The Biggest Retirement Mistake and How to Avoid It

Many people are completely unprepared for the costs of healthcare in retirement.

In a study by the Blackstone Group, 79% of middle income baby boomers said they have NO money at all set aside to cover their costs for healthcare in retirement. Many of those surveyed thought that when they become Medicare qualified, all their healthcare events would be paid for because they would qualify for free Medicare and did not realize only  Part A hospitalization benefits is free. This does not include paying monthly premiums not just for Part B, but also possibly paying premiums for a Medicare Supplement or Medigap plan and a Part D prescription drug plan.

Some retirees have savings and investment assets set aside to generate income for rent, travel, and living expenses. However, many have never had a single conversation about the costs of Original Medicare premium, the deductibles, copays, and coinsurance Original Medicare has and  the costs of supplementing Medicare as well as purchasing Part D prescription drug coverage.

The “Medicare Is Free” Myth

So, what stops hardworking, intelligent people from experiencing a retirement that is free from worry over healthcare costs? It’s a simple assumption that the FICA payroll taxes that we pay throughout our working lives will pay 100% of Orignal Medicare when we retire.What people don’t know is that those taxes only fund our Part A hospital benefits. When you enroll in Medicare,  you’ll pay monthly premiums for Parts B and D as well as deductibles, copays, and coinsurance just like you pay on your current health insurance under 65.

CNBC reported that over half of people polled in a survey by the Nationwide Retirement Institute did not know that Medicare Part B isn’t free, and three in ten poll participants mistakenly believed that Medicare Part B costs are the same for everyone. Medicare Part B premiums are indexed based on your household income. The more taxable income you report the more likely premiums will be higher than you expect. These costs can eat into your retirement assets..

Here are some of the most common mistakes made when planning for your retirement.

Mistake #1: Failure to Discuss Healthcare with your Financial Advisor

Ask your financial advisor to help you estimate your future costs. It’s critically important that you thoroughly plan for the costs of healthcare in retirement, and your personal medical usage plays into that. A recent study by Fidelity estimated that the average couple will need more than $287,000 for the costs of healthcare in retirement.

Mistake #2: Assuming you will continue to be in good health

In today’s world, people are working longer into their elder years largely because so many jobs are internet based rather than manual labor. In a world like this, it’s very easy to assume that you may be able to keep your job into your seventies. However, we never truly know just how long our good health will last. Many people sidelined with an injury or illness over the years that forced them to take their Social Security income benefits earlier than expected. Chronic illness will also drive up your healthcare spending.

Mistake #3: Assuming you’ll maintain employment

We all hope that we’ll be able to age gracefully in our chosen careers. However, ageism in the workplace can be a real thing. If you lose your job, will you be able to get another one when you are 60, 65 or 70? Always have a plan for how you’ll adapt if your source of income doesn’t last as long as you had hoped.

Plan Your Retirement which Includes Healthcare Expenses.

  • Enroll in your employer’s retirement plan or open an IRA. Roth IRAs are not tax deductible but will provide tax-free money when you withdraw income during your retirement years. You can also enroll in a Health Savings Account if you qualify fo an employer-sponsored High Deductible Plan or, if you don’t have access to one, enroll in an individual plan that is HAS qualified.
  • Calculate what you will need to retire. However, don’t just plan for your lifestyle while you are healthy. Also include possible medical cost when you are ill. Even with a good medical plan, there are still out-of-pocket expenses to fund.
  • Automate your savings every month so that you never miss the money.. You cans set up automatic payroll deduction or bank transfer from your checking account into your retirement account on a periodic basis.

Find the appropriate Medicare health insurance plan that will minimize your expenses. There are a number of different Medicare health plans that have low or no co-pays as well as an annual maximum out of pocket limit that caps your medical expenses where the plan pays 100% of the remainder. Not one size fits all. As Medicare brokers/consultants we have access to a number of plans, one which may meet your particular circumstance

Seek legal help when it comes to accessing benefits for Long Term Care Expenses.  When you can’t perform activities of daily living, such as walking, eating, bathing, toileting, and dressing, or you need some assistance until you can fully function on your own after an illness and/or hospitalization, you will need financial resources to be able to pay for assistance. You will need to seek out Attorneys who specialize in Elder Care Law to be able to help find the resources. If the advice calls for obtaining Long Term Care Insurance, we can assist you with finding a plan that fits your needs and budget.

This is a complex issue. We as Medicare brokers/ consultants can assist you with coming to an appropriate solution. Please call us to schedule an appointment.