Are health care costs threatening to put your financial plan for retirement on life support? If you overlook this important aspect of retirement planning, it could throw off your entire financial bottom line. Every day about 10,000 Americans turn age 65, at which point they qualify for Medicare. But for many retirees, Medicare enrollment is complicated and confusing at best. Not to mention the pressure of making decisions about Medicare coverage. Choosing the right Medicare plan for you could save hundreds of dollars. Watch as the “Dynamic Duo” of financial planning, Joe Anderson, CFP®, and Alan Clopine, CPA give you a Medicare check-up!
- Enrollment and Plans
- Coverage and Costs
- Healthcare Savings Strategies
- 0:00 – Intro
- 1:37 – Medicare Check-up
- 2:43 – 1st Time Enrollment
- 4:06 – General Enrollment
- 5:14 – 4 Parts of Medicare: Part A, Part B, Part C, Part D, and IRMAA (the Medicare Income-Related Monthly Adjustment Amount)
- 5:45 – Download: Medicare Checkup Guide
- 7:07 – True/False: Couples can enroll in Medicare together.
- 9:26 – Coverage: Original Medicare
- 10:26 – Coverage: Prescriptions
- 11:09 – Coverage: Medigap
- 12:01 – Coverage: Medicare Advantage
- 13:01 – Costs of Plans
- 15:24 – Penalties
- 16:33 – Download: Medicare Check-up Guide
- 17:27 – True/False: Contributions to HSA accounts can be invested.
- 20:19 – Health Savings Accounts
- 18:41 – Tax Impact on Retirement Funds
- 19:44 – Tax Impact on Asset Location
- 21:18 – Ask the Experts: My husband and I are in good health for our ages of 60 and 63. How do we decide if long-term care insurance makes financial sense for us?
- 22:52 – Pure Takeaway
- 23:09 – Download: Medicare Check-up Guide
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Joe: One of the biggest expenses that you’ll have in retirement is what? Find out because we’re gonna dive into Medicare today. Welcome to the show, everyone. The show is called Your Money, Your Wealth®. Joe Anderson here. I’m a CERTIFIED FINANCIAL PLANNER™, President of Pure Financial Advisors, and I’m with the big man of course Big Al Clopine. He’s sitting right over there. This is a special show for Al, because this is near and dear to his heart.
Al: Oh, come on. Ha ha ha!
Joe: Who would have thought you would have made it to 65, my friend?
Al: Yeah, but I did.
Joe: Health insurance is only increasing in regards to expenses. If you kind of take a look here, most people think they’ll spend about $41,000, but in actuality, people are spending about $300,000 over their lifetime once they hit 65 years of age. Medicare doesn’t take care of everything, and another statistic is that most people have no idea what they’re looking at in regards to enrollment, what plan should they pick when it comes to part A, part B, part C, part D. it’s a whole alphabet soup of insurance. That’s todays financial focus. All right. We’re gonna break down the alphabet, but to help us with that of course we got the big man Big Al Clopine.
Al: So today, we’re gonna get into your Medicare checkup, things you got to know about Medicare, and it pretty much affects all Americans, right? So first of all, enrollment, when you enroll, what are the plans. We’ll get into that. We want to go over the different coverages, what the costs are, and then we kind of want to wrap up the show with some strategies to make this better because there’s all these choices. Yeah. I wish it were simpler. Joe, it’s complex, but that’s just the way it is.
Joe: Yeah, and it’s boring.
Al: Ha! It is boring. We’re gonna do our best today.
Joe: You know, you take a look at all of this, you get to a certain age, and you have to have the right healthcare coverage, so that’s what we want to help you break down. So looking at just Medicare, right, who receives Medicare? Well, any US citizen 65 years or older, but you have to put into the system, Al. How many years?
Al: Yeah. For 10 years, right, or your spouse.
Joe: So 10 years. So you put into the system, and now you qualify for Medicare. If you haven’t put in 10 years into the overall system, you can still get Medicare, but there could be a premium associated with it. Lookit here. When you enroll. This is kind of interesting. You get 7 months to enroll. So here’s your birthday. You’re 65 years of age. You have 3 months before that and then 3 months after that, so you got a total of 7 months to enroll in Medicare. Some of you might still be working. If you’ve already collected Social Security at 65, right, you’re automatically enrolled. Some of you are gonna continue to work past your 65th birthday, and then that’s where you have to do a little bit of research to say, “do I enroll, or is my health coverage through my employer gonna cover me?”
