Are You Prepared for Health Care Costs While in Retirement?

There is a simple and unsettling reality in the United States. Many Americans don’t feel financially prepared for health care costs in retirement. In a recent study of U.S. adults ages 50 to 64, nearly 45% had low confidence in their ability to afford health insurance during retirement. We’ve all heard these costs are rising faster than inflation, but how do we plan for something that feels so uncertain?  

So, how much is health care likely to cost during retirement? The average 65-year-old couple in 2020 will need $295,000 in today’s dollars during their retirement, excluding long-term care, to cover health care expenses, according to Fidelity. But depending on your age, income, health, location and Medicare eligibility, that number could be much different. When long-term care is factored in, the expense for health care can increase considerably. According to the U.S. Department of Health and Human Services, a person turning 65 today has almost a 70% chance of needing long-term care services in their remaining years. Currently, the national average median cost is $8,821 for a private room in a nursing facility and $4,576 for a home health aide, according to the Genworth Cost of Care survey.

While these high figures may seem alarming, it is not all doom and gloom and there are some ways to proactively prepare for the costs of health care while in retirement. So, what can you do if your retirement and health care savings need a shot in the arm?   

Save in a tax-free account for health care expenses

One great way to begin budgeting for your health expenses is by contributing to a Health Savings Account (HSA). If you currently have a high-deductible health care plan, your employer may offer an HSA. This type of account allows you to contribute while receiving a tax deduction, the money can get invested and grows tax-deferred, and if the money is eventually used for qualified medical expenses the withdrawal is tax-free. In 2021 the IRS allows individuals to contribute $3,600 and families to contribute $7,200.

Over several years this contribution can add up to a significant sum, which can be a ready source of health care funds when needed.

Prepare for long-term care

Even sound retirement plans can be disrupted by rising health care costs and catastrophic illness. Medicare Part A covers skilled nursing care for a specific period after hospitalization. It does not pay for custodial care for Alzheimer’s or other cognitive illnesses. This is why many people protect themselves with a long-term care (LTC) insurance policy. The benefits of LTC insurance go beyond what your health insurance may cover by reimbursing you for services needed to help you maintain your lifestyle if age, injury, illness or a cognitive impairment makes it challenging for you to take care of yourself.

By planning with long-term care insurance, you can prevent your retirement and savings from being devastated if this type of care is needed in the future. In addition, by owning an LTC insurance policy, you provide your loved ones with greater options for providing care while relieving them from full-time caregiver responsibilities.

Where you live makes a difference

Another factor that will have a big impact on how much you spend on health care is where you are living while you are retired. Traditional Medicare coverage is the same all over, but prescription coverage (Part D), Medicare Advantage (Part C), “Medigap” supplemental plans and private insurance vary depending on where you live. The costs of long-term care can vary by thousands of dollars depending on the state you live in. If you are currently living in a state where health care costs are higher, you can consider moving somewhere different while in retirement.

Consider your age when you retire

While you are eligible to begin collecting Social Security at age 62 you are not able to begin Medicare until age 65. If you choose to retire earlier than 65 there are some options that you can explore for health insurance. When you retire, you may choose to continue your employer’s coverage under COBRA for up to 18 months. However, your premiums will increase significantly since you will now be paying the full premium yourself. If your spouse is still working and eligible for health insurance, you may be able to move to their plan relatively easily. Another option is buying an Affordable Care Act plan on a federal or state health insurance marketplace. You may also qualify for a subsidy if your household income is below a certain level.

It is relatively unsurprising to learn people who are most confident about retiring have spoken with a professional financial adviser about retirement planning. Will you be able to retire comfortably? The answer can be equally complicated. It is a complicated question. Financial planning is not a static activity. Retirement goals, income needs and projected expenses may change significantly over a lifetime. As a result, it is important to review retirement plans often and revise as needed.

The good news is that whatever your health care costs end up being, those costs will usually be over the course of several years. This gives someone with a well-developed plan the ability to feel confident and prepared for what’s ahead.  

Financial Adviser, Western International Securities

Matt Stratman is a financial adviser at Western International Securities in Southern California. His focus is helping business owners and entrepreneurs who are planning for retirement. With a strong, client-centered approach he creates personalized investment strategies to help them reach their financial goals. Matt is extremely passionate about retirement planning, believing the better prepared a person is, the more fulfilling their retirement will be.

Source: kiplinger.com

Medicare made simple

It is important to have a thorough understanding of Medicare when heading into retirement. Medicare is not an income producing piece of your retirement plan so unfortunately it gets overlooked by financial advisors. We believe at J.A. Lawrence Wealth Management that understanding our expenses is a vital step in retirement planning. Since healthcare is a substantial piece of our expenses in retirement, it is important to do your due diligence on this subject.

Medicare is a federal insurance program for the elderly. All our adult working lives we have been paying into the Medicare system via the FICA tax. The FICA tax is broken into two parts. The first part is known as OASDI (Old age survivor, disability, and insurance). OASDI is often referred to as social security. This portion of the FICA tax represents about 80% of the total FICA tax. The Hospital insurance (HI) makes up the remaining 20%. The HI portion is also referred to as Medicare part A.

There are four parts of Medicare everyone needs to be knowledgeable about. Parts A, B, C, and D. Each part is vitally important and needs to be included in your health insurance strategy.

PART A: Also known as Hospital Insurance or HI. This part simply gets you in the building and in a bed. This does not pay for the physician treating you. This part of Medicare is paid for via the FICA tax. Generally, everyone qualifies for Medicare at age 65 and above. At the very least you must sign up for this portion of Medicare. People have been paying into this their entire adult lives and its time to reap some benefit.

