When we think of healthcare these days, our thoughts are most likely focused on the well-being of our family and close friends during these uncertain times of Covid-19.
Even as the rollout of remarkable Pfizer and Moderna vaccines accelerates and the rate of new coronavirus cases declines, many people still feel appropriately vigilant about maintaining their safety.
However, if you are a mid-life professional amid career transition, or perhaps considering retirement, there are additional healthcare planning matters that require your immediate attention, even while you deal with the “here and now” of Covid-19 realities.
In last week’s blog, I wrote about how healthcare costs, which are one of the most significant categories of household spending, are rising at a rapid clip. As these costs increase, they could not only complicate your finances while you are in between jobs but even worse, they might materially undermine your retirement plans.
Mid-Life Healthcare Costs May Not Be a Haunted House
Many objective studies have also shown that medical expenses, for a variety of reasons, may likely escalate very quickly over your retirement years due to other factors besides inflation. It would not be surprising if the entire subject makes you feel like you are entering a haunted house.
But there is good news! Effective financial planning may allow you to prepare for these expenses and potentially identify cost savings strategies as part of the planning process. Today’s article explains how a mid-life professional can go about this effort without the need for anti-anxiety pills!
Here are four questions you should consider in order to discover those potential planning opportunities and begin solving the healthcare riddle:
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- What Is Your Age?
If you are in between jobs and have not attained the Medicare age of 65, you are most likely already paying for COBRA coverage or your own medical insurance. Those premiums, which could also include coverage for a spouse and other family members, could come with a hefty price tag.
The good news is that those premiums may decline substantially, perhaps as much as 50% or more, when you attain age 65 and typically must enroll in Medicare.
You could also consider purchasing a “High Deductible Health Plan” (called an HDHP), which often has lower premiums than traditional policies, though with the trade-off of potentially higher out-of-pocket costs. Such plans may represent an effective way to reduce the premium expense while you wait to start Medicare coverage.
Of course, if you lost your job when you were 65 or older, you will in almost all situations be required to enroll in Medicare. Medicare and supplemental insurance policy premiums may still become expensive during your retirement years due to inflation and out-of-pocket costs that may increase as you age.
Estimating these costs in the context of your total lifestyle expenses is a crucial component of effective retirement planning.
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- Are You Married?
If you are married and your spouse remains employed with medical coverage, you may be in a very favorable situation. Instead of electing COBRA coverage or buying your own insurance, you could simply enroll in your spouse’s plan.
In most situations, this would be a much less expensive option than buying your own coverage. You could continue to benefit from a lower cost employer-provided plan until you and your spouse reach your 65th birthdays or are otherwise required to sign up for Medicare.
On the other hand, if your spouse is also not working and/or does not have his/her own coverage, you will need to consider purchasing your own policies and paying the associated insurance premiums until you return to work or enroll in Medicare.
You should also consider whether there is an age difference between you. If so, health insurance premiums could vary significantly between you if one spouse has not yet attained Medicare age and does not work. Understanding the associated costs will be a very important exercise!
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- Will You Return to Work?
Are you thinking of retiring, pursuing a career pivot, or returning to your current line of work? Each of these decisions has vastly different and important implications for the trajectory of your healthcare costs, both over the next few years and for the decades ahead.
If you are planning to return to work very soon and remain in the workforce until your Medicare age, the additional health insurance premiums during your transition may not have a meaningful impact on your long-term finances.
However, if you are in transition and considering the possibility of early retirement, you will probably want to understand and project these costs over the years. This would also be true if you are thinking about a career change or “working retirement” if either of those choices might result in materially less income than your past jobs.
There is nothing at all wrong with such decisions to retire early or pursue more enjoyable work, even if it produces much less income. It is far more important to pursue activities, including work, that create happiness.
But while you pursue a future more aligned to your career and/or personal preferences, you want to understand and plan for the financial impact of such choices!
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- Traditional Medicare or Medicare Advantage?
As you approach age 65, you will need to decide between Traditional Medicare and Medicare Advantage. The trade-offs between these two programs are too complex to discuss in this article. However, you should understand that the premiums may be quite different.
Medicare Advantage premiums tend to be much less than the combination of Traditional Medicare and a Medicare supplemental policy. With Medicare Advantage, there is the possibility that you could be exposed to higher out-of-pocket costs if you get sick or have chronic health conditions.
However, that may not be true with Traditional Medicare if you purchase a Supplemental Insurance policy with comprehensive coverage. The difference in the premiums should not necessarily drive the decision about which program you should choose. There are many other trade-offs to think about.
The difference in the way the costs are paid under these two Medicare options may likely have a great influence on your total medical costs and how they will be funded during your retirement years.
Putting Together the Puzzle Pieces
There is no doubt that today’s high healthcare costs may present challenges for those in mid-life who are thinking about new career opportunities or funding a confident retirement.
Even if you have the financial means to comfortably retire or to pursue a “working” retirement with a much lower income, today’s escalating healthcare costs are an important long-term financial planning consideration for mid-life professionals in transition.
Thinking about these four questions does not have to be scary or intimidating and provides a great framework for approaching the mid-life healthcare puzzle. As always, if you have any questions, please contact me.
