SHOW NOTES: 2018-12-13 MiM

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Last Week’s Question of the Week: In 2018 & 2019, how much money are you allowed to gift per person? Is it $10,000, $15,000 or $20,000 per person?

ANSWER: You are allowed $15,000 per person.

HOST: Today’s topic revolves around the impact of rising health care costs on your future retirement income. What do we need to keep in mind?

KLAAS FINANCIAL: Yes, we want to spend time today reviewing one mistake that we would like our listeners to avoid and hopefully be able to plan better for as you plan for retirement. And, that mistake would be: Retiring without considering health insurance costs. There are many things to consider, especially if you are under 65.

  • Overall health needs to be taken into consideration. Should we retire sooner given our own family history or our current health, or partners health?
  • Importance of age 65. Medicare eligibility AGE (not to be confused with your full SS retirement age around 66/67).
  • Medicare. This is the federal health insurance program for 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease.
  • Different parts of Medicare help cover specific services: Medicare Part A (Hospital Insurance) Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care. Medicare Part B (Medical Insurance) Part B covers certain doctors’ services, outpatient care, medical supplies, and preventive services.
  • Costs for Medicare Supplements. Anywhere from $100-$300 per month to help with the gaps. And also, prescription coverage – PART D will have a cost.

HOST: What about COBRA? What is this exactly? Isn’t it expensive?

KLAAS FINANCIAL: Yes, COBRA can be an option for some employees.
COBRA normally lasts for 18 months of coverage, but could be extended for up to 36 months based on different situations. COBRA can benefit people under age 65 who get laid off or retire.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires most group health plans that have at least 20 employees, to provide a temporary continuation of group health coverage that otherwise might be terminated. COBRA requires continuation coverage to be offered to covered employees, their spouses, their former spouses, and their dependent children when group health coverage would otherwise be lost due to certain specific events.

Employers may require individuals who elect continuation coverage to pay the full cost of the coverage, plus a 2 percent administrative charge. The required payment for continuation coverage is often more expensive than the amount that active employees are required to pay for group health coverage, since the employer usually pays part of the cost of employees’ coverage and all of that cost can be charged to the individuals receiving continuation coverage.

IF YOU DON’T HAVE COBRA, there’s the Affordable Care Act. The average cost of health insurance for an individual between the ages of 62-65 in the United States is MORE THAN $400 PER MONTH, and can obviously be more as determined by health, deductible, income, type of coverage, age and gender. If you are talking about a couple retiring before age 65, ACA costs can easily be $800+ per month.

HOST: How much should we estimate that people will pay out of pocket in retirement for health care costs?

KLAAS FINANCIAL:  We like to provide facts, or at least good estimates of averages on this show. According to a Fidelity estimate in April of 2018, the average couple retiring today at age 65 will need $280,000 to cover health care and medical costs in retirement.

The good news is that the figure is up only 2% from last year’s estimate of $275,000, a smaller-than-average increase. The bad news, of course, is that it’s still a huge number, reinforcing the fact that Medicare coverage is neither free nor completely comprehensive. Fidelity’s estimate assumes premiums for Part B doctor coverage and Part D drug coverage, out-of-pocket costs such as deductibles, as well cost-sharing requirements for drugs. It also includes certain services and devices that Medicare doesn’t cover, such as hearing aids.

HOST: Obviously, it could cost more or less, correct?

KLAAS FINANCIAL:  Yes, that’s just a ballpark number. The true cost depends on a variety of factors like your health and how long you will live. There is also ongoing uncertainty about what the healthcare landscape will look like in the future. So the question is what can you do to help with these future, uncertain costs. Our suggestions:

  • Budget for this item now. Many upcoming retirees, and people getting ready to transition out of the workforce, forget to budget for health care when they estimate their expense in retirement. Why? Their employer is often picking up the majority of the tab (usually about 75 percent) and the remaining cost (average is about 25 percent) comes out of their paycheck. They think they need the same amount of take-home pay that they currently have — but they forget that they will now be responsible for paying their health care premiums in addition to the out-of-pocket costs.
  • Add money into a health savings account if you are able. 2019 HSA contribution limits are: HSA contribution limit (employer + employee): Self-only: $3,500; 
Family: $7,000. For HSA catch-up contributions (age 55 or older): $1,000.
  • Stay healthy. Take charge of your medical care and do research.
  • Visit your dentist every six months. Cardiovascular disease shows up in your gums first. A dentist that pays attention may notice something long before your doctor does.


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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.