On this week’s episode of The Secure Retirement Podcast, April Schoen joins us to discuss the best ways to pay for health care in retirement. We detail the key considerations you need to remember when it comes to Medicare, and go over how to create your detailed plan for what is usually the number one concern for anyone approaching retirement. We have an episode packed with valuable information to have at hand when you enroll in Medicare.
We chat about transitioning to Medicare, as well as:
Exactly how to enroll in Medicare
Common mistakes people make with Parts A and B of Medicare
Who needs to enroll in Medicare and when
How private insurance works with Medicare
And more
Mentioned in this episode:
Call our Main Office located in Tallahassee at 850-562-3000
Transcript:
April Schoen: Hello, everyone, and good afternoon and welcome to our Medicare webinar, today. We're going to be talking about how to transition to Medicare, specially from a group health insurance plan. My name is April Schoen and I have with us on the call today, John Curry, author of Preparing for a Secure Retirement. Hey, John.
John Curry: Hey, April. Hello, everyone.
April: So glad that you guys could join us I'm going to give um, I usually like to give just like a minute or two. I know some people we jump in on here we had, I think John over like, last I looked about 85 people had registered for today's webinar. So I know sometimes it takes a few minutes for everybody to get in. So while we're doing that, I want to go through just a couple of housekeeping items. First, I want to let you know we are going to record today's presentation.
And so that it usually takes a couple weeks for that to be prepared. But we will have this recorded and have it available for you. If you don't have it handy, grab a piece of paper and a pen like I have here. Then we're going to be going through a lot of information today on Medicare. Some things like a little checklist, if you will, that you need to be walking through as you're getting ready to transition to Medicare, we're going to talk about how much you should be looking at from a budget standpoint for Medicare. So lots of information.
So just have a piece of paper a pen handy to jot down any notes, or any questions you may have. Now, we're going to be going through the presentation, we're gonna have a lot of information to cover. When John and I, we were just talking about how when we used to have live events. And so we had our live seminars, and we would do them on Social Security and Medicare. And they were always over an hour long. They were an hour and a half. And so don't worry, we're not going to be keeping you an hour and a half today. We're going to kind of condense it down and give this information to you. A little bit about you know who we are. John has been in the financial services industry for its 46 year on you're going on 46 years, right, John?
John: That's correct. 46 years, September last year.
April: So John has been helping clients with retirement planning issues like Social Security and Medicare, IRA rollovers, required minimum distributions and inherited IRAs since 1975. A lot of change the last 45-46 years. And there's a lot of lessons that we've learned along the way about what really works for people and what doesn't work for people when it comes to retirement planning. I've been working with John, almost seven years coming up on my seventh anniversary working with John. And I worked with a previous firm in Tallahassee before that for about four years as well. So we really do specialize in helping people get ready for retirement. And that's why we're having this webinar today to talk about Medicare. John, I know you'll agree with me when I say that healthcare tends to be the number one concern that people have when they first meet with us. When you say that's true?
John: Let me jump in. It's either one or two. So let me tell you what we see, folks, if you take a look at a seesaw, some people the number one fear is how do I cover my health care costs in retirement? And for others, number one is I'm worried about running out of money. And I like to ask them, are you worried about running out of money or running out of income, because there is a difference. Properly designed in you're planning, you may run out of money, but you should never ever run out of income. So and that's not a topic for today. But this whole issue about transitioning to Medicare, I've done it, I'm 68. So a lot of what we've covered today I've already been through. So I will jump in every now and then along with April and share some experiences that I've had, and maybe even offer a little tidbit here or there.
April: Yes, I hope that you'll share your experience. I know you're collecting social security and on Medicare. So I think that's some good information for those on the call to have. And one thing I like to point out too, is that our our team here so it's not a one man show or a one woman show. We've got a great group of our team. So you've got Zac Hirschler and myself are here in Jacksonville. And then in Tallahassee, we've got John Curry, Audie Ritter and Jay Wolfe. So again, we've got a great team of people around us to to help our clients navigate these complicated issues.
