Retirement Planning: Medicare Costs Could Cost You a Fortune.

Don’t be blindsided by unexpected costs; calculate them now.

The Employee Benefits Research Institute has released a paper showing that even Medicare recipients will incur high medical costs in retirement. Depending on one’s marital status, the report estimates that retirees will need to save as much as $383,000 to have a 90% chance of being able to pay for their medical bills in old age.

A Medicare recipient should not expect Medicare to pay for all of their medical costs. EBRI created this projection model to estimate the fund’s Medicare recipients may require a reasonable chance of fulfilling their healthcare spending needs and to make these expenses more tangible.

How much money Medicare recipients will need to save for things like deductibles, premiums, and prescription medicines is investigated using a simulation model that considers variable factors like mortality and asset returns.

As shown by the study, a combined $318,000 in savings is required for a couple to have a 90% chance of covering their annual costs. The proportion was even higher for married people, who may have more significant pharmaceutical outlays.

Similarly, a new study found that a 65-year-old male enrollee in Medigap would require roughly $166,000 to be 90% confident he could fund his premiums and prescription medicines. A similar amount of money is necessary for a woman of the same age, but around $197,000.

Medicare’s costs can be high for the same reasons that healthcare, in general, can be pricey:

  1. Medicare is not immune to the rising healthcare expenses seen across the board in the United States. The cost of medical treatment to Medicare recipients has increased throughout the years due to the rising price of healthcare commodities like hospital stays, pharmaceuticals, and medical equipment.
  2. The growing number of Medicare recipients puts financial pressure on the program as the baby boomer generation ages—the expense of delivering healthcare rises in direct proportion to the number of people receiving it.
  3. Medicare recipients typically have extensive medical requirements and must pay a significant portion of their income for healthcare. Beneficiaries with severe illnesses like diabetes, heart disease, or cancer, for instance, may need extensive medical care that comes with a hefty price tag.
  4. Medicare’s high overhead is a direct result of the program’s complexity. The program’s administration, claims to process, and regulation enforcement can incur high administrative costs.
  5. Medicare, like any other major program, is susceptible to fraud and abuse because of its size. The cost of healthcare services and program administration can rise due to fraud and abuse.

Medicare’s price tag continues to rise for several interconnected reasons:

  • Increased healthcare expenditures
  • An older population
  • More complicated health requirements
  • Higher overhead
  • Rampant fraud and abuse

If you want to start saving for Medicare, consider the following options:

  1. The sooner you begin setting money aside for Medicare, the better off you will be. Monthly contributions over time add up to a sizeable nest egg that can be used to pay for retirement medical expenses.
  2. Optimize your retirement savings: You should deposit as much money within reason into your 401(k) or IRA. These accounts allow you to save for retirement while receiving favorable tax treatment.
  3. You should consider opening an HSA: It’s possible to open an HSA if you have a high-deductible health insurance plan. You can pay for Medicare premiums and other medical expenses, such as copayments and deductibles, tax-free using funds saved in a health savings account (HSA).
  4. You must refrain from spending if you want more money toward your Medicare savings. Try to save money where you can, especially on extras like eating out, going to the movies, and taking vacations.
  5. Stay in the workforce for a more extended period to increase your income and your Medicare contributions.
  6. Make a budget that includes Medicare’s premiums and your share of any deductibles or copayments. Include Medicare premiums and out-of-pocket costs in your retirement budget planning. Recognizing these outlays will allow you to budget and save more wisely.

Remember that there is no universally applicable strategy for saving for Medicare because everyone’s circumstances are unique. A financial advisor or planner can help you create a plan tailored to your specific situation and needs.