There's a reason retirees are often told they can get away with replacing 70% to 80% of their income without needing more. A lot of costs tend to shrink in retirement.
Many seniors no longer have a mortgage to pay for and can do more home maintenance themselves since they're not busy working. And not having to report to a job means not spending money on a daily commute.
But if there's one expense that tends to increase among retirees, it's healthcare. For a 65-year-old leaving the workforce in 2024, Fidelity puts the average cost of healthcare in retirement at $165,000. And part of that includes expenses related to Medicare.
Image source: Getty Images.
The good news, though, is that you can take steps to lower your healthcare spending as a Medicare enrollee. Here's how.
1. Sign up on time
Although Medicare coverage beings at 65, you can sign up a bit earlier. Your initial enrollment window for Medicare starts three months before the month you turn 65 and ends three months after that month.
It pays to enroll in Medicare on time not just to avoid a gap in coverage, but also, to avoid surcharges on your premiums. If you don't enroll on time, you could face a 10% surcharge for each 12-month period you were eligible for Part B but didn't enroll. And there can be surcharges if you fail to enroll in a Part D drug plan on time.
2. Understand your plan's benefits inside and out
If you decide to stick with original Medicare, you'll need a Part D drug plan to go along with Parts A (hospital care) and B (outpatient care). If you decide to enroll in Medicare Advantage, you should get all-in-one coverage through that plan, including prescriptions.
While the rules that apply to Parts A and B are universal for all enrollees, each Medicare Advantage and Part D plan sets its own rules and has its own benefits. It's important to understand those thoroughly so you're able to take advantage of the perks you're paying for without incurring unwanted costs.
For example, it's common for Medicare Advantage plans to stick you with higher costs for out-of-network care. In some cases, you might even have to foot the whole bill yourself, so it's important to know what your plan will and won't cover.
Similarly, with Part D plans, medications are typically grouped into different tiers that come with different costs. It's important to see what costs you're looking at, since there may be a preferred medication that will result in less out-of-pocket spending on your part.
3. Take advantage of fall open enrollment each year
The Medicare Advantage or Part D drug plan you sign up for isn't coverage you're stuck with for life. Each year, Medicare enrollees can make changes to Advantage and Part D plans during fall open enrollment, which takes place between Oct. 15 and Dec. 7.
During open enrollment, you can switch from one Medicare Advantage plan to another or even drop Medicare Advantage altogether if you're not a fan. You can also make changes to your Part D coverage.
Some people choose to sit out open enrollment because they're happy with their existing coverage. But you never know when a more cost-effective plan might become available. So it pays to do some research during open enrollment each year, no matter what.
While healthcare might end up being a large retirement expense, there are ways you can reduce it as a Medicare enrollee. Read up on Medicare ahead of retirement so you can position yourself to make the most of it while shaving down your costs.
