Have you figured the cost of health care into your retirement finances? Although the rate at which health care costs are increasing has slowed somewhat in recent years, they are still rising faster than inflation. And if you think Medicare will have you covered, think again. Medicare generally covers only about 60% of the cost of health care services (not including long-term care) for those age 65 and older.
As Americans’ life spans increase and health care costs rise, the toll on retirement finances can be staggering. Fidelity’s Benefits Consulting business estimates that a 65-year-old couple covered by Medicare needs $240,000 to pay medical expenses throughout retirement.*
Find Out What Your District Offers
If your district provides retiree health benefits, consider yourself fortunate. A growing number of California school districts offer no health insurance to retirees. In 2006, 19% of districts did not provide any support to members at retirement. By 2009 (the most recent data available), 29% provided no support.** See the accompanying chart for a breakdown of districts’ support of retired members’ health benefits.
Many districts require educators to have achieved a specific age and/or years of service to qualify for post-retirement benefits, if they do pay them at all, and many put caps on the amount they will pay. Before you retire, be sure to check what your district offers for retiree health care coverage, especially if you plan to retire before you become eligible for Medicare at age 65. Check your collective bargaining agreement or contact your CTA Primary Contact Staff to learn about your district-paid retiree medical benefits.
If your district offers no coverage and you are under age 65, the cost of health insurance can be high. Californians will purchase individual health insurance policies through a state-run exchange called Covered California in 2014. A cost-estimating calculator on the Covered California website estimates that in 2014 the monthly cost of health insurance for a 60-year-old will be $653.
Even if you do delay retirement until you are eligible for Medicare, be aware that:
- Medicare Part A (hospital insurance) for people who pay a premium costs up to $441 month in 2013. Note that only individuals or their spouses who have never paid into the Medicare system are required to pay for Part A.
- Medicare Part B (medical insurance) costs $104.90 a month for most people in 2013. (Upper income people pay more.)
- Medicare Part D (prescription drug coverage) varies by plan, but averages about $38 a month.
In addition, there are generally deductibles and copays that you must pay out-of-pocket.
What Can You Do?
There are a couple things you can do to manage the rising costs of medical care. First, determine what coverage you will have or can buy, and what it will cost. Then invest in your 403(b) or 457 plan so you have enough saved to cover the cost of premiums, deductibles, copays and other expenses.
A traditional 403(b) or 457 plan offers pre-tax contributions so you can afford to save more, tax-deferred growth that allows it to grow faster than an equivalent taxable account and a variety of investment options to meet your individual goals, risk tolerance and timeline.*** Contributions to Roth 403(b) and 457 plans are not made with pre-tax dollars, but withdrawals in retirement may be tax-free after you’ve held the account five years or more and are age 59½ or older. Learn more about the Tax Benefits of 403(b) and 457 Plans.
The other thing you can consider is working longer. You may want to stay with your district until you are eligible for Medicare at age 65. Or, if your district offers health benefits to retirees but requires you to be a certain age and/or have a certain number of years of service, you might want to work long enough to meet those requirements.
For more help planning your retirement finances, use the Projected Retirement Expense calculator. It’s among a wealth of tools and resources that can help you take control of your retirement planning at CTAinvest.org.
* Source: Fidelity Investments, “Retirees face estimated $240,000 in medical costs,” May 16, 2012, www.fidelity.com.
** Source: CalSTRS 2009 District Health Benefits Survey.
*** Taxes will be due at ordinary income tax rates upon withdrawal from a traditional 403(b) or 457 plan. Premature withdrawals (generally, those made before age 59½) may be subject to a 10% tax penalty, too (does not apply to 457 plans).