Get up to speed on what Medicare costs, what it will cover and how much you'll need to pay on your own.
In a nutshell, your main
decision is whether to
choose Traditional
Medicare or
a Medicare
Advantage Plan
Know your Medicare ABCs (and Ds)
To plan for your healthcare costs, it's helpful to understand how Medicare works (costs and choices vary by state). Medicare is made up of several plans, usually referred to as "parts." In a nutshell, your main decision is whether to choose Traditional Medicare or a Medicare Advantage Plan:
Traditional Medicare (Parts A and B)
Part A helps pay for hospitalization, and is usually provided free because it was covered by your payroll taxes (although you'll pay a deductible).
Part B is optional (you'll pay a monthly premium) and helps to pay for medical services like doctor visits and including common health screenings.
You can choose your own doctors with both plans.
Medicare Advantage Plans (Part C)
These Medicare-approved plans, which are offered by private insurance companies, are alternatives to Traditional Medicare.
They're similar to HMOs in that you see the plan's doctors, and the plans often cover prescription drugs.
Part D
These Medicare-approved private plans cover prescription drugs for people enrolled in Parts A and/or B.
Read:
Build healthcare costs into your budget
With Medicare typically covering only 60% of medical expenses, it's a good idea to make room in your retirement budget for out-of-pocket costs.
Once you've determined which Medicare coverage is right for you, project your annual costs and work that number into your budget. Even if you're in good health today, it's a good idea to plan ahead.
Covering the costs of
long-term care
Set aside funds for long-term care
The U.S. Department of Health and Human Services estimates that 70% of people turning 65 or older will need long-term care services during their lifetimes.Footnote 1
When you develop your retirement drawdown strategy, consider including the costs of long-term care. At an average cost of over $75,000 a year, nursing homes are one of the biggest threats to the financial security of retirees.
It's easy to see why more and more people are considering long-term care (LTC) insurance. This type of insurance can be a good way to help keep long-term care costs from consuming your retirement savings, since standard health insurance coverage doesn't include long-term care.
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