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| The Big Retirement Mistake And How To Avoid It |
The Big Retirement Mistake and How to Avoid it
Planning for retirement isn’t always something we prioritize in our earlier stages in life. We are constantly hearing about the importance of saving for retirement at an early age and steps to take toward building a retirement nest egg. However, it’s not exactly obvious what finances should take priority and the mistakes to avoid when saving for retirement.
One of the biggest retirement mistakes that Americans are making is failing to set money aside for healthcare costs in retirement. As of 2019, Fidelity Investments reported that the average couple retiring at 65 will need to have $285,000 saved up just to cover the cost of healthcare alone. Many Americans are simply not prepared to finance such expenses by the time they hit retirement age.
Whatever you do – don’t skip out on saving for healthcare costs!
Original Medicare Costs and Coverage
Don’t for one second think that Medicare will be free and cover all of your expenses when you retire. Falling for this common misconception will cost you big bucks in the future and cause major heartache when you realize that Medicare is not free. It only covers 80 percent of medical expenses – leaving you responsible for funding the remaining 20 percent of expenses.
In order to better prepare yourself for the cost of Medicare, it’s important to understand the basics of Original Medicare.
Original Medicare comes in two parts: Part A and Part B. Part A is your hospital benefits and is free to all Americans that have worked at least ten years in the U.S. and paid FICA taxes. Part B is your outpatient benefits which everyone must pay a monthly premium for. Most Americans will spend around $135 a month for these benefits.
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| You will have to pay monthly premiums |
When saving for healthcare costs in retirement, keep in mind that you will have to pay monthly premiums in addition to copays, coinsurance, and deductibles.
Medicare Supplement Plans
Being responsible for funding the remaining 20 percent of medical expenses that Original Medicare won’t cover may not sound like a lot in the grand scheme of things. However, depending on the medical services and treatments you receive as you age, the remaining cost can be hundreds of dollars of out-of-pocket payments per service/treatment. Luckily, Medicare Supplement plans (also known as Medigap plans) exist to alleviate the burden of funding that 20 percent.
Medigap plans are exactly what they sound like. They are private plans you can purchase to fill in the gaps that Original Medicare won’t cover. Not having a Medigap policy in place for yourself in retirement is another big mistake to avoid in retirement.
Long-term Care Costs
The cold hard truth of aging is that we aren’t going to remain healthy forever. Many people don’t think about looking into the cost of long-term care when they are saving for retirement because they are healthy at the time they are saving. Always expect the unexpected.
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| Think about the cost of long-term care when saving for retirement |
Genworth Financial reported a Carescout survey on annual national median costs for the different areas of long-term care in 2018, and the following was found:
- Homemaker Services: $48,048
- Assisted Living Facility: $48,000
- Private Room in a Nursing Home: $100,375
- Semi-Private Room in a Nursing Home: $89,297
- Home Health Aide: $50,336
- Adult Day Health Care: $18,720
Long-term care is expensive, and Medicare does not cover long-term care. Not thinking ahead and preparing for the unexpected cost of potentially needing long-term care is a major mistake you should avoid when saving for healthcare costs in retirement.
The lesson to be learned here is that the biggest mistake many Americans make in retirement is failing to factor in healthcare costs when they save. You can easily avoid this by learning about your healthcare options and the basics of Medicare prior to retirement. Another way that you can improve your financial situation for healthcare costs in retirement is by looking into setting up a health savings account for yourself. Setting up an account such as this may end up being the best thing you do when trying to set money aside for healthcare costs. Since Medicare and effectively saving for retirement can be overwhelming, it’s never a bad idea to consult professionals such as insurance brokers and financial advisers to help you.
Author: Danielle K Roberts is the co-founder of Boomer Benefits where she and her team help baby boomers navigate their Medicare insurance options. She is a member of the Forbes Finance Council and writes frequently about Medicare, retirement, and personal finance.