Broker Check

Planning for Healthcare in Retirement

May 15, 2020
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The last few months, our world has been rocked.  No, we weren’t hit by asteroids, but for many of us, it sure felt like it.  Layoffs came, schools were shutdown, bars, restaurants and personal care business were closed and WFH was the hottest hashtag.  The stock market went down and down and down.  It literally came down like a wrecking ball.  For me, well, honestly, it hasn’t really phased me too much.  I’m entering my mid-30s (lord help me!), and while there is a lot going on and unless you completely isolate yourself, you are aware of what’s going on.  In regards the stock market, well, I have around 30 years until I plan to retire, so, in all reality, I’m not too worried.  I have TIME.  Many of our clients we work with don’t have time.  On average, there are around 10,000 people that turn 65 in a day.  Not everyone retires at 65, but based on that, I would assume for those aged 62-70, there are probably just as many people retiring each day.  I am also guessing that most of them didn’t plan for the stock market to fall off a cliff shortly before they were going to retire, when they planned to retire or even shortly after.  Heck, most people don’t really even have a plan for retirement.  As scary as a crash in the market might be, going through retirement without a plan in place can be even scarier.  One of the biggest things we see right now, is healthcare planning in retirement.  More specifically healthcare planning for those that are choosing or able to retire early (thinking 60-62).  We have a few different types of people that come in looking for health insurance.  We have some that come in, they are retiring, and they know they need health insurance.  We have others that are thinking about retiring and will need health insurance but are trying to at least do a little planning.  Then we have those that have retired, went on COBRA and it’s either getting too expensive or will be exhausting.  In 2014, the Affordable Care Act laws (commonly known as ACA or Obamacare) came into existence, changing the way health insurance is purchased and what a person might pay for coverage.  For people that are on group plans, especially large group plans, they were not affected as much.  Honestly, most of them don’t really know a whole lot about what it all entails because they didn’t have to.  Fast forward some years and now you want to retire.  You’ve had a plan in place to retire at 62.  You have places to see, golfing to do, and whatever other hobbies keep you happy.  We want you happy too!  Does that come at a cost though? 

 

Scenario 1:  Couple, both 62, will have taxable income at $64,000.  They would qualify for a plan for $0/mo.  They would each have a $7000 deductible and $8150 out of pocket maximum.  Worst case scenario – they spend $16,300 in medical expenses that year.

 

Scenario 2: Couple, both 62, will have taxable income at $68,000.  They would not qualify for any tax credit (2020, 400% federal poverty chart number is $67,640).  They would spend about $1315 for that same plan per month or about $15,780 annual, AND if they needed to use all their medical, they would still be paying that same $16,300 in out of pocket costs.

 

This scenario doesn’t fit every person, but in scenario 1, the couple was able to control their income and will save about $12,000 annually for those next 3 years vs the couple that either couldn’t control their income or chose not to. 

 

When starting the process of retiring, one has to consider healthcare expenses.  Many financial professionals find a number based on what the person is currently paying in health insurance or base it off a national average. It’s not wrong, but it also doesn’t necessarily benefit the client either because they are spending down their income sooner and quicker than they have to.  Personally, I’d rather go on long vacation or winter somewhere rather than pay it in medical expenses.  Speaking of medical expenses – Health Savings Accounts (HSA) is also a great way to reduce taxable income. Something we will also bring up in a conversation.  So, what does an appointment look like with us? 

  1. Gather Information – before you meet with us, we’d like you to gather your current plan information (if you know it – deductibles, out of pocket max, copays, etc). We also ask you to bring income information (last paystub or taxes) Why? This helps us figure out what you would qualify for.  It’s also a good idea to bring in prescriptions, especially if you are on more expensive ones or are in a higher Tier – we want to make sure they would be covered similar or better.
  2. Meet – Once you feel like you are able to gather your information we will set up an appointment and meet.
  3. Analysis – during our meeting we will gather the information you have brought in and ask some questions to understand your current situation as well as what your plans in retirement will look like.Then we put together some scenarios of health insurance costs based on income.  For some, it’s pretty black and white, for others, there is room to be flexible.  For those that might be close to that line, we look for soutions to potentially bring their gross adjusted income lower in order to help them save some money.
  4. Questions – typically people have lots of questions come up.One of the biggest ones is “Why didn’t I know about this before?” The answer – because people aren’t being educated!

 

We want to educate you!  If you are within a year or so of retiring and you are NOT going to be Medicare eligible when you retire – I suggest working with someone who works with health insurance and retirement planning.  Not only can they help you understand your health plan options and how they work, but then can help you keep money in your pocket during those early years of retirement.