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Planning for health care costs in retirement

Many people think that paying for health care costs in retirement is simply a matter of signing up for Medicare.  However, Medicare only covers about 1/2 of these costs, on average.  It is important to plan for all of these expenses to ensure a sound retirement.

Let's start by looking at Medicare itself, which consists of the following:

Part A Hospital InsuranceNo premium, but has deductibles.  A 90 day hospital stay could cost over $10,000.
Part B Medical InsurancePays for non-hospital costs like Doctors services.  Vision & dental not included.  Monthly premiums range from $121 - $390 depending on income.  Annual deductibles and 20% coinsurance also apply.
Part C Medicare AdvantageA type of Medicare plan offered by private companies that cover Part A and Part B benefits.
Part D Prescription DrugMonthly premium which averages about $41.  Has deductibles and coverage gaps which could result in maximum annual out-of-pocket costs of about $5,000.

Assuming you choose not to enroll in a Part C Medicare Advantage Plan, your annual medical costs could look like this (average case):

A "Medigap plan " is supplemental insurance purchased to cover all those charges not fully covered by Parts A, B and C (as noted in first table).  

How about vision and dental?  Assuming a moderate annual cost of $1,000 per person for these, you now have total annual retirement health care costs of over $5,000 per person.

Keep in mind that this does not include any long term health care costs!  In 2016 it costs well over $200 per day for a room in a nursing home.     

Bottom line: don't forget to include ALL health care costs in your retirement planning.