Al: Yeah, and I think that’s a good point. So when you do sign up for Social Security if you’re not already enrolled, then you will be enrolled, so just be aware of that, but the thing is, yeah, it gets complicated, Joe, because, you know, some people don’t need the insurance right away because they’re still working. They have their employer plan, and so then there’s different rules there, right? You actually can wait up to 8 months after you retire or after your insurance stops, but here’s what happens. Now if you forget–heh–to enroll in one of these periods of time, then your general enrollment period is from January 1 to March 31, so that’s actually when you can reenroll, but you don’t really want to enroll then because then you may be late, and then there may be penalties.
Joe: So you look at your birthday. You got 3 months before, 3 months after. That’s ideal. That’s when you want to start getting into the system. If you forget, if you’re late, if you’re confused, well, then you can enroll January through March, but as al said, there could be some penalties. Now this enrollment is for part A and part B, ok? So this is general Medicare, right? You got part A is your hospital care, part B is your doctor visits and things like that, so–boom– you’re in. Now…do we want to layer different types of things in regards to your overall plan? This is where it gets very specific to your situation. You know, what doctors are you using? Do you have prescription drugs? You know, what type of health are you in and things like that. Do you want specialists, do you want private insurance, do you want an HMO, PPO? The list goes on and on and on, but real high-level, generally speaking, here’s your enrollment, and then you’re gonna get in part A, part B. part A, most of you will not have a premium. Part B is where the premiums kick in.
Al: Yeah, and that depends upon your income. So the higher your income the higher that will be. So really what you have to know is there’s 4 different parts. There’s A, B, C, and D, so A is for hospitalization, B is for doctor visits and things like that. A and B together is what they call the original Medicare, and then some people with A and B want to get part D, which is drug coverage, and then there’s part C. we’ll get into this deeper later, but part C kind of stands on its own. It kind of handles all 3 of those, Joe.
Joe: Yeah. It’s like A, B, and D, right, or C!
Al: Yeah. Right.
Joe: Right. This is really, um, confusing here. So when you look at most people, though, they got the A and the B. is this the right plan for you? Do you need part D, or should you have an all-encompassing plan? I don’t know. This is where you have to figure some out, and this is where planning is really important. Go to our website yourmoneyyourwealth.com, click on the special offer. It’s our guide to Medicare, so if you want part A, part B, part D, or any other parts in between, this will help you kind of sort through the mess. Yourmoneyyourwealth.com, click on that special offer. This week, it’s our Medicare guide. Gift to you. Download it right there on your computer. We got to take a break. We’ll dive in deep on all these different numbers–or letters I should say–when we get back.
Joe: Hey. Welcome back to the show. The show is called Your Money, Your Wealth® Joe Anderson, Big Al. We’re talking Medicare today. It’s a big part of your overall retirement strategy. Making sure that you have the right parts involved could save you a bunch of money in healthcare. Go to our website yourmoneyyourwealth.com, click on the special offer. It’s a checkup guide in regards to Medicare. I don’t care how old you are. You want to make sure that you understand this. If you already have Medicare, do I want to have a Medigap plan, do I want to have an advantage plan, do I want to change my part D, all of the above? Get our guide. Let’s see how you did on the true-false question.
Al: True or false? Well, that’s false. It’s actually an individual enrollment. So you would go ahead and enroll when you qualify, and so would your spouse. It’s not a joint thing. Joe, it’s kind of like Social Security. It’s individual.
Joe: Right, but I think people get confused, too, because let’s say you’re on an employer plan.
Joe: And then you might have your spouse and your children on your employer plan. So does Medicare work the same way? No. They’re very individualized, so you want to make sure that you enroll at the certain time because you probably are not the same age. In some cases you are, but one spouse might be older than the other, so once you turn that 65, that’s when you want to start looking at this. Actually, a lot earlier than that, but that’s when you want to sign up.
Al: So Fidelity does this study every year to figure out how much people are gonna be out of pocket for medical expenses from 65 to end of life. So about 17% of your costs go to drugs, about 39% go for your Medicare premiums, right, whether it’s A and B, D, whether it’s C, whatever you decide to go with, and then finally other medical expenses are the majority. That’s 44%. Medicare doesn’t necessarily cover everything. There’s a deductible. Then after the deductible, you pay 20%. There’s no upper limit, right, and plus this doesn’t even include long-term care. Long-term care costs are actually over and above this. So just be aware. Medical costs are kind of a big deal as you get older, and, Joe, I think a lot of people haven’t really thought it out that well.
