Health care is an often overlooked aspect of retirement planning, yet it is one of the most financially influential. Some may assume that Medicare will cover all medical costs. The truth is, for most people, healthcare costs not covered by Medicare during retirement are substantial, so it is important to plan ahead using rough financial estimates and potential health risks based on family history.
Early retirement
Those who are looking to retire early may receive a rude awakening when they begin handling the health insurance responsibilities that used to be in the background of their lives.
Medicare won’t kick in until age 65, so the big question is what to do until 65. If retiring at age 62, one might choose to begin receiving Social Security benefits early, but there is no government option for receiving medical benefits early. Forgoing health insurance altogether might mean sacrificing a substantial portion of the retirement nest egg, which could turn an early retirement into a delayed retirement should a medical emergency occur. Generally, those who are retiring early consider these options:
Spouse’s medical plan – The first choice for those with the option may be for the spouse to select a family plan instead of an individual plan (assuming that the spouse is not retiring at the same time). Not all employers offer this option and there may be additional costs, but it can end up costing less than an individual plan with the same coverage.
Cobra Insurance – Employers with 20 or more employees must provide a temporary continuation of health insurance coverage based on a termination event. This may only be for 18 months, depending on the termination event, so it may not last the entire 3 years between early retirement at age 62 and Medicare starting at 65.
Public Marketplace – You can shop for insurance in the public marketplace during the enrollment period and, if your income is low enough, you may qualify for public assistance as well. (But if your income is that low, perhaps early retirement should be reconsidered.)
Medicare, Medigap, and Medicare Advantage.
There are five terms to familiarize yourself with in regard to Medicare as you turn 65, and three ways to approach healthcare coverage. Some coverage plans can be changed after retirement but some private plans may only be offered when you first start, so that should also be taken into consideration.
Public coverage.
Medicare Part A – Most people will not need to pay for this coverage, as it will be covered by their taxes, paid throughout their working lives. However, those who have paid in for less than 30 quarters (7.5 years) would need to opt in and pay premiums directly. The premium amounts for Medicare coverages can be found here, and the coverage is for hospital stays and inpatient visits. Even for those with no premium costs, there are still applicable deductibles for hospital care and copays for longer stays.
Medicare Part B – The premium for 2024 is $174.70 per month, and most people have it deducted from their Social Security benefits. An additional charge for Part B starts for an individual with an income over $103,000 and scales upward based on income. It covers doctor visits, outpatient visits, and durable medical equipment after deductibles are paid.
Medicare Part D is for drug coverage, and the additional cost is variable, depending upon the plan and your income.
Private coverage.
Medigap Insurance – A Medigap policy is one that is offered by a private insurer, for those that have Medicare coverage. It is additional insurance that can be purchased and typically covers the difference between the total cost and what Medicare covers, but it may require that patients use approved providers. Medigap open enrollment does not repeat every year like Medicare open enrollment, so this may require more consideration and due diligence.
Medicare Advantage, or Medicare Part C – A Medicare Advantage plan is provided through a private insurer, and may have additional features, such as vision or dental coverage. This can get a bit complicated, and can involve additional costs for more coverage, or savings for being restricted to particular providers. These plans may also make you ineligible for your previous employer’s plan, so they should be consulted prior to proceeding. Here’s a chart outlining some of the differences they offer, compared to traditional Medicare, from the Medicare website.
Long-Term Care Insurance
Even with the best Medicare coverage, there are other potential healthcare costs that need to be considered in retirement. The one that doesn’t necessarily affect everyone, but could also be the most severe, is long-term care. Although Medicare may cover some initial nursing home costs, long-term care involves custodial care that is not covered by Medicare or supplemental medical insurance. According to SeniorLiving.org, nursing home costs may exceed 100K a year and are projected to rise.
Long-term care insurance can help meet this financial need. Some policies may help a person maintain independence for longer but, like homeowner’s insurance, it can’t be acquired after a tragedy occurs. Understanding the benefits of a plan, and the need to balance the costs can be confusing. For example, some plans may have a larger daily or monthly benefit, which allows for more flexibility of care, but charges a higher premium. Some plans may have an Elimination period, which means the participant needs to cover their own expenses for a period of time before insurance begins helping. This may be in terms of service days, so someone receiving help once a week with a four-day elimination period still means a month before insurance starts covering expenses. Some plans incorporate increased benefits for cost-of-living adjustments (at the cost of higher premiums). This is just one of the many areas an Arvest client advisor can help with as part of retirement planning, but it could be very consequential.
Preventative care
Preventative care and actions can decrease or defer the need to visit a healthcare professional for at least some time, thus decreasing healthcare costs. Modifying the home to decrease the chance of a fall is one example. Things like installing grab bars throughout the home, or moving to a single-story home, or having a walk-in bathtub. It’s a difficult transition to need help with things you’ve been doing all your life, or to begin paying for that help. However, an in-home assistant to handle some chores may also end up being a more affordable route.
For those with chronic conditions, such as arthritis, it may be important to determine how to continue doing what they want to do while minimizing the amount of associated risk and pain. For an avid gardener, this might mean switching from manual pruning shears to battery-powered pruning shears that don’t involve a squeezing motion. For a farmer with a back injury, this might mean building raised planters out of PVC pipe so that they don’t have to bend over to plant seeds in the ground.
When things do get to a point where professional care is needed, one typically wants to choose who they are working with instead of being forced to decide – a plan can help make this a reality.
Asking for help
The financial makeup of everyone’s retirement will be different, but some of the solutions can be the same. Wherever you are in your retirement journey, an Arvest client advisor would be pleased to conduct a holistic review of your situation and provide information so you can make informed decisions. Let us know if you are interested in a meeting.
This content has been prepared by The Merrill Anderson Company and is intended as a general guideline.
© 2024 M.A. Co. All rights reserved.
Arvest and its associates do not provide tax or legal advice. The information presented here is not intended as, and should not be considered, tax or legal advice. Consult your tax and legal advisors accordingly