Be sure to include health care costs in plans - USATODAY.com

By John Waggoner, USA TODAY
One thing that might not be in your retirement plans: an annual cashectomy. That's the amount you'll have to shell out each year for medical care. If you don't plan carefully for health care costs, your retirement dreams could end up in the emergency room.
Many retirees assume that Medicare, the government health care program, will cover most of their health care costs. Unfortunately, that's not the case.
If you're 65 and eligible for Medicare, be prepared to bear potentially major health care costs. Fidelity Investments estimates that a 65-year-old couple will spend about $200,000 over 20 years on health care, even with Medicare coverage. Let's start with the premiums for Medicare itself:
•Part A covers hospitalization costs. Your Medicare expenses depend on the number of three-month periods, or quarters, that you've had Medicare-covered employment. If you or your spouse has 40 or more quarters (10 years) of Medicare-covered employment, you pay no premium. The premium is $226 a month if you have 30 to 39 quarters of Medicare-covered employment. It's $410 a month if you have fewer than 30 quarters.
Like most insurance plans, Part A charges deductibles: $992 for a hospital stay of 1 to 60 days, $248 a day for days 61 to 90, and $496 a day for days 91 through 150. A 150-day stay could cost as much as $38,192. After 150 days, you pay all costs.
•Part B covers doctor services and outpatient hospital services. The premium is $93.50 a month. Your deductible is $131 a year, but you pay 20% of the Medicare-approved amount after you meet the deductible. (You may pay more if you're single and your income is above $80,000, or $160,000 for married couples.)
Assuming you're perfectly healthy for the year, you'll spend $1,122 for Part B premiums. If you have fewer than 30 quarters of Medicare-covered employment, you'll spend $6,042 a year in Part A and Part B premiums.
Medication issues
But Part A and Part B don't cover prescription drugs. Medicare Part D does, and it's complicated. Each state has many different plans available; the cost of each plan depends in part on your deductible. Plans in California, for example, range from $9.70 a month for a plan with a $265 deductible and $80.90 a month with no deductible. People with low income and assets may be eligible for extra help from Social Security.
Furthermore, Part D coverage has a gap, called the "doughnut hole." Medicare will pay for 75% of your drugs, minus the deductible, up to total drug costs of $2,225. That figure includes your deductible, your co-pays and the amount Medicare pays.
After your total drug costs reach $2,225, though, you're on the hook for 100% of your costs until you've spent $3,600 in out-of-pocket drug costs. That's the doughnut hole. After you hit $3,600, you pay about 5% of your drug costs.
You can, however, buy "Medigap" plans, which pay some of your out-of-pocket costs. The government has standardized Medigap plans, from the most basic (Plan A) to other, more comprehensive and expensive plans. Plan A, for example, will pay the costs of days 61 through 90 in a hospital and give you 365 additional paid hospital days in your lifetime.
One catch: Even though the benefits of Medigap insurance are standard, the cost isn't. You have to shop carefully for the best deal. A 65-year-old in Virginia, for instance, can choose from Medigap A policies with costs ranging from $757 to $3,000.
Another catch: Medicare and Medigap still don't cover many costs. Dental care, for example, isn't covered. Neither are eyeglasses, hearing aids or regular checkups. (You do get one free checkup when you start Medicare.) Long-term nursing home care typically isn't covered, either.
You might consider a Medicare Advantage Plan, which works like a Health Maintenance Organization. You may get extra benefits from the Medicare Advantage Plan — and lower costs — but you might be restricted to the plan's doctors and hospitals. If you use a Medicare Advantage Plan, you probably won't need Medigap insurance.
Early retirement, then what?
What if you retire — or are forced to retire — before you're eligible for Medicare at age 65?
"I've had clients who have retired early and gotten health insurance, but it's expensive," says Jonathan Pond, author of You Can Do It! A Boomer's Guide to a Great Retirement.
Start by asking if you can continue to get insurance through your former employer. Your state may also offer group health plans for seniors.
Otherwise, you'll have to shop around for private health insurance. You can reduce your costs by taking health care plans that have high deductibles or no prescription drug coverage. But if you do, you'll need to have enough money stashed away to cover the deductible in case you need it.
AARP offers a comprehensive health care plan with a $2,500 deductible. Cost for a healthy 60-year-old: $449.75 a month. Choose a $5,000 deductible, and the monthly cost falls to $313.75.
Timothy McIntosh, a financial planner in Tampa, says it's best to keep $5,000 to $10,000 available each year to pay for your Medicare co-pays and other items that Medicare doesn't cover.
"Think of it as a slush fund for extra medical costs," he says.