Medicare is a federal health insurance program created to help cover healthcare costs for individuals aged 65 and older and those with specific disabilities and illnesses.
Signed into law by President Lyndon B. Johnson on July 30, 1965, Medicare has become a crucial part of the American healthcare system. The Medicare tax is a mandatory payroll tax that funds medical, hospital and hospice care for those who qualify.
Medicare coverage is earned over a person’s lifetime
Medicare is an earned benefit funded through payroll taxes collected from workers and employers. For 2024, the Medicare tax rate is set at 2.9%, split evenly between employees and their employers, each contributing 1.45%.
If you’re self-employed, you’re responsible for the entire 2.9%. While this might seem like a burden, you can deduct half of your self-employment tax when filing your return.
High earners should be aware of additional Medicare surtaxes introduced by the Affordable Care Act. The additional Medicare tax is 0.9% on earnings above $200,000 for individuals, or $250,000 for married couples filing jointly.
Understanding how public benefits fit into retirement
Learning how public benefits work is essential for effective retirement planning. Besides Medicare, the government administers other benefit programs that can play a crucial role in your financial and healthcare strategy. These programs include:
- Social Security: Provides a source of income during retirement based on your earnings history. It’s designed to replace a portion of your pre-retirement income.
- Medicaid: Offers healthcare coverage for individuals and families with limited resources and income. It covers a broad range of health services and long-term care.
- Supplemental Security Income (SSI): Assists people with disabilities or those over 65 with limited income and resources by providing cash to meet basic needs for food, clothing and shelter.
- Veterans Affairs (VA) benefits: Provides a range of benefits for veterans, including healthcare, disability compensation and pension programs.
- Supplemental Nutrition Assistance Program (SNAP): Helps low-income individuals and families purchase food to improve their nutrition and overall health.
Each program has its own rules and eligibility requirements, so it’s important to understand how they fit into your overall retirement strategy.
Consulting an elder law attorney can be beneficial to develop a sound strategy. Knowledgeable lawyers can help protect your personal assets while maximizing the benefits you’re entitled to receive. This ensures you have a comprehensive plan addressing both your healthcare and financial needs as you approach retirement.