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.

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

One way to help address these challenges is to understand your Medicare eligibility and coverage, and strategically navigate your options. Let’s review the basics to establish a general understanding, and begin considering the best option to fit your needs.

The Longevity Challenge

People today are living longer and more active lives than previous generations. Did you know there’s a 50% probability that at least one partner in a healthy 65-year-old married couple will live beyond age 91? And a 25% chance that at least one partner will reach age 96 or older?1

But greater longevity can also be a double-edged sword—dramatically increasing the lifetime cost of care we may require. In fact, the same healthy 65-year-old couple can expect to pay an estimated $300,000 in out-of-pocket health care expenses over the course of their retirement.2  And that doesn’t include the cost of long-term care (which isn’t covered by Medicare and which statistics say 70% of us will need 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 as well as be subject to higher monthly premiums. 

When signing up, there are five 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, it requires you 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 healthcare expenses. In addition to out-of-pocket annual deductibles and copays, there are many care expenses (e.g., dental, vision, and hearing) which 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. In fact, fewer than 1 in 20 Medicare beneficiaries will qualify for care in a skilled nursing facility, and on average for a stay of just 25 days.4 If you want to protect your wealth from the cost of long-term care, you’ll need a separate policy.

Aligning Medicare Decisions with your Retirement Plan

As you can see, there’s a great deal of complexity involved in Medicare enrollment. Any mistakes or delays can be costly and potentially leave you either under-covered or with a coverage gap. Perhaps most importantly, when deciding on your coverage, you should carefully assess your expected future healthcare needs. If you have pre-existing conditions or a family history of certain chronic diseases, it may be worth paying more for more comprehensive coverage (such as a robust Part C plan combined with a Medigap policy). Trying to switch plans later on could trigger higher premiums or a coverage gap. Perhaps most importantly, when deciding on your coverage, you should carefully assess your expected future healthcare needs. If you have pre-existing conditions or a family history of certain chronic diseases, it may be worth paying more for more comprehensive coverage (such as a robust Part C plan combined with a Medigap policy). Trying to switch plans later on could trigger higher premiums or a coverage gap.

This is why it’s a good idea to begin planning well in advance of turning age 65. Together, we 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.

Working with Janney

Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.

When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts.

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs, which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences. Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.

1. American Academy of Actuaries and Society of Actuaries, May 2021

2. Fidelity Workplace Consulting, May 2021

3. 100 Must-Know Statistics About Long-Term Care, Morningstar, Dec 2020

4. Centers for Medicare and Medicaid Services, “Patient Driven Payment Model,” 2020

Disclaimer

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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