Joe: Yeah. I mean, but just look at this number here, right? $315,000. That’s more than most people have saved. This is not like a one-time sum. You don’t necessarily need, you know, your whole retirement savings to put to healthcare. This is over someone’s lifetime, so it could be, you know, several thousand dollars a year, you know, not all one lump sum of 315 grand.
Al: Yeah. I think that’s a good point, Joe, because I think if you sort of break it down it’s probably $5,000 or $6,000 or $7,000 per year per person, you know, which maybe you cover from your investments, maybe you cover from Social Security or your pension, whatever it may be, but, yeah, I think that’s what happens, Joe. People think that 315,000–“I don’t even have that in the bank, so what do I do?”
Joe: Yeah. Right. Good luck in retirement.
Al: yeah. Right.
Joe: OK. Let’s break things down. General Medicare, part A, part B. you’re automatically in part A at 65 or part A at 65 if you’re already claiming Social Security benefits. If you’re not claiming Social Security benefits, you probably want to take a look and start looking at part A. even if you have an employer plan, some plans will be the primary, some will not, so in good practice, look at part A to take care of hospital stays, things like that. Part B will come in later. This is optional if you want, right, because there’s a premium associated with part B. this is looking at ambulance travel, medical equipment, outpatient mental health, hospitalization, lab tests, and everything else in between, right? So part B has their premiums to it. Part A is already paid for as you’re going through your paycheck, right? You have Social Security and Medicare as part of that. So part A, part B. that’s kind of your general insurance. This is kind of the most high-level, generic kind of plans that you can get.
Al: Yeah, and that’s what most people have. Most people pick A and B. I mean, at least as the majority, but then you can also add part D. what’s part D? Well, part D is drug coverage. So that’s optional. So you have A and B already. You can add D if you want drug coverage. It’s just gonna help you afford the drugs that you need, which is a good thing for most people, but because A, B, and then D if you add it, there’s no upper limit. Unlike a normal health insurance plan, there’s no upper limit, so once you meet your deductible, you pay 20% regardless of what that amount is, and I’ve oversimplified it because there’s all kinds of exceptions, but you get the idea, right, so that’s why then some people, Joe, get this Medigap policy to help cover the piece.
Joe: So you got the part A and the part B, and then you got your prescription drugs, and then this is gonna cover a lot of these different gaps. This could help with co-insurance, copays, things like that, so looking at a Medigap, now you got all sorts of these different types of plans that you’re putting together. You can get very specific in how you’re choosing and picking, right, so that’s why you could probably potentially reduce a lot of the cost here if you really do your research and know what you’re doing here.
Al: Yeah. I think that’s a good point because everyone has different medical needs, so you want to match up the plan that you pick with how you’re going to use it, so maybe if you think about A and B and if you add D, maybe those 3 together, you might think of that as kind of like a PPO, where you kind of pick your own physicians. Now part C is a whole separate category, right? If you do part C, it encompasses all 3 of those, most of which have a drug plan, not all, but most of which, and there’s all kinds of different plans, so you pick what works best for you. This is kind of maybe a little bit more like an HMO. Like, you go to your primary to get permission to go to a specialist.
Joe: I mean, this is the all-encompassing plan here is part C, so, you know, if you’re like me, you know, if you don’t want to, you know, do all sorts of tons of research, maybe you just go part C. that’s gonna cover everything that you might need, and it’s like an HMO, but there’s also, all right, well, what doctors are you using? Maybe you want private doctors or private insurance in regards to, like, “concierge” doctors. I mean, that’s kind of the rage now. Do you have a concierge doctor?
Al: Uh, no.
Joe: Right. Me neither. I just go to Scripps.
Al: Right. Yeah. I go to Sharp, but, you know, something else, Joe. So with this part D. so it may cost you–well, it’s a lower premium. We’ll say that generally. So it may cost you a little bit more because you have a higher deductible. However, there’s a max, and I think right now the max is around $7,500, $7,600. In other words, that’s your maximum out of pocket, and so you don’t need the Medigap policy with part C. in fact, you can’t even get it because you don’t need it because there is a max, but just be aware. The other one, the original, part A and B and D if you include it, you want to probably get that Medigap so you’re not necessarily out of pocket on everything.
