The idea of paying for medical expenses in retirement can be overwhelming. But there are ways to ease the burden.
Once you retire, you may notice that various expenses start to decline. Eliminating the daily commute can mean lower transportation costs. You may also be able to spend less on your home if you pay off it before you start retirement.
But if there’s one expense that’s likely to increase in retirement, it’s health care. Not only does aging tend to cause health problems, but it can also result in higher out-of-pocket costs for Medicare enrollees than expected.
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Fidelity released recent estimates of how much the average 65-year-old today will spend on health care in retirement. And that number is an almost shocking $165,000.
Also note that this estimate does not take into account the cost of long-term care. This alone can add up to an astronomical amount because Medicare won’t pay for it.
But the good news is that if you transition to the right Medicare, you may be able to reduce your health care costs in retirement. Here are three things worth making.
1. Please sign up on time
The initial Medicare enrollment period is a seven-month period that begins three months before the month of your 65th birthday and ends three months after that month. If you do not enroll at that time, you have the opportunity to enroll during Medicare’s open enrollment period, which runs from January 1 to March 31 of each year. However, if you miss your first enrollment period, you may incur an additional charge on your Medicare Part B premium.
Specifically, you’ll pay an additional 10% for your lifetime on Part B for every 12 months you were eligible for coverage but didn’t enroll. You also risk incurring Part D surcharges if you go too long without prescription drug coverage.
So if you don’t qualify for a special enrollment period, you should make time to enroll in Medicare as your 65th birthday approaches. A special enrollment period applies if the participant is enrolled in an eligible group health plan with 20 or more participants as of the initial enrollment period.
2. Participate in open recruitment every year
Each year, Medicare conducts an open enrollment period that begins on October 15th and ends on December 7th. During this time, you can switch to a Part D plan for better drug coverage or move from one Medicare Advantage plan to another. If you can’t find a plan you’re happy with, you can also abandon Medicare Advantage altogether and move to Original Medicare (Parts A and B and Part D drug plans) instead.
Some people choose not to participate in open enrollment because the process of comparing plan choices is too cumbersome. To be fair, that can be daunting.
However, if you neglect general enrollment, you may end up paying more in the form of increased premiums and out-of-pocket costs. Neither is ideal. So before you think the process of comparing plans is out of your control, try Medicare’s plan search tool to narrow down your choices. This tool allows you to enter information specific to you, such as prescriptions taken, to identify the different plans available in your area and their respective costs.
3. Get supplemental insurance
If you sign up for Medicare Advantage, you are not eligible for a Medigap plan. However, if you have Original Medicare, it may be well worth purchasing supplemental insurance, or Medigap, early on.
Medigap plans help cover the cost of deductibles and coinsurance that apply to your care. For example, let’s say you end up spending 65 days in the hospital this year. This would cost $1,632 for the first 60 days and $408 per day for the remaining five days. But with Medigap, you may not have to pay that bill in full.
The idea of spending $165,000 on health care costs during retirement may seem scary. But if you manage your Medicare enrollment wisely, participate in open enrollment every year, and secure Medigap coverage, you may find that costs are quite manageable.
