In retirement, many adults have access to the government program, Medicare. But this program comes with complex information that can be tricky to navigate. Below, we review some details you might not know yet about Medicare and how they can impact your retirement finances.

What is Medicare?

Simply put, Medicare‡ is a government funded healthcare program for citizens who are 65 or older. There are several different plans within Medicare such as hospital insurance, medical insurance and prescription drug coverage. Each plan comes with different benefits and different costs. It is important to review each carefully to see which one would best fit your unique needs.

How much money do you need to cover medical expenses?

Even with Medicare you will still incur out-of-pocket medical expenses. The Employee Benefit Research Institute‡ estimates that a 65-year-old man will need to have saved $166,000 by retirement and a woman will need $197,000 in order to cover the cost of Medicare and prescription medications.

What doesn’t Medicare cover?

Even though Medicare has three different plans to choose from, there are still several medical expenses that Medicare doesn’t cover. These uncovered expenses need to be built into your retirement plan, including:

  • Long-term care. Think of long-term care as assisted living or nursing home care. If you need this type of care in retirement, you will need to pay for it out-of-pocket, which can be thousands of dollars.
  • Even in retirement, you’ll still want to prioritize oral health, but Medicare will not cover teeth cleanings or additional dental work you might need. Dental expenses can be costly, so you’ll want to set aside funds.
  • With advanced age can come poor eyesight, but once again, eye exams, glasses or contact costs are not covered by Medicare.

Since these costly medical needs are not covered by Medicare plans, it is important to discuss supplemental insurance, family medical history and any current medical concerns you have with your financial team so you can design a plan that best supports you and your needs in retirement.

Understanding your costs

In addition to your planning, you’ll want to factor in the Medicare income-related monthly adjustment amount‡ (IRMAA). IRMAA applies to Medicare beneficiaries who have a gross income above $97,000 individually or $194,000 for a joint tax return. Your IRMAA cost is calculated based on the prior two-years tax returns you reported to the IRS. This is an important expense to discuss with your financial team to see how it impacts your retirement budget.

What if you keep working?

Many people are making retirement decisions based on the healthcare they will or will not be able to pay for. You’ll want to discuss the pros and cons of continuing to work in retirement with your financial team. Your income will impact your IRMAA costs and Medicare costs. In addition, you might receive health insurance from your employer and then you will want to understand how this impacts your Medicare options.

On the flip side, if you decide to retire early, you’ll want to have a plan in place to cover your medical expenses until Medicare kicks in at 65, such as supplemental insurance. You can’t elect to start Medicare early unless you have certain medical conditions, so your plans need to be discussed with your financial team and factored into your expenses.

Using a health savings account

As you work on your healthcare costs in retirement, remember you might have an option to use a health savings account. A health savings account is a tax-advantaged account you can use to save for medical expenses. This account can help you build long-term savings that can help cover some of the unexpected healthcare costs in retirement.

Planning is key for both health costs and retirement expenses

Planning for healthcare can be overwhelming, but a financial team can support you by running projections, helping to manage risks, taking the emotion out of budgeting and talking you through different options. The adage, “Honesty is the best policy” definitely rings true for how you approach your professional team when planning healthcare costs in retirement. Don’t be afraid to have an open conversation with your financial team to ensure you are prepared to the best of your ability.

Interested in learning more about Private Wealth Management? With UMB, you have a guiding partner from financial advising and investment portfolio management, to wealth-building strategies and retirement and legacy preservation plans.

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Financial planning services are offered by UMB Private Wealth Management and UMB Financial Services, Inc. UMB Private Wealth Management is a division within UMB Bank, n.a. that manages active portfolios for individuals, fiduciary accounts, employee benefit plans,