The Complete Lawyer

Retirement Readiness and the possibilities of re-inventing ourselves can be enhanced by a certain amount of practical prior planning.
The medical care “industry” consumes almost 20% of GDP and Americans will spend a projected $2 trillion on health care in 2008—an expenditure that has been increasing at a substantially higher rate than core inflation. Since we Baby Boomers are going to consume health care services at an unprecedented rate over the next 40 years, we need to reconcile health care needs with health care resources.[1] The best way to make the most effective long-range decisions is to understand the complex, shifting benefits landscape.

Shore Up Your Health Insurance

Virtually all of us are covered by group health and life insurance; some have dental care, and others group long term care insurance. We probably take those plans for granted, assuming that our premium share is nominal compared to the actual cost. But as we Baby Boomers begin to appreciate that “retirement” (we prefer to call it “thriving beyond midlife”) doesn’t necessarily begin at the arbitrary age of 65, we have to rethink those benefits. Many of us may chose to work part-time as a way to reinvigorate the last third of our life. If we work fewer hours than those needed to qualify for health plan eligibility, health and dental benefits should be available under COBRA—but neither group life nor group LTC are mandated under COBRA. In any case, eligible benefits—at a personal premium of 102% of the plan’s actual cost—can be continued for only 18 months.

If you end up with a gap after COBRA and before Medicare eligibility on your 65th birthday (Medicare doesn’t believe in a flexible retirement age), you still have options. Working spouses can provide dependent coverage under his or her plan at the next open enrollment period. Otherwise, determine what your state mandates in terms of available health insurance without reference to pre-existing conditions. For example, Massachusetts has some of the best options in that regard for individuals; California allows businesses with just two employees to obtain such coverage. (Spouses make a great addition to the solo practitioner team).

Depending on where you live, a benefit-rich health plan can cost more than $2,000 a month for a couple in their early 60s. Even high deductible plans combined with a Healthcare Savings Account (an “IRA” for healthcare expenses) can still run close to $20,000 a year. While dental coverage will likely be available with no eligibility requirements, look closely at the benefit caps and deductibles compared to the premiums you’ll pay. The first year or two of coverage will arbitrarily limit “major” expenses to avoid anti-selection. Even when such limits are lifted, dental insurance is often not economical when premiums are compared to benefit maximums. Remember, though, that our bodies and our teeth need more attention as we get older: bone loss rates accelerate; periodontal disease is more common and expensive. If you choose not to pay dental plan premiums, consider setting aside the amount of premium you’re not paying as a reserve for those expenses.

Don’t Enroll In Social Security Prematurely

According to the Social Security Administration, well over 50% of those eligible at age 62 have elected early benefits. Yet in most cases a decision to elect at age 62 rather than 66 will forever lock in a 25% reduction in monthly income. (If you were born from January 1943 through December 1954, your normal retirement age for full Social Security is 66; those born in 1960 and later will wait until age 67 for normal retirement benefits, with fractional years interpolated between 1954 and 1960). Deferral to age 70, on the other hand, can add 32% to the normal retirement benefit. That’s an almost 60% difference in monthly income benefits for those who believe they will live well past age 85.

There can be good reasons to sign up for early benefits, but don’t do it just because you’re worried about the viability of the program. Although it is often mischaracterized as a financial disaster ready to bankrupt the country, Social Security is projected to be self-supporting until 2040—when early Boomers are turning 94.

Also, while the last major change in benefit structure and funding occurred 25 years ago, given the politically incendiary nature of making any changes, it is reasonable to assume that future changes will be initiated progressively. In other words, the cost of early election merely to “protect” benefits is most likely a higher price to pay than necessary.

Therefore, don’t elect early benefits simply because you can. While there are exceptions to every rule—and the rules are incredibly complex—most financial advisors recommend that if you expect to earn more than $36,000 a year between 62 and normal retirement age (negating any benefit to which you would otherwise have been eligible), primary wage earners should consider deferring their benefit election at least until age 66/67. Depending on financial need and a sense of your own life expectancy, some people will defer to age 70 (the latest age for which delaying the start of benefits provides a progressive increase in the benefit itself).