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Health Care Costs in Retirement


Your retirement planning better include realistic estimates of health care costs because the costs continue to rise, especially prescription drug costs.

A 65-year-old couple retiring in 2016 will need an estimated $260,000 to cover health care costs in retirement, according to Fidelity's Retiree Health Care Cost Estimate. This is a six percent increase over last year's estimate of $245,000.

The estimate applies to retirees with traditional Medicare insurance coverage and the monthly expenses associated with Medicare premiums, Medicare co-payments and deductibles, and prescription drug out-of-pocket expenses. It does not include long term care services.

It’s a good reminder that the costs of health care coverage can be just as high in retirement as they are when you were working. Many people mistakenly believe that Medicare coverage is free.  It’s not (except for those with low incomes who may be eligible for Medicaid and Medicare).

What should you plan for in retiree health care costs?

Medicare Costs

Most people pay nothing for Medicare Part A (hospital coverage) as you have paid into that throughout your work life.  Medicare Part B (doctor coverage) has a monthly premium. The cost of Part B for people turning 65 in 2016 is $121.80 per month …more for those in higher income brackets.  Plus you will pay deductibles for Part A and Part B.  Expect those costs to continue to rise each year. Here a link to current Medicare costs.

Medicare Insurance Costs

Since Medicare does not cover all your health care costs you will probably pay a monthly premium for insurance to cover what Medicare doesn’t either through Medicare supplement insurance or a Medicare Advantage plan. Depending on the plan that can be hundreds of dollars more per month.  Plus there is prescription drug coverage.  You’ll need a separate Part D plan unless you buy a Medicare Advantage plan that includes drug coverage.  The average premium is about $30.00 per month but your plan cost depends on the drugs you need.  Plus you’ll be paying co-pays, deductibles and/or coinsurance.

If you have retiree health care from your employer the costs may be less. But it is wise to plan for increases there too as many retirees have found those plans are changing dramatically (even being dropped) shifting more of the cost to the retiree.

If you are enrolling in Medicare at 65 make sure you know the rules and the deadlines so you don’t end up paying lifetime penalties.  If you are still working and remaining on your employer health plan at 65 make sure you find out how your plan handles people 65 and older especially if you have a Health Savings Account (HSA).

If you are already enrolled in Medicare, make sure you take advantage of reviewing your plans during the open enrollment period (Oct. 15 – Dec. 7) so that you aren’t paying more than you have to for health care coverage in retirement.

Health care costs should be an important consideration in your financial plan.  If you have a financial advisor, make sure that as you approach retirement you cover the potential costs of health care and realistic increases are built into your financial plan.

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