Joe: Anyone else’s head spinning here?
Al: Oh, totally.
Joe: All right. Let’s go back to part A. here’s your premiums– 0 to 500 bucks. Most of you are paying zero because you’ve already paid for it throughout your life. Let’s say if you didn’t get those 10 years in, you know, you could pay up to about $500 for that part A coverage. Where people are paying premiums here is part B and D. now this really gets confusing because there’s something that’s called IRMAA, and then there’s IRMAA limits in regards to how much money that you make is gonna determine what your premium is for part B, right? The more money that you make–guess what–the higher the premium is, and they don’t look at this year’s income. They look two years ago income, so how about that for simplicity?
Al: It’s not simple. So for example, like, just to use an example, if we’re talking about 2022, then you look at 2020’s income to see what that looks like, and for many people, you know, you can see the limits. $91,000 is the upper limit for single, $182,000 for married. Then you’ll pay that lowest premium, which in 2022 is $170.10, and you can see the part D, as well, but if your income is higher, then you will pay more, so part B and part D if you have it will be higher based upon your income, potentially.
Joe: Yeah. So when you look at certain life events that happen, right–let’s say a Roth conversion. You do a Roth conversion. That’s gonna increase probably your modified adjusted gross income, so understanding that you’re going to pay tax on that Roth conversion because that’s gonna add income, but that also could add, right, increased Medicare part B premium, right? So if you have, you know, some sort of liquidity event, you sell a bunch of stock, and they have huge gains, and you sell a property, or you do something that’s gonna affect your modified adjusted gross income, it could–it will in most cases also affect your part B. so when you’re doing tax strategies and tax planning, just understand that, hey, there could be a domino effect on certain other things in your overall financial life that maybe you weren’t aware of, and finally, there’s penalties. So making sure that you’re on top of this. You know, let’s say if there was a premium for part A, it’s at 10% a month if you have to buy it and you didn’t, so this affects a small portion, but here. Part B and part D is the big one, right, because maybe you don’t sign up for part B because you’re already working and you already have that, or maybe you say, “you know what? I just want part A, and I don’t want part B.” well, if you don’t sign up, you get a 10% penalty each year. So let’s say at 65 you’re supposed to sign up, right, and then you realize at age 70, you’re like, “oh, I should have signed up.” well, that’s 5 years. That’s a 50% increase in your overall premium for life. Same with your prescription drugs. This is 1% per month or 12% per year. This happens quite a bit. It’s like, “well, I’m not taking any prescription drugs, so I don’t want to take that right now.” well, then you wait, right? You’re gonna have a large penalty that’s gonna continue thereafter. It’s not gonna stop. It’s not a one-time hit. It’s for perpetuity, so just making sure again that you understand the rules–when to sign up, what plan do you want to pick, what does your circumstance look like, and making sure that you get dialed in, and you can relook at this every single year during the open enrollment if you want to change things or tweak things. All right. Go to our website yourmoneyyourwealth.com, click on that special offer. This week, it’s our Medicare guide. Learn all the ABCs of Medicare. Yourmoneyyourwealth.com, click on that special offer. It’s time to get the checklist going in regards to Medicare. Got to take a break. We’ll be right back.
Joe: Hey. Welcome back to the program. The show is called Your Money, Your Wealth®. Joe Anderson, Big Al. We’re going over Medicare. If you’re as confused as we are, go to our website, yourmoneyyourwealth.com, click on that guide. It’s our Medicare guide. It gives you the soup to nuts on everything that you need to know in regards to Medicare. Yourmoneyyourwealth.com, click on that special offer. You can download it right there on your computer even if you’re still in your pjs. Let’s see how you did on the true-false question.
Al: True or false? Health savings accounts. If you have a high-deductible health insurance plan, you would qualify. Yes, it’s true. You can invest them, and, Joe, I think a lot of people don’t even realize. They think it just goes into cash, but you can invest those accounts.
Joe: Yeah, but what the heck is an HSA, guess, to begin with? It’s a high-deductible health plan that you would–you know, if your employer has it or if you’re self-employed. Right. So you got a very large deductible, but your premiums are fairly low. Then you can take the extra that you would have put into a premium for your healthcare. You put it into this savings account. When you put the dollars into the savings account, you get a tax deduction, and then the money grows tax-deferred, and when you use it for qualifying health expenses, it comes out tax-free. So it’s like the triple tax threat–tax-deductible, tax-deferred, and tax-free, so when you look at as people are working up to Medicare, there’s different strategies that people can use, as well.
