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Planning for health care in retirement Planning for health care in retirement

Planning for health care in retirement - PowerPoint Presentation

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Uploaded On 2019-12-11

Planning for health care in retirement - PPT Presentation

Planning for health care in retirement Understand spending trends and Medicare when planning for health care in retirement Topics for today Escalating healthcare costs confront retirees Planning for health care in retirement ID: 770040

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Planning for health care in retirement Understand spending trends and Medicare when planning for health care in retirement.

Topics for today Escalating health-care costs confront retirees Planning for health care in retirement

Worker’s earnings 68% Overall inflation 51% Health-care costs have outpaced earnings and inflation over time Source: Kaiser Family Foundation, October 2018. Health insurance premiums 239%

… and are expected to grow significantly in the future Source: Centers for Medicare and Medicaid Services, National Health Expenditure Data, 2019.

Health-care spending increases significantly with age Source: EBRI, Utilization Patterns and Out-of-Pocket Expenses for Different Health Care Services Among American Retirees, February 2015. Figures represent average out-of-pocket spending annually. Age 65–74 Age 85 years and older $4,383 11% of annual household expenses$6,60319% of annual household expenses

How much will a couple need today to pay for health care in retirement? Cost projections for a 65-year-old couple (present dollars)* * Dollar figures reflect the present value of total lifetime healthcare costs in retirement. If you calculate those costs based on future value to reflect the total actual amount spent in retirement, couples are expected to spend over $500k. Source: HealthView Services, 2018 Retirement Healthcare Costs Data Report. Assumes premiums for Medicare Parts B, D, and supplemental coverage. Assumes life expectancy of 87 for the male, 89 for the female, and an MAGI income level below $170,000.

Costs for healthy retirees may be much higher due to longevity Lifetime projected health-care costs — total in retirement* * Dollar figures reflect the future value of total lifetime healthcare costs in retirement. Source: HealthView Services, 2016 Retirement Healthcare Costs Data Report. Based on Medicare part B and D coverage, supplemental coverage, and out-of-pocket expenses for an individual living in IL retiring at age 65. Assumes life expectancy for healthy female is 89 years, for diabetic female 80 years. Healthy 55-year-old female$523,737Diabetic 55-year-old female$267,878

Few employers offer retiree health benefits Among all large firms (200 or more workers) offering health benefits to active workers, percentage of firms offering retiree health benefits, 1988–2018 Source: Kaiser Family Foundation, 2017 Employer Health Benefits Survey.

The future of Medicare is uncertain Source: 2019 Medicare Trustees Report. Medicare key facts and figures 2008 Beginning of spending more on benefits than payroll taxes received 201860 million people in Medicare2013–2018Health insurance expenditures increased by 3% annually2019–2024Health insurance expenditures projected to increase by 7% annually2026Trust fund (HI) exhausted82 million people on Medicare (projected)

Long-term care costs can be staggering … Long-term services and supports are expensive, often exceeding what beneficiaries and their families can afford Source: Genworth, Genworth 2019 Cost of Care Survey. Nursing facility assumes private room. Median annual care costs by type of service, 2019

Summary of challenges Increases in longevity means more retirees living longer are relying on health-care services The demand for health care will continue increasing as baby boomers retire Long-term care is an uncertain and expensive risk Retirees in the future will likely rely more on personal savings to meet health-care expense needs

Becoming eligible for Medicare Age 65 and eligible for Social Security If employment was not covered by Social Security, then you paid Medicare payroll taxes while working (at least 40 quarters) Disabled or other health condition (e.g., end-stage renal disease)

Understanding Medicare Based on 2020 rates. Part A (Hospital) Part B (Doctor) Part D (Drug) Generally no premiumNursing care, hospital stays, home health, hospice, limited nursing home care Annual deductible of $1,408 (hospital inpatient)Doctor visits, outpatient procedures, tests, therapy, x-rays, etc.Base premium of $144.60 monthly with a deductible of $198/yr80/20 coverage — no coinsurance for most preventative services Optional prescription drug coverageOffered by private insurance companies that are approved by Medicare

Medicare Part B premiums increase at higher incomes Source: Centers for Medicare & Medicaid Services. Income based on Modified Adjusted Gross Income (MAGI) which includes tax-exempt interest income. MAGI is based on income reported on the tax return from two years prior (e.g., for 2020, the 2018 tax return would apply). Singles Couples Monthly Premium < $87,000< $174,000$144.60$87,001–$109,000$174,001–$218,000$202.40$109,001–$136,000$218,001–$272,000$289.20$136,001–$163,000$272,001–$326,000$376.00$163,001–$500,000$326,001–$750,000 $462.70> $500,000> $750,000$491.60