And on that topic too, before we get too much into the presentation, make sure that you've got our contact information, I know some of you may have to jump off the call early, because that does happen, because everyone's busy. So if you do as well make sure you have our contact information, I'd recommend those on the call that we schedule a time for a phone appointment. This would be a good time for you to discuss any goals or concerns that you may have about retirement planning, our especially about Medicare. We get this request a lot to about having a copy of the PowerPoint slides, because again, there's a lot of information that we're going to go through. And yes, we can send you over a copy of the PowerPoint slides.
If you'll just send us an email, you can email me or you can email John or really anyone on the team. And we'll get you a copy of those of the PowerPoint slides after the presentation. Alright, let's get started. So we're going to really talk about today is transitioning to Medicare, and how health insurance works when you leave your job. So this is all going to be about health care planning around your retirement. So when we think about health insurance, we think of them in different silos. So right now, if you're still working, you may be getting your health insurance through your employer or through your spouse's employer. So your your health insurance comes is tied to your employment. And when you retire, you may go into one of these other silos for your health insurance, which if you're over 65, will probably be medic Medicare.
And if you're under 65, you'll most likely get some individual health insurance, which we're going to talk about a little bit later, too. So that's why we're having this webinar today is a really talk about how to transition your health insurance, from your employer plan to Medicare. And we know we hear it all the time, it can be very disrupting, to go from your employer sponsored health insurance plan, and do something else like Medicare because it feels completely different. And it's challenging. It's tricky. So that's why we're going to cover that information today.
John: That's an understatement, by the way, because people say well, no big deal, once you start having to go in and present two or three cards, instead of just your employer proof of insurance. I'll touch on that when it's appropriate.
April: Yes, it is. It's very different. And I get it. It's very, it's very scary, and to be quite honest with you. So that's why we're having this today, we want you to have information so you feel comfortable about what health insurance is going to look like for you in retirement. So this healthcare challenge the challenges around health care and retirement, we really think of these as three separate issues. So first, we want to make sure that you have a smooth transition from your employer health insurance to Medicare. If you have a smooth transition, this means you're going to avoid late enrollment penalties, you're going to avoid having any coverage gaps when you go from one insurance to the other.
And you're also going to make sure that you have adequate coverage because Medicare doesn't cover everything. So you're gonna want to find the right insurance to fill in the gaps and also cover your prescription drug coverage, excuse me cover your prescription drugs. The second issue around health care planning and retirement is we want to make sure that you have an understanding of the potential costs, especially what are those costs going to be for you that first year of retirement. Because while you're working, your premiums are most likely being subsidized by your employer. If you pay a portion of the premiums, they're coming directly out of your paycheck. So you may not even really be aware of exactly how much you're paying. But once you retire, you're on your own, you'll be paying the premiums yourself.
And so we need to make sure that you have an appropriate budget for that. The third issue is that you want to start thinking about lifetime healthcare expenses, including chronic care. So as you age through retirement, health and health care costs are going to go up due to just normal inflation when it comes to health care. So we in one hand, we need to just plan for having higher expenses down the road. The other thing is as you age, you may need more care or you may need more prescription drugs and so that can also cause your healthcare expenses to go up. So the amount you budget for that first year is probably going to go up in the years ahead. So we want to make sure that we, we take a look at that and have a plan for it. John, let me pause there before I kind of get into more about the agenda we're going to cover. So from your viewpoint, what do you see about these three issues that that we just mentioned?
John: Well, I know you're going to cover in more detail the proper way to get ready to transition to Medicare, but I just want to go ahead and set the stage now, folks, so you can hear it first. And then you'll see the slides that will help. The big issue for me was, when do I retire? And I went into Medicare Part A and age 65, when you have to do it, but I was covered under a group plan that has 20 or more employees. And I didn't want to retire and quit working. So I stayed under the group plan for two years. Then I transitioned over to Medicare. But I will share what happened when I went on the Medicare website, I had to explain, as best I could, why I was not enrolling in Part B. So Part A, I had to then fill out this section that said I was under a group plan, and I was deferring Part B.
Some people I know personally have messed that part up. And they ended up getting a Medicare Part B premium taken out of their social security check before they thought they would. So that's important. But it's also very important understand that your healthcare costs for the first year, are probably going to be quite a bit higher than you anticipate. I know for me, it was an that and I'm pretty good at this. I had it down really well. There were a few little things, that surprised me. And then the coordination, April, of giving medicare, a medicare supplement and the drug plan. That all those pieces needed to be coordinated. And then I had to make sure that when my coverage ended on the group plan, that I did not have a gap. And what you said earlier, I didn't want to have a penalty.
