Question: G.D. in Batavia: If I retire before Medicare kicks in, what are my health insurance options?
A: Although most people consider 65 to be the standard retirement age in the U.S., did you know that the average actual retirement age is younger? According to GoBankingRates.com, it’s age 63 in Ohio and Indiana, and age 62 in Kentucky. This means the average retiree in the Tristate spends at least two to three years in retirement before they’re eligible for Medicare. So, this is an excellent question that likely impacts thousands of our neighbors.
Your first move should be to check with your employer. A 2019 Kaiser Family Foundation survey found that, while not common, almost 3 out of 10 employers do offer retirees coverage. If it’s not available, you’re married and your spouse is still working, see if you can join their plan. Retirement typically counts as a "qualifying’ life event," meaning you’re eligible for a special enrollment window.
If neither of those options are feasible, you can explore plans offered on the public marketplace by the Affordable Care Act (online at healthcare.gov). In some cases, if your retirement income is low enough, you can qualify for a subsidy. If you don’t qualify, be prepared for the possibility of sticker shock. You could also consider buying a health plan directly through an insurance company (known as "private" insurance). In this case, we recommend working with an insurance broker or using a comparative website such as GoHealth or eHealth.
Electing to use COBRA insurance for up to 18 months is also a possibility, but just be aware: This option can also be quite expensive because you’re paying your full premium with no employer assistance. Another idea is to pick up a part-time job that includes health benefits. Examples include Lowe’s, Starbucks, Costco and UPS.
The Allworth Advice is to do your research. All these options come with different coverage, availability and costs. Plus, a lot depends on how long you need to bridge the gap between when you retire and when you become Medicare-eligible at age 65.
Q: Roger from Florence: My son is 22 and thinking about changing jobs and only has about $3,000 in his current 401(k). Since it’s not that much, can he just leave that with his soon-to-be former employer?
A: He likely won’t be able to do this. In most cases, if an employee leaves and their 401(k) account balance is less than $5,000, the employer won’t permit that account to stay in their plan.
This means your son has two options: He can either cash out the money or take it with him. We don’t like the idea of cashing out because he’ll have to pay taxes and a 10% early withdrawal penalty. So, instead, he should consider rolling that money over into an IRA. Just be sure he tells his employer to make it a "direct" rollover and has the check made payable to the IRA custodian – he’ll avoid paying taxes or penalties on the transfer using this method.
Here’s the Allworth Advice: Your son should be proud that he’s managed to save $3,000 for retirement so far. And that’s what he needs to keep in mind – this money is for retirement. It may not seem like a lot right now, but if he sets it aside in an IRA and doesn’t touch it (or, even better, adds to it), it will have a chance to keep growing.
Every week, Allworth Financial’s Amy Wagner and Steve Sprovach answer your questions. If you, a friend or someone in your family has a money issue or problem, feel free to send those questions to [email protected].
Responses are for informational purposes only, and individuals should consider whether any general recommendation in these responses is suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing, including a tax adviser and/or attorney. Retirement planning services offered through Allworth Financial, an SEC Registered Investment Advisor. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Call 513-469-7500 or visit allworthfinancial.com.
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