While medical expenses should come as no surprise to retirees, the amount of money we anticipate spending on medical care in retirement is often grossly underestimated. Based on a 17-year retirement, a couple who retired last year could expect to spend around $250,000 on health care, and that assumes they have Medicare!
Often times, we find that retirees expect Medicare to cover nearly all health care costs in retirement, but there are big gaps in coverage which require retirees to purchase additional policies, specifically Medicare Part D and Medigap policies. Medicare Part D provides coverage for prescription drugs, and a Medigap policy, as its name implies, provides coverage for non-prescription services that are excluded from Medicare. These additional policies, on average, will run a retired couple about $6,500 per year.
On top of that, Medicare doesn’t offer explicit coverage for long-term care. As we age, our needs often progress beyond medical attention and turn into assistance with daily living activities, such as dressing, bathing, eating, etc. It is estimated that 12 million people will have a need for long-term care services by 2020, according to the official government site for Medicare. And according to the Department of Health and Human Services, people who reach age 65 have a 40% chance of entering a nursing home. Since Medicare doesn’t cover the type of care provided by these facilities (or at home), Medigap and traditional long-term care insurance policies may be needed. Each person’s individual situation will determine what types of coverage should be purchased.
Oh, and one final tip: If you’re turning 65 and you’re thinking about waiting to buy your Medigap coverage, think again. The first year of eligibility is the only year when the Medigap provider won’t require you to submit a health questionnaire. If your health is less-than-stellar, this can mean a big difference in premiums.