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It sounds frightening, even stunning to take into account the overall health care costs when retirement. Studies at the Institute of Employee Benefits have found that today’s 65 -year -old couple may need as much as $ 351,000 to 90% of the likelihood of paying their medical expenses on retirement.
However, according to the “Banryee”, the global pension strategist T. Rowe Price, which is widely quoted, is misleading and can cause unnecessary anxiety.
“My first point would not actually focus on that number,” said Banryee’s recent decoding pension podcast. “Basically what the couple will spend more than 30 years old. That’s just that amount.”
For those approaching retirement, in Banerjee, more useful attention is cash flow – understanding of your income, expenses and how much you spend on health care every year.
“Health care is not something where one day you retire, then you reduced the check for $ 350,000 and taken care of it,” he said. “It doesn’t work like this. It is an ongoing process and you have to make decisions every year.”
Instead of obsessed with all living costs, Banerjee recommended a practical two sewing method.
In the first bucket, plan the predictable bonus costs and place the Medicare Part B, part D, and additional insurance premiums to regular cash flows. These costs are quite stable and predictable and are therefore suitable for budgeting, as with any other fixed costs.
In the second bucket, keep a separate $ 5,000 cash reserve for $ 10,000 for deductible, copies and unexpected medical expenses. Complement this fund every year as the unpredictable expenses in your pocket occur.
“You have a very good idea of how much you will need for your health insurance premiums, so you can basically create it in your cash flow,” he said. “A more complex part is the cost of pocket, where you may not know exactly how much you will need.”
This approach recognizes that pension health care is not at a large expense, but a series of decisions and payments that can be systematically controlled.
Read more: Step by step pension planning guide
Another important health care expenditure engine is Medicare coverage. The choice between the traditional Medicare, Medicare Advantage and Medigap policy can have a major impact on both expenditure and protection against unexpected bills.
“This is a really important solution,” said Banerjee. “When it comes to retirement health care, the choice of plan – whether you are going with the traditional Medicare, Medicare advantage, or adding a Medigap policy – deserves a lot of attention.”
For those who are considering Medigap, Banerjee offers two questions: Can you afford it? And why do you want that?
“Usually, Medigap costs more – about $ 2,000 a year – so the question of affordability is,” he said. “If you can conveniently cover that extra price, that’s great.”
Elizabeth Gomez, 54, from Huntington Park, California, right, 2024. August 28 (Christina House/Los Angeles Times – through Getty images) CVS receives Prevnar and Brutical. ·Christina’s house via Getty Images
Banerjee added that many choose Medigap to reduce their pocket costs, as traditional Medicare includes deductions, total insurance and other costs. However, Banerjee research shows that the average annual cost of pocket for Medigap students is roughly the same as those with another coverage-to-end up the highest end of expenditure, where Medigap offers greater protection.
“People with Medigap tend to use more health care services,” he explained. “They know they have that protection, so they consume more services.” His advice: if you expect Medigap to automatically reduce your annual cost out of your pocket, realize that this can be more likely to be reimbursed.
This solution is even more critical as moving from Medicare Advantage to the traditional Medicare with Medigap later retirement is “practically impossible” if health problems arise.
Long -term maintenance is another alternate table when planning a pension. Many fear that one day will need nursing home care and will not know how to pay for it through insurance, self -funding, home property, Medicaid or their combination.
“This is a classic example of what we call a tail risk,” said Banerjee. “For many people, if you look at the average, people don’t let anything out of pocket for long -term care. But a very small percentage will spend a large amount. And this is like a classic case when you think it is … a situation that needs to be insured because it is the risk of the tail.”
According to him, the problem is that “the long -term maintenance insurance market has not been done over the years and has not worked very well … Politics is very expensive. So people do not want to spend so much on this policy and never need care.”
Financial circumstances often dictate attitudes.
Those with lower income often use Medicaid as a backup, while those with higher income can often independently finance their own care. This is the middle market that has weighing assets from Medicaid from payment for coverage they may never use.
And time insurance coverage is very important. “You don’t want to be too late when you have health problems and your contributions will certainly increase and you do not want to get it too early when you spend a long time spending your premiums,” Banerjee said. “So I think that somewhere from 55 to 65 is a good period to consider long -term care insurance.”
Read more: How to pay medical accounts – 6 options for debt
If you expect to stay at home for a while and then move to a continuing care facility, knowing that you can help you choose the right long -term care insurance in advance.
He said the broad umbrella policy involves almost any order of life, but costs more. If you have already decided where you will live, purposeful policy may be cheaper.
Whatever you choose, compare costs, coverage limits and benefits – and do your homework before buying.
You have questions about retirement? Send email By email Robert Powell [email protected]And we will do our best to answer it in the future episode of retirement.
Robert Powell, a pension expert and financial educator every Tuesday, gives you tools to plan your future Decoding pension; More episodes can be found in our Image center Or observe your own The broadcast service is desirable;
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