Securing Retiree Health Insurance: Early Planning Tips

Health care costs are one of the top challenges that early retirees face. Whether by choice or because their employer has cut their retiree healthcare benefits, these individuals are often left to find their own coverage. As a result, health care costs can consume a large portion of their income in retirement.

Many experts recommend that retirees earmark 15 percent of their budget for health care expenses in retirement. However, these costs can be unpredictable, especially as the average retirement age continues to rise and health care inflation outpaces general inflation.

In addition, those who retire before turning 65 may face additional cost increases because Medicare does not kick in until the age of 65. For this reason, it is important for early retirees to explore their health insurance options, including how best to manage costs until they are eligible for Medicare.

A number of large companies have eliminated retiree See the article health benefits or sharply increased premium contributions, potentially jeopardizing the long-term financial security of employees who had been relying on these benefits to help offset their post-retirement expenses. This trend has become more pronounced as baby boomers approach retirement and companies are faced with rising pension and retiree health expense liabilities.

Fortunately, there are ways to address these issues. For example, a financial advisor can help early retirees estimate their healthcare costs in retirement and determine the appropriate level of health coverage to obtain. In addition, an advisor can help them explore the various alternatives to self-insurance (e.g., a high-deductible health plan combined with a health savings account) and the various solutions to covering long-term care costs.

Another strategy for reducing health care costs in retirement is to pay down debt, particularly credit card balances with high interest rates. The lower these debt balances, the more money can be redirected to saving for retirement.

Finally, for those who still have employer-sponsored retiree health or life insurance plans available to them, it is important to stay informed about these benefits and review their coverage options regularly – especially during open enrollment each fall. Many companies offer a variety of non-group health plan options with varying benefits, costs, and features. In addition, the Secure 2.0 legislation allows for overfunded pension plans to transfer up to 1.75% of their assets into programs that can be used to fund retiree health and life insurance benefits. This relief, originally set to expire in 2025, has been extended through 2032.