And I certainly did not want to be without coverage considering I've had open heart surgery back in 2008. So obviously, if you have any health situations, pre existing conditions, you cannot afford to have even one day with a break in coverage. So I would just leave it there for now that I can come back in when appropriate.
April: That sounds great. Yeah, we're going to be covering through some of that. And you know, and John, too, we're going to talk about some of the mistakes that we've seen people make like you just mentioned. So we'll get into some specific details there. Try to help everybody. Okay, so here's, let's talk about how we're going to tackle these issues. So the first thing we're going to talk about is, is how does Medicare work with employer insurance. You know, we showed earlier, Medicare having its own separate silo from employer insurance, but there can be a little bit of overlap.
So we're gonna make sure you understand how that works. Second, we're talking about who is to enroll in Medicare, and when. We'll cover the circumstances that dictate when you need to enroll in Medicare. We're going to talk about how to enroll in Medicare. It's very easy I promise you, and we'll discuss how private insurance works with Medicare to make sure you've got that adequate coverage. We're also going to go through a sample budget that can help you create your own. So really, I'll tell you too our overarching message here is gonna be to make sure that you have a plan for how you're going to pay for health care in retirement. That's the main key issue. So let's first get to about how Medicare works with employer insurance.
John: April, may I step in for a moment?
April: Yes of course.
John: Folks, some of you, I bet you money are sitting there going okay. John and April don't work for Medicare or social security. We don't even sell a medical plan. So why do we care about this? Here's why we care. Personally, I've been doing this for almost half a century. That's a long time. And the more I do it, the more I realize how little information is getting to people, which is really strange, because we've got so much information available to us, we get paralyzed with it. So the material that we're covering today and in future webinars, is to help you identify the issues that most people who call themselves retirement planners or financial planners don't even know about it much less understand it.
So this is something that out of necessity of helping people over the years I've had to learn and grow, as my clients got older, our oldest client's 102. Other clients in their mid 90s, late 90s. So I have benefited tremendously from people asking me questions, and everyone's experienced the same thing, so we just want to take what we know, are facts and get them out there to you. Don't expect you to remember every bit of it, but it lets you remember, okay, I remember April and John talking about this, and maybe we can help you.
April: That's right. Good point. Okay. All right. So let's talk about coordination of benefits. When you do have a group plan, you're still on a group plan and with Medicare. So let's talk about how health and how healthcare bills get paid. So right now, if you're working, or you're on some sort of group plan, your doctor sends your bills to your health group health plan, and that's how they get paid. When there are two separate insurance companies, though, if there's two insurance companies are involved, such as a group health plan, and Medicare, there is a primary payer and a secondary payer, their primary payer will pay up to its limits. And then the bill is sent to the secondary payer.
So if you're still working, and if you're covered by a health plan that covers 20 or more employees, that group health plan pays first, they're the primary payer. If you're also enrolled at Medicare at the time, which means you would be over age 65. If the bill is not fully covered by your group health plan, then Medicare will pay its portions up to its limits. But here's what's most important about this table is if you're covered by a health plan that covers fewer than 20 employees, if you're on a retiree plan, or if you're on Cobra. So in those situations, Medicare actually pays first. And the other plan is the secondary payer. But in order for Medicare to pay, it must, you must be enrolled in Medicare. And if you aren't enrolled in Medicare, and they're supposed to be the primary payer, well your other insurance may not pay the bills either. So effectively in that case, you wouldn't have any insurance. So that's why it's so important that you enroll in Medicare on top.
So let's talk about who needs to enroll in Medicare and when so we're going to walk through some different kind of case studies and different circumstances about when you enroll in Medicare. So first, let's talk about if you're under 65, and you're still working. Well, there's nothing for you to do for Medicare, yet, you're not eligible for Medicare until you turn 65, which can be a big concern, I understand there's different things that you can do, which we're going to get into if you're under 65. But nothing for new for Medicare until you're over 65. If you're under 65, and retire, again, you're not eligible for Medicare yet. So you'll have to get your insurance from a secondary source. Perhaps if you are married, you might be able to go on your spouse's group plan. Or maybe your employer offers some sort of retiree plan. But if that's not the case, if you do not have spousal coverage, or retiree coverage, then you can buy health insurance on your state insurance exchange. And then you may or may not get a subsidy depending on your income.
