When it comes to planning your retirement, there is no shortage of components to consider. Making an income plan, deciding when and how to file for Social Security, and minimizing the impact taxes may have on your retirement assets are just a few of the issues you will need to address. Crafting a retirement plan that is capable of supporting your lifestyle and rewarding the years you spent in the workforce is no easy task. In fact, it may be a financial challenge unlike any you’ve ever faced before.
While it’s easy to become entangled in the many different financial issues your plan will encompass, in my opinion, it’s critical that your plan also addresses your health needs and concerns by including a comprehensive and affordable health insurance strategy.
There are many different ways to accomplish this but for many retirees, Medicare may be the most important.
Think of it this way, like Social Security, Medicare is a federal social insurance program that you have paid into throughout your career. Don’t you want to know how to get the most out of what you have put it in? For millions of retirees, their Medicare coverage often means the difference between either insulating their retirement savings from medical costs – or quickly depleting them. To ensure you belong to the former, let’s examine the four basics of any insurance plan: coverage, eligibility, enrollment and premium cost – as they relate to Medicare.
For millions of retirees, their Medicare coverage often means the difference between either insulating their retirement savings from medical costs – or quickly depleting them. To ensure you belong to the former, let’s examine the four basics of any insurance plan: coverage, eligibility, enrollment and premium cost – as they relate to Medicare.
Deciding how to get your Medicare coverage begins with first knowing what type of coverage you need.
Medicare is split into four parts:
- Part A: Hospital insurance – covers the costs of health care at medical facilities. Offers coverage for medically necessary inpatient care at hospitals, skilled nursing facilities, hospices and home health
- Part B: Medical insurance – covers the costs of health care outside medical
Offers coverage for doctors’ services, hospital outpatient care, home health care, mental health and some preventative health care services.
- Part C: Medicare Advantage (MA) plans – policies you can purchase from certain private insurance carriers that provide the same (or more) coverage as Parts A and
- Part D: Prescription drug coverage offered through private Medicare‐approved insurance companies.
In general, a person is entitled to receive Medicare at age 65 or older. People younger than 65 with certain disabilities, permanent kidney failure, or amyotrophic lateral sclerosis, known as Lou Gehrig’s disease, can also qualify for Medicare.
Enrollment in Parts A and B is automatic for anyone who is 65 years old and already receiving Social Security, diagnosed with ALS or under age 65 and receiving disability benefits. For individuals eligible for Medicare but who do not qualify for automatic enrollment, they can sign up to receive Parts A and B during an enrollment period.
If you don’t plan on filing for Social Security when you turn 65, it’s important to enroll for Part A (and B if you don’t have other creditable coverage, such as group coverage through an employer) during the three months prior to your 65th birthday. You actually have a seven-month enrollment opportunity for Medicare. Consider the month of your birthday as one, and count back three months for start date and forward three months for end of Initial Enrollment Period. Your next chance to enroll will be during General Enrollment Period (Jan 1st through March 31st) to effective July 1st. Failing to do so will delay your coverage and may result in late penalty fees.
Parts C and D, on the other hand, are offered through private insurance companies, which means if you decide you want this coverage type, you must purchase one of these policies during an enrollment period. Keep in mind that if you don’t sign up for Part D when you’re first eligible, your premiums may be subject to penalty.
The premiums for each part of Medicare vary according to several different factors. Many people with Part A do not pay a premium because they have already paid enough into the system. As with Social Security, a certain portion from each one of your paychecks is automatically deducted to pay for Medicare. When you’ve had this Medicare tax withheld from your pay for at least 40 calendar quarters, then you will be eligible for free Part A coverage.
The monthly premium associated with Part B is set according to income level, although most people will pay the standard monthly premium amount of $134 (for 2017) and have a $183 (for 2017) yearly deductible. Individuals who have an annual income greater than $85,000 and couples who have a joint annual income greater than $170,000 will have an extra charge added to their premium due to their high income level.
Parts C and D are provided via private insurance companies so the monthly premiums of these policies depend on the extent of their coverage and can vary between companies.
Bringing It All Together
Understanding the basic components of Medicare and how they fit together is an important step toward selecting the policy that is best for you. However, working with a financial professional will help ensure that your Medicare coverage will complement and support your retirement plan in the most beneficial manner possible.
David Thompson, Thompson Insurance & Financial Services and Gradient Securities, LLC are not affiliated with or endorsed by the Social Security Administration or any government agency. This content is for informational purposes only and should not be used to make any financial decisions.