MMM Newsletter and Website Header 10.2.15

By Carrie Schwab-Pomerantz,  Charles Schwab & Co., Inc.


Key points


  • Even a healthy person will have substantial retiree healthcare costs.


  • Premiums for Medicare and supplemental insurance alone add up quickly, not to mention out-of-pocket costs and services that aren’t covered.


  • Being realistic and planning in advance will help protect both your physical and financial health.

There’s only one thing certain about retiree healthcare costs — you will have them. Even if you’re lucky enough to be consistently healthy, you’ll have to pay insurance premiums plus possible co-payments, as well as costs for things that insurance doesn’t cover. So factoring retiree healthcare expenses into your retirement planning is smart — and absolutely essential.

For a dose of reality, consider this stat from a 2016 report from Health View Services, a company that provides detailed projections of retiree healthcare costs. For an average, healthy 65-year-old couple retiring this year, retiree healthcare costs including insurance premiums, deductibles, co-pays, and costs not covered by insurance could total $377,412 in today’s dollars. Factor in inflation, and the figures go even higher.

That might sound a bit over the top, but when you consider that this represents only an annual cost of $6,290 per person over a 30-year retirement, it’s probably realistic. Here’s why…

Medicare costs you

Medicare isn’t free. This takes some people by surprise. Here’s a rundown of costs:

  • Part A hospital insurance

For most people, there’s no premium for Part A, but there is a $1,288 deductible and copayments for hospital stays over 60 days.

  • Part B medical insurance

Premiums rose in 2016 and now range from $121.80 to $389.80 per month depending on income and tax filing status. There’s also a $166 annual deductible, plus co-payments for some doctors’ visits.

  • Part D prescription drug insurance

The monthly premium depends on your plan and income but the current nationwide average is about $34 a month. You may also have deductibles and co-payments. The highest allowable deductible in 2016 is $360.

There’s also the ‘doughnut hole’ — the gap in coverage once drug costs reach a certain dollar amount ($3,310 in 2016), after which you pay a higher percentage for prescriptions until you hit the yearly out-of-pocket limit, which is currently $4,850. The doughnut hole currently decreases each year and will ultimately close in 2020.

Supplemental insurance increases the bill

Medicare only covers about 60 percent of healthcare costs, so you’ll want to have supplemental insurance as well. There are two basic types. You must be enrolled in both Medicare Parts A and B to qualify for either.

  • Medigap policy

Sold by a private insurance company, Medigap pays for things that Medicare doesn’t cover, such as copayments and deductibles. Some policies offer added coverage for services not included in Medicare, but generally don’t cover prescription drugs, dental or vision.

While types of plans and coverage are standardized and regulated by Federal and state laws, there’s no standardization of cost. Premiums depend on where you live and the type of policy you choose, but can range from less than $50 to over $300 a month. You can get the cost range for your zip code at medicare.gov.

  • Medicare Advantage Plan

Called Part C, this is an alternative way to receive Medicare benefits, and can be structured as an HMO or PPO. Medicare Advantage Plans are offered by private insurance companies and must include all benefits provided under Medicare A and B. Many also cover prescription drugs, vision, hearing, dental care, and health and wellness programs.

These plans vary in terms of cost, services, deductibles and co-payments, but are generally a bit lower than Medigap policies. To compare the cost of Medicare Advantage Plans, try a site like ehealthmedicareplans.com.

There’s a lot that isn’t covered

No matter the type of supplemental insurance you have, there will be things that aren’t covered or are only partially covered — dentists, vision tests, eyeglasses, hearing aids and especially long-term care.

Most people don’t realize that Medicare only pays for medically necessary skilled nursing and home care, such as giving shots and changing dressings, not for “activities of daily living” like bathing and eating. So give some thought to long-term-care insurance (LTCI). It can be expensive, but could protect your retirement savings down the road.

It adds up quickly

To help you plan, I would suggest that you create a few possible scenarios. For example, let’s say you and your spouse each paid base amounts for Medicare Parts B and D and each had a supplemental policy costing $125 a month. Premiums alone for the two of you would average around $562 a month ($6,744 a year). Then, you’d have to add in estimated costs for dental, vision, deductibles, co-pays, etc., to come up with a yearly total.

Or let’s say you chose a Medicare Advantage Plan with prescription drug and vision coverage that costs, for example, $99 per month per person. You’d lower your premiums and potential costs for eye doctors, but you’d still have to factor in deductibles and co-pays.

Of course, your own health and longevity will determine how much money you’ll ultimately need. But with realistic numbers in front of you, you can start to plan in a way that will best protect both your physical and financial health.

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About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC’s) Monday Morning Minute is crafted to provide decision-maker’s with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at https://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.

Additional Important Disclosures

The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.