PART B: This part pays for the physician service. Things like blood tests, equipment costs, home health care, and outpatient care are just some of the services Part B covers. The proper way to look at it is Part A gets you in the door and Part B pays for the services inside the building. Part B is not paid for by FICA. This on average costs $135 per month. If adjusted income is higher than $170,000 year when married Part B becomes more expensive. In my opinion part B is just as vital as part A.

Medicare parts A&B, also known as original Medicare, consist of 80% of Medicare. Part C and D make up the other 20%.

PART C: Also known as Medicare supplement. This part allows you to see doctors/specialists for non-emergencies. There are two options for this part Medigap and Medicare advantage.

MEDIGAP: Medigap is between $100-200 per month. Any doctor that accepts part A/B also accepts Medigap. It is very important to know that you are always within issue for Medigap when signing up parts A and B. In layman’s terms, everyone qualifies for Medigap if they sign up when enrolling in parts A and B. However, if you decline Medigap and elect for Medicare Advantage, we’ll talk about that in a moment, than you have to be underwritten down the road. Please know that Medigap will be sold through insurance companies. The plans are listed as such: Plan N, Plan F, etc. No matter the insurance company, each “plan N” will be identical in coverage to another insurance companies “Plan N”. Therefor if one insurance company is charging more for their “Plan N” then always choose the least expensive option. They are identical Medigap plans.

MEDICARE ADVANTAGE: Medicare advantage is also operated by insurance companies. However, it is operated like what we are used to in private health care system. Medicare Advantage is operated on a network base. If the network is strong in your geographical area, this is a potentially good option because Medicare advantage is typically less expensive then Medigap. This becomes important especially in the case of travelling throughout the US. For instance, there is no Medicare Advantage network available in Alaska, therefor Medicare advantage patients cannot use their Medicare Advantage coverage there. Because Medicare Advantage is similar to health insurance before turning 65- there are a lot of changes year to year. These can be difficult to keep up with-especially in retirement as we age. Medigap is a much more stable network with less changes than Medicare Advantage.

PART D: This part covers prescription drugs. Some Medicare advantage policies will include part D. Medigap does not have part D. Part D on average can cost $35/month. If you are going the Medicare advantage route you need to go through a broker and not a captive agent. There is just a lot to it and its constantly changing. Do not do it on your own. Just like home/auto insurance brokers, these health brokers will shop for you through various companies and sell you the optimum policy. Captive agents can only sell you the company they work for. Obviously, you want to be sold the policy that benefits you the most and not just the insurance company.

Do yourself a favor and understand the true cost in regard to Medicare. If you have any questions feel free to reach out to John Lawrence with J.A. Lawrence Wealth Management.

Source: everythingfinanceblog.com

A Quick Guide to the Difference Between Medicaid & Medicare

May 17, 2017 &• 2 min read by Brad Wiewel Comments 0 Comments

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Disclaimer

Medicare and Medicaid may sound alike, but these government health insurance programs are dramatically different from one another. Here’s a brief overview.

What Is Medicare?

Administered by the federal government, Medicare is a health insurance program primarily for adults who are 65 years of age or older and have paid into the Social Security system for at least 40 quarters (about 10 years). An individual who lacks the necessary work credits can also benefit from the program through their spouse, as can individuals who are younger than 65 but have received Social Security Disability Insurance payments for at least two years.

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What Medicare Covers

There are different parts to Medicare that make it a veritable “alphabet soup.” For example, Medicare Part A covers mostly in-patient hospital care and provides a minimal benefit for skilled nursing care and hospice care. Medicare Part B covers the costs of outpatient care, such as doctors’ visits, lab tests and preventative care. Medicare Part C is the Medicare Advantage program and an alternative to Medicare parts A and B.

Like most types of insurance, Medicare parts A, B and C include co-pays and deductibles. Generally, the amount of income you earn and the amount of assets you own are irrelevant for participation, so paupers, billionaires and everyone in between can be eligible.

Surprisingly, given that Medicare is primarily a program for individuals 65 and older, the program covers just a small portion of the cost of a nursing home stay. At most, it fully covers the costs associated with the initial 20 days of a stay and provides only partial coverage for the next 80 days. In addition, for a stay to be covered, a patient must meet certain requirements.

For example, the patient must have been hospitalized for at least three consecutive days directly prior to receiving care at a nursing home and that care must be considered medically necessary. Because of these requirements, patients or their families are often forced to pay out of pocket for nursing home care or seek relief from Medicaid.

What Is Medicaid?

Medicaid (known as Medi-Cal in California) is a federal-state program. It primarily acts as a safety net for those who can’t pay for healthcare.

Seniors can participate in Medicaid if they pass three tests: a medical necessity test, an asset test and an income test.

The medical necessity test requires that skilled nursing care is necessary to address the patient’s medical needs. The asset test places strict limits on how much property a patient and the patient’s spouse can own while benefiting from Medicaid. The income test limits how much individuals and couples may earn to be eligible for Medicaid.

There are ways to get around these eligibility tests if you or a loved one can’t pass them but want Medicaid to help pay for the cost of a nursing home stay. However, doing so may require the help of an attorney who practices elder law. A relatively new kind of law, elder law can help individuals preserve their assets and qualify for Medicaid. (Disclosure: The Wiewel Law firm, in Austin, Texas, specializes in estate planning.)

Remember, Medicaid planning is a complicated process and even a small error can mean the program will refuse to help pay for the cost of a nursing home stay. Be sure to speak with an expert if you have concerns.

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