By Jason LaBarge
Managing Partner at Premier Planning Group
As a retirement planner, I frequently talk to clients about their dreams and their retirement goals. A fair amount of those clients would love to retire early. If you’re one of those people who love your job, you’re fortunate, but many people would like to retire tomorrow! Several of my clients keep an accurate countdown to retirement and have started a meeting with me by announcing, “Only 465 days to go!”
When considering early retirement, there are numerous factors to consider, and one of those factors is health insurance. This is not something to sweep under the rug. You need to carefully consider all of your options and choose what makes the most sense for your situation.
Medicare coverage starts at age 65 and is composed of four parts: A, B, C and D.
Medicare Parts A, B, C and D Explained
Medicare Part A (hospitals) is required when you turn 65 years old. It covers hospital admittance and skilled nursing facilities, among other things. There is no cost, because, in essence, you have been paying for Medicare Part A when you were paying your FICA tax your entire working life. This covers 80 percent of expenses.
Medicare Part B (medical) is optional and covers everything outside of hospital admittance, such as physician services and tests. Like Part A, it covers 80 percent of expenses. The Part B premium used to be $104 per month, but as of 2016, your premium is now based on your income.
Medicare Part C (advantage plans) is optional. These plans are “all in one plan” and an alternative to the original Medicare plans. It includes the Part C drug coverage and has lower out-of-pocket costs than original Medicare but does not eliminate cost and are not supplemental plans or Medigap. They are generally HMO or PPO plans with network restrictions.
Medicare Part D (prescription drugs) is your prescription drug plan and is optional; however, if you choose not to enroll and need coverage later, there is a late enrollment penalty. The premium you’ll pay is determined by the plan you choose and your income.
Medicare Is Required For Americans 65 Years Old Or Older Not Covered By An Employer-Based Plan
If you are 65 years or older, you most likely have Medicare as your health insurance. In fact, more employers are requiring their employees who are age 65 or older to go on Medicare, instead of their employer-based health insurance plan. This, in effect, makes Medicare your primary insurance covering hospitals and prescription drugs, and your employer-based plan becomes your supplemental insurance, usually covering your doctor appointments and the 20 percent not covered by Medicare.
Health Insurance Options And Retirement Planning Considerations
Once you’re 65, it’s an easy decision to retire, because you know you have health insurance through Medicare. If your employer provides health insurance through retirement, you’re fortunate, because your options open up. If you’re not 65 yet and you don’t have an employer-based insurance plan that will carry into retirement, but you want to retire early, what are your options?
The easy answer is that you buy it. Most people don’t realize that health insurance is a commodity that you can pay for. Individual plans are offered by all health insurance providers for purchase. Your age and sex will determine what your premiums will be. Go to an insurance provider’s website, put in your basic information, and you’ll get a premium quote; buying health insurance is as easy as buying a stick of gum or a bottle of wine.
Another option is COBRA. If you retire or leave your job, you can elect COBRA and continue to have your same health insurance plan under your employer; the only catch is that you’re now paying the full cost of that plan, which includes both your and your employer’s premium payments. This can be a great option, as it allows you to keep your same coverage and doctors, and it is available for two years. The downside to this option is that COBRA is expensive. Nevertheless, in some cases, it’s the best option and will allow someone to retire at 63 with health insurance until they can sign up for Medicare at 65.
If you are considering this option, you should compare the premiums for COBRA with the premiums for a new plan through www.marylandhealthconnection.gov. This is the health insurance exchange for Maryland, created in accordance with the Patient Protection and Affordable Care Act. The marketplace is offered to individuals and families who are not covered through their employers, and it lists several health insurance companies and their available plans along with their associated premiums.
Health Insurance Is An Essential Element In Your Retirement Plan
When to retire is not an easy decision; you have many factors to consider, and if you’re contemplating retiring before 65, health insurance is one of the most important factors you must plan for. Health insurance is expensive – that’s a fact – but it’s also a necessary and essential element in your retirement plan.
Weighing its expense and how it affects your retirement budget will play a big part in deciding when you retire. A properly built financial plan can mitigate these expenses and help you decide how you’ll pay for the premiums until you turn 65 and can transition to Medicare. The last thing you want is for health insurance to derail your retirement before it’s even really gotten started.
Premier Planning Group is an independent firm with securities offered through Summit Brokerage Services Inc., Member FINRA, SIPC. 115 West Street, Suite 400 Annapolis, MD 21401 443-837-2520.