WIIFY

A primer on post-retirement health insurance and medical expenses.  Transfer your health risks to an insurer for a known premium and avoid an uncertain and potentially retirement income busting drain on your nest egg.

tl;dr – Have a health insurance strategy.  Know what the pre-65 strategies are and what direction seems to fit best for you..

FYI – if you see text in blue, it’s a hyper-link to a resource!

TANSTAAFL

A quick mnemonic – There ain’t no such thing as a free lunch (TANSTAAFL).  Nowhere is this more true than medical insurance and expenses. Medicare is an example, Part A (hospitals) has no premium and Part B (essentially ‘doctors’) does, but you’ve paid Medicare tax forever, therfore TANSTAAFL

Two main kinds of ‘retirement’ medical insurance

One way or the other, you will need a retirement medical expense strategy.  There are two kinds of medical insurance for retirees, pre-65 (before Medicare) and Medicare (65 and on).  We’ll cover Medicare in a later post, so this post is for if either you or your spouse (or both) is going to be under 65 when you retire.  Basically a must read unless both of you are over 65 right now.

When you retire you’ll need medical insurance unless you:
a) have no assets and low income and will depend on Medicaid
b) you have assets and are willing to assume the risk of spending them all on medical care, then going to a), above.

Pre-65 health insurance strategies

1. Keep working – Stay at your current job and don’t retire until you have your health insurance strategy or qualify for Medicare. Or, find a part time job that offers health insurance. I just checked and if you work 20 hours/week, Starbucks has health plans.  I have no idea on the costs for the Starbucks plan.

2. COBRA – Not the snake, but the acronym for the Consolidated Omnibus Budget Reconciliation Act of 1985. COBRA lets you continue employer health insurance for 18 months at 101% of the employer’s negotiated premium.

Advantages: it’s guaranteed, the premiums, deductibles, and coverages are known.  You have up to 18 months of COBRA coverage when leaving employment.

Disadvantages: the premiums can seem very high and there is no ACA subsidy. You only have 18 months of coverage.  Since you only have 18 months, if either of you are younger than 63.5, you’re going to need more than one strategy, because COBRA will stop before you are on Medicare.

3. Individual health insurance through an ACA exchange or a broker – This is really up in the air right now, but when I last checked, incomes up to the $60k range received significant premium subsidies. Depending on your age, this may be the best option, but until the ACA direction is firmer, you may want to hold off on retirement if individual health insurance is your strategy.

Up next – Look for the next update on Friday, August 4 at 12:30 PM.

Actions you can take:

-Call your HR Department and ask what the current COBRA premiums are.
-Take a retirement knowledge quiz.  It’s a tough one, but explains the answers at the end.

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.