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Deciphering Medicare

| January 17, 2018
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When you finally start nearing retirement after working so many years to get there, you’ll have many questions that you need to answer. Have you saved enough? Will your money last as long as you live? How will you replace your income stream?

While every financial adviser you speak with can present you with ideas on how to answer these questions, there’s one question they can’t answer: What will happen to your health during your retirement years?

Good health in retirement is something we all want. We want to be able to travel, be active, and do the things we always dreamed of doing. However, injuries and illness can often interrupt the dreams and goals we have for ourselves in retirement.

One thing we can prepare for is how to deal with the medical costs that accompany health-related issues in retirement, and Medicare can help us cope with these costs. You’ve been paying into Medicare for years as you’ve worked. Eventually, it will be your turn to reap the its benefits.

There are a few things you need to know about Medicare now so you can determine how to best prepare for using it in retirement:

  1. Medicare charges premiums: Just like health insurance, Medicare charges premiums, and they need to be budgeted for. What you pay is based on your adjusted gross income. Many things can impact this, including capital gains, home sale proceeds, and what you do (or do not) contribute to your retirement accounts. The more you make, the more you’ll pay.
  2. Medicare doesn’t cover everything: One of the biggest things to know about Medicare is that it’s designed to help cover medical costs, not cover all of them. Things like dental care, routine eye exams, hearing aids, and long-term care are not covered by traditional Medicare programs. Therefore, you may need to consider gap coverage, or align other resources to help cover these costs.
  3. There are pre-determined times for enrollment: You get a seven-month period of time in which you can sign up for Medicare – 3 months before and 3 months after your birthday month. If you have healthcare coverage through your employer, you may incur a penalty if you enroll in Medicare while still under your group insurance. Be sure to enroll within the 8 months after your coverage ends to avoid this unnecessary penalty.
  4. There is an extra fee if you don’t have drug coverage for 63 days or more: You can enroll for drug coverage from Medicare when you’re first eligible for the program. If you don’t get drug coverage in the specified window of time, you could pay a permanent extra fee each month.
  5. If you have an HSA, you should stop contributing 6 months prior to enrolling in Medicare: In order to avoid tax penalties, consider stopping your contributions to your HSA well in advance of Medicare beginning. You can still use the money from your HSA account to pay for qualified health care expenses in retirement; you just can no longer contribute to the fund.

At Cornerstone Advisers, we can help you better understand many complex financial subjects, including Medicare. If you’d like a copy of our Guide to Medicare brochure, or to meet with one of our advisers just contact the Cornerstone office nearest you.

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