One of the biggest concerns for those near retirement is healthcare costs. While Medicare is reasonably comprehensive, understanding what it covers and how much it costs is critical in trying to formulate a retirement budget. The initial article below is the first in what will be a series of articles on the various Medicare programs, and these particular articles will be cross-posted on the Forbes blog as well.
Our financial planning tip covers Social Security, another key government program for retirees, and it details how to sign up for online Social Security statements. Finally, in our client question of the month, we examine a few steps you can take to protect against financial fraud.
As always, if you have questions or article ideas, don’t hesitate to contact us and please feel free to forward the newsletter on to friends and family if you believe it would be helpful.
Micah Porter, CFA, CFP®
Navigating Medical Care Costs in Retirement
Micah Porter, CFA, CFP®
Healthcare costs are a concern for nearly everyone, and that is particularly the case for those approaching retirement. The amount of healthcare needed typically increases as we age, and Medicare differs a good deal from the private insurance most of us use during our working years. Determining these costs is an important component of your retirement budget.
Fidelity conducts an annual survey of healthcare costs, and for the most recent year, they estimated that a 65-year-old couple would spend an average of $240,000 on healthcare in retirement. This figure includes insurance premiums and other out of pocket costs like deductibles and co-insurance, but doesn’t include other potentially big ticket items like dental or long term care. And while it is helpful to keep in mind average costs, when you’re coming up with your own budget, it’s more helpful to dig into the details.
The foundation of healthcare coverage for most in retirement is Medicare which is split into parts A, B, C and D and details on each are as follows:
Medicare Part A – Medicare Part A covers in-patient hospital care, hospice care and on a limited basis, home healthcare services ordered by your doctor. If you paid into the social security system for a a minimum of 10 years, there is no charge for Medicare Part A.
Medicare Part B – Medicare Part B covers medically-necessary services, which includes doctor visits, physical therapy, home health services and other outpatient care. It also covers some preventive services. The list of what’s included under this category was expanded with the recently passed healthcare bill.
There is a charge for Medicare Part B, and it is typically deducted from your social security check. How much you pay depends upon your income in retirement. In 2012, the monthly amount ranged from $99.90 to $319.70.
Medicare Part C – Part C covers privately administered Medicare plans typically known as Medicare Advantage plans. Most retirees participate in traditional Medicare as opposed to Medicare Advantage, so we’ll forego covering those plans in this article.
Medicare Part D – Part D covers prescription drugs, and is the most recent addition to Medicare, having been established in the last decade. For those on original Medicare, Part D is an addition that is administered by private insurers and differs in terms of what medications are covered as well as which pharmacies participate.
In addition to the premiums, deductibles and co-pays one expects with insurance coverage, Part D also has what’s popularly known as a “donut-hole,” in which the participant pays for the entire cost of any prescriptions purchased. This begins when prescription drug spending reaches $2930, and continues until expenses exceed $4700. The Affordable Care Act passed in 2010 included provisions to shrink the size of the donut hole over time, closing it altogether by 2020. Obviously, from the perspective of plan participants, this will result in significant cost savings.
Needless to say, Part D is complex and warrants its own post in the next few weeks, and we’ll also cover Medigap plans, which are supplemental policies that cover costs not covered by traditional Medicare. For now, if we break down the cost of Medicare Part A and B with no additional coverage from Medigap policies, here are the relevant items:
- Part A – No cost for most participants
- Part B – Premiums range from $99.90 to $319.70
- Deductibles/Copays – There are deductibles and copays with Medicare just as there are with private insurance. The amounts depend upon the type of service in question, and many of these fees can be defrayed by a Medigap policy. More information on fees the plan participant can expect to incur are available at the government Medicare website here.
Next month, I’ll examine Part D, prescription drug coverage and in the final article in this series, I’ll cover Medigap policies and how they can supplement parts B & D.
Financial Planning Tip – Setting Up Online Access to Social Security
Micah Porter, CFA, CFP®
One of the financial foundations for for most Americans in retirement is Social Security. Because of this, Social Security statements are one of the first documents we ask for when completing a plan since they provide a wealth of information. What they cover includes estimates of retirement and disability benefits, survivor benefits, and estimated benefits depending upon the age at which they are first drawn.
In the past, a client might have trouble tracking down the most recent statement and would have to contact the Social Security Administration. Fortunately, the Administration recently placed much of the information online and the information can be accessed by setting up a personal account. I set up an account by going to a link on the Social Security website here, which took me about 10 minutes The process was straightforward, although you may run into a glitch if you’ve recently moved. Additionally, you will need information on financial accounts or earnings to complete the set-up process. Both of these additional factors were put in place to further confirm the identity of the person setting up the account.
One added benefit of making this information available online is the cost savings from having to send out paper statements to everyone. Workers over the age of 60 who haven’t been drawing benefits will still receive a paper statement, and everyone will receive a one-time statement the year they turn 25 if they’re participating in Social Security. If you’re not in either of those groups and need to access that information, try setting up online access – for most, it should be a relatively easy task.
Client Question of the Month – What Steps Can I Take to Protect Myself from Financial Fraud?
Micah Porter, CFA, CFP®
Data breaches have become a common item in the news over the last few years. One recently occurred here in Atlanta with Emory Healthcare when several backup disks were discovered missing. The disks contained information on over 300,000 patients, and for many of those patients, Social Security numbers were included as well.
Emory acted as a good corporate citizen. They notified affected patients after discovering the breach and offered a data monitoring service. Such services are useful in detecting fraudulent activity, but of course, they can only detect activity once it has occurred. Several clients contacted me about the Emory breach. One client asked if there was something more proactive that could be done to protect account assets at TD Ameritrade and her overall credit record, and there is.
TD has a good deal of protection in place for client accounts. One aspect of this protection is the policy that only allows funds to be sent to the client at the address of record, or to client accounts for which instructions are already on file. Any time funds are sent elsewhere – to another party or to an address other than the account address – TD requires a written request from the account owner. In addition, TD can also tag accounts that may be at heightened risk – due to something like the Emory data breach for example – and for those accounts, they will contact the advisor to confirm any written requests to disburse funds to third parties. If you’re interested in having such a tag placed on your accounts, just let us know and we can request that for you.
As for protecting your overall credit, a credit freeze can be quite effective. The freeze, which must be requested from each credit bureau, instructs the bureaus not to provide your credit information to credit grantors or other companies. There are some exceptions – companies with whom you already do business may be exempt, for example – but in general, companies won’t be able to access your credit information and thus, are highly unlikely to issue additional credit in your name. If you need additional credit, or if you’re going through a process like applying for a job or renting a property, you will need to have the freeze lifted. That’s generally a straightforward process as long as you maintain the PINs associated the the credit freeze. Here are links to Equifax’s, Experian and TransUnion’s pages on credit freezes, including what it costs and the process to follow to freeze and unfreeze credit.
With the increasing ubiquity of personal data, it’s not surprising that data breaches have become more common. Fortunately, in most instances, those breaches won’t result in identity theft or financial fraud, and even in those instances, the consumer is often protected by law or institutional policy. Nevertheless, for those clients who want an additional level of protection, tagging your accounts at TD Ameritrade and working with the credit bureaus to put a credit freeze in place can be helpful.