underestimated retirement risk: medical costs

Do Not Forget Healthcare Costs When Retirement Planning

How are you to account for health care costs while retirement planning? Oftentimes, these expenses are underestimated. Even though Medicare Part A is free and covers hospitalization, the remainder of Medicare comes with premiums and the rest of health care and drug costs are out-of-pocket even with supplemental insurance.

Why are health care costs underestimated?

CPAs transitioning into retirement often do not consider that what they were paying in premiums is not the full amount. Thinking they need the same “take-home pay” folks forget that their employer was paying a good chunk of the premium costs when budgeting and the rest was coming directly out of their paychecks. Now, facing retirement, CPAs are responsible for out-of-pocket costs and the full premium.

Familiarization with Health Care Premiums

Having Medicare Part A helps immensely when it comes to health care costs, especially since it is free. However, you will be responsible for other premiums to help cover medical expenses.

  1. Medicare Part B: In 2022, premiums increased to $170.10 monthly. Note in the future this will increase.
  2. Medicare Supplemental Insurance: For coverage not offered through Part A or Part B of Medicare, supplemental insurance is available. This will help with medical expenses, but does not cover dental, hearing, or vision.
  3. Medicare Part C: Known as Medicare Advantage, these policies vary in coverage and price, but offer options including Part A, Part B, hearing, dental, and even vision. Furthermore, Part D (prescription drug coverage) is also included.
  4. Medicare Part D: As coverage for self-administrated prescription drugs, Part D requires a co-pay per prescription. Unfortunately, some drugs are not covered.
  5. Long-term care insurance premiums: Medicare only covers so much of long-term care costs after a certain amount of time, and even then, it will add up quickly daily. To make sure you are covered, building a LTC policy to your wants and needs is best. This is an important factor to consider for retirement planning because 70% of retirees experience a long-term care event.

How much could coverage and any out-of-pocket costs be then?

Knowing Total Health Care Costs

Adjusted for inflation, in 2021 multiple studies found that retirees were spending about $6200 on premiums and approximately $6500 on out-of-pocket costs for health care. For 2022, the projected amount for out-of-pocket costs is $7000. And with rising health care costs and inflation, the average expenses are predicted to increase by a minimum of $3500 by 2030.

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Inflation Reduction Act of 2022 and retirement planning

The Inflation Reduction Act of 2022 and Its Impact on Your Retirement

As a watered-down version of the Build Back Better Act of 2021, the Inflation Reduction Act of 2022 is set to be signed by President this week. The bill is designed to reduce the deficit and lower inflation while investing in domestic energy production and lower prescription drug costs. On top of the deficit reduction projected to be more than $290 billion, this bill allows Medicare to negotiate lower drug costs and extends the Affordable Care Act program through 2025. The goal: lower consumer costs and help the nation reduce emissions long-term.

Once signed into law, how will my retirement be impacted?

Your retirement will be impact someway somehow.

The deficit reduction is intended to fight inflation by cutting the taxes Americans are paying. With the capability to reduce inflation, your retirement income will have more spending power, and we will eventually hopefully enter a period of deflation. However, there is a slim chance we will see a dent in inflation this year with this bill.

Since Medicare will be able to negotiate drug prices with pharmaceutical companies the savings will impact retirees directly. In addition, a $2000 out-of-pocket cap for Medicare enrollees buying prescriptions comes along with preventative vaccines being free.

Moreover, since the ACA program is being extended, the Covid-19 subsidies helping make insurance more affordable for some Americans. Good news: this is most applicable to those who had to retire early and aren’t eligible for Medicare just yet.

With the focus of the Inflation Reduction Act being partially on cleaner energy investments, business and consumers can participate in clean energy investment incentives, too. Businesses themselves can receive a tax credit for clean energy manufacturing, and another tax credit for wind and solar energy production. Consumers get to enjoy the tax credit incentives for greener options for investing in renewable energy and further tax credits for buying electric cars, new and used.

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