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It sounds discouraging, even compelling, to consider the total cost of healthcare in a pension. A study by the Institute of Employee Research Institute found that today a 65-year-old couple retire today may need $ 351,000 to have a 90% chance of covering their medical expenses at retirement.
But according to Sudipto Banerjee, a global retirement strategist in T. Rowe Price, this widely quoted figure is misleading and can create unnecessary anxiety.
“My first point would be not to really focus on … that a single number,” Banerji said in a recent podcast to decode retirement. “In principle, this is what a couple will spend over 30 years. This is just the sum of that.”
For those who are approaching their retirement, Banerjee explained that the more useful focus is the cash flow – understanding your income, your expenses and how much you spend on health every year.
“Health is not something where you retire one day, then you have reduced a check for $ 350,000 to someone and takes care of it,” he said. “It doesn’t work like that. It’s a continuous process and you have to make decisions every year.”
Instead of obsessing over the total life costs, Banerjee recommended a practical approach with two bouquets.
In the first bucket, plan predictable premium costs and build Medicare Part B, Part D and additional insurance premiums in your regular cash flow. These costs are relatively stable and predictable, which makes them suitable for budgeting like any other fixed expense.
In the second bucket, keep a separate cash reserve of $ 5,000 to $ 10,000 for deductions, memories and unexpected medical expenses. Complete this fund annually as unpredictable expenses appear outside the pocket.
“You have a very good idea of how much you need for your health insurance premiums, so you can generally build it in your cash flow,” he said. “The more complex part is the cost of the out of pocket, where you may not know exactly how much you will need.”
This approach acknowledges that retirement health is not a single major account, but a series of current solutions and payments that can be managed systematically.
Read more: Step by Step Guide for Pension Planning
Another major driver of healthcare costs is the Medicare coating. The choice between traditional Medicare, Medicare Advantage and the addition of Medigap policy can greatly affect both costs and protection against unexpected accounts.
“This is a really important solution,” Banerji said. “As for retirement healthcare, the choice of plan – whether you go with the traditional Medicare, Medicare Advantage or adding Medigap policy – deserves a lot of attention.”
For those who are considered Medigap, Banerjee suggests you start with two questions: Can you afford it? And why do you want it?
“Medigap usually costs more – an average of about $ 2,000 a year – so there is an accessibility issue,” he said. “If you can cover this extra price comfortable, it’s great.”
Elizabeth Gomez, 54 -year -old, from Huntington Park, California, to the right, receives a vaccine against Prevnar and herpes zoster from the pharmacy manager Sandra Gonzalez on CVS on August 28, 2024 (Christina House) ·Christina House through Getty Images
Banerjee added that many choose Medigap to limit costs outside their pockets, as traditional Medicare involves deduction, co -insurance and other cost sharing. But Banerjee studies show that the average annual expenditures outside the Enrollees Medigap pocket are approximately the same as for those with another coverage-with the exception of the high end of costs where Medigap offers greater protection.
“People with Medigap tend to use more health care,” he explained. “They know they have this protection so they consume more services.” His advice: If you expect Medigap to automatically reduce your annual pocket costs, find out that this may not happen-higher use can compensate for savings.
This solution is even more critical, since the transition from Medicare Advantage to the traditional Medicare with Medigap later when retirement is “practically impossible” if health problems arise.
Long -term care is another Wildcard in retirement planning. Many are afraid that one day they will need home sisters and will not know how to pay for it, whether through insurance, self -financing, equity, Medicaid or a combination of them.
“This is a classic example of what we call the risk of a tail,” Banergy said. “For most people, if you look at the average, people do not spend anything about long -term care from their pockets. But a very small percentage will spend a large sum. And this is something like a classic case where you would think it is … a situation that should be addressed by insurance because it is the risk of queue.”
The problem, he said, is that “the long -term care market has not performed or operated very well over the years … Policies are very expensive. So people do not want to spend so much on these policies and never need care.”
Financial circumstances often dictate the approach.
Lower incomes often use Medicaid as a backup, while higher-income ones are often able to commit suicide. This is the middle market that should weigh Medicaid’s assets against the payment payment they may never use.
And the insurance coverage of time is crucial. “You don’t want to be late when you have health problems and your premiums will really go up and you don’t want to get it too early when you spend on premiums for a long period,” Banerji said. “So I think somewhere between 55 and 65 is a good time for a long -term care insurance.”
Read more: How to pay medical bills – 6 options for dealing with debt
If you expect to stay home for a while and then go to the care establishment, knowing that it can help you choose the right long -term care insurance in advance.
Wide umbrella policies cover almost every housing agreement, but they cost more, he said. If you have already decided where you will live, more targeted policy may be more expensive.
Whatever you choose, compare costs, coverage limitations and benefits – and make your homework before you buy.
Have any questions about retirement? Send an email to Robert Powell to yfpodcast@yahoooint.comAnd we will do our best to answer him in a future episode of retirement decoding.
Each Tuesday Retirement Expert and Financial Teacher Robert Powell gives you the planning tools for your future RetirementS You can find more episodes of our Video center or watch your A preferred streaming serviceS
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