February 2017 Newsletter
There are numerous ways in which a financial advisor can connect with clients regarding retirement health care costs. A great place to start is by providing a simple, annual cost estimate for routine health care that can be incorporated into the financial plan. Too often, articles discussing retirement health care costs start by trying to estimate the hundreds of thousands of dollars that will be spent in this area by most couples over the course of their retirement. The forecasts are accurate but for most clients, the magnitude of the numbers can be overwhelming. By starting with routine health care and tackling the costs on an annual basis, many clients will recognize the significance of this outlay as a percentage of their retirement income, without being paralyzed by the enormity.
The table below is a great starting point. It provides average national costs for the various parts of Medicare coverage as well as out of pocket costs.
|Coverage||Annual Estimated Cost|
|Medicare Part A||$0|
|Medicare Part B||$1,608|
|Medicare Part D||$409|
|Out of Pocket||$2,385|
A few points to consider:
- Medicare coverage is on an individual basis so the costs are per person.
- There is no cost for Medicare Part A if you (or your spouse) have paid the Medicare wage tax for 10 years over the course of your working career.
- Medicare Part B has a means tested premium. 2017 enrollees in the first Medicare income bracket pay $1,608 per year. Prior newsletters have discussed Part B in greater detail (available for members: https://yourwealthwatch.com/subscription/). Detail can also be found at www.medicare.gov
- Medicare Part D premiums are also means tested. Higher income earners will need to adjust their Part B & D premiums accordingly.
- Medigap policy costs will vary based on the extent of coverage. The figure I use is a national average for the most popular policy (Plan F).
- The three largest out of pocket costs for routine health care are created by dental, vision, and prescription drug co-payments. Individuals can assess whether their personal costs are lower or higher than the national averages I have listed.
The bottom line is that an estimate of $6,772 for a 2017 retiree is a good estimate to build into your financial plan. Three parting but important considerations are:
This estimates assumes the use of “original Medicare” (Parts A & B) with a Medigap and Part D prescription drug plan. The alternative is to use a Medicare Advantage Plan. These plans can lower costs significantly if you are willing to receive your medical services and medications within the network provided by the Advantage Plan. I will discuss the pros and cons in a future newsletter.
As you incorporate this cost into your client’s financial plan, most research forecasts annual health care inflation between 5-6%. This is well above normal CPI inflation.
This estimate is for routine health care costs. Medicare does not pay for custodial care. Each financial plan needs to consider custodial care insurance solutions to protect against this need.
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The information in this presentation is provided as a general overview. It is derived from the Internal Revenue Code, Medicare.gov and other government publications, all subject matter sources reasonably believed to be reliable. Tax law and the laws governing Medicare/Medicaid are complex and subject to change. Clients should consult with their attorney and/or qualified tax advisor when making decisions regarding these matters.