3 Things to Know About Covering Healthcare Costs In Retirement

Consider that the average 65-year-old couple retiring today will need an estimated $363,946 to cover their healthcare costs in retirement, and this does not include long-term care costs.[1] Many people assume that Medicare will cover all of their healthcare needs, but Medicare is neither free nor comprehensive healthcare coverage. There can potentially be many out-of-pocket healthcare expenses in retirement, and a comprehensive retirement plan factors them in. No matter what your health is like now, know these 3 things about covering healthcare costs in retirement.

The Cost of Medicare

Once Americans turn 65, they might think their healthcare costs will go down thanks to Medicare. And while Medicare does help cover these costs, beneficiaries must still pay premiums. Medicare Part B base premiums, which cover expenses like doctor visits, tests, and outpatient care, increased nearly 7% for 2020 to $144.60 per month. High earners can pay as much as $12,000 in Medicare Part B premiums.[2] Keep in mind that Medicare Part B is just one piece of the retirement healthcare puzzle, and typically doesn’t cover long-term care costs. Retirees must also consider whether they will buy supplemental coverage through a Medicare Advantage or Medigap Plan, and how they will cover potential long-term care costs.

Medicare Part B Penalty

If you plan to work past the age of 65, you may want to continue coverage through your employer. If you\’re covered by a qualified employer plan, you can avoid the Medicare Part B late penalty. However, know that if you\’re not covered and you sign up for Medicare Part B late, you will have to pay a late penalty premium every month for the rest of your life. The penalty is 10% of your monthly premium for every 12 months you didn’t sign up for Part B coverage.[3]

Consider Long-Term Care Costs

One healthcare cost that is easy, but possibly detrimental to overlook is long-term care. According to government estimates, someone turning 65 today has an almost 70% chance of needing long-term care later in life. And, 20% will need it for longer than five years.[4] When you consider that the median annual cost of an assisted living facility is $45,000 and the median annual cost for a private room in a nursing home is over $97,000,[5] covering long-term care costs is a major feat. Medicare and Medicaid typically don’t cover costs, and paying with funds from a traditional 401(k) or IRA can trigger a larger tax burden.

Retirement decisions can be daunting. That’s why it’s important to have a trusted financial advisor to help you navigate retirement and the complexities that surround healthcare. We can work with you to create a comprehensive retirement plan that includes a plan for covering healthcare and long-term care costs. You can talk with us about all your financial planning needs during a complimentary financial review.