So that's a topic. That's the insurance exchange is a little different topic, we're not going to get into details about that today, we're really going to be focused in on Medicare. But if you're under 65, and retired, that is an option. So now let's talk about if you're working and your over 65. So it gets a little more complicated here. So if you're over 65 and still working, the first question you want to ask is does your employer plan cover 20 or more employees? That's the first question. So if the answer is yes, if your employer covers more than 20 employees, then you can stay on your employer plan and you can delay enrolling in Medicare. However, you should talk to your Benefits Administrator to see if you need to enroll in any part of Medicare, especially ask if you need to enroll in Part A. Part A is is what we've been paying into throughout our working career. So usually it is free. And that is what provides hospital coverage. And a lot of times that hospital coverage through Medicare can be better than your employer plan.
So just talk to your Benefits Administrator if you're still working and over age 65 to find out if you need to enroll in Part A at 65. One little caveat here is if you have a high deductible plan and have an HSA, you definitely want to talk to your Benefits Administrator about this, because you cannot enroll in Part A and still contribute to an HSA. So just want you to be aware of that if that is your situation, if you have an HSA, you cannot be enrolled in Part A and still contribute to an HSA. So that's one of the things that you're going to want to take into consideration. All right, let's go back to this question about if you're over 65 and working, and does your employer plan cover 20 or more employees? So we saw that if the answer was yes, you may delay enrolling in Medicare, but you should talk to your Employee Benefits Administrator. But what if the answer is no, what if your plan does not cover more than 20 employees? If that's the case, then you must enroll in Medicare at age 65, in order to have complete coverage and avoiding any penalties.
So if you remember that table that we saw earlier, if your plan covers less than 20 employees, then Medicare is the primary payer. And they'll pay first on any sort of, you know, healthcare claims. But in order for them to pay, you have to be enrolled in Medicare. And you want to also make sure you're enrolled so that you can avoid any of those late penalties. So the number one thing here, if you're over 65 working, but your plan covers less than 20 employees, you're going to want to talk to your Benefits Administrator to find out how your insurance works with Medicare. Because your health insurance at work may change a little bit. Unlike the insurance you had before age 65. Your insurance after age 65 is designed to coordinate with Medicare. And you may want to keep that employer plan for some supplemental coverage to kind of fill in those gaps that Medicaid doesn't pay. But since Medicare is the primary payer, you definitely need to make sure that you enroll in Part A and B.
As a reminder, we had a webinar two weeks ago where we went through the basics of Medicare and went through all about Part A and Part B, D and C coverage. So if you've got some questions about you know, what are these Parts A and B that April and John are talking about? Let us know we did record that webinar as well, and we can get that sent over to you. But Part A covers hospitalizations. And Part B is what covers doctor's bills and procedures. Now, drug coverage works a little bit different. If your employer plan offers coverage that's at least as good as Medicare's, then it's considered credible coverage by Medicare. And you don't have to enroll in a separate prescription drug plan. And your company will give you a letter stating that. They're going to give you a letter saying hey, yes that certifying that the plan that you're on is considered credible coverage.
However, if it's not credible coverage, then in this case, you're also going to need to sign up for some part of Part D to have drug coverage. And again, this is all for people who are if you're over 65 and working, but your employeer plan covers less than 20 employees. So when you are when you turn 65, whether you're working or you're retired, we would recommend that you call social security administration and ask them about enrolling in Medicare. So we would recommend that you call them and find out if they suggest that you'd run any parts of Medicare. If you're working and covered by an over 20 employer plan, then they'll most likely say no, they shouldn't be saying no. And we recommend that you make a record of that conversation, jot down the date and the time and the name of the person that you spoke with, and a summary of the conversation. And then keep that for when you eventually do enroll in Medicare.
