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If you are planning to retire before age 65 ...
1. Do you have retiree healthcare benefits available through your employer or union? Is it available for just you or you and your dependents?
If you are among the few who have retiree benefits, count your lucky stars. According to a February 2003 Issue Brief by the Employee Benefit Research Institute, only 12% of private U.S. firms offered retiree healthcare benefits. That number is expected to continue shrinking in the future because of rapidly rising costs.
Even if you do have coverage, remember that not all plans are good plans, nor are they necessarily affordable. You also must be aware, as an early retiree, that your employer is not required to continue to offer you coverage and may discontinue the plan at any time.
2. Do you have any pre-existing conditions which would impact your ability to get coverage?
This is an especially important question for those who will access the private insurance market. Individual insurance goes through a medical underwriting process. If you are un-insurable due to a chronic illness or condition, your only option may be the state high risk pool, which is usually very expensive.
3. Have you examined the relative merits of all your options?
For example, someone with retiree coverage may also be eligible for COBRA and private insurance. It is important to look at the benefits available under each policy and their relative costs. What is the lifetime maximum? Are there survivor benefits? What are the out-of-pocket costs?
Another issue to consider is the possibility of a change in health status. If you are not eligible for retiree benefits, COBRA might be a good option, for 18 months, to bridge the gap until you become eligible for Medicare. But if COBRA won't get you to Medicare eligibility, you might be better off taking private coverage now, assuming you qualify, to hedge the risk of an illness cropping up in the 18 month period that makes you un-insurable.
4. Do you know when and how to enroll in Medicare?
Even if you are eligible for retiree benefits, your company will require you to enroll in Medicare at age 65. At that point, the retiree policy generally becomes second-to-pay. If you receive Social Security benefits prior to age 65, (which we don't advise), you will automatically be enrolled in Medicare Part A. You must elect whether to enroll in Parts B,C and D.
If you delay Social Security benefits, you will need to contact Social Security some time during the three months prior to your 65th birthday to enroll. You absolutely do not want to miss the initial enrollment window, which begins three months before your 65th birthday, includes the month you turn age 65 and ends three months after that birthday.
5. Have you purchased long-term care insurance?
While a serious illness or injury has the potential to run up medical bills in the hundreds of thousands of dollars, long-term care has the potential to cost in the millions over a span of ten to twenty years. Hopefully, you have done this much earlier, but if not, provided you are still healthy enough to qualify for a policy, this is a must.
Nearly 40% of those who need long-term care are under the age of 60. Our rule of thumb is all clients, over the age of 40, with under $3.5 million in investable assets must have a long-term care policy. This is non-negotiable. Over $3.5 million, we still believe it is advisable.
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