Medicare – It Ain’t Free
Planning for healthcare costs in retirement. One of the biggest misconceptions that people may have when it comes to healthcare costs in retirement is about Medicare, specifically with the notion that Medicare is free. Which unfortunately, is not true.
So what should you be aware of when it comes to planning for health care costs in retirement?
First, and most importantly, is that Medicare is not free. You probably have been hearing or seeing the open enrollment ads that say $0 or very low-cost for premiums. These are for private Medicare Advantage Plans, not Medicare Part B. There is a big difference between zero premium (the ads) and zero cost (what you will eventually end up paying).
The costs add up. A fully loaded Medicare Advantage Plan, one that includes a prescription drugs and other supplemental coverages is not uncommon for a retiree to be paying somewhere near $500 or more per month (all-in). Adding that up over the average life expectancy for a couple who’s turning 65 years old, that comes out to roughly $387,000 over the course of their retirement.
$387,000!
Let’s break it down a little or at least clear up some of that Medicare confusion. Medicare Part A is free. It covers hospitalization, but with a deductible ($1,556 in 2022). The base cost for Medicare Part B in 2022 will be $172 per month (subject to earnings surcharges). Medicare Part D is for prescription drugs. If you choose an advantage plan (Medicare Part C) then it will include prescription drug coverag). If you choose a Medigap Policy (supplemental coverage) then you will need a Part D Plan.
Those plans that are clogging your mailbox, inbox, TV and radio are Advantage Plans (Medicare Part C) and operate more like your regular health insurance coverage; You will have co-pays, deductibles, and co-insurance costs, all of which add up over time (that’s how we get to the $500/month all-in number).
What can you do?
One of the most efficient strategies available today is the HSA (Health Savings Account). An HSA is not use-it-or-lose-it like a Flex Savings Account (FSA). The HSA allows you to contribute pre-tax, but you do not have to use it. The money grows in the account and if taken out for qualifying reasons then the money is tax-free. And if you can just hold-off tapping into the HSA Account until after you retire, then the qualifying reasons can be to pay for some of those “other” medical expenses in retirement: co-pays, deductibles, co-insurance, etc..And it is all paid out tax-free! So if your employer has an HSA Health Insurance Plan available, then it is definitely something that should be considered when trying to plan out how you are going to be paying for healthcare and assisted coverage in retirement.
Got Questions? Ask Us. We Can Help WIth That!
The ARIES Foundation for Financial Education, Inc is a nonprofit dedicated to the mission of trying to help everyone have a better relationship with their money. Contacft us to learn more: info@ariesfoundation.org
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Research has shown it is more effective to make resolutions at New Year’s than at any other time of the year.
In fact, one study found that people who made resolutions on
January 1st were 10 times more likely to stick with them 6 months later than
people who made their resolutions at other times of the year.
But now the bad news: even a resolution made at New Year’s will
most likely fail, which is why gyms are packed in January, but they start to
clear out by March. Research has found that only around 8% of people can stick
with their resolutions through the end of the year.
So why is this? And, how do we avoid that trap?
Part of the misconception with any planning or goal-setting is that most of us think that in order to make big changes in our lives, that we have to make some sort of really big effort, in order to achieve the goal. Let’s use the example of trying to run a marathon for the first time; you might start out with the plan to run 7 or 8 miles three times a week, that seems kind of proportionate to your goal. In the beginning there will be excitement, which will add to your motivation, so you will do it for the first few weeks. But there comes a time when the excitement wears off and the motivation will start to lag, and running those 7 or 8 miles is going to feel…hard to do and maintain. And what happens? We stop. Or find a reason as to why we can’t continue or go out and do the run today. Being overly ambitious with our goals is one of the ways we fall into the trap of not being able to stick with them and accomplish what we set out to do.
Let’s try and fix this.
The truth is you’re much better off if you pick small targets
that you can hit consistently. In James Clear’s book “Atomic Habits”
he presents the idea that if you can get just 1% better every day at something,
it will take a minimum amount of effort, but over time the effects will
compound, sort of like the concept of compound interest. The author proposes
the two-minute rule: ‘pick something that you can do in just two minutes’. That
way you can’t say you don’t have the time, or it will take too long to do. Once
that habit sticks, then you can try to extend it and overtime you build up the
momentum to accomplish what you set out to do.
One of the biggest problems that most of us face is that they are often too vague. The most common resolutions every year are to lose weight, exercise more, and to eat better.
The problem is that these goals so nondescript that it’s hard to
know if you’re making progress, and it becomes really easy to regress into your
old habits. Goal-setting and the science behind it says your goals
(resolutions) need to be specific AND, you need to write them down. People who
write down their goals are 40% more likely to achieve them. That is pretty
significant just by taking that step of putting pen to paper.
The other important piece is being able to track your progress.
It should be in an obvious and very visual way. Whether you have a calendar, spreadsheet, or online tool that you can use, it needs to be something that helps you see that you are making progress to your goal.