Enrolling in Medicare Initial enrollment period (IEP) 7-month period that begins 3 months before the month of your 65th birthday and concludes 3 months after If you file during the first 3 months, coverage begins on the first day of your birthday monthIf you file during your birthday month, coverage begins the next monthIf you file anytime during the last 3 months, coverage begins two months laterNo HSA for those enrolled in MedicareGeneral enrollment period (GEP)January through March each year, coverage begins July 1Late penalty may applySpecial enrollment period (SEP)Applies to those who are covered by an employer group plan (more than 20 employees)Also applies if covered by a spouse through their group planCan sign up for Parts A and B at any time or within 8 months of leaving the group plan to avoid late enrollment penalty

Other enrollment periods Open enrollment period (OEP) October 15 through December 7 every year to enroll/change Medicare Part D plans or enroll/change Medicare Advantage (MA) plans Medicare Advantage disenrollment period (MADP) January 1 through February 14 Medigap open enrollment periodLasts 6 months and starts the month you reach age 65 and are enrolled in Medicare Part BNo extra cost for those with pre-existing conditions if you enroll during this period

Late enrollment penalties may apply Applies for as long as you are enrolled in Part B Your monthly premium for Part B may go up 10% for each full 12-month period that you could have had Part B, but didn't sign up for it The penalty clock starts ticking at the beginning of the month after your 7-month initial enrollment period (IEP) expires, and shuts off on the final day of the annual general enrollment period (GEP) in which you sign up for Part B (regardless of the actual date you signed up) Medicare Part D penalty applies if there is a lapse in creditable prescription drug coverage exceeding a 63-day period. The penalty is 1% of the Medicare Part D base premium ($34.10 for 2016) for each full month you were eligible but went without coverage and did not have other, creditable coverage. Note that there is also a late enrollment penalty applied to Medicare Part A for recipients who were not eligible for free premiums and enrolled late.

Supplemental coverage options Medicare Advantage (Part C) Medigap policy Private alternative to Medicare Parts A and B — must have at least equivalent benefit, regulated by Medicare Generally offers additional benefits, such as vision, dental, and hearing, and many include prescription drug coverage Eliminates some Medicare co-payments and deductiblesPlans have service areas — most coverage offered through an HMO or PPO networkOffered through private insurance companiesExtra insurance that will cover certain expenses not covered by Medicare such as deductibles, copays, and uncovered servicesPremiums will vary by area and are paid separately from Medicare Part B and D premiums

Which path to choose? Original Medicare Medicare Advantage PART A (hospital) PART B (doctor)Need prescription drug coverage?PART D(drug)Need supplemental coverage?MedigapPART C(Combines Medicare Part A, Part B, and usually Part D)Typically operates like an HMO or PPO

Some considerations when planning for long-term care (LTC) Based on current and family health factors, is the risk of needing long-term care higher? Is there a family member or friend nearby who could provide care? Talk to a professional about exploring LTC insurance and determining the factors in selecting the right coverage What’s the right benefit amount? How do elimination periods work?When do benefits trigger? Are different levels of benefits covered? Is there inflation protection?What is the financial rating of insurance company?

Bridging the gap until Medicare COBRA Allows you to maintain access to your group plan after a “qualifying event” — premium is higher and coverage usually expires after 18 months Spouse plan May be the most cost-effective option for those who have a spouse participating in a group plan Marketplace Public marketplace (ACA health-care exchange) or private option. ACA exchanges offer subsidies (based on income) through premium tax credits, no denial for pre-existing conditions, but wide variation on cost. Specialty coverageShort-term plans lasting less than 1 year that typically provide catastrophic coverage.

Planning considerations for health care in retirement Consider tax-smart strategies Utilize Roth strategies to create tax-free income in retirement May help avoid larger Medicare premiums Consider a Health Savings Account (HSA) while still working Factor in health-care expenses when planning for income in retirement Match income streams (including guaranteed income) to fund recurring health-care expenses such as premiumsMaintain emergency health savings fund for non-recurring health expensesConsider delaying Social Security to create a larger monthly benefit if you live longer

This information is not meant as tax or legal advice. Please consult your legal or tax advisor before making any decisions. For informational purposes. Not an investment recommendation.