What You Need to Know About Medicare in Retirement



As a 57-year old, semi-retired, self-employed guy, I’ve learned some things about coping with health care and health care costs if you’re not lucky enough to have access to affordable health insurance through an employer, spouse or another channel.

If you’re planning for retirement, particularly early retirement, health and health care costs need to be very near the top of your list of things to think about and understand. But that’s just not happening for most Americans. A 2013 AARP survey of non-retired adults aged 50-64 found that only about one-third (36 percent) had even tried to estimate how much health care will cost them in retirement. And of those who had at least thought about it, only about half (52 percent) were confident that they could actually afford those costs.

But maybe most people don’t want to think about retirement health care costs because they know it’s a scary topic. Fidelity Benefits Consulting estimated that a 65-year-old couple retiring last year (2014) would need an average of $220,000 in current dollars to cover their medical expenses throughout retirement.

No wonder no one wants to think about retirement health care. But ignoring the elephant in the room won’t make it go away. So here’s a primer on the topic, with some links and additional resources to help you navigate the retirement health care maze.

What Is Medicare?

Your 65th birthday is a very special one, since under current law that’s the age at which most Americans are entitled to start to receive Medicare health coverage. Medicare provides significant benefits, covering many but probably not all of your potential health care expenses. And it’s relatively inexpensive, at least compared to buying your own coverage on the open market.

Are You Retirement Ready?

The other thing you need to know about Medicare is that it’s a complicated program. Being a simple-minded guy, I’ve found that it’s easier to understand the Medicare system if you think about it like a Chinese menu, where you have the option of selecting different items under different categories. In the case of Medicare, it has four different categories — or “parts” — cleverly titled Parts A, B, C and D.

With that in mind, here’s a brief overview of the Medicare Chinese menu:

Medicare Part A

Part A is sometimes called “hospital coverage” or “hospital insurance” because it primarily covers nursing care and hospital stays, but not doctors’ fees.

Most Americans are entitled to Part A coverage for free when they turn 65, since they’ve paid for it in the form of payroll taxes during their (or their spouses’) working years. But Part A coverage has significant limitations — it pays only a portion of Medicare-approved inpatient costs and only for a limited period of time. Plus, in 2015 you have to pay a $1,260 deductible per benefit period.

Medicare Part B

This plan is optional and covers some of the costs not covered by Part A, including portions of some doctors’ fees, some lab tests, medical equipment and some home health care. Premiums for Part B coverage are usually deducted out of your Social Security checks (if you opt for Part B) and are currently relatively affordable. The standard rate is currently $104.90 per month, so it’s generally a good value, unless you already have similar coverage through a former employer, spouse, union, etc.

Related: 26 Unsettling Truths About Social Security

Medicare Part C

Part C is like a mini-Chinese menu all its own. Part C is actually a whole suite of optional plans — sometimes known as “Medicare Advantage” plans — offered through private insurance companies that are approved by Medicare. These plans vary in price, depending on what they include. Some include vision and dental coverage, and offer at least some prescription drug coverage and other factors.

Are You Retirement Ready?

Medicare Part D

And lastly, remember that Part D is all about “drugs.” Like Part C plans, Part D is actually a suite of different plans provided through insurers working with Medicare to provide some coverage for brand-name and generic prescription drugs. And, if you’re enrolled in a Part C plan, you might already have some prescription drug benefits and won’t need a Part D plan. Monthly premiums for Part D plans vary, based in part on household income. These plans come with various limitations and other conditions, usually including a deductible and co-payments.


Just when you think you’ve successfully ordered off the Medicare menu, there’s more. “Medigap” insurance policies sold by private insurance companies provide coverage for various “gaps” in Medicare coverage, like co-pays and deductibles. Medigap, also called Medicare Supplement Insurance, policies are only available if you’re enrolled in Part A and Part B.

Read: The Truth About Retirement No Expert Will Tell You

Research Your Medicare and Health Care Options

There is no one “right answer” when it comes to what Medicare plans you should opt for or what additional coverage you should or shouldn’t buy. It all depends on your individual situation — finances, health, family, etc. — and to some extent the impossible task of foreseeing the future.

That said, many of the retired “cheapskates” I’ve interviewed for my books opt for Part A, B and D coverage, with relatively few buying Part C plans or springing for Medigap coverage. But keep in mind that the frugal folks I write about tend to be financially secure. So, they can afford to “bet on themselves,” and they’re often in above-average health for their age.

Are You Retirement Ready?

The best thing anyone, of any age, in any financial or health condition can do is simply educate themselves on the myriad of health care options that come into play in retirement planning. Here are some great resources for doing just that:

  • Medicare.gov: The Medicare website does a good job of explaining available benefits and plans, and allows you to compare and apply for some programs online. You can also download a current copy of the invaluable handbook “Medicare & You.”
  • AARP.org: There are lots of related resources and information available on the AARP website, including the very useful AARP Health Care Costs Calculator.
  • Bodacious Retirement Budgetary Worksheet: Download a free copy of this interactive worksheet of mine (AKA “The Mother of All Spreadsheets”) right here on GOBankingRates for more information on health care costs and how they fit into your overall retirement plans.

How to Keep Retirement Health Care Costs Low

When you stop and think about it, there are really two health care crises in America: the skyrocketing cost of health care, and the fact that so many Americans seem hell-bent on leading a lifestyle that’s nearly certain to require extensive, expensive medical care in an attempt to repair the damage they’ve done to their own health.

The “self-inflicted health care crisis” is something everyone can and should address throughout their lives, not just when they’re getting ready to retire. Strong health is not only the key to enjoying life to the fullest, it’s also one of the biggest financial assets you can have — both in terms of saving you money on health care costs and allowing you to earn a living.

Are You Retirement Ready?

So here’s my advice on this second, self-inflicted health care crisis: Spend at least as much time working to maintain your health as you spend working to pay for health care.

America’s Self-Inflicted Health Care Crisis

Look at the list of leading causes of death among Americans, per the Center for Disease Control and Prevention (CDCP), and you’ll notice something interesting about all of the top five causes of death, which include: heart disease, cancer, chronic lower respiratory disease, stroke and unintentional injuries.

All of these likely causes of death have one thing in common: There are many simple, inexpensive things you can do to reduce your odds of being afflicted with them or reduce their likely impact on your health. In fact, the CDCP estimates that 20 percent to 40 percent of all deaths from these leading causes could be prevented.

Not smoking, limiting alcohol consumption and maintaining a healthy weight through diet and exercise pop up time and again as the Triple Crown of preventative measures for combating all five of these leading causes of death. It doesn’t cost a lot to eat a healthy diet and get enough exercise; in fact it can cost significantly less than the unhealthy alternatives, and that’s even before factoring in the money you’ll likely save on future health care and health repair costs.

And obviously, not smoking and drinking alcohol in moderation  can be a significant money-saver, as can getting more exercise simply by doing more things for yourself: walking or bicycling to work or when running errands, washing your own car, mowing your own grass, etc.

Are You Retirement Ready?

Just remember, the hours you spend maintaining your health might very well exceed the hourly rate of your day job in terms of future savings on health care costs.

Keep reading: How Baby Boomers Can Avoid Becoming Financial Burdens on Their Kids 


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