Helping Clients Plan for Healthcare in Retirement

From early retirement to Medicare eligibility, managing healthcare costs is an essential part of financial planning.
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In their most recent survey, Fidelity investments pegged the healthcare costs for a couple, both aged 65, at $285,000. This was only up about 1.8% from their prior survey in 2018 but was up 16.3% from their 2015 survey. Healthcare costs are a large and growing component of your client’s retirement expenditures. It’s important to help your clients plan for this expense as part of the retirement planning guidance you already provide to them.

When planning things like travel, time with kids and grandkids and other fun pursuits it can be easy to ignore something like the cost of healthcare.

Healthcare includes both the costs for normal medical care and potentially the cost of some sort of long-term care as well. The latter is not included in the Fidelity number mentioned above but can be a significant expenditure as well.

Early Retirement Issues

For clients retiring early, healthcare coverage is important. For those clients retiring prior to age 65 when Medicare typically begins, they will need to find health insurance coverage to bridge the gap from the time they leave their employer to when they are eligible for Medicare.

Bridging this health insurance coverage gap is important and in some cases obtaining adequate coverage can be expensive.

In planning for their exit from the company, or in the case of an unplanned exit such as from a corporate downsizing, it’s important for you to work with your client to help them consider their coverage options.

Some of these might include:

Going onto the policy of their spouse if available. This will often be the least costly option for the client.

If your client retires or leaves their employer due to accepting a buyout package from the company, these programs frequently include some sort of extended health insurance coverage. The duration will vary from employer to employer. Regardless, this can provide a lower cost bridge until they find another solution in the private market, or until they are eligible for Medicare depending upon their age.

Companies may also offer some sort of retiree coverage or the ability to extend their insurance coverage at a reasonable cost to those who retire early. This might be more costly than when they were employed by the company, but likely will be less expensive than obtaining coverage on the outside.

COBRA coverage must be extended to eligible employees and their dependents who leave their employer. This is an extension of their health insurance coverage for a period of either 18 or 36 months depending upon their situation. COBRA coverage is expensive, as the employer can pass on the full cost of the coverage to the former employee. However, in some cases this may still be the best scenario for your client.

They can go out into the private market or to the state health insurance marketplaces for their state. The types of coverage available and the cost will vary.

Medicare

Medicare will play a key role in covering the cost of healthcare for most of your clients once they reach age 65. Medicare can be quite complex and it’s important that you work with your clients as they reach age 65 to ensure that they register for coverage on time and that they select coverage options that meet their needs.

For most of your clients, they will be required to register initially during a seven-month enrollment period that precedes their 65th birthday and runs for three months after. For those clients who are collecting Social Security benefits at the time, they will automatically be enrolled. For the rest they will need to enroll unless they have other coverage that is primary in place of Medicare, such as from an employer if they are still working.

There can be penalties for failing to enroll on time for basic Medicare Parts A and B, and very steep penalties for not enrolling in prescription drug coverage on time. In addition to the basic coverage plans, there are Medicare Advantage and other plans that offer coverage that may be more tailored to your client’s situation.

Once they do enroll in Medicare there is an annual open enrollment period from Oct. 15 to Dec. 7 each year. This is a period when your clients can change their coverage if needed each year. This may be needed due to changes in their health or in the providers who are in their Medicare Advantage or other supplemental coverage network.

Healthcare costs are an important but often overlooked expense in retirement. Helping your clients plan for this expense can help them realize their goal of a comfortable and financially secure retirement.