Photo of Ray Ferrara CFP Ray Ferrara CFP Sep 01, 2022

It’s about that time of year when people with Medicare must decide whether to make changes to their insurance plan. Most people are used to health insurance coverage that is supplied by an employer. According to one survey, 77% of Americans who are currently working are saving for retirement through a work-sponsored plan. That means a majority of the U.S. relies on their job to help them set up a retirement plan that can cover health care costs in retirement. So, when it’s time to retire, managing this yourself can be overwhelming. If it’s time for you to start managing your retirement on your own, it’s important first to know the essentials about anticipating health care costs. However, we still recommend consulting with a CERTIFIED FINANCIAL PLANNER™ professional with specialized experience in retirement planning

What are some health insurance options for retirees?

  • Medicare Part A — This part of Medicare generally covers hospital costs and falls under the category of “original insurance.” This option is provided by the federal government, and it includes hospital stays, skilled nursing facility stays if they are deemed needed, at-home health care visits to an extent, and hospice. You still have costs that aren’t covered by insurance completely, and you must pay for them on your own. This includes a 20% copayment, which you can choose to pay for independently or you can choose to look for another separate insurance policy that can cover the costs that this program doesn’t. It does require a deductible. For a majority of people who are aged 65 and older, Medicare Part A is free. Once you turn 65, you qualify for this to become your primary insurance, and other insurances you may have become secondary. One important thing to note about this coverage is that if you don’t select it when you first qualify and it isn’t free for you, you could be penalized if you sign up later down the road.
  • Medicare Part B — Part B is considered the medical insurance coverage plan. This is also categorized under “original insurance.” It is coverage that is provided by the federal government and, just like Medicare Part A, can be used at any medical service provider’s location in the country as long as they accept Medicare coverage. It includes physical therapy, preventive health care costs, occupational therapy, mental health care, physician’s services and outpatient services during retirement. It does require a deductible except in the case of preventive health care services. People with this type of coverage are expected to cover 20% of their care services on their own. There is also a monthly premium, but it depends on the income level of the plan holder. You can also be penalized for not signing up when you first qualify around the age of 65. It’s also similar to the Part A plan in that most people have a secondary insurance policy to cover the costs that may not be covered by Medicare.
  • Medicare Part C — Part C is also referred to as Medicare Advantage. This coverage is provided by Medicare-approved private health plans and replaces Part A, B and D insurance. It generally covers inpatient-related health costs and medications related to inpatient care. Under this coverage option, you’ll likely need to use a doctor or physician within your network. On the plus side, it offers fewer costs that you’ll be responsible for paying and offers a few more kinds of coverage that aren’t offered in Medicare Part A and Medicare Part B. These include dental, vision and even hearing. There is the potential that plan holders may have $0 deductibles, copays and premiums, but this is not always true. 
  • Medicare Part D — This health insurance option, Medicare Part D, is for drug coverage. It’s provided by private health care plan providers and covers prescription drug costs. Premiums are part of this coverage, but deductibles and copays may depend on the plan that is selected.

How much do you need to be saving to anticipate health care costs in retirement?

To determine how much you need to be saving, you’ll need to take into account a few different factors. Everybody’s financial situation is different, so you should take a realistic look at the state of your finances as they are and where they could need some special attention. The factors you should consider when anticipating health care costs after retirement include the following:

  • When you retire — You must first consider when you plan to retire, how far away from that projected date you are currently, and how much time you have to save until then. You should know how much money you should save based on how much time before you retire and how much your cost of living will likely be once you stop working. To save enough to live comfortably in retirement, however, it will take more than just putting money away every month. A CERTIFIED FINANCIAL PLANNER™ professional can help you decide where to invest your money in stocks, bonds and assets so that your money can grow while you add to it.
  • Where you retire — The next important thing to consider is where you will be retiring. State tax laws can vary significantly, so you may want to read up on the laws in the state you choose to live in after work. Some people choose to retire in states that are considered “tax friendly,” where there are little to no state income taxes and possibly even some tax breaks for retirees. Some examples of tax-friendly states for retirees include Florida, Delaware, Montana, Alaska, New Hampshire and Oregon. These are just a few, so it’s always a good idea to do your research and consult with a knowledgeable professional.
  • The quality of your health — Another thing to think about when considering how much health care will cost you in retirement is the quality of your health. How has your health been in general? Have you been a healthy person overall, with little reason to visit a doctor outside of yearly checkups? Are you someone who has a more complicated medical history and needs frequent medical care? These are key considerations when planning for costs in retirement.
  • How many more years you’re likely to live — Similar to considering the quality of your health, you may also want to consider how many more years you’re likely to live. This can vary depending on personal circumstances, but if you’re someone who has longevity in their family, you may need to save more for health care costs in retirement throughout the rest of your life. If you’re likely to live for a shorter span of time, you may not need as much money saved. Again, this varies from person to person, but the average life expectancy at age 65 was 20.8 years for females and 18.2 years for males 

According to data published by the University of Washington, the money that retirees spend on health care is split into three major categories: They spend the majority of their money (44%) on medical costs like copays, coinsurance and deductibles. About 39% of health care expenses included Medicare Part B and Medicare Part D premium costs and the remaining 17% accounted for generic, branded and specialty drug costs.

What can you do to save for health care costs during retirement?

The best thing you can do to anticipate health care costs during retirement is to consult with a CERTIFIED FINANCIAL PLANNER™ professional. CFP® professionals understand how to protect, preserve, and grow your wealth before and after retirement. Part of their mission is to get to know clients on a personal level, including understanding their financial circumstances, financial goals, spending habits, values and more. They can help personalize your retirement spending plan so that you’re not spending more than you need to on health care costs while ensuring that you have access to the care you need. It’s important to remember that as you get older, you’ll probably need more health care, so good financial planning for health care costs in retirement is essential.

Talk to a ProVise CFP® professional about your individual health care costs in retirement

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance, and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about health care costs in retirement? Contact ProVise today to schedule a complimentary consultation.