The reality is that Medicare won't pay for dental, vision, long-term care, or many other medical services that are crucial in retirement. Here's how to plan now for your future health needs, now.

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Consider this: As of 2020, the average couple, at age 65, with median prescription drug expenses, would have needed to save $265,000 total to have a 90% chance of having enough for health care expenses in retirement, according to the Employee Benefit Research Institute. That is, they'd have to have pre-saved about $13K for every year of their life after age 65—all before turning 65.

And that's just folks with a medium amount of prescription drug expenses; according to AARP, if an older person were taking an average of 4.5 prescription medications regularly, the total cost would top out at $26,000 annually. And that was based on data from back in 2015; prices have only climbed since then.

No-Medicare-Wont-Cover-Your-Health-Expenses-in-Retirement
Credit: Photo Illustration by Jo Imperio

Yet many people approaching retirement live under the myth that Medicare, the federal health insurance program, will cover all their health needs as they age. But the reality is that Medicare, while a blessing to many, won't pay for long-term care, services like vision and dental, home health care, or other medical services that can be crucial in retirement. 

But don't fret: There are strategies you can set in place now to make sure you are in good financial shape to maintain your (also hopefully good) physical and mental shape as you age.

What is Medicare, exactly?

Let's admit it: Medicare is pretty confusing to the average person, so it's easy to fall prey to the myth that it will cover all your health costs when you turn 65. 

Medicare is the federal health insurance program for those over the age of 65, as well as for certain people of any age with disabilities or people who have permanent kidney failure that requires dialysis or a transplant.

Different parts of Medicare cover different things. For instance, Medicare Part A covers such services as inpatient hospital stays, hospice care, some home health care in a skilled nursing facility. Medicare Part B, on the other hand, covers doctors' services, outpatient care, preventative services such as check-ups and mammograms and medical supplies. Medicare Part D helps with the costs of prescription drugs and vaccines.

Although it sounds relatively straightforward, it isn't. Some people get Medicare automatically, but others have to sign up themselves—especially those approaching or turning age 65 who are not receiving Social Security.

But wait: There's more. Once you've signed up, you need to choose between Original Medicare (Part A and Part B) or a Medicare Advantage Plan (Part C). You can also choose additional coverage such as Medicare drug coverage or Medicare Supplement Insurance (Medigap).

Original Medicare covers Medicare Part A (Hospital Insurance) and Part B (Medical Insurance) while Medicare Advantage is more of a bundled package that includes Part A, Part B, and usually Part D with lower out-of-pocket costs than Original Medicare.

Depending on which plan you choose, you may have some out-of-pocket expenses such as premiums, copayments, deductibles to meet, and co-insurance. In some cases, Medicare won't cover dental, vision or long-term care.

The good news is that most people won't have to pay a premium for Part A because they already paid for it through payroll taxes, but if you don't have a premium-free plan, then what you pay to buy Medicare Part A depends on the Social Security credits you've earned.

Again, figuring out the ins and outs of Medicare can be confusing. For this reason, Medicare advisors are becoming popular. These advisors are agents who represent different Medicare plan providers, but you can also get free Medicare counseling through State Health Insurance Assistance Programs (SHIP).

What does it mean that Medicare won't cover everything?

Julie Davis, who works at continuing care retirement organization Concordia Life Plan Community in Oklahoma City, witnesses this confusion all the time. The community sees plenty of retirees who have a misconception of what should or should not be covered by their Medicare.

"There's so much that people don't know about Medicare. And we don't know what we don't know, so that's the problem," Davis tells Health.

Take the aforementioned statistic—that the average couple age 65 would need $265,000 to have a 90% chance of having enough for health care expenses in retirement—and divide it by two people, that equals $132,500 per person.

Then, divide that number by 10 years to reach age 75, and that equals $13,000 a year, which is roughly $1,100 a month. If you drill it down even further, know that you may end up self-paying home care, which Medicare does not cover, at the median cost of $19 an hour for three hours a day, seven days a week—that's paying $20,748 a year. You're now in the red.

"So if you're just supplementing on the types of things like having somebody to come in and help with bathing or be a sitter for someone with dementia, you would be paying $19 an hour out of pocket," Davis says. "Medicare does not cover that."

Long-term care is not covered by Medicare either, and most retirees invest in long-term care insurance. While Medicare is designed to cover medical needs, long-term care in a facility falls under private pay.

"What I hear often is the premiums on long-term care insurance keep going up, sometimes by some crazy amount every year, but I tell people if their policy covers them for more than four or five years or if you were lucky to get lifetime coverage, It's worth every penny," Davis explains. "Why? Because you may be paying $4,000 for that year's premium, but one month of care in the nursing community could be as much as $10,000 a month."

How to save enough for future health care needs

  • First, stay healthy. While it seems obvious, investing in your health now can save you money in the future. Those people who eat a balanced diet, exercise, and don't smoke are likely to spend less on health care than those who do not.
  • Consider a Medicare supplement plan, which are supplemental insurance plans you pay for to cover what Medicare doesn't. These plans are available through private insurers and each has different features and prices.
  • Buy into health savings accounts (HSAs), which allow you to save money for healthcare expenses (even before you retire) if you have a qualifying insurance plan. HSA funds can be used for medical expenses, and you won't pay taxes on them. However, you'll pay taxes on your withdrawals for non-medical expenses and a 20% early withdrawal penalty if you withdraw before age 65. But you won't be forced to take the money out once you turn 72, unlike with other retirement plans.
  • Purchase long-term care insurance, which will cover costs for home health or skilled nursing facilities. If you have a chronic condition, this is something to consider. Financial advisor Harry Abrahamsen tells Health that "looking into hybrid long-term care policies are excellent solutions to cover you if you cannot do two out of the six activities of daily living (ADLs)." Just know that long-term care insurance is usually pretty expensive. So, another option:
  • "If you can't afford this," Abrahamsen adds, "then there are some very interesting annuity contracts that offer an income doubler for five years. This is a nice feature because you can take a 401k and invest it into a product that provides guaranteed income for the couple. If the spouse can't do two out of the six ADLs, the income would double for five years and then revert back to the previously established guaranteed income."
  • Invest even more into your retirement savings now. Using a retirement calculator, you can determine how much more you need to invest now, every month or year, to cover that average $265,000 you'll need to maintain your health care.

Understanding what you need to maintain your health as you age is vital when planning retirement savings and working with retirement planners. That being said, be aware that retirement planners are not always Medicare experts; Medicare isn't their industry, after all.