Many 401k savers are unrealistic when budgeting for retirement. Healthcare costs are frequently underestimated, with Medicare coverage largely misunderstood. When educating plan participants about retirement savings, plan sponsors are encouraged to raise awareness about the basics of Medicare.
Anticipating Healthcare Costs In Retirement
Ahhh! Once we get to retirement, ta, da, no need to budget for healthcare, because Medicare handles everything right?
Unfortunately, this is what many 401k savers mistakenly think. As a result, many of us under budget for healthcare costs during retirement. For example, experts say that for a couple retiring at age 65, the average out-of-pocket expense for healthcare throughout retirement is $295,000. That’s an important budget item to save up for!
Medicare Basics Summarized
Armed with increased knowledge about the basics of Medicare, retirement plan participants can carve their paths forward more realistically. Here is some starter advice from AARP:
At 65, you become eligible for the program — which means you will need to set aside time around that milestone birthday to sift through many options so you can sign up for the coverage that meets your health needs and budget.
Unless you are already receiving Social Security benefits and then will be automatically enrolled in the program, you won’t get a letter in the mail reminding you that it’s time to start making these decisions. What’s more, the timetable is specific — and important. You can start signing up three months before you turn 65, and you’ll have until three months after your birthday month to enroll. If you miss that deadline, you may end up paying higher premiums.
Medicare helps pay for medical care for older Americans and people with disabilities. But it’s not free. You’ll want to choose an option you can afford and build the array of out-of-pocket costs into your budget.
Pay attention to all of Medicare’s parts: Part A covers hospital and hospice care and some skilled nursing services after you’ve been in the hospital. Part B includes doctor visits and other outpatient services. Part C is Medicare Advantage, which is a combination of Parts A and B — and usually Part D, which helps pay for prescription drugs.
Examples Please: Medicare Premiums
So, approximately what are we talking about in terms of Medicare premiums?
Medicare is administered by the U.S. Department of Health and Human Services (HHS), through its Centers for Medicare and Medicaid Services (CMS). A CMS Fact Sheet provides this current information on Medicare premiums:
Each year the Medicare premiums, deductibles, and coinsurance rates are adjusted according to the Social Security Act. For 2021, the Medicare Part B monthly premiums and the annual deductible are higher than the 2020 amounts. The standard monthly premium for Medicare Part B enrollees will be $148.50 for 2021, an increase of $3.90 from $144.60 in 2020. The annual deductible for all Medicare Part B beneficiaries is $203 in 2021, an increase of $5 from the annual deductible of $198 in 2020.
Financial advisors stress that most 401k savers need help understanding rules of thumb—like healthcare costs—toward better retirement planning and saving. Behavioral Research also provides important insights for plan sponsors about how plan designs can best support participant saving efforts. With plan sponsors and employees across the country trying harder then ever to save, while also steering out from the disruptions caused by the pandemic, now is also an important time to add important liability protections to your risk management efforts.
There’s no need to go it alone. Let Colonial Surety Company help. Just select an affordable, comprehensive package and receive a three point coverage solution:
- The ERISA bond required to protect the assets of the retirement plan from theft;
- expenses in the event of a cyber breach; and,
- Fiduciary Liability coverage to protect you and your assets from personal liability.
- Cyber Liability coverage to safeguard your company and plan from covered losses and
Keep in mind: the ERISA bond required for the retirement plan does not cover you as a fiduciary. Colonial Surety Company’s ERISA bond package provides plan sponsors up to $1,000,000 of fiduciary liability insurance. Secure the greatest overall savings and protection with our 2-3 year packages. Colonial even includes extended coverage to ensure your ERISA bond remains US Department of Labor compliant.
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