When planning your retirement, two of the most pressing challenges you’ll likely need to focus on addressing are:

1. Ensuring your assets will be able to generate enough income to last a lifetime; and
2. Protecting your savings from being depleted by healthcare costs

While outlasting your assets is a matter of disciplined saving and investing combined with the power of time, protecting your savings from health care costs requires you to make some careful choices based on a thorough understanding of Medicare—in particular, what it does and doesn’t cover

The Longevity Challenge

People today are living longer and more active lives than previous generations. Did you know that for a 67-year old couple (male and female), there is a 51% chance that at least one partner will reach the age of 90?¹

But greater longevity can also be a double-edged sword—dramatically increasing the lifetime cost of care we may require. In fact, a 65-year-old couple could need as much as $383,000 in savings to have a 90% chance of covering their health care expenses—including premiums, deductibles, prescriptions, and out-of-pocket costs—in retirement². That doesn’t include the cost of long-term care (which isn’t covered by Medicare, and which statistics say 7 out of every 10 of us will require at some point during our lives).³

For most of us, the days of a 10-year sedentary, low-cost retirement are a thing of the past. Careful and thoughtful planning are more important than ever—starting with the decisions you make about Medicare coverage.

Understanding the Components

Most Americans become entitled to Medicare as soon as they turn age 65. If you're already receiving Social Security benefits, you don't even have to apply—you'll automatically be enrolled in Parts A and B. If, however, you haven’t yet claimed Social Security benefits, you’ll need to submit a Medicare application during the 7-month enrollment period which begins three months prior to the month you turn age 65.

Even if you’re still employed and covered by your employer’s health plan, you should sign up for Medicare as soon as you’re eligible. Otherwise, when you retire and are no longer covered by your current plan, you might experience a gap in coverage and be subject to higher monthly premiums. 

When signing up, there are four separate components you’ll need to consider:

• Part A coverage is premium-free for most retirees and covers inpatient hospital, skilled nursing facility care, hospice, and home health care (note: this does NOT include the cost of long-term care). It requires both deductibles and copays.
• Part B covers physician care, outpatient home health care, lab tests, medical equipment, physical therapy, and other preventive services. In addition to deductibles and copays, you are required to pay monthly premiums. 
• Part C (Medicare Advantage) is an alternative to Part A and Part B (often with fewer out-of-pocket costs). Coverages and costs of these Medicare-approved private plans vary by plan and insurer.
• Part D provides optional prescription drug coverage requiring monthly premiums and deductibles/copays. You need to be covered by Parts A and B (or Part C) and opt in to Part D by filling out a form and enrolling in an approved plan.

Keep in mind that Medicare doesn’t cover all of your health care expenses. In addition to out-of-pocket annual deductibles and copays, there are many care expenses (e.g., dental, vision, and hearing) that Medicare won’t cover. This is why many retirees also opt to purchase a Medigap policy. When you enroll in Part B at age 65, you have a six-month Medigap open enrollment period—during which time you’ve got a right to purchase the Medigap policy of your choice from a private insurance company (regardless of any pre-existing conditions).

Medicare isn’t a Long-Term Care Solution

Whether in a skilled nursing facility or in your own home, Medicare only covers skilled nursing care for a limited time, for specific needs, and under certain conditions. And costs for skilled nursing facility care are increasing: In 2024, you'll pay nothing for the first 20 days, but after that, patients have to pay $204 per day from the 21st day to the 100th day. That's up by $4 per day from 2023. After 100 days, Medicare no longer offers skilled nursing coverage.⁴ If you want to protect your wealth from the cost of long-term care, you’ll need a separate policy.

Medicare Decisions for Someone Nearing Age 65

As you approach age 65, you need to familiarize yourself with Medicare coverage options and make some enrollment decisions. It’s best to complete these tasks at least three months before turning 65, as there may be penalties if you do not enroll on time.

Those turning 65 should do the following:

• Become familiar with Medicare and its parts
• Determine your initial enrollment period
• Decide whether to enroll in Part A & Part B when you turn 65
• Find out if you need to contact Social Security to sign up for Medicare (or opt out of Part B)
• Decide whether to enroll in Medicare prescription drug coverage (Part D)

If you (or your spouse) are still employed at 65 and are covered under a group health insurance plan through the employer, you need to understand how Medicare works in concert with the group health insurance.

In general, if the company has more than 20 employees, you can wait until you (or your spouse) stop working to sign up for Part B with no late enrollment penalty. In addition, you can still elect Part A coverage at 65 or anytime thereafter. In this scenario, your job-based insurance pays first, and Medicare pays second.

In contrast, if the company has fewer than 20 employees, ask your employer if you need to sign up for Part A & Part B. If you do get Medicare at 65, Medicare pays for services first, and your group health coverage pays second.

This is why it’s a good idea to begin planning well before turning age 65. Together with your Financial Advisor, you can review your options, explore their impact on your projected expenses, and make any necessary adjustments to your overall retirement plan. For more information on Medicare, visit www.medicare.gov.