What Everyone Gets Wrong About Medicare

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One of the biggest mistakes Americans saving for retirement make is not saving enough for the cost of healthcare. According to a recent study by the Blackstone Group, roughly 79% of middle-income baby boomers haven’t set any money aside for medical costs in retirement. That’s an alarming amount since Fidelity Investments reported that as of 2019, the average couple retiring at 65 will need $285,000 just to cover medical expenses.

With the rising cost of healthcare and increased life expectancy of humans today, the average American couple has major potential to outlive their retirement savings if they aren’t prepared and start acting today.

So, what exactly do people need to know about Medicare costs and how can they build a comfortable retirement nest egg?

Costs of Medicare

First things first, people need to know exactly how Medicare works, what it covers and what the various parts will cost you so you can plan ahead.

1. Original Medicare

You are eligible for Medicare when you turn 65. If you are already taking Social Security income benefits, you will automatically be enrolled in Parts A and B when you turn 65. Part A covers inpatient hospital benefits and skilled nursing care. Most Americans won’t pay premiums for Part A if they have worked at least ten years in the United States and paid FICA taxes (or are married to someone who did).

However, Part B which covers outpatient medical expenses, are not premium-free and cost the average person in 2019 a minimum of $135.50/month. People with higher incomes pay even more. Keep in mind that Part B premiums generally increase a little in price each year, so it’s important to account for inflation over your life expectancy.

2. Part D Drug Plan Costs

Part D is optional coverage you can buy from individual insurance carriers in your state. Although it’s not required to have this, it is extremely beneficial to have to reduce out-of-pocket spending for high-priced prescription drugs. These plans range in premiums from as low as $15/month to more than $150/month depending on the plan, its benefits, and its drug formulary.

For budgeting purposes, the national average Part D premium is roughly $35/month. Even though this is an optional program, late fees will apply later if you don’t enroll when you are first eligible unless you have other creditable drug coverage in the meantime.

3. Cost Sharing on Medicare

Similar to the current cost-sharing on your under-65 health insurance, cost-sharing also exists as you use your Medicare benefits. You’ll have copays, deductibles, and coinsurance for Medicare Parts A, B, D.

The Part B coinsurance is the heftiest among these at 20%. Medicare Part B covers only about 80% of your outpatient expenses, leaving you responsible for the remaining 20% of uncovered costs. There’s no cap on this 20% either, so it can cost you a lot if you encounter a major surgery or chronic condition.

How to Budget for Future Medical Expenses

It’s always better to start budgeting and understanding your saving options sooner rather than later, but there is still hope for jumpstarting your retirement funds if you are a little late to the game.

1. Health Savings Accounts

One of the best vehicles for saving for future healthcare costs is the health savings account. Those enrolled in a qualified high deductible health plan are eligible to open one. Contributions to these accounts are a write-off on your taxes and the money in the account compounds interest over time. Additionally, any withdrawals used to pay for qualified medical expenses are tax-free.

In 2019, you can contribute up to $3,500 as an individual or up to $7,000 as a couple. People aged 55 and older can also put in an extra $1,000 per individual per year as a catch-up contribution. As of today, you can use those HSA dollars to pay for Medicare premiums, deductibles, co-pays, and coinsurance as well as dental, vision, hearing, and long-term care expenses which are not covered by Medicare at all.

2. Other Catch-Up Contributions

For those in their 50s falling a little behind on their retirement savings, you can take advantage of catch-up contributions. You can add an additional $6,000 per year to your 401(k) and an additional $1,000 a year to your IRA. If you’re able to swing the extra contributions, this can make a huge difference to your retirement savings over 15 years, allowing some of those funds to be available for future healthcare needs.

3. Supplemental Coverage

The best way to budget and to protect your savings from healthcare costs that Medicare won’t cover is to enroll in supplemental coverage that will cover these costs for you in retirement. There are 10 different Medicare supplement plans to choose from. Some plans cover all or most of your cost-sharing, and then there are some that only cover some of these costs but offer lower premiums.

Medicare Supplement (also known as Medigap) prices vary extensively based on your zip code, gender, age, tobacco usage and eligibility for a household discount. Prices also vary by region because the cost of healthcare in some areas is more expensive than others.


Many people make the huge mistake of assuming that Medicare is free and provides 100% of your medical coverage. This oftentimes leaves many couples re-evaluating their finances and adds unwanted stress in their golden years. No matter which path you decide to take toward building your retirement nest egg, don’t forget to prepare yourself for the cost of healthcare in retirement. You never know what medical emergency will happen down the road, and trust me, you’ll want to be financially prepared for it when it happens.