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These are your main retirement healthcare options

“What am I going to do about healthcare?”

While our advisors obviously get asked a lot of retirement questions, healthcare usually tops the list. 

It’s easy to understand why.

Planning for 30 years of retirement healthcare expenses can be overwhelming, especially when you realize an average 65-year-old couple will need more than $363,000 in today’s dollars to cover the costs.

But dollars and cents aside, where will you get your insurance?

If you’re retiring early, will your employer cover you? If you’re relying on Medicare, do you know your options?

If you’re retiring before age 65 

If you dream of retiring before Medicare kicks-in at age 65 – you need a plan for how you’ll bridge your healthcare coverage gap. Consider these 6 main options:

  1. Stay on your current employer’s coverage: While this is the most ideal option, it’s also rare: only 1 in 4 large companies offer health insurance to early retirees.[i]
  1. Join your spouse’s policy: If your spouse is still working, this might be your best option. Retirement counts as a ‘qualifying life event,’ so have your spouse contact their HR department to find out if you can be added to their plan.
  1. Buy a policy on a state or federal exchange: The Affordable Care Act (ACA) provides an opportunity for you to buy health insurance through a ‘marketplace’ in your state or through the federal government. Since the ACA also considers retirement a ‘qualifying life event,’ this triggers a special enrollment window – 60 days prior to (or 60 days after) your effective retirement date.[ii]
  1. Buy private insurance: This involves buying a health plan directly through an insurance company. To compare costs, use a website like GoHealth or eHealth.
  1. Continue with COBRA coverage: If you’re forced to retire, COBRA allows you to keep your current group coverage for up to 18 months.
  1. Pick up a part-time job that includes benefits: It could make financial sense to work for a company that provides part-time workers with health benefits. Another added benefit? You won’t have to tap your retirement savings so soon.

Even if you don’t plan on retiring before 65, you should still at least think about what you’ll do if you’re forced to retire early.  

That’s because close to half of all current retirees had to leave the workforce earlier than they originally planned,[iii] and according to the U.S. Census Bureau, the average retirement age for a U.S. worker is 63 – not the much-assumed age 65.

If you’re retiring at age 65 or older

If you’re already receiving Social Security benefits when you turn 65, you’ll be automatically enrolled in Medicare Part A & Part B (known as “Original Medicare”). If you’re not, you’ll get a 7-month Medicare sign-up window that begins when you’re 64 years and 9 months old (there are some circumstances in which you can enroll sooner).

And, as you probably know, there’s more to Medicare than just Parts A & B:

  • Original Medicare: Part A covers hospital care, skilled nursing facilities, hospice, and some health services. Part B covers doctor’s office visits and preventative services. However, it’s important to understand that Original Medicare does not cover all healthcare expenses. Services such as dental exams, routine eye exams, hearing aids, prescription drugs, and long-term care are not covered.
  • Medicare Part C: This is also known as a Medicare Advantage Plan. This is an alternative to Original Medicare that’s offered through a private insurance company that contracts with Medicare. A Medicare Advantage plan covers all the services of Original Medicare except hospice care. Most plans also include prescription drug coverage.  
  • Medicare Part D: This is an “add-on” to Original Medicare that covers prescription drugs.
  • Medigap insurance: Since Original Medicare only pays for about 80% of retirement medical expenses, that leaves a gap of 20% you need to cover yourself.[iv] Enter Medigap insurance. Medigap is supplemental healthcare insurance offered by a private company that covers costs like co-pays, deductibles, co-insurance, and in some cases, even healthcare coverage outside the U.S. However, Medigap policies generally don’t cover long-term care expenses or vision and dental care.

If you decide to keep working past age 65 and delay your Medicare enrollment, be sure to let the government know. If your employer has 20 or more employees, you can usually postpone; but if there are less than 20, you generally must enroll when you turn 65 since Medicare is considered your primary healthcare coverage.

Plan for costs to rise

No matter if you plan on funding retirement healthcare yourself, getting covered through an employer, or through Medicare, you (and your advisor) need to prepare for rising costs.

According to a five-year study by the Health Care Cost Institute, healthcare prices have been rising three times faster than the average inflation rate.

If you’re looking for a tax-friendly way to pay for these expenses down the road, consider saving in a Health Savings Account (HSA), available to workers with a high-deductible insurance plan.

You’ll save on taxes three different ways:

  • Get a tax break on money contributed
  • Earnings grow tax-free
  • Withdrawals for qualified healthcare expenses are tax-free

Another way to help keep healthcare costs down in retirement? Invest in your health now. Prioritizing your health and wellness will also help you achieve a more fulfilling retirement, putting you on a path to live a longer, healthier life.