The potential costs and benefits of Medicare have a huge impact on retirement planning. For most folks, health-care costs are among the largest they will face in their retirement years. And, contrary to what many believe, Medicare is not free.
You do have to "pay to play." In fact, Medicare expenses can be substantial, particularly if you don't plan properly in your retirement budget. The more you know about the impact of Medicare on your plan, the more manageable those costs will be.
Medicare has many components and costs that need to be figured into the retirement-planning equation. There are three main parts to Medicare: Medicare Part A, which generally covers hospital care; Part B, covering doctor visits and outpatient services; and Part D, which covers most prescription medications. While Part A is prepaid by most of us through payroll taxes, Parts B and D are not. Instead, subscribers pay premiums priced on a sliding scale that is, in turn, based on income in retirement. (If you're wondering about Medicare Part C, click here.)
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The smart thing to do is figure those Medicare premiums into your retirement planning. That way, there will be no surprises. Whether you plan for these health-care costs or not, you'll still have to pay for them. And then you may find yourself dipping into your nest egg more often than you planned, leaving you short on money to live on—a bitter, but preventable, pill to swallow that you can avoid with effective retirement planning.