Retirement 101: Health Insurance and Housing
SmartFinancial Offers Unbiased, Fact-based Information. Our fact-checked articles are intended to educate insurance shoppers so they can make the right buying decisions. Learn More
Retirement is on the horizon and whether you plan to stay at home or buy a new home in a new location, there’s plenty to decide. What Medicare plan should you choose and when? Should you stay with an employer health plan? Where are the most affordable places to retire? What are some tips for downsizing and budgeting? All of this will be discussed and more in Retirement 101.
Medicare is the health insurance for people age 65 and older. Medicare helps with the cost of health care but it does not cover all medical expenses or the cost of most long-term care. So you can expect to have some medical expenses that Medicare doesn’t cover.
You get to choose how you get your Medicare plans and coverages. See more below.
If you choose to have Original Medicare (Part A and Part B) coverage, you are able to buy a Medicare Supplement Insurance policy from a private insurance company. SmartFinancial will help you find the lowest rates. Medicare Supplements (also called Medigap) will help with copayments and other out-of-pocket costs, like prescription medications.
Medicare Part A helps pay for inpatient care in a hospital or limited time at a skilled nursing facility following a hospital stay. Medicare Part A also pays for some home health care and hospice care.
Medicare Part B helps pay for services from doctors and other healthcare providers, outpatient care, home health care, durable medical equipment and some preventative services.
Private Medicare Option
Other parts of Medicare are run by private insurance companies that follow the rules set by Medicare.
Medicare Advantage Plans, also known as Medicare Part C, are also regulated by the government and they include all the benefits and services covered in Medicare Part A and Medicare Part B, with prescription drugs and additional benefits such as vision, hearing and dental bundled together with one plan.
You cannot have a Medicare Advantage Plan and Medicare Supplements. You can buy one or the other. Medigap, for instance, is designed to work with Original Medicare while Medicare Advantage covers prescription drugs and other benefits Original Medicare does not cover. You do not need both of these private types of insurance.
Applying for Medicare Part A and Medicare Part B
Most people age 65 or older are eligible for free Medicare Part A if they have worked long enough in the U.S and paid Medicare taxes. You can enroll in Medicare Part B by paying a monthly premium. If you do not qualify for Part A, you can buy it for $458 a month. Part B premiums are $144.60 for 2021.
You can apply for Medicare Part A and Part B by using an online application or speaking with an agent at 855-214-2291. Remember that can turn down Part B, but this is the coverage that pays for doctor visits and similar services. If you do not buy Part B, you must pay for services on your own. If you wait to buy Part B, you will have to pay a penalty for the remainder of the time you have it, so it’s a good idea to enroll right away.
With Medicare, your initial enrollment period begins three months before your 65th birthday, includes the month you turn 65 and ends three months after that birthday.
Passing Up Medicare Part B
If you choose not to enroll in Medicare Part B and then decide to do so later your coverage could be delayed and you may have to pay a higher monthly premium for as long you have Medicare Part B. How much higher will your premium be? Your monthly premium will go up 10 percent for each 12-month period that you were eligible for Medicare Part B but didn’t sign up for it, unless you qualify for a special enrollment period.
If you have medical insurance coverage under a group health plan based on your spouse’s or your current employment, you may not need to apply to Medicare Part B at age 65 and you will not be fined for enrolling late. And, you will be able to sign up during a special enrollment period. This period lasts any month you remain covered under the group health plan and you or your spouse’s employment continues. This special enrollment period also covers the 8-month period that begins the month after your group health plan coverage ends or employment that it is based upon ends.
If you don’t enroll in Medicare Part B during your initial enrollment period you have another chance each year to sign up during a general enrollment period from January 1 through March 31. Your Medicare coverage begins on July 1st of the year you enroll.
Employer Health Plans and Medicare
What if you are working and have a group health plan through an employer when your 65th birthday rolls around? You can stick with your employer plan but you may pay penalties if you work for a very small company.
The size of the employer determines whether you may be able to delay Medicare Part A and Medicare Part B without having to pay a penalty for enrolling later.
If the employer has fewer than 20 employees, you should sign up for Medicare Part A and Part B coverage when you are first eligible otherwise you risk a penalty.
If the employer has 20 or more employees than you can hang on to your group health plan coverage without worry. If you want to keep your employer health plan and delay both Medicare Part A and Medicare Part B coverages, you don’t need to do anything, just let the time for initial enrollment pass.
Should your employment end, you may be eligible to get Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage, which continues your health insurance plan through the employer’s plan usually for 18 months.
But your time to sign up without penalty for Medicare Part B is shorter than that. You have eight months to sign up for Medicare Part B without penalty after your employment ends.
So find out what the Medicare penalty will be and weigh the pros and cons of continuing COBRA for the full 18 months.
