Healthcare costs can skyrocket in retirement and threaten to derail many retirement plans. People in their early 60s are often exposed to higher health risks but are not yet eligible for Medicare coverage. A thoughtful financial planning process should aim to help people – while they are still working – prepare to navigate their various post-career healthcare options.
Once they do turn 65, many retirees are also overwhelmed by the different choices available for Medicare/gap insurance coverage. It is imperative that retired people strive to protect their nest eggs against possible expenses not covered by basic Medicare. The rest of this article relates some tips to help you aim to accomplish this, plus some ideas on how to integrate long-term care insurance into your financial planning process.
Bridging The Gap: Age 60-65
If you plan to retire before the age of 65, the biggest hurdle can be finding and paying for healthcare coverage until you qualify for Medicare. Luckily, the challenge is a little less imposing than it was a few years ago. The Affordable Care Act provided many early retirees with marketplace options they could not access previously. In addition, the 2022 Inflation Reduction Act extended subsidies through 2025 to make marketplace plans more affordable for many.
One option you will want to investigate, however, is how long you can remain on your workplace plan after you separate from your employer. Many early retirees are unaware that COBRA coverage can be extended for anywhere from 18-36 months, depending on the circumstances. It might make sense for you and your family to simply stay on your employer provided plan for a while. Keep in mind that you’ll be responsible for paying the full premium amount which can be considerably higher than what you were accustomed to paying.
According to the experts at Verywell Health, four factors to consider in retaining coverage are:
• Length of time to bridge until Medicare eligibility
• How much you’ve already spent on out-of-pocket costs
• Your potential eligibility for subsidies in the marketplace/exchange
• Whether you can retain your current doctors if you switch insurance plans
If you do choose to go the route of a marketplace plan, make sure you accurately predict your retirement income, should potential subsidies play into the calculation. The amount you received is based on a form of modified adjusted gross income (MAGI) that is specific to ACA insurance plans. You may also find if you are in higher income levels that the subsidy makes the most sense if you enroll in a gold (higher premium) plan rather than a bronze or a silver plan.
Finally, some clients have found success investigating private insurance plans outside of the exchange. Just be careful to read the fine print, as many of these plans have lower premium costs due to excluded procedures or very high deductible levels. Make sure you discuss your options with your spouse, as they may have additional options (such as joining their employer provided insurance plan) that you haven’t investigated for a while.
Health Care Coverage At Age 65+
Rising medical costs and the possibility of cuts to government benefits threaten not only your financial well-being but your confidence in retirement. Considering that many individuals will spend over 20 years in retirement, it’s important to remember that your health and mobility will be different at age 65 compared to age 85. You need to consider caregivers for both you and your spouse and changes to your housing needs as you age. You need to put contingency plans in place to give yourself options, and we’re here to help you do just that.
It goes without saying that retirees usually have greater healthcare needs and may require longer and more frequent treatment for health-related issues. A typical 65 year-old woman can expect to pay over $5,000 in out-of-pocket costs — and that’s with comprehensive coverage and decent overall health. For the chronically ill, prescription drug costs can blow a retirees budget out of the water. Reading our Guide to Social Security & Medicare Benefits is a great first step to understanding your potential needs in retirement.
The best way to combat healthcare costs is by carefully matching your healthcare plan selection with your healthcare expectations. If you or your partner is still working, you may have to weigh the option of remaining on the employer-sponsored healthcare insurance plan. Often, you’ll need to decide between Traditional Medicare (with and without prescription coverage), Medicare Advantage, or some sort of bundling with employer-sponsored coverage based on your expected needs.
These coverages differ in how much they will protect you and their potential costs, so retirees will often need to make trade-off decisions when selecting a plan. Individuals in poor health or planning major surgery may consider higher premium plans to reduce the risk of extreme or unpredictable out-of-pocket costs. Others, especially those who are younger or expect to remain healthy, may experience lower costs by opting for a less extensive supplemental policy.
Long-Term Care: Navigating Insurance Options
Unfortunately, all retirees face the possibility of a debilitating illness or injury that requires long-term care. This risk is a source of worry for retirees – nearly half fear they won’t have enough money for long-term care or a nursing home – yet most opt against long-term care insurance due to the high costs. Some think their good-health will continue into their golden years or think a spouse or children will be able to tend to them, if needed.
Retirees need to understand the medley of long-term care insurances that are in the marketplace. At Magellan Financial, we work with our clients to make sure they know the fine print so that they make the best decisions for themselves and their loved ones. State insurance regulators and industry organizations recommend retirees take seven factors into consideration when weighing long-term care insurance options:
- Company reputation & legitimacy
- Coverage parameters
- Benefits payout
- Waiting period
- Benefits Protection
- Tax Implications
Long-term care insurance is a tough decision but it doesn’t have to be avoided. Do your research and decide what type of care you are most likely to need. Start with a reputable resource like acl.gov/ltc and if you want long-term care integrated into your larger retirement planning process, contact us at Magellan Financial today. We can discuss a financial plan that potentially bundles long-term care insurance with a hybrid life insurance policy to control costs.
Wells Fargo Advisors Financial Network and its financial advisors provide non-fiduciary services only. They do not provide investment advice [as defined under the Employee Retirement Income Security Act of 1974 as amended (“ERISA”), have any discretionary authority with respect to the plan, make any investment or other decisions on behalf of the plan, or otherwise take any action that would make them fiduciaries to the plan under “ERISA”.
Wells Fargo Advisors Financial Network and its affiliates do not provide legal or tax advice. Transactions requiring tax consideration should be reviewed carefully with your accountant or tax advisor. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.