WHEN YOU RETIRE EARLY, ONE MAJOR NEW EXPENSE can loom large: health care. Many retirees find themselves struggling to cover skyrocketing healthcare costs — especially when their income is shrinking and they’re trying to pay for other retirement expenses, like housing and food.
But a new retirement phase brings a new set of options for managing those costs. You can stay in your current employer-sponsored plan, retire early with Medicare or a private insurer that offers retiree coverage (like a Medicare Advantage plan or Medicare Part C), enroll in the marketplace for individual insurance, or even use Medicaid to help with the cost of your health care needs.
Whether you’re retiring early because of a job loss or simply want to leave your company earlier than usual, you may not need to enroll in Medicare when you turn 65 if you have a good reason. Consider your employment situation, the type of employer you have, and your income before deciding whether or not to sign up when the time comes.
If you are currently employed and have access to a group plan, your employer should let you know about your Medicare enrollment options in advance of your retirement date. You can also ask your insurer if you need to enroll in Medicare Part A and Part B at the same time, or if you have a Medicare Advantage plan that includes Parts A, B, and often D (prescription drug coverage). If you do not sign up for Medicare at the right time, you may be subject to a late enrollment penalty.
Your company may offer benefits for early retirees that can help cover some of your healthcare costs. These can include medical, dental, and vision plans and prescription drug coverage. In addition, some companies sponsor Retirement Health Healthcare options for seniors over 65 in retirement Reimbursement Accounts that can be used to pay for deductibles, co-pays, and Medicare premiums.
You can also take out a Health Savings Account to stow away tax-free money for future health care expenses. However, you should stop contributing to an HSA 6 months before your expected retirement date in order to avoid a penalty.
You can choose to purchase supplemental coverage with a Medigap policy or join your spouse’s plan in a special election period following your 65th birthday. If you do, you should be aware that some plans may be subject to a recovery clause, which means the insurance provider can recover costs associated with long-term custodial care provided under Medicaid when your spouse dies. You should also be aware of the impact on your taxes and Social Security benefits. If you’re considering a Medigap plan, consult with an independent insurance broker to discuss your options and the available plans in your area. Lastly, remember that a standard Medigap policy covers only one person, so if you and your spouse both want coverage, you will need to buy two separate policies.