Medicare: A Component of Retirement Planning

Last Updated: October 17, 2012

One of the risks we each face as we age is declining health. A study by Fidelity Investmentsi found that the average 65 year-old couple retiring in 2010 would have needed $250,000 to pay for medical expenses during retirement, which is 4.2% higher than the finding for retirement medical expenses in 2009. These findings point to two key facts: health care is expensive, and health care costs are rising faster than overall inflation. You may be asking yourself, “What can we do about this?” On an individual level, we can try to live a healthy lifestyle and prevent various diseases, but in reality even the healthiest of people run the risk of poor health and potentially face the rapidly rising financial costs of health care. So, we have to do our best to prepare financially for some inevitable and possibly substantial medical expenses in retirement. Although complicated, understanding the Medicare health insurance component of retirement is important. You might currently have health insurance coverage as an employee benefit, and some employers even continue to offer health insurance to their retired employees. However, if you’re going to lose your health insurance coverage benefit when you retire, or if you just don’t have employer health insurance, you’ll want to consider
different ways in which you can receive health insurance during retirement. Medicare Eligibility Medicare, a federally sponsored health insurance for people 65 or older, is divided into four parts (A-D) that cover many aspects of health care. Medicare Parts A and B are available to all individuals who have paid Medicare taxes, and when an individual’s spouse reaches 65 years of age they are also able to take advantage of Medicare based on their spouse’s work record. Medicare eligibility generally begins on the first day of the month in which you turn 65 years old. If you’re receiving Social Security benefits before age 65, you should automatically receive a Medicare identification card in the mail shortly before your 65th birthday. If you’re not collecting Social Security benefits before age 65, you should enroll for Medicare (Part A) about three months before you turn 65.  You should enroll for Part A upon eligibility regardless of whether or not you continue to work and are covered by an employer’s health plan. Unlike Part A, you shouldn’t necessarily enroll and pay the premiums for Medicare Part B just because you’re eligible. If you are still working and are covered under an employer’s health plan, you may be able to save money by not enrolling in Part B until you retire.  However, your employer’s plan must be at least equivalent to the Medicare Part B plan for postponing this enrollment to be beneficial. It is important to pay close attention to Medicare Part B application deadlines and rules related to applying for benefits. If your application is late, or you drop out and enroll again later, you may pay higher premiums, by as much as 10%, for each 12 month delay. The Components of Medicare Coverage This table summarizes the costs, deductibles and co-payments related to Medicare coverage. (Click to view).                 Medigap Because Medicare is not necessarily an all-encompassing health insurance solution, you might find that supplementing Medicare with Medigap (sold by private insurance companies) will provide you with the additional protection you desire. There are 10 variations of Medigap coverage ranging from Plan A, which has the least amount of coverage, to Plan J, which offers the most comprehensive coverage. And, because the product offering is the same, it pays to shop around for the best Medigap Plan price. You can read more about Medigap and long-term healthcare in our blog post, Planning for retirement: additional healthcare decisions. Seek Guidance Planning for medical expenses is a critical component of retirement as these expenses can quickly erode retirement savings. A retirement consultant can guide you on a variety of strategies to help you navigate Medicare benefits based on your personal circumstances.    
i“Fidelity Investments® Estimates Couples Retiring in 2010 Will Need $250,000 to Pay Medical Expenses During Retirement.” Fidelity Investments® Estimates Couples Retiring in 2010 Will Need $250,000 to Pay Medical Expenses During Retirement. Fidelity Investments®, 25 Mar. 2010. Web. 12 Oct. 2012. <>.
PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.


Cody Mendenhall, CFP®, Executive Director



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