As average life expectancy continues to increase so do the cost associated with keeping us healthy during retirement. It is now estimated that the average retiree will spend somewhere north of $250,000 in medical costs during retirement. Because the costs are increasing so rapidly, I think it’s only fitting that I discuss the details of the Medicare program, so you can better understand what the government provided health care option is, as it relates to your retirement. 

As I contemplated how I might best address the topic of Medicare, I decided I’ll answer five of the most asked Questions about the program. 

1. When can I get Medicare benefits? 

Unless you’re disabled or have end stage renal failure, you will not be able to get Medicare benefits until you turn age 65. A common misconception among many Americans is that they can get Medicare as soon as they apply for Social Security benefits, which could be as young as age 62 but this is just not true. 

Although Social Security and Medicare are managed by the Social Security Administration, they are two completely separate programs and their benefits work independently of each other. Which means if you’re looking to retire early, you need to make sure you’re taking into consideration what you will be doing for health insurance until you reach age 65. 

At various times I’ve talked about the FIRE community. FIRE represents Financial Independence, Retire Early. Now, I’m not at all against this movement. I think anytime someone can get themselves into a financial position where they can control their lives rather than being controlled by others. It’s a good thing, but I’m afraid many of those in the FIRE community are going to face some issues as they get closer to normal retirement age that they may not be considering now, and many of these issues are going to require them to have more money set aside than they may be expecting to have. 

One of the biggest issues that faces the healthcare issue when you’re in your 20s and 30s. Health insurance can be pretty inexpensive, but what happens when you get into your late 50s and early 60s, and you have a preexisting condition or two? It is at this point that insurance costs can go through the roof. It is not uncommon at all for a 60-year-old with preexisting conditions to pay around a thousand dollars a month just for basic health care coverage, and that basic coverage may require an annual out of pocket maximum of thousands of additional dollars in co-pays and deductibles. When you’re having to spend between $10,000-$20,000 a year just to cover healthcare, you may find your budget needs to be much larger than you originally expected. 

So, if you’re in the FIRE community, keep doing what you’re doing to bring about your own financial independence, but please make sure you take into consideration increased medical costs as you try to plan out the money you’ll need for a safe and secure retirement. Now for the rest of you who are planning on working up until age 65 or expect to have some other form of insurance leading into Medicare, you have a seven-month window to apply for your benefits. This window starts three months prior to your birth month and ends three months after your birth month. If you want your benefits to start the month you turn 65, you’ll want to start applying for these benefits about three months prior to your 65th birthday. This will give the government the time they need to process your application and make sure they have everything they need to get your benefit started on time. 

If the application is completed and approved prior to your birthday, you will start receiving benefits on the first day of the month. You attain age 65, so let’s assume your birthday is September 15th, you’ll be eligible to receive benefits on September 1st. Now, remember I mentioned you can also wait until three months after your birth month to apply, if you so desire, but please note, your benefits will be delayed. You will start receiving benefits on the first of the month after Social Security Administration gets your application processed, which is going to be after your 65th birthday. 

What happens if you miss the age 65 application period? You’ll be charged a 10% per year late filing penalty for each year you wait to file. The only exemption to this rule is if the cause of your delay is because you already have employer provided health insurance. 

2. If you claim your Social Security benefits prior to reaching age 65 will the government automatically enroll you in Medicare parts A and B when you turn age 65? 

If you haven’t applied for Social Security prior to your 65th birthday, you will have to complete an application. This application can be done online, over the phone, or in person at your local Social Security office, but before you pull on your sneakers and jump into the car to head down to your local Social Security office, you will want to make sure you check to see if the office is open. Because of COVID, most Social Security offices are closed and are not allowing in person meetings. 

Question #3

What are the parts of Medicare? 

Medicare is broken up into four parts, Part A, Part B, Part C and Part D. They each serve a different purpose in making sure the medical needs of our retirees are covered. I’m going to take a minute to talk about each one of them now. Part A is hospitalization coverage. If you qualify for Social Security benefits, you will qualify for part A benefits. Part A is there to cover hospital inpatient care. Unfortunately, Part A does have limitations on the number of days of hospital care it will cover, which is one of the reasons many people buy what is called a Medigap insurance. This is supplemental insurance that is used to help cover the gap between what Medicare will cover and what you would be expected to pay out of your own pocket.