Al: Yeah. No question, and then thinking about HSA plans. So a recent survey, so about 51% of you don’t know that you can invest those accounts, so when you put money into an HSA account, if you qualify, it’s a great deal. You don’t have to use that money. It’s not like a flexible spending account. You can let that grow for year after year after year, and you want to invest it unless you know you’re gonna need that money. Then you might want to get conservative, but you’re planning to let this grow to get into retirement, yeah, for sure, you definitely want to have it invested.
Joe: Yeah. Good point because, I mean, health savings account, right? It’s like a savings account, right, but you can actually invest in stocks, bonds, mutual funds, and things like that, something that has a little bit more growth than a standard savings account, so half people, right? They got it right.
Al: Yeah, yeah.
Joe: Half didn’t, but look at– this is the problem that we’re seeing. This is the trend of people’s income, you know, in regards to medical expenses, right? It’s just gonna increase and increase and increase.
Al: That’s happening, Joe, because we’re living longer, we’re getting older, right, so it’s interesting. So I’m now part of this group. I just turned 65, so I qualify. I did not sign up for Medicare because I’m part of an employer plan, and I just kind of want to reiterate this because this is an important point, and it’s confusing. You’re supposed to sign up within 3 months before or 3 months after your birthday month, so you have 7 months to do it unless–unless you’re in a company health plan, which I am, and so if you’re in a company health plan, you don’t have to sign up until within by the time you retire or up to 8 months after, and if you follow those rules, then you won’t be penalized, but, Joe, let’s go back to HSA plans because those are good for people that qualify.
Joe: Yeah. Without question. You know, we get the triple tax advantage with an HSA plan, so you can look at your plan through your employer, see if they have an HSA account. Again, you get the pre-tax dollars going in, and then the money grows 100% tax-free, right? So a Roth ira, it’s after-tax dollars that grows tax-free. An HSA plan is pre-tax, so you get the tax deduction going in. Grows tax-deferred, and then when you pull it out, you don’t pay any tax at all if it’s qualified expenses for healthcare, ok? So there’s all sorts of different things that these qualify for, but just check out this HSA account because it could be– and if you don’t use all the cash or whatever that’s in the account, well, then you can roll it into an ira, and that can be used, you know, for retirement income funds.
Al: Yeah. It’s a great thing. I mean, not a lot of people can qualify. I mean, you have to have a high-deductible health insurance plan, but if you do, then certainly take advantage of it because you can put over $3,000 into it as a single person, over about $7,000 as married, plus there’s a $1,000 catch-up.
Joe: All right. Let’s switch gears. Let’s go to ask the experts.
Al: Great question. I think everyone should be considering long-term care. Not everyone necessarily needs insurance, but everyone should have a plan for long-term care, but what do you think, Joe? What’s kind of the thought on when to get the insurance?
Joe: Well, yeah. I mean, you always want to get it before you need it, right, but here’s how long-term care plan works because Medicare will not cover a long-term care stay, right? So if you need assisted living, if you need care for an extended period of time, right, Medicare’s not gonna cover that at all, so this is another type of policy that would lay on top of that. So you’re going to pay premiums on a monthly basis, and then basically, those premiums buy you a pool of money, so maybe it’s $5,000, $10,000 a year that you’re playing for this long-term care premium that could pay out, you know, a few $100,000 tax-free if you need it, right? So it’s pennies on the dollar for most cases if you need a long-term care stay, right, but if you don’t, then that’s money that’s potentially all gone, but most people use them, right? Most people use them. A lot of us will need some sort of care, you know, even if it’s minor, or it could be, you know, something fairly devastating, so again, it’s all part of your overall financial plan. Can you self-insure? Do you have equity in your home that you could potentially tap in? Do you have a bunch of assets? So what did we learn today? How to enroll and what plans that you should take, right? What are your premiums? Should I look at health savings account, and then of course, you want to be tax-smart with everything. Do you need long-term care? Should I have an HSA? What do all of these plans look like together? Figure it out. Go to our website yourmoneyyourwealth.com, click on that special offer. This week, it’s our guide to Medicare. That can help with you the homework that you need. All right. We did it, Big Al.
Al: We did. We got through it.
Joe: For Big Al Clopine, I’m Joe Anderson. We’ll see you again next time.
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