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Medicare Open Enrollment is Around the Corner

The next open enrollment period will run from October 15, 2020 to December 7, 2020, for coverage effective in 2021. That means, in less than two weeks you will have an opportunity to review and change your Medicare health plan and prescription drug coverage to better meet your needs. Go to Medicare.gov for complete information.

Except in some rare cases, we all need to have a plan to make our resources stretch across our retirement years. Each person has personal financial goals, along with their individual savings situation. Whether you “DIY it” or you hire a financial advisor to help manage your planning and the portfolio you have accumulated, your healthcare can be a “wildcard” in your retirement income planning. Planning for healthcare in retirement is one of the smartest things you can do, not only for you, but your loved ones, too. Here are five helpful tips to keep your retirement plans on track.

1. Do Not Underestimate Your Costs of Healthcare

Most people think they can cover their health expenses during retirement. 64% of people believe they will have enough money to cover their medical expenses during retirement. This sense of security could be a case of “not knowing the facts.”

Estimates show that the average couple needs $270,000 to cover their healthcare costs alone in retirement. This figure is just an average, so some people will need less and some people will need more. Do you know which group you will belong in? No matter what your situation is, you may need more money for healthcare in retirement than you have planned.

2. Pre-Retirement Income Helps Determine How Much Medicare Will Cost

Did you know… your income immediately before retirement is a big factor in determining the cost of Medicare? The longer you remain in the workforce and contribute to Social Security, the more you can expect to receive during retirement.

There are admittedly many factors that contribute to both how long one can remain in the workforce, and what your Medicare benefits in retirement might be. Additional factors include catastrophic illnesses and/or divorce and/or pre-mature death.

3. Do Not Overestimate Your Medicare Coverage

Keep in mind that Medicare, while very valuable, was never designed to cover all of a retiree’s health care expenses. There are four principal parts to Medicare coverage: Part A, Part B, Part C, and Part D. However, do not let the fact that there are four available parts to your healthcare coverage fool you into thinking everything is covered.

These gaps in Medicare coverage can be covered with Medicare Advantage or perhaps a Medigap plan. Medigap policies can help with some of the healthcare costs that Medicare does not cover. An example of this would be a Medigap policy that covers deductibles and copayments.

4. Retirement Age is an Important Factor

Although not always possible, one needs to have a plan regarding the age at which they will retire. Whether you retire before the age of 65, or after the age of 65, can make a difference in how much Social Security money you receive. Because this money may either be important for day-to-day living or just a supplement for other saved money, it is important to know what you will receive. When to retire also can be determined by factors such as health, desire to work longer, health or spouse’s health, offspring’s financial situation, or related matters.

5. Retirement Income: Current and Future

As of the end of 2019, the odds of most Americans having security in their retirement had not improved (and it is certainly no better on average since the pandemic began). Retirement in America reflects distinct realities depending on affluence. The cost of Medicare keeps going up, while the value of Social Security benefits continues to decline.

While the probability of a successful retirement for the affluent has improved, the lowest income households do not have as good of retirement prospects. In fact, Baby Boomers who are approaching retirement have seen their odds of a successful retirement fall from 26%, down to 11%.

This is a wake-up call to all of us. While we are becoming more reliant on Social Security and Medicare, the federal government is running larger deficits, making it harder to even meet the obligations they already have… much less increase those obligations.

In simplest terms, I hope for the best, but plan for the worst. It is nice to think that our healthcare costs will come down (or be absorbed by a single payer), but there is no guarantee that it happens, and there is enormous pressure against this outcome. We should all be planning as if the bill, when it is due, will be ours to pay.

We need to plan further ahead, we need to save and invest more while we can, and we need to educate ourselves and our kids so that we can slowly – across generations – get ahead of this. If you want help creating this plan for your family… let us know.

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