Weekly Update

In my last update, I proselytized about the cost of healthcare and long-term care, which will undoubtedly be the two largest expenses most Americans will face in retirement. One Update reader—let’s call him Ray (his name is Ray)—offered a rather callow solution to the issue. I say callow because it’s one of my favorite new words, and it also describes how Ray and the majority of Baby Boomers do not fully grasp the cryptic Medicare system. However, for those who do their homework and learn the intricacies of the program, it can be like putting money in the bank.


The following is a summary of Ray’s strategies and my subsequent attempt to provide him with a harsh—but truthful—dose of reality.


Ray and his wife, Dee, will retire in one year at the age of 63, and they intend to sign up for Social Security, which they believe entitles them to Medicare services.


Mistake number one.


Social Security and Medicare are two completely different programs. Ray and Dee may sign up for Social Security at age 63, but they will not be eligible for Medicare until age 65. Assuming they are a healthy couple, the cost of private insurance will exceed $40,000 for the two-year period prior to Medicare eligibility: a cost that many simply fail to budget.


When Ray and Dee do finally subscribe to Medicare at 65, they are going to be struck with another surprise: Medicare is not free, and the program covers only about 51% of healthcare services. The other 49% includes long-term care (which we will cover later), hearing aids, routine dental work including dentures co-pays, certain doctor visits, vision, and the list goes on.


Ray’s pell-mell knee jerk response was that he could simply purchase private insurance coverage and not enroll in Medicare, given the countless issues associated with the program.


Mistake number two.


Medicare is the only game in town. Fortunately, Medicare is a well-run program that delivers healthcare funding administered by the private sector, not the government. Also, the cost of medical services under Medicare is growing at a substantially lower inflation rate than private insurance plans. As a matter of fact, experts predict that Medicare will likely grow at an inflation rate equivalent to the nation’s historical average.


Here are our couple’s health insurance choices at age 65. They may purchase traditional Medicare services including Medicare A (hospital insurance), Medicare B (insurance covering doctor visits and tests), Medicare D (prescription drug insurance), and Medigap insurance (fees for services not covered by Medicare A and B). The second alternative is to purchase a Medicare Advantage Plan. A Medicare Advantage plan is a health insurance plan offered by private companies and funded by Medicare. At a minimum, they are the equivalent of Medicare A and B, and many plans offer the same level of coverage as Medicare A,B,D and gap insurance.


The usually jaunty Ray began to appear disquieted by this point, and then the discussion turned to long-term care.  Ray and Dee are counting on Medicare to cover nursing home expenses, and therefore feel it is completely unnecessary to save for long-term care.


Unfortunately, the truth of the matter can pretty much be summed up by Edward Cole in the Bucket List, who said, “Somewhere, some lucky guy’s having a heart attack.”


Here is the stark reality: breakthroughs in medical science and lifestyle modifications have increased average life expectancy, but long life comes with a price, especially since it escalates the likelihood that some form of long-term care will be needed. In Ray’s defense, many are under the false assumption that Medicare covers this expense.


Please, for one moment, indulge me by allowing me to scream at the top of my lungs.


Medicare is not responsible for the MAJORITY of Long-term care EXPENSES!


Consequently, given a normal life expectancy, this couple may face a future expense totaling approximately $1.9 million ($834,000 in today’s dollars) should they both reside in a nursing home for an average length of stay, which is usually anywhere between one and two years.


Think about it; the consequence of not planning for healthcare in retirement could become downright tragic for many, with nursing homes and long-term care facilities potentially eviscerating lifetimes of toil and savings in a few short years.


However, most Boomers will not require long-term care for another 25 years and spend little, if any time at all, considering its impact.  Well, it’s time to go back to our old friend Ed Cole, who, in response to his friend, Carter Chambers’ assertion that “forty five years goes pretty fast,” replies


“Like smoke through a keyhole.”


Don’t wait. Start planning now.



This update is co-authored by Ron Mastrogiovanni and Chris Leone

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