There have been cases where people get wrong information about when to enroll in Medicare. And if they don't enroll in time, then they get late penalties. But if you were given wrong information by someone from the Social Security Administration, then you can ask for them to waive those penalties. That's only if you get bad advice from someone at Social Security Administration and not from anyone else. If you're not working or you're covered by an under 20 employer plan, then the Social Security Administration is going to say yes, you need to go ahead and enroll in Medicare. So what are these late enrollment penalties that we keep talking about? So late enrollment penalties if you do not enroll in Part B when you're supposed to, you're going to have to pay an additional 10% for every 12 months that you should have been enrolled. So for example, the Part B premium for 2021 is $148.50. So if you are getting charged a late penalty, you're going to have to pay an additional $14.85 per month this year for Medicare. And then next year, if premiums go up, you have to still pay another additional 10%.
So that goes on. And that goes on for the rest of your life. It's not a one time thing, this late penalty goes on for the rest of your life. That's why you're you're probably get tired of hearing us say how important it is for you to enroll in Medicare on time. One little note we want to bring up about Cobra because this is where we can see some issues there too. So earlier we saw on that chart that Cobra pays secondary to Medicare. And sometimes it's quite common for someone when they retire. If they retire and they're under 65. They may go on Cobra for up to 18 months after leaving employment. The thing to remember here is that Cobra is not considered an over 20 employer plan. And so you still have to follow the general rules for enrolling in Medicare to make sure that not only do you have coverage, adequate coverage, but that you don't have any late penalties.
Some people have come off of Cobra after 18 months and found that they couldn't go into Medicare right away. They had to wait until the next general enrollment period. And that caused a delay for them to have coverage. So again, it's very important to enroll on on time so that you don't have any gaps in coverage. And to avoid those late enrollment penalties as well. How to enroll in Medicare? Enrolling in Medicare is very easy. You can go directly to the Medicare's website, you go to medicare.gov. And there's a button right on the first screen about applying for Medicare. If you are receiving Social Security benefits, when you turn 65, you're going to automatically be enrolled in Parts A and B for Medicare. And again, you will only decline Part B if you're covered under some sort of group plan that covers 20 or more employees. You can also call the Social Security Administration as well to enroll in Medicare.
John: I want to make a quick comment there. It is easy. Even I did it. I was able to go on to the thing and get registered. And then I'll share my experience with that. About three days later, I got a telephone call from a gentleman walking me through and making sure that I understood I did not enroll in Part B. And did I understand that? And I said yes, because I have a group plan with more than 20 employees. And I will continue on that for about another year or two. So they do follow up. And they do ask you questions to make sure that you knew what you're doing. And we've had clients tell us the same thing where they got a phone call. So it's very important that when you go in and just realize you are going to get a follow up call.
April: Yeah, I mean, we've heard nothing but great things about some follow up and making sure that things are done there. So they do a good job with that.
John: Yes they do. I think social security and medicare folks do a good job. I think sometimes criticized a little too harshly. I do understand sometimes you'll call and get one person to answer another person or another. But for the most part, those folks do a very good job.
April: They do, they do. Alright, let's talk about how private insurance works with Medicare to make sure that you have complete coverage in retirement. So even though Medicare is a government program, it's based on private a private insurance model. So that means it's got deductibles, coinsurance amounts, and it doesn't pay for 100% of your care. And then the prescription drug coverage, which is Part D that uses private insurance to provide the actual insurance. So enrolling in just Part A and B for Medicare does not finish the job. You're going to also want to find some private insurance to cover your drugs, drug coverage, and then also probably cover some of the deductibles, coinsurance amounts for hospitalizations or doctor's bills. So like us say there are some gaps that Medicare doesn't cover and that's where private insurance comes in.
So the first thing you want to do is see if you have any employer or retiree insurance that will work with Medicare. If so you may want to keep it. And again, just on that drug coverage, make sure that it's credible coverage according to Medicare. And that means it is at least as good as a Medicare's basic drug plan. The plan is going to know if it's considered credible. So you don't have to worry about that they'll know if it is, and most probably are, but you may find with some high deductible plans that they don't have the right coverage for you for the prescription drugs. If your employer or retiree insurance is not available, then you're going to have two choices, you can take out a Medicare Supplement policy, which is also called a Medigap policy. And you can pair that with a prescription drug plan. The other option is to go with an all inclusive insurance, which is called a Medicare Advantage plans. Advantage plans are like HMOs that involve a network of providers to deliver your care.
