Budgeting for medical expenses with Medicare

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(MoneyWatch) Welcome back to my fourth and final post this week on enrolling in Medicare and buying medical insurance once you reach age 65. This post wraps up the series of steps you should take to make sure you're covered by medical insurance.

One of the most important steps you need to take is to figure out how to deal with any medical expenses not covered by Medicare. Medicare Parts A and B and most Medigap plans don't typically pay for long-term care, vision, dental, hearing aids, or eyeglasses. Some Medicare Advantage Plans pay for hearing aids, vision, and/or dental, but you'll want to check the specific features of your plan to see if these things are covered.

The most overlooked source of retirement health-care expenses is long-term care. Medicare, Medicare Advantage, and Medigap plans don't cover most expenses for custodial long-term care. The only situation for which these plans cover some long-term care expenses is when you use a skilled nursing facility immediately following a stay in a hospital. Because this topic is such a critical one -- everybody needs to have a strategy to pay for long-term care expenses -- I'll be covering this topic in much more detail in next week's post of my retirement planning series.

If you don't already have dental insurance, you may need to purchase it separately, particularly if you have significant issues with your teeth. Don't just go without insurance and let your dental health decline. Poor dental health can start a freefall into poor overall health and contribute to a higher incidence of infectious diseases. And if you can't chew your food, you're in trouble!

If you need hearing aids and/or eyeglasses, you'll want to determine if either your Medigap or MA plan covers these expenses. This can be one item you might to want consider when shopping for either type of plan. If the plan that you choose doesn't cover these expenses, then you'll need to factor these expenses into your budget.

Let me point out the obvious: If you're covered by your employer's medical plan as an active employee and are approaching retirement, consider getting any needed dental, hearing, or vision care completed before you retire. You'll most likely pay less out of pocket, compared to waiting until after you retire.

You're almost done! After all this homework, you're finally ready to prepare your monthly budget for medical insurance. Be sure to include all the premiums you might pay for Medicare Parts B, C, and/or D, as well as for MA, Medigap, and dental insurance. Include a budget for out-of-pocket expenses, since all plans have deductibles and co-payments. And don't forget to include the projected cost of eyeglasses and hearing aids, if applicable. When you add up all these costs, don't be surprised to see that you have a monthly budget of $500 or more per person for medical costs.

Then factor these costs into your monthly budget. This will help you decide when you can afford to retire. In addition, when you see how much money you could be spending on medical insurance and out-of-pocket costs, you might get really motivated to take better care of your health to potentially reduce the amount of money you spend. Wouldn't you rather spend your money on fun things than on medicine or visits to the doctor?

There are a lot of details you need to know regarding Medicare and medical insurance after age 65. If you want to learn more about all aspects of Medicare, read Social Security: The Inside Story, by Andy Landis. Don't be fooled by the title -- the book also covers Medicare. The Centers for Medicare & Medicaid Services also offers an excellent online guide.

Medical insurance is definitely one of many areas of retirement planning that will take a lot of your time in order to do your homework right, but it's well worth the effort. The research you do now can save you a lot of money and heartache when you eventually need medical services.

And don't give up in frustration! After all, you're planning for the most important part of your life -- the rest of your life! You have the potential to save hundreds, if not thousands, of dollars through careful planning and to give yourself the health to enjoy your life.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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