Eligibility for Medicare Part A Coverage
If you’re eligible for free Medicare Part A coverage, you can enroll any time after you are first eligible for Medicare. But for people who will pay a premium for Medicare Part A, there may be a penalty if they don’t buy it when they are first eligible.
Medicare and Health Savings Accounts
A health savings account is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. To avoid a tax penalty, stop contributing to your health savings account at least six months before you apply for Medicare.
If you enroll in Medicare Part A and Medicare Part B, you can no longer contribute pre-tax dollars to a health savings account. But you can spend the funds that are already there for qualified medical expenses and the money will continue to be tax-free.
Cheap Places to Retire
Looking to stretch your dollars in retirement? Personal Finance Insider found 17 affordable cities for retirees. The survey looked at the cost of adult day services in each city and the state tax rate for a median income family.
Five of the cities were in the state of Florida. These affordable cities were Jacksonville, Tallahassee, St. Petersburg, Tampa and Orlando.
Texas had four of the cities, including the top city of Laredo. The other Texan cities in the survey were San Antonio, El Paso and Brownsville.
Alabama had the lowest cost of adult day services in the country. Three of its cities made the most affordable list, Mobile, Birmingham and Montgomery
Tennessee had two cities make the survey, Knoxville and Memphis.
Mississippi, Arkansas and Wyoming all had one city make the list. In Mississippi it was Gulfport, in Arkansas it was Fort Smith and in Wyoming it was Cheyenne, which is the number two city on the list,
Rounding out the top five were Brownsville, Texas, number three, Montgomery, Alabama, number four and Fort Smith, Arkansas number five.
Tips for Downsizing
Whether you are moving to a new state or staying close to home in your retirement, you’ll want to downsize to a more affordable living situation. You have decades of stuff to go through before you are ready for a more cosy home.
Gifting items to loved ones and donating items to charities are positive ways of letting go of many years’ worth of stuff. Keep receipts for the charitable donations that you make. These will come in handy at tax time. Ask that the receipt be itemized, dated and signed by the charity. And you may want to take photos of the donated items as well.
Don’t forget to recycle all you can. Paper trails pile up over the years. So shred and recycle as you go through your piles.
If you have valuable items that you no longer have use for, you may wish to contact an auction house.
There are companies that will help you clean out your house so if you feel overwhelmed feel free to enlist some help.
One way to make downsizing more manageable is to stick to one room at a time. Once you finish going through that room, you move on to the next.
Tips for Budgeting
Start by understanding your fixed expenses and how you can use guaranteed sources of income such as Social Security, pensions and annuities to pay for them. These bills, such as housing and healthcare, are due every month so it is good to have a steady way to pay for them.
You’ll also want to create a discretionary spending budget by focusing on categories of spending such as travel and entertainment, two things retirees like to do more of during retirement.
Can you match these nice-to-have expenses with income from individual retirement accounts? It will make your budget easier to manage if you do.
Get a handle on monthly expenses. How much are you paying each month for your electric, cable and phone bills? Look at all your monthly bills. Are there services you can cut? You’re looking to streamline your expenses as much as possible. Are there work-related expenses that you no longer need anymore? Cut them and save the money.
If you’ve paid off your house or condo, congratulations. But you still have maintenance and utilities to pay for and any repairs, too. Budget one percent of your home’s value for annual maintenance. So if your house is worth $250,000 one percent would be $2,500. So you would have about $2,500 in maintenance expenses each year. Better to budget for it than be surprised.
If your discretionary spending is travel, how far and for how long will you travel? Will you be visiting relatives? Touring the country? Or are you just planning to get away on a few long weekends? If you are planning a lot of trips, you may want to add a travel fund to your budget. That way the money will be there when you need it.
What other goods or services can you cut to allocate more money to your travel fund? After years of working, it is wonderful to be free to travel when you want. Put enough money aside in your travel fund to satisfy your wanderlust.
Planning a more frugal retirement? Make a budget and stick to it. Tally up all expenses and cut all but the most essential. Keep some money for discretionary spending. But you want to keep eating out and similar expenses to a minimum.
Love to garden? You can save money by growing your own vegetables. Want some company? Join a community garden.
Make time for volunteering. It will help get you out and about and it feels good to use your skills to give something back. Best of all, it is all free.
Can you get by with a smaller house, apartment or condo? Make the move to a more affordable home. You’ll save on property taxes, maintenance and utilities.
Can you manage with one car instead of two? Retirement is a great time to lower your car expenses. There are always Uber and Lyft services that you can take if you need a ride somewhere if you share a car with a spouse. Talk it over. Having one car is a great way to save money. You’ll save on car insurance, routine maintenance, tires and other repairs. All those expenses get cut in half. Just make sure you pay the lowest prices on car insurance.
Make time for some healthy exercise. Walks are great in the morning and evening. Swimming is a great workout for the whole body. Whatever you do, make it something you love. Regular exercise will help you stay fit and healthy. You will have energy to do the things that you love.