So just one note here, when you're taking out, you're looking at a Medigap policy or Medicare Advantage plans, you do still have to enroll in Parts A and B. These are just additional coverages to fill in those gaps. Here are some key considerations for you to think about. When you're deciding which way for Medicare, you're going to go. Are you going to go with original Medicare, which means you have Parts A and B, where you add in a Medigap policy and a prescription drug plan? Or are you going to go with a Medicare Advantage plan. So the one thing you want to check on is, can you see your current doctor, you may want to keep with your current doctor, there may be some specialists that you want to make sure that you still have access to so make sure whichever whichever way you go with Medicare that your doctor can be seen.
Again, those Advantage plans can have a network that you have to see doctors or specialists just in your network. So you want to double check that before you make that decision. The other thing to look at is how much will you be paying for your prescription drug coverage? Prescription drug coverage can get a little complicated. I know John, you can share experiences with us. The main thing is, is that these drug plans vary widely between the different plans, because they all have a specific list of drugs that they cover. So you may have to change your plan every year, depending on which prescription drugs that you take, or if the plan makes changes as well. John, you want to share your experience?
John: I do. I'll keep it brief. But I had I'm on my third plan D. Third year of quote, retirement. Okay, so I know technically I'm retired, but I'm not retired I, I had a situation last year where medication, I'd been paying $40 a month for. My part, jumped to $400 a month. 400 just for that one prescription. Four prescriptions, but just that one. And so it became very clear that it came time to look at the drug plan to find a plan to cover that particular medication. I was shocked at the comparison. I knew there was big differences, but you would think it would be fairly consistent. But each plan D provider has their own list of medications they cover and what percent. So it's very important that you don't forget that and you just you check it every year. I have my representative that did my Medicare Supplement policy. Take a look at that each year. Now let's go through it.
And then the question is, do you do Original Medicare with a Medicare supplement and your own plan d? Or do you use Medicare Advantage that April was talking about. I looked at both. For me, for the lifestyle I want to live and be able to do I wanted the ability to see whatever doctor I wanted to see. Didn't want to be worried about being out of quote territory right out of network. And I also didn't want to be hampered by wanting to travel. But a lot of moving parts to this. Part of what we help people get clear on is okay, talk to us about your lifestyle in retirement. We need to know that anyway because it's going to determine how you're going to fund it. How will you fund your desired lifestyle? And part of that funding will go into the budget here in a minute. You'll see that health insurance is a chunk of that. And it goes up every year. Every year, the costs get higher.
April: That's right. Thank you for sharing. I know we've had other situations too John where a doctor recommended that prescription drugs change or trying a new medication, but that wasn't covered under that drug plan for that year, so they have to wait until open enrollment, change their plan to be able to go on this, this new medication. So that drug plan, you've got to review it every single year. Okay, what are some other considerations? One thing we want to look at is monthly premiums. And also, we're gonna give you some examples in a few minutes. But we want to urge you not to just look at premiums, you got to kind of take it all into consideration, yes, what the monthly premium is important, but how much is your other what how much are your deductibles and your co payments?
How much is all of that going to add up to as well, because if you make the decision just based on picking a plan that has the lowest monthly cost for you the monthly premium, it may cost you more in the end and having some other higher co payments or deductibles. So first of all, we also want to look at too is what are some other out of pocket costs that you might have? We just mentioned, co payments for doctor's visits. And there are other services that are not covered under Medicare, like dental, vision and hearing. Those are not covered by Medicare. So you have to make sure that you've got a plan or a budget for those items as well. So how much can you be expected to pay after going into Medicare? So we're going to take a look at this.
As we mentioned earlier, if you're on a group plan, your employer is probably subsidizing your premiums. And you're cost sharing, right. You're sharing the cost of that health insurance with your employer, those amounts are taken right out of your paycheck. So you may not be aware of how much you're paying for health insurance right now. So you want to first look at that, how much are you currently paying for health insurance? And then starting to take a look at what is it gonna look like in retirement? So when you know, or is it something where you're going to be paying more in retirement, or are you going to be paying less. So different expense items, you've got monthly premiums, we're gonna look at that. And then also the other out of pocket costs, deductibles, co payments, coinsurance, and then any of those non covered non covered services as well.
