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4 of the biggest retirement healthcare misconceptions

What’s your biggest concern about retirement?

If you’re like most people, healthcare and all of its associated costs are near the top of the list.

That’s why education – and knowing what to plan for – is critical.

And because there’s a lot of misinformation out there, we’ve decided to shed some light on four of the most common misconceptions people tend to have about retirement healthcare.

Misconception #1: Medicare will cover everything

Currently, there are 60 million Americans enrolled in Medicare, the government’s healthcare program for people age 65 and older, and, as of 2017, Medicare spending equaled 20% of all total healthcare spending in the U.S.[i]

Given these significant expenditures, it can be easy to assume Medicare pays for all your retirement healthcare needs and medical bills.

However, as some retirees have been surprised to learn, it doesn’t.

While ‘Original Medicare’ covers many services, such as hospital stays (Part A), routine doctor’s visits, and outpatient services (Part B), it does not cover routine dental care, long-term care, routine eye care, or hearing care.

And let’s not forget about prescription drugs. Parts A & B do not include this coverage, meaning an additional plan (such as Part D) would need to be purchased. 

Misconception #2: Medicare is free

Not only does Medicare not cover all your retirement healthcare needs, it’s also not free.

In fact, Medicare pays for only about half of the average retiree’s medical bills.[ii]

Let’s take a look at a general breakdown of the costs you can expect:

  • Part A:For most retirees, Part A is free. As a worker, you essentially paid these premiums during your career via Medicare taxes. However, if you worked less than 40 quarters (meaning you don’t qualify for full benefits), you’ll be forced to buy Part A, which can cost up to $437 a month.
  • Part B:In 2019, the standard monthly premium is $135.50 a month. However, this could be higher depending on your income (or even potentially lower depending upon your Social Security benefit).[iii]
  • Part C:Also known as Medicare Advantage plans, these are alternative plans to Original Medicare that are administered through private insurance companies approved by Medicare. Thesepremiums and out-of-pocket costs vary by plan.
  • Part D:As of 2016, the average premium for this prescription drug plan was almost $42.[iv]Medicare’s official website lets youcompare costs.

There are also deductibles, co-pays, and co-insurance to take into consideration with all these plans.

And keep in mind that these costs – and more importantly, plan coverage – change every year. Be sure to review your plan annually. What’s right for you this year might not be the right fit for next year.

Misconception #3: You don’t need to plan for a long life

As life expectancies increase, and, depending on when you retire, there’s a real possibility your retirement could last 20 or 30 years (or even longer!).

Don’t believe us? According to the research firm LIMRA, if a man with average health reaches age 65, there’s a 25% chance he’ll live to 93. For a woman? There’s the same chance she’ll live to 96.

And while a longer life is usually considered a blessing, there is also a downside – the potentially devastating effect on your retirement budget. Because the older you get, the more of your income will go towards paying for healthcare.

In a recent study, the Kaiser Family Foundation looked at two different groups of retirees: those ages 65 to 74 and those ages 85 and older. They found the average retiree in the 85 and older group spent more than three times the amount on out-of-pocket healthcare expenses (not counting premiums) than the average retiree in the younger group.

And by 2030, half of all Medicare beneficiaries ages 85 and older will likely spend 25% of their total retirement income on healthcare costs.

Your retirement plan – and your advisor – need to take into account the potential for a long retirement.

Misconception #4: You won’t have control over how much you’ll spend

Just because analysts expect out-of-pocket healthcare costs will continue to grow faster than retirees’ income[v]doesn’t mean you don’t have any control over these expenses. Because there are ways you can reduce how much you’ll eventually spend.

According to the Journal of the American Heart Association, someone who exercises at least 30 minutes a day for five days a week can expect to spend $2,500 less on healthcare every year than someone who doesn’t stay physically active.

For retirees specifically, Medicare beneficiaries who claim to be in excellent health pay 2.5 times less in out-of-pocket costs compared to beneficiaries in poor health.[iv]

Get into a routine now so staying fitbecomes second nature in retirement. Eating healthy andstaying socially engagedwill also help to increase your overall wellness. 

Another way to lower costs? Ask your doctor to prescribe generic drugs. According to Kiplinger's, generics can cost up to 85% less than brand-name drugs.

And there are tax moves you can make as well. As previously mentioned, if your adjusted gross income (AGI) is too high, you could pay more for your Medicare Part B premium. But withdrawals from Roth IRAs, Roth 401(k)s, and Health Savings Accounts are not counted towards your AGI, so consider working with a fiduciary financial advisor to create a tax-efficient strategy to lower your AGI, thus potentially lowering your Part B premium.

Curious about how much you could potentially spend on healthcare in retirement? AARP has afree calculatorthat can provide an estimation.


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