world. If you aren’t retiring for 5, 10 or more years you know darn well those costs will be even higher. 

That works out to more than $500 per month, per retiree. All the talk about saving for retirement sometimes glosses over the fact that one of the reasons you need to double-down on your savings is because health care is going to take a chunk of your monthly retirement income.  

For my younger friends reading this, I hope that is helpful motivation to make sure you are saving enough for a secure retirement.  

And for everyone, exercising and eating well can help a lot too. Sure, there are plenty of illnesses that come out of left field. But you and I know there are also plenty of ailments that can be avoided or better controlled with a commitment to healthier habits. And a healthier you just might have lower healthcare costs. 

For those of you nearing retirement who now realize your healthcare expenses will be higher than you expected, please stand in your truth. If you find yourself stressed about your financial security, ask yourself what you might do other than worry. Would working a bit longer than planned help you? How would your financial picture change if you downsized sooner than later? Maybe take another careful spin through your spending to see if there are some “wants” you can scale back or eliminate. You may be near retiring, but you always have the power to change whatever you want.