- Plan ahead and work with your wealth advisor well before a retirement opportunity arises.
- Continue existing coverage through an early retirement package or COBRA if possible.
- Your healthcare premiums may be much higher after retirement.
Congratulations, you scrimped and saved for retirement. You talked to your wealth advisor and finally pulled the plug. You are now officially retired and you were able to do so well before reaching age 65. Great job! Just keep in mind that as a new retiree, you are also “retired” from your company health plan. Now what?
If you are among the fortunate retirees who are eligible for an early-retirement package from your employer, don’t forget to determine whether or not your post-retirement medical coverage is included in your benefits. These packages sometimes provide medical coverage for young retirees like you until you reach age 65. That’s when you become eligible for Medicare. Given the high cost of medical care, you might find it hard to turn down an early-retirement package that includes such continued health coverage.
If your package doesn’t include post-retirement medical coverage, or if you’re not eligible for an early-retirement package, then you’ll need to look into alternative sources of health insurance, such as COBRA continuation coverage or an individual health insurance policy to carry you through to Medicare eligibility at age 65. Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), most employer-provided health plans (typically applying to employers with 20 or more employees) must offer temporary continuation coverage for employees (and their dependents) upon termination of the worker’s employment. Coverage can last for 18 months, or even 36 months in some cases. You’ll generally have to pay the full cost of coverage–employers aren’t required to continue their contribution toward coverage, and most do not. Employers can also charge an additional 2 percent administrative fee.
Individual health insurance is available directly from various insurance carriers or, as a result of the Affordable Care Act, through state-based or federal health insurance marketplaces. One advantage of purchasing coverage through a marketplace plan is that you may be entitled to a tax credit for your premium if your post-retirement income falls between 100 percent and 400 percent of the federal poverty level (additional income-based subsidies may also be available). Some factors to consider when comparing various health options are:
1. The total cost of coverage, taking into account premiums, deductibles, co-payments, out-of-pocket maximums, and (for marketplace plans) tax credits and subsidies;
2. The ability to continue using your existing health-care providers (and whether those providers will be in-network or out-of-network);
3. The benefits provided under each option and whether you’re likely to need and use those benefits.
Health insurance costs are already very high and rising at an alarming rate. Retirement is a major decision, and it is best to work closely with your wealth advisor and plan well before a retirement opportunity arises. If you suspect that a close friend or family member needs help with retirement planning, please don’t hesitate to contact us or refer them to us (610.695.8070). We’d be happy to help.