Healthcare and Your Retirement Program Recap

Thank you to Gerard Raho, Financial Advisor from Edward Jones, for sharing some important considerations when we are planning for our healthcare options in retirement.  Healthcare costs are constantly going up so it is important to figure out how they fit into our overall retirement plan.  While government-funded programs can help, it may be necessary to look at other options to cover more of our medical needs.  Let’s dive in!

Why is Healthcare Important?

When we think about retirement, we often think about living our best life; traveling, spending more time with family, or surrounding ourselves with our favorite hobby.  And while all of that is true, we sometimes forget about how healthcare fits into our overall retirement plan.  In general, we are living longer, which means that our retirement income must be able to sustain us for longer; this includes healthcare.  What if there is a major medical emergency or we develop a condition that requires extensive care; how is your retirement plan able to pay for these ever-increasing costs?  Are you able to afford additional coverage outside of Medicare; remember, Medicare will not cover all of your medical needs in retirement.  Without proper planning, medical costs can easily drain your retirement income.

Medical Costs

It is estimated that you should plan to spend $4,500 – $6,500 per person, per year in retirement for medical costs, including traditional medical premiums, supplemental insurance, and other out-of-pocket traditional medical expenses.  Some costs to think about when planning how much money to budget for healthcare include traditional medical expenses, such as prescriptions, doctor visits, and lab work, as well as long-term medical expenses, such as at-home care or nursing home/assisted living care.  If you have a family history of conditions, such as cancer or dementia, you may want to consider additional healthcare options that might cover treatments and care associated with those conditions.

Healthcare Options

So what are my options in retirement?  Let’s take a look at 2 of the most common:

Medicare

Medicare is a federally funded medical insurance program that is funded by income taxes.  Medicare eligibility begins at age 65 or if an individual has been receiving Social Security Disability payments for 24 consecutive months.  It is recommended that you sign up for Medicare 3 months before your 65th birthday; if you are still covered by another insurance plan, you should still sign up and then waive coverage until you need it.  Medicare is composed of 4 parts; Parts A, B, C, and D.  Each part covers a different portion of medical expenses:

• Part A – hospital insurance and covers things like hospital stays (bed, board, general nursing care), skilled nursing care at an approved facility (rehab), home health care services, hospice care, and blood transfusions.
• Part B –  covers doctor’s services, outpatient medical services, diagnostic testing, preventative health care services, and other services.
• Part C –  often called Medicare Advantage and oftentimes includes a prescription drug plan (Part D).  Medicare Advantage plans are offered by insurance companies contracted by Medicare and may offer more benefits that traditional Medicare Parts A and B.
• Part D – prescription drug coverage of Medicare and although it is optional, once you become eligible for Medicare, you must have creditable drug coverage.  Creditable drug coverage includes any Medicare Advantage plan or employer, union, or retiree coverage.

Some of these Parts will require a monthly premium or there may be penalties for failing to enroll when you are first eligible.  One thing that Medicare will not cover and most Medicare Advantage plans will not cover is long-term care, either at home or in a facility.  For a deeper understanding of Medicare, please visit https://www.njstatelib.org/introduction-to-medicare-program-recap/.

Long-Term Care

Long-Term Care policies are designed to help cover your expenses associated with long-term care, either at home or in a facility.  LTC policies are flexible in what you can spend the money for and they can even be used to pay family members considered to be your primary caregiver.  Some LTC policies also offer a death benefit that can be paid out to a spouse or relative.  There are several types of Long-Term Care policies:

• Traditional – Traditional policies require that you pay a monthly premium for a specified amount of time.  During that time, you receive a maximum monthly amount that you can use to cover your long-term care needs.
• Hybrid – Hybrid policies combine the traditional LTC policy with a life insurance policy.  You pay a monthly premium for a certain term, 10 years for example, and are able to collect a certain amount of money each month for LTC.  In addition, the policy comes with a death benefit, which is tied to the amount of money paid into the policy as well as the length of the policy at the time of death.
• Life Insurance Rider – Some life insurance policies allow you to add on a LTC “rider” which means that you can use some of the policy’s death benefit to cover LTC costs while you are alive.

More Information

Your healthcare needs are unique to you, just as is your retirement goals and plan.  It is strongly recommended to speaker with a financial advisor to discuss your retirement goals to determine the best plan for ensuring you can live comfortably in retirement, including addressing all your current and anticipated healthcare needs.  You can reach out to Gerard Raho at https://www.edwardjones.com/us-en/financial-advisor/gerard-raho for questions or to set up a no-obligation, no-fee consultation.