So the base monthly premium right now for part B for 2021 is $148.50. And that's per person. And we talked about this in our last webinar, but I think it's important for us to cover it again. Medicare has something called an income related adjustment amount. And what that means is if your income hits certain thresholds, you're going to have to pay more for part B, and for Part D, okay? So if you are, if you file single and your income is under 87,000, or if you're married and your income is under 174,000, then you're just gonna pay the the regular premium for Part B, and then whatever your drug coverage is, but if your income is above those amounts, then you're gonna have to pay an extra premium. So we call this an extra tax, because as your income is increasing, then you're going to have to pay more for your Medicare premiums.
We find this a lot. You know, sometimes we hear people say when they first retire, oh, my income's not going to be in one of those brackets. But it can be easy to get there once you're over age 72. And you have to start taking out required minimum distributions. So at that point, the IRS is going to make you start taking money from your retirement accounts. If you have IRAs, 401k's, deferred comp, 403b's, anything of those of that nature. And that income gets added on top of your current income and can push you into these higher levels. So John, I'm thinking about our client several years ago, they they took money out of their IRA to fund a big trip, they were going on a big trip, and they took some money out of their IRA, and it pushed them over the limit. And so they then got a notice from Medicare pay your income was above these limits, and you're going to have an extra premium to pay.
Now Medicare does a two year look back. So when they're doing the the what's your premium going to be for 2021 they're looking at your tax return from 2019. So that's important to note too. It's a two year look back, it's not current year, they're looking back the last two years. And they'll look at that every year. So let's look at some ideas about some different premium amounts here. So first, we're gonna look at a monthly premiums for supplemental coverage. So we just talked about what the Part B premium will be the $148.50. Here's an example here though. If you did go with original Medicare, meaning you sign up for Parts A and B, you could have a Medigap policy of around $200. That's an average. And then also your drug plan could be around $40 per month. If you compare and contrast that a Medicare Advantage plan, that could be around $50 per month.
But again, Medicare Advantage plans, you really want to look at what are those deductibles and everything else that will be in that plan. Out of pocket cost, you've got co payments for drugs and doctor's visits. And you've also got your non covered services like dental vision, hearing, and any sort of like alternative care, like acupuncture or chiropractic visits. Some Medicare Advantage plans do cover, you know, you can get an all inclusive plan through Medicare Advantage plans that have dental and vision hearing. And again, you want to make sure that you choose the plan that's right for you, that covers the services that you need. Here's a sample budget that we might look at here of a monthly premium. So you've got Part B at $148.50. You've got a Medigap policy at $200 a month and a drug plan at $40 per month. So that comes to about $388.50 per month. And that's an that's per individual. So if it's a couple, you're going to want to double that.
Okay. Let's take a look at now we've talked about monthly premiums we talked about earlier to that there's that's not just all that you're gonna be paying for it in retirement, you're going to have these other costs. So let's take a look at a sample of a first year budget for premiums and out of pocket costs. So you know, this is just a starting point, your your healthcare expenses in retirement could be more could be less, but we really just want to get the conversation started. So what we're looking at here, are those monthly premiums that we just looked at came to $388.50. Okay, how much is that going to be? We've got an average of some out of pocket costs for prescription drugs, for dental vision and any other care that you might need throughout the year. That comes to about $6200 per year. Again, that's a per person number, right.
And, again, this is your just a sample budget, we just really want you to start thinking about what your own costs will be, and making sure that you have a plan to pay for that. Now let's talk about transitioning to Medicare. The main thing here you want to look for is that you want your Medicare to start first of the month that you turn 65. Okay, that's the key there. And again, back to that we already talked about earlier about who needs to enroll and when. So about three to five months before you turn 65, you really want to be researching what your options are, you want to find out if you have a employer or retiree insurance available to you and understand how that insurance is going to work with Medicare. If you're keeping your employer retiree insurance for supplemental coverage, make sure you enroll in Parts A and B and ask if you need to enroll in Part D to make sure it's got credible coverage. If you're not keeping employee or retiree insurance, then decide if you need to have a Medigap policy paired with a prescription drug plan or Medicare Advantage plans Medicare Advantage plan, you want to shop for plans and choose and apply one that is going to fit your needs and make sure that you have the right effective date about when that coverage needs to start.
