How to Choose Health Insurance When Nearing Retirement

If you’ve worked for most of your life, retirement is probably one of the events you’re most looking forward to. And you might have even planned out the projects you’re going to tackle, the trips you’re going to take or the hobbies you’re going to engage in. One thing you might not be thinking about is your health insurance come retirement.

Many people assume they’ll get Medicare and that’ll be it. Unfortunately, Medicare doesn’t cover everything and many people end up purchasing supplemental private insurance to ensure their needs are met. Also, if you retire before the age of 65 (average retirement age in US is 63), then you’ll need health insurance to bridge the gap between your retirement date and your 65th birthday when you become eligible for Medicare.

Here are a few things you need to consider when choosing health insurance when you’re nearing retirement.

1. The age you plan to retire.

If you’re planning to retire before the age of 65, does your employer give you the option of continuing with their company health plan until Medicare kicks in? COBRA, while not the most cost-effective, is a plan you can consider as well. If neither of these options are available to you, then you can purchase a private health plan in the marketplace and then cancel it once your Medicare coverage starts.

If you plan on retiring on or after age 65, you can purchase Medicare but you’ll have to choose between original Medicare or Medicare Advantage-- both of which have benefits and drawbacks. For the latest information on Medicare, go to Medicare.gov for more information.

2. What are your current health needs?

Are you on any prescriptions? Do you have a chronic condition that needs to be managed? Whether you’re choosing a private plan in the marketplace or deciding between Medicare and Medicare Advantage, you’ll want to make sure that your health needs will be covered at an affordable rate. If Medicare or Medicare Advantage won’t adequately cover your needs, you’ll want to seek out supplemental insurance that will bridge the gap.

3. How much have you saved for retirement?

According to Fidelity, a 65-year old couple who retired in 2019 would need to have saved $285,000 after taxes just to pay for their healthcare. If you or your spouse has a condition that requires management with specialty prescriptions or doctor visits, that number could be even higher. In addition, you’ll need savings for housing, food, clothing and any other lifestyle expenses. The good news is, your Medicare premiums are calculated on a sliding scale based on your income. This is also true if you need to purchase a private plan to bridge the gap between when you retire and when Medicare kicks in. Depending on your income and household size, you might be eligible for premium tax breaks and other savings.

4. How much do you CURRENTLY pay for healthcare?

Is your current healthcare plan meeting your needs? If you maintain the same premium cost, how long can you continue living your current lifestyle? If your current health insurance plan is working for you, and you want to keep the same level of coverage, you need to make sure you can still afford it in five or ten years. One way to mitigate these costs is to contribute to an HSA. If you’re able to save some (or most) of that money, at the age of 65 it functions as any other retirement account.

Related Reading: How to Use Your HSA as a Retirement Account

Retiring is a time in your life to look forward to. But in order to focus on the fun things you want to do, you have to make sure that both your health needs are covered and that you can afford to live the lifestyle you want. If you need help navigating this space, don’t hesitate to reach out to an insurance broker who specializes in retirement. They’ll walk you through your options.