As clients become financially independent and consider leaving full-time employment (and the healthcare benefits that were included!) the decision-making process invariably leads to what healthcare expenses should be expected and how to cover these costs.
There have been significant changes in the last few years (and more are coming!) in how we access the insurance market, while the cost of insurance premiums and health care services are rising dramatically. We are also seeing a continued trend toward linking premiums with your income level — for both exchange-based insurance and certain parts of Medicare — where clients with higher wealth and income pay higher premiums.
The reason for rising premiums lies in the current estimated lifetime cost of healthcare for a couple retiring in 2016 — a staggering $550,000. With traditional Medicare insurance covering only about 60% of this amount, the remainder needs to be incorporated into your financial planning.
To address these concerns as you prepare for financial independence, we have begun including itemized healthcare budgets in our planning analysis work. These include premiums and deductibles for healthcare costs before age 65, and estimates of premiums and co-pays for Medicare Parts A and B (or C), Part D and a private Medigap policy based on your specific income and health. If these various sources of healthcare coverage are properly coordinated, a typical client budget for healthcare after age 65 is around $5,500 annually per person.
In addition to incorporating these healthcare specifics into our client’s financial plans, we have also put a system in place to monitor eligibility for Medicare. We will proactively help you determine the appropriate time to enroll, and refer you to an insurance agent that specializes in Medicare planning so that the various parts of your coverage are properly coordinated and specifically designed to provide the care needed based on your health history, prescription drug needs, and hospital and doctor preferences.
If you would like to explore any aspect of healthcare costs or funding during retirement, please don’t hesitate to contact us.
Patrick Daniels is the Financial Planning Analyst at Precedent Asset Management, serving clients as a fee-only advisor in the Indianapolis, Indiana area and nationwide, through coordinated financial planning and investment management.