So once you're on Medicare, the other thing you're going to look at here is this is something you're going to want to review every year in the fall. We talked about earlier about reviewing those drug plans. But you just want to make sure that in general, whatever Medicare plan, you're on that you review that every fall, you can see premiums go up, you can see networks change, things like that. So you just want to make sure that you're reviewing your coverage every it open enrollment, which happens in the fall. So you can decide if you're going to stay in your current plan or do you need to switch to something else. If you decided to go than Medigap policy, the policy itself won't change.
But the drug plan with it might. And so again, we talked about that earlier, you just want to make sure that your drug plan covers the prescription drugs that you're currently taking. New plans go on the market every year. So you just want to make sure that there's anything out there that's available that's going to help put you in a better position. And then of course as things change, too, there's something that comes up that John I see that we want to make sure we'll make sure we get that out to you. John, I know we've covered a lot of information. And we're kind of coming up here on the end of our webinar, any thoughts that you have before I summarize?
John: I had a thought went through my head a moment ago, you're talking about and seeing that visual of the prescription bottle alone, the lifesaver there, that preserver, you know, healthcare costs are very high in this. And there's a lot of debate about it, among politicians, you know, should you have Medicare for all should you have Obamacare or whatever. But the truth of matter is, it comes to us as individuals to take personal responsibility. To take the time to understand what's available, design a plan that fits us. And I'm just amazed at the number of times people will come to us, especially those who want to retire before 65. And they have no game plan for their health insurance. You will ask the question, what is your what is how will you pay for your health care in retirement? And sadly, a lot of people don't. And they're dealing with misconceptions, usually, because of a well meaning friend told them what they were doing. And they thought, well, I'll just do the same.
You can't approach it that way. It's like on the retirement income planning side. And so we have over time, our process is to look at everything. Something as mundane as your car insurance and your homeowners. Your health insurance, like we're talking about today. Your legal documents. Your life insurance. All of this is important on the protection side, before we even think about assets, and liabilities and income streams and budgeting. But all this is part of it. This struck me that, you know, if you did not have your coverage set up properly, and you were sick or hurt, you could destroy your savings investment plan or retirement account. How many times have we seen people, April, that had to take money out of their retirement accounts, pay taxes, in some cases, penalties, because we had to pay health care costs for themselves or an adult child even that lost their job, they're back home.
So there's just so many moving parts to this that I just would encourage everyone listening today, watching this. Schedule a telephone call with us, let's just talk about your situation, I call it having a conversation. Let's just have the conversations. And everything may be perfect, something may pop out that we can help you with. But that's really it for me just understand this is a complicated subject. And like most things in my career, had to get involved in learning more about it because people ask questions, and then I had to do it for myself. You know, they say experience is the best teacher. And we've got the experience. Some of it good, some not so good.
April: That's right. That's right. Yeah. And I would just echo what you said, You know, I think this is, you know, we talked about earlier about health insurance being a silo, you know, healthcare in general. And retirement is a silo, it's only one piece of the puzzle. It's, it's a critical one, it's one, we've got to figure out how to plan on how to pay for health care and retirement. But it's only really a small piece of the puzzle. So I echo what you say, said, John, I think you're on the call. You've got some questions, you know, I know we, we try to cover as much as we can, we can't get to every individual situation. So I'd recommend we set up a time and have a call and kind of go through that.
Any questions or concerns they may have? Well, and that kind of wraps us up today for our presentation on transitioning to Medicare. Before we get off, I do want to tell you, we have another webinar that we're continuing on this series about Medicare. We had so much interest in December, I think we had over 100 people sign up for a webinar in December. So we definitely knew that there was some interest in Medicare. So we've got another webinar coming up on February 18th. And we're going to be digging more into how to pay for healthcare, how to avoid those penalties, especially from that IRMA, the income related adjustment amount. So we're gonna get into some strategies there with everyone about about Medicare, how to pay for it, and how to avoid that IRMA tax as we like to call it. All right, well, thank you, everyone, John, any last minute. Any last words before we sign off?
John: I appreciate you coordinating this. And folks, I hope you've benefited today and pick up the telephone and give us a call or send an email and let us hear from you. And just a reminder that if you want a copy of the presentation, request it. We're just not gonna send out to everybody willy nilly. If you want it, we'd be happy to provide it to you. Thank you.
April: Thank you everyone. Have a great day and we'll talk soon.
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