Bridging the Tricky Post-Career, Pre-Medicare Gap
Before you retire, learn to create a paycheck and make the most of the benefits you’ve earned.
Many of us dream of trading in our alarm clock for a retirement filled with new adventures. The possibilities are endless – travel, fun with friends and family, or maybe newfound time for hobbies.
Before announcing to your boss that the retirement countdown is on, you’ll want to account for any benefits you’re accessing through your employer.
Thinking through those needs can help you prepare, especially if you’re planning to retire early, before you are eligible for Medicare at age 65. If your family is covered through your medical and dental insurance, there are additional considerations for continuing their coverage.
Reminder: Even if you are eligible for Medicare, note that it doesn’t cover routine dental care, hearing and vision. It also offers limited coverage of mental health costs and doesn’t usually offer long-term or custodial care coverage.
Make your retirement as stress-free as possible by working with your trusted advisor to develop strategies to fund essentials like healthcare, housing and debt obligations.
Insurance can be pricey without an employer to help offset the cost. In 2019, the average annual premium for employer-sponsored health insurance was $7,188 for single coverage and $20,576 for family coverage, with employees contributing an average of 18% and 30% of that cost, respectively.1
Here are options to consider when leaving your employer’s plan:
Portable employer benefits: If you are not yet 65, the age most qualify for Medicare, inquire with the human resources department about whether your employer makes benefits available to you in retirement or helps underwrite the cost of coverage. If your employee benefits are portable, this likely is the easiest and most cost-effective way to access quality health insurance.
Join your spouse’s plan: If your spouse is still working, consider exploring coverage options through their employer-sponsored plan – even if you are eligible for Medicare. The price, extent of coverage, and how coverage is coordinated with Medicare all could impact your decision. Premiums for family plans are higher than individual plans, but may cost less than other options, especially if there is a gap between your retirement date and Medicare eligibility.
COBRA: It may be beneficial to extend your employer-sponsored insurance through the Consolidated Omnibus Budget Reconciliation Act. COBRA allows retirees to receive health insurance coverage at group rates for up to 18 months, although it can be terminated earlier if you become Medicare eligible. With COBRA you will pay the full cost of the plan – remember, many employers underwrite a significant portion of the cost while you’re an employee – but the coverage is identical.
Individual coverage: Individual insurance can also serve to fill the gap between your retirement date and Medicare eligibility. The Affordable Care Act (ACA) guarantees coverage, even with a pre-existing condition, but the cost will vary based on the providers and plans available where you live.
Once you are no longer working, do you still need life insurance? It depends. Life insurance can be used as an estate planning tool, to help distribute wealth among loved ones. But with regard to its ability to replace lost income, there are some situations that might compel you to carry a life insurance policy in retirement.
Debt payment: If you are still paying for home or education loans, you might consider having life insurance to help your family pay off that debt if something happens to you. As a way to avoid creating debt for loved ones, life insurance can also help pay for funeral and burial expenses.
Spousal benefits: While your spouse is entitled to survivor benefits from Social Security, the amount could be less than the benefit you received while alive. If at or over full retirement age, your widow/widower is entitled to receive the greater of your benefit or their own, but not both, so they could see a decrease in total Social Security income. And not all pensions offer spousal benefits. Consider whether your beloved partner would be able to make ends meet on reduced income.
Dependents: If your spouse and children are self-sufficient, you may not need life insurance. But if you have a child with special needs or children still living at home, you might want the added security a life insurance policy can provide.
The right choice for you
Knowing which employer-sponsored benefits you’ll still need – and how best to access them – can help smooth the transition from the working world to your retirement. Taking the time now to do so could help preserve your retirement fund and offer confidence.
1 Kaiser Family Foundation
These policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims-paying ability of the insurance company.
Raymond James and its advisors do not offer legal advice. You should discuss any legal matters with the appropriate professional.