May 2017 IssueLong scroll reading

Planning a Rewarding Retirement, Part 4

By Robert Cochran

Planning for Future Health Care Expenses, 

The fourth in a series of articles

My original intent was to retire when I turned 70. However, as I noted in Part 2 of this series, the realization that “it’s time” bumped up my retirement to this fall, when I turn 67. Thus the mental switch was flipped. Then the “Can I afford to retire?” review and decision was made. In my last blog (#3), I was able to determine the anticipated timing and amount of distributions from my retirement plan account. Now I come to health care – what might future costs be, how to survive the gauntlet of Medicare, Medicare Supplement Insurance, Prescription Drug Insurance, and other pieces of this constantly changing puzzle.

The changes since the Affordable Care Act was implemented are too many to list here. With a new administration intent on “repeal & replace”, there is no doubt more changes are coming. For higher earners, a repeal of the ACA Medicare surtax could mean a significant savings in the cost of Medicare. Bottom line: most everything is likely to change, so be flexible.

For a number of years, I have recommended clients reaching age 65 work with a person who specializes in Medicare, Medicare Supplement, Prescription Drug, and other areas of health insurance. For an annual fee, she gathers personal information, including health status and current prescription drugs, then finds the insurance companies and plans that best match each person for the lowest cost. But just as important, she helps complete enrollment and claim forms and helps resolve all medical claims issues.

For my wife and me, doing this was a no brainer. We have worked with her for two years, and we both had changes to our Supplement and Prescription Drug plan in our second year. We would not have done nearly as well left to our own devices. For us, it is money well spent. Since she does not sell anything but her services, if we decide to move to another state, we can continue to work with her. She can work with people in any state.

It is important to know that when you turn 65, you must enroll in Medicare. There is a seven-month window beginning three months before the month you turn 65. To avoid a potential gap in coverage, it is important to know that Medicare benefits begin the month following the month you enroll. The official U.S. government site ( is quite good and full of information. It details what services Parts A and B cover, as well as what Medicare does not cover. For people who work past age 65 and work for a small company (fewer than 20 employees), you should know that Medicare will be your primary insurer, with your company plan (if there is one) as secondary. For larger companies (20 or more employees), your group coverage is the primary insurance, while Medicare is secondary. If you miscommunicate this to health care providers, it could cost you denials for claims. Trust me on this. Part B enrollment can be delayed if you are still covered by a health plan with an employer that has more than 20 workers.

If you work for an employer with fewer than 20 employees, your employer may opt out of providing you with primary coverage when you turn 65. In that case, you must sign up for Medicare as your primary insurance. You’ll also want to ask your employer what happens to any coverage for your dependents — spouse or children. 

It may not be cost effective for people to pay for both Medicare and their group plan, since the cost of Medicare (A & B, plus supplemental insurance, plus prescription drug coverage) could be less than a group plan. But you (or the insurance specialist you hire) should run the numbers. I dropped my expensive small company group plan because of the small number of enrollees and my age.

You should know that Medicare Parts A & B do not cover most dental care, as well as eye exams and prescription eyewear or contact lenses. I have had many clients and their spouses get a lot done while they were still on their company eye and dental plans. My wife and I are already scheduling appointments prior to my retirement. I am fortunate that my company plan allows us to remain in the dental and vision options on a stand-alone basis.

Medicare also does not pay for long-term care (also called custodial care). We purchased insurance for this a number of years ago. It is a traditional policy, and we elected a daily benefit that will pay approximately one-half of the expected costs. Our thought is that our sources of income will continue, allowing us to make up the difference from cash flow. We don’t know what the future of this insurance is, and the current premiums are not inexpensive. Products are coming and going at a fairly rapid pace. We hope our decision will allow us to tackle these expenses, if they occur, and still be able to realize our designated charitable gifts when we pass. Yes, it is a crap shoot. But we will probably never collect on our homeowner’s insurance, either.

In summary, health insurance costs will go up. There is no doubt about that. I would suggest having a separate expense item for health care expenses in your retirement cash flow projection, and use a significantly higher inflation factor than the CPI. And consider the services of a health care insurance specialist (not an insurance agent), who can sort through the maze of options and find the best option for your unique situation. I would be glad to provide a referral to a specialist if you contact me.

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About Robert Cochran

Robert Cochran is the now retired lead portfolio manager, Chief Compliance Officer, and principal of PDS Planning in Columbus, Ohio and a member of the Board of Directors of Mutual Fund Observer, Inc. Bob’s been a financial professional for the past 31 years, writes thoughtfully and well, and had a stint teaching at Humboldt State in Arcata, a lovely town in northern California. He also serves on the Board for the Columbus Symphony (and was formerly their principal bassoonist) and Neighborhood Services, Inc., one of Ohio’s oldest food banks.