Retirement Planning: Estimating Med-Insurance Costs

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SmileyFace
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Retirement Planning: Estimating Med-Insurance Costs

Post by SmileyFace »

For retirement planning: A lot of the calculators and rules of thumbs assume some percentage of your salary that you might need in retirement (including the recently debated "Fidelity 8X salary saved" rule of thumb) - I've been trying to plan based upon what I will need to spend yearly basis. One of the biggest questions in my mind is Medical Insurance costs and out-of-pocket Medical expenses. Between what my company provides and what I contribute my Medical/Dental/Vision coverage currently costs me $21K per year. Then I'm out another $1K or so in co-pays and other non-covered expenses. Do I assume I will have the same expense in retirement assuming I'll buy personal insurance on top of Medicare - and if so - how do I make a best-guess at what the yearly cost will be? How do other folks factor in Medical Insurance and medical costs? I'm planning to retire 15 years (or so) out.
adamthesmythe
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by adamthesmythe »

15 years out- I can't see any way to do more than make a wild guess.
drawpoker
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by drawpoker »

Agreed.

How can anything be projected when we don't know what changes Congress will make to Medicare? We just dodged a bullet with Plan F. Cost -sharing for that Plan was scheduled to go into effect in 2015 but got put on hold for now.
ourbrooks
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by ourbrooks »

Go to http://www.medicare.gov and look up current costs. Use the Medicare Plan Finder to find the costs for basic coverage and supplemental plans. Then, choose your favorite medical cost inflation rate (4%?) to project future costs.

If you were 65 now, you'd be paying less than $5,000 a year, even if you bought top of the line Medicare Advantage or Medigap policies. What worries me (and others) is not what Medicare costs now but what it'll cost in the future. If your income is inflation adjusted and general inflation is 2% but medical inflation is 4%, medical care will become an increasingly large fraction of disposable income.
Live And Learn
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by Live And Learn »

I may be a little conservative, but I've budgeted an unsubsidized ACA plan (bumped up by 25% because I don't know where HC is going) plus the Out of Pocket Max per year. For DH (age 56) and I (age 52) in Fl that comes to $26k / year. If I don't hit the OOP max each year I'm sure I'll find a way to spend the money :P

You can use healthcare.gov or healthsherpa.com for a more appropriate estimate for your situation.

Others have provided a response if you are 65 or older.
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SmileyFace
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by SmileyFace »

Thanks for the (amazingly) quick replies. Sounds like a good SWAG might be $25K pre-65 and $5K post 65 (at today's prices) - but I'll take a look at the references.
I agree - who knows what happen in the next 15 years but I'd like to plan for "something".
curmudgeon
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by curmudgeon »

I have a hard time planning for this even five years out. Too many political and economic wild cards in the deck. Since you need some basis for planning, I assume medicare (in US) will operate in some form similar to what it does now when I hit age 65. There are still significant expenses to be paid then (part B/D premium, maybe medigap, dental), so allow for that, and I also would plan contingency for tweaks or more means testing showing up which might increase my costs.

It's the space between an early retirement and medicare that gets really hard to estimate. That could be considerably better than your current insurance costs (ACA subsidy), worse (chaos from ACA collapse), or similar. If you have kids that would be dropping off your insurance, that would make for lower costs compared to present. On the other hand, Med insurance rates for individual coverage are significantly higher as you age (ACA compresses the range so that younger subsidize older, but it's still significant).
adamthesmythe
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by adamthesmythe »

It's worth thinking about the big picture. Much of the utilization of health care comes from retirees. The infrastructure has built up to service approximately the number of retirees we will have in the future. Cost can't go up past the ability of most users to fund their use of the system. Otherwise institutions collapse and employment plummets.

My best guess is that health care will remain accessible to most of us, with costs that seem high but remain sustainable. Worst case is limited choice, difficult access, and barely manageable costs.
mur44
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by mur44 »

Assuming that Medicare will continue with current
level of benefits, many studies show that one
should plan to spend $10,000 per year per couple
after Medicare. You should plan for higher inflation
for Medical expenses. If your health is good,
you may be able to allocate lower budget for
health care.

If you get Retiree Health Insurance from your
employer, particularly a Government entity,
you may not need to plan for high medical
expenditures.

As you know, Medicare and Medicaid are
draining government budgets, anything
can happen in future.

One safe route is to get into a job with
outstanding retiree health insurance.
There are several governmental jobs
offering such benefits.
drawpoker
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by drawpoker »

mur44 wrote:Assuming that Medicare will continue with current
level of benefits, many studies show that one
should plan to spend $10,000 per year per couple
after Medicare.


I plan on spending exactly $ 00 per year "after Medicare"

Because I am planning on being dead

"after Medicare" :wink:
ourbrooks
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by ourbrooks »

Basic A/B Medicare is about $1250 per person per year. On the Medicare site, if you select Medicare Advantage plans, they give estimates of how much you can expect to pay in total, including drug coverage. Most of the estimates seem to be around $5,000. The less expensive plans don't cover dental or vision care. If I allow $1,000 for that and other miscellaneous expense, the total is around $7,250 per person. Maybe the $10,000 number includes Medicare and provides some room for inflation??

Way back in the Golden Age, there used to be things called retiree health care plans. Apparently, a few of these still exist but they now consist of subsidies to Medicare. Ditto for government retiree health plans. While it is possible to purchase private coverage after age 65, no one subsidizes it.
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SmileyFace
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by SmileyFace »

Thanks - seems that if retiring early (before Medicare applies) - medical insurance costs could be the largest expense (assuming Mortgage is payed off, etc.).
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jeffyscott
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Re: Retirement Planning: Estimating Med-Insurance Costs

Post by jeffyscott »

Live And Learn wrote:I may be a little conservative, but I've budgeted an unsubsidized ACA plan (bumped up by 25% because I don't know where HC is going) plus the Out of Pocket Max per year. For DH (age 56) and I (age 52) in Fl that comes to $26k / year.
Similar ages, different state, and less conservative :happy . I used subsidized rates for our incomes and put in ages 64 and 60 (to get the highest premium costs) then looked at a bronze plan that included a larger network. For our income and those ages, this gave about $400 per month in premiums with ~$12K max OOP. I feel using $17K per year for this situation is plenty conservative enough as it would be unlikely to max out on the OOP every single year for, say, a decade if one is retiring at 55.
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