What would you guess is the biggest “money suck” in retirement?
Many would say traveling, spoiling grandkids, eating out too much, or maybe finally splurging on things you put off during your working years (we can finally join and use a country club!).
While it’s true that overspending can definitely suck your money away in retirement, one of the most common ways we see people’s retirement savings disappearing is…you guessed it:
Medical bills.
When someone is thinking about retiring, one of the biggest pieces of advice we give them is this:
“Limit your out-of-pocket exposure!”
What is out-of-pocket exposure?
OOPE (as we’ll call it from now on) refers to the costs that Medicare doesn’t cover for health care, including deductibles, coinsurance, copayments, and excess charges. OOPE costs also include all costs for services that aren’t covered by Medicare or other insurance.
In a hypothetical scenario, Bob decides he is just going to sign up for Medicare A, B and D (hospital, medical, and prescription coverage) and eschew a supplemental or “Medigap” policy.
When he is unexpectedly admitted to the hospital for congestive heart failure, every time he has a scan – boom! Copayment.
Every day he stays extra in the hospital past the Part A allotted 60 days – boom! Copayment.
Every visit to a specialist – boom! 20% coinsurance.
For Bob, all these copayments and coinsurances are coming straight from his retirement savings.
It doesn’t take a genius to figure out how quickly his retirement savings could go POOF! We all know how expensive medical bills can get.
The thing that will protect you from OOPE is not just having the basic parts of Medicare (A, B, and D) but adding on a supplemental policy.
If a supplemental policy is out of budget for you, a Medicare Advantage plan will also put a cap on your OOPE.