 Part B is like general medical insurance. It’s available to help cover the cost of doctor visits, specialists, and outpatient procedures. The biggest issue most people have with party insurance is it requires a 20% copay for most of the services you’ll receive. 

Part C is where you’ll find Medicare Advantage plans. This is where private insurance companies have partnered with the government to provide a health insurance plan that will consolidate your Medicare benefits all under one umbrella. 

Currently, there are about 27% of retirees that use Medicare Advantage plans, but they’re becoming more and more popular by the day. There are a number of different providers who provide these plans, and they can all charge you a different amount for the services they provide. So, please make sure you do your homework before signing up for any Medicare Advantage plan.

 Part D is prescription drug coverage. These plans are also provided by third party providers and all not Part D plans are created equal. Therefore, it’s important to consider what medications you’re taking or expect to be taking prior to retirement before signing up for a Part D plan. This will give you a better chance of getting a plan that will provide you with the maximum benefits for the prescriptions you’ll be using. 

4. How much does Medicare cost? 

The good news is, if you qualify for Social Security benefits, you will not have to pay anything for Medicare Part A. If you don’t qualify, you can end up having to pay as much as $458 a month to receive Part A benefits. The current cost of Medicare Part B is $144 and 60 cents a month, but it can be as high as $491 and 60 cents a month. If your income is over $500,000 for a single person or $750,000 for a married couple, it’s estimated that the fee you pay for Part B coverage is about 25% of the actual cost of the program, or the benefit you’re receiving. The other 75% is picked up by the federal government out of the general fund. The cost of Part C is going to vary based upon the company you choose to sign up with. 

As I mentioned before, you will have to do your own homework here to see what program is going to work best for you. The cost of Part D will also vary based upon who you sign up with. Remember, Part D plans are not created equal. The four things you should look for when signing up for Part D are coverage, convenient, cost, and quality. 

5. What does Medicare not cover? 

There are a number of things Medicare will not cover, but the biggest ones are long term care, dental care, eye exam or glasses, dentures, acupuncture, hearing aids, and routine foot care. It’s because of this list of uncovered benefits, unreasonably high deductibles, and co pays that most retirees will buy some form of Medigap policy to help fill the gaps that Medicare will not cover. 

There are currently eight different options you can choose from to help you cover the various gaps that exist in Medicare. These different options are called pathways. Depending on what gaps you want to bridge, it will determine which pathway you choose to pick. There’s one gap though, that even Medigap will not cover and that is the gap of long-term care. If you are wanting to cover a long-term care event, you’re going to either need to self-insure, rely on a family member, buy expensive long-term care insurance that you may pay for decades and never use, or use a life insurance retirement plan or what I call a LIRP. It’s my belief that if you can make it work in your situation, the life insurance retirement plan is the best option to solve your long-term care risk. 

A LIRP is a permanent insurance policy with a long-term care rider. This rider kicks in if you have a long-term care event prior to that, if this happens, the insurance company will allow you to use a portion of your death benefit each year prior to death to cover the cost of the long-term care event. Usually, it’s between 20 and 25% per year of the available death benefit. Now, there are a number of other benefits a life insurance plan can offer, but I don’t have time to talk about all of them during this episode. If you want to learn more about what a life insurance retirement plan is, and how you can use it to cover a potential long term care issue, please listen to season two, episode eight, or you can sign up for my webinar, “Look before you lurk. Prosperity nation”.

Hopefully, by answering these five questions today, you now have a good overview of Medicare program and at least have a basic understanding of when you should apply and what the program will cover. I do think it’s important to note the program is going to have some financial issues over the next five or six years, but hopefully there’ll be a day soon where the government will get back to work, working together on behalf of all Americans. We will see the necessary changes come about to stabilize the program for years to come. 

If you still have questions about Medicare and would like to know more about the program go to the events page where you can sign up for my webinar called, “Medicare in a nutshell”. In this webinar, I take one hour to review most of the details of the Medicare program. I even take a few minutes at the end of the webinar to throw in some basic information about disability. 

If you’re ready to take action on getting yourself to a tax free and risk-free retirement, I recommend you visit my strategy session page. It’s on this page. You’ll be able to schedule a strategy session with one of our certified advisors who’s trained on what it takes to help you build a safe and secure retirement.