If you've paid FICA taxes for at least 40 calendar quarters, you'll receive free coverage for Medicare Part A, the hospital insurance portion. You can still get Medicare coverage even if you haven't paid FICA taxes for that many quarters, but it's gonna cost you. For example, if you've paid FICA taxes for fewer than 30 calendar quarters, you can buy Part A coverage for a monthly premium of $450 in 2011. And if you've paid FICA taxes for 30 to 39 quarters, the monthly premium in 2011 is $248.
So if you're eligible to receive Medicare Part A for free, you're receiving a value of $450 per month, or $5,400 per year. If you're retired for 20 years -- a typical lifespan for people who attain age 65 -- then you'll realize a value of at least $108,000, and probably more, since that $450 premium will certainly increase substantially as future medical costs continue to rise. (For more details on what you can expect from Medicare after age 65, see my recent post, 8 Essential Steps for Enrolling in Medicare).
Now let's look at Medicare Part B, the portion covering physician and outpatient services. If you're a new retiree in 2011, you're required to pay a monthly premium of $115.40, no matter how many calendar quarters you worked. This premium covers about one-fourth of the program's cost. The remainder -- about $346 -- is being paid from the federal government's general revenues. The monthly premium adds up to $4,152 per year. Again, if you're retired for 20 years, that represents a value of $83,040.
So add up the $108,000 in value for Medicare Part A, and the $83,040 for Medicare Part B, and the total value to you is $191,040 over the course of 20 years. If you add in inflation in medical costs, this value will easily exceed $200,000. This amount grows even larger if you live longer than 20 years, and double that amount if you're married.
Many people get frustrated at the amount of taxes they pay, and that's certainly understandable. But if you recognize that you'll receive substantial value in your retirement years for the taxes you've paid into Social Security and Medicare, the burden might not seem as heavy.
One important note if you're self-employed: If you have the ability to eliminate your FICA taxes by manipulating your finances, you might want to think twice before doing that because you'll end up paying a lot for medical coverage in your retirement years if you haven't paid taxes for at least 40 calendar quarters. I encourage small business owners to pay some FICA taxes each year into Social Security and Medicare -- it's an important part of your retirement planning.
Most of us need to make every dollar count in our retirement years, and Social Security and Medicare are an important part of our retirement security. While these programs need some adjustments to be sustainable in the years to come, I'm glad these programs are here to meet the retirement needs of our citizens.
Image from iStockphoto contributor rKIRKimagery
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