Paying for health insurance has become a huge financial drag for American employers, so very few companies still offer retiree benefits. Be careful about relying on your employer's promise to provide health care benefits once you retire. Even those that pledge such care may find it hard to fulfill their promise when you hit retirement. More and more companies are reducing or rescinding health insurance benefits once promised to their retirees. Even public-sector employees are seeing reductions in benefits as states and local governments attempt to balance their budgets.
What is COBRA? When your employment terminates, you will have the option of continuing on your employer's health plan for at least 18 months, thanks to a federal law called the Consolidated Omnibus Budget Reconciliation Act (COBRA). It says that when you leave your job, your employer must allow you to keep your coverage for up to 18 months. Generally, this law applies to firms with at least 20 employees. If you do continue the company plan under COBRA, you are responsible for the entire premium (including what your employer paid when you were working). Moreover, the insurance company can tack on an extra 2% to cover administrative fees.
How much will health insurance cost me? Individual policies vary depending upon the type of coverage. Data shows that individual health insurance is, on average, more affordable than group coverage, however it may not feel that way since you will no longer have an employer subsidizing some of your premium costs. Since the passage of the Affordable Care Act, insurance companies can no longer discriminate against you because of a preexisting condition, but you will likely still pay more if you are older, and plan pricing varies widely from state to state. If you're buying insurance on your own, we recommend that you speak with an insurance broker. They offer insurance coverage from many different carriers and will help you find the best policy for you. You can also shop the federal health exchange created under the Affordable Care Act, or find your state exchange, by going to Healthcare.gov. Most states have various plan options available at different prices. What's more, the federal government offers subsidies to people with income below a certain level. Medicare does kick in at 65, but there are costs for that coverage as well. Many retirees choose to buy so-called Medigap policies that provide coverage above and beyond what is offered through Medicare, or Medicare Part D prescription drug coverage. Add it all up, and you need to get serious saving money today to help cover your health costs in retirement. Even when you are covered by Medicare and any other health insurance, you still are going to pay for some costs, including premiums, deductibles, co-pays and - most importantly for many retirees - prescription drugs.
What if I retire and have no health plan? It depends how old you are. If you're 65, then you’re eligible for Medicare. If you're not yet 65, you must find - and pay for - your own health insurance coverage until then. Don't ever let your health coverage lapse. If you suddenly have an accident and become ill, you could burn through your entire retirement savings in very little time.
How can I keep my health costs down in retirement? You can start saving now, earmarking money specifically for future health costs. Once you turn 65 you’ll be eligible for Medicare, and that will take care of much of your medical expenses, but probably not all. You will be required to pay a premium for some of your Medicare coverage, and you will probably want to purchase a private Medigap policy to cover all the costs that Medicare doesn't cover. Fidelity Investments estimates that a 65-year-old couple who retired in 2015 would need $245,000 of their own savings to handle 20 years of out-of-pocket retirement health costs.
What is the best way to save for health care? First, max-out any and all tax-deferred retirement savings plans for which you're eligible, such as 401(k)s or IRAs. Many retirement vehicles can be accessed for qualified medical expenses. Once you’ve contributed the maximum amount to your tax-deferred accounts, consider adding one of the following plans:
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