There are two misunderstandings that I hear when I speak to people about healthcare costs they will face in retirement. One is they think that Medicare is free. They believe that once they retire Uncle Sam will pick up the tab for healthcare. Secondly, they think Medicare will cover all of their long-term care needs should they arise. Unfortunately, both of these misunderstandings can lead to financial disaster in retirement. So let’s set the record straight and tackle each one so you can plan for the expenses you will encounter in retirement.

1. Medicare is free – No it’s not. Medicare will cover about 62% of your healthcare costs. Part A is free if you have paid into the Medicare system (through Social Security) for more than 40 quarters during your lifetime. You will pay for part B and D. Remember, Part A is the hospitalization part of Medicare. There is no out-of-pocket to you for the premium, however, there are deductibles and copays associated with Part A. Part B will cost each enrollee $104.90 per month in 2013. The income related adjustments will also stay the same in 2013 (these are explained in the free guide you can get from me). Part B is your doctor related expenses i.e. visits, tests, etc. Part D is your prescription drug coverage and that cost is all over the board. You must shop carefully for your Part D coverage. You can do this on the Medicare website here. Make sure that you have your prescription drug information handy in order to get the most accurate quote.

   Oh, and don’t forget, there are copays and deductibles associated with Part A, B and D so you need to build those into your budget. How much are we talking about? According to a Fidelity Investments study the average retiree will need about $200,000 at the start of retirement to cover health care expenses and that does not include long-term care. That leads us to the next misunderstanding.

2. Medicare will cover my long-term care expenses. There is some confusion here because Medicare will cover the first 100 days of hospitalization. After 100 days there is no coverage for skilled nursing care. Medicare will not provide coverage for assistance with Activities of Daily Living (bathing, eating, dressing, etc.). Medigap plans will not cover long-term care expenses either. Long term care costs are expensive. The most expensive type of care is in a nursing home. A private room ranges from $89 per day to $826 per day. The median daily rate is $213 and the median annual rate is $77,745. So what are your options? You can pay out-of-pocket, get long-term care insurance or utilize Medicaid in your state of residence or have a family member take care of you.

   If we add the possible cost of long-term care to our projected lifetime healthcare costs they can easily exceed $400,000 over a 20-year retirement. What can you do right now to get ready for your own healthcare plan? Here are three steps you can take right now.

1.  Understand the healthcare costs that lie before you in retirement including Medicare, long-term care and all of the associated deductibles and co pays. A good place to start is to get a copy of “Medicare and You” handbook from the Medicare web site. Click here to get your copy.

2.   Start planning now. As you consider the income that you will need and the planned expenses that you foresee make sure that you include healthcare as a major expense category.

3.  Get an estimate of what your healthcare expenses will be. A good place to start is with a MyRetirementPlaybook Healthcare Estimator.

By becoming informed about your anticipated healthcare expenses you can begin to plan and avoid the costly mistakes that many people make. Learn now and live well in retirement!

What other questions do you have about healthcare? Leave your comments and questions by Get Your FREE Guide to Medicare.