By Robert Powell, MarketWatch
Medicare beneficiaries spent on average $3,324 a year of their own money on health care in 2010, according to a recent AARP report. But 10% of beneficiaries — almost five million people — spent more than $8,030, according to the report.
That may seem like pocket change compared with what you need to earmark for prescription drugs if you retired last year. To wit: Setting aside $151,000 of your nest egg for Medigap premiums, Medicare Part B premiums, Medicare Part D premiums and out-of-pocket drug costs would give a couple retiring last year with median health costs a 50% chance of having enough money to provide for their medications, according to the Employee Benefits Research Institute.
And setting aside $220,000 would give you a 90% chance of having enough money for your meds.
So, what can you do to trim those kind health-care costs in retirement? Financial planners shared with us some novel and some tried-and-true ways to cut costs.
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“In my view, it is always about being proactive to relieve the stresses of not preparing ahead of time,” said Tracy St. John, the founder of Financial Avenues, a financial planning and investment management firm based in Kansas City, Mo.
Prior to retirement, consider participating in wellness programs and opening a health savings account. Read How to pay for health care in retirement.
The best way to cut health care costs, though it might sound trite, is to stay healthy and active, said Celia Brugge, a financial planner with Dogwood Financial Planning in Memphis, Tenn. “Take charge of your own health by being physically active and eating properly,” she said.
Others share that point of view. “Stay healthy,” said Jeanne Gibson Sullivan, a certified financial planner with Financially in Tune in Wakefield, Mass. “I mention that seemingly nonfinancial tip frequently to clients nearing or in the early stages of retirement.”
But for some people whose health is poor, that may just not be an option. “However for many, even changes when a person is in their 70s can dramatically lower their health-care costs,” said Gibson Sullivan. “Eating better, exercise are simple, basic but very important factors to staying healthy and lowering health-care costs.”
Of note, the burden of health-care costs was particularly heavy for the sickest and oldest beneficiaries as well as for near-poor beneficiaries, according to the AARP report.
Shop wisely for the right type of Medicare plans, be it Part D, Medicare Advantage, and Medigap plans. “We encourage our retiring clients to invest in a good Medicare supplemental insurance contact that picks up all the copays, deductibles, and other potential out-of-pocket expenses,” said Tim Knotts, a senior planner and one of the two owners of Hogan-Knotts Financial Group, a financial planning firm in Red Bank, N.J.
But contrast, Knotts discourages clients from purchasing “the relatively cheaper, but more expensive in the long-run, in our opinion, Medicare Advantage plans.”
In addition, Knotts said Medicare beneficiaries should revisit these decisions, along with their Medicare Part D prescription drug plan annually to make sure they still have the right coverage for them.
“Take advantage of Medicare open enrollment each year to see if there is a better plan available,” said Brugge.
Being aware of changes in Medicare prescription drug plans can help you save on health-care expenses and reduce prescription drug spending, according to the Employee Benefit Research Institute. Read The High Cost of Health Care in Retirement.