#34 Healthcare Options Before Age 65 [Podcast]

Medicare eligibility starts at at 65. If you're blessed to be able leave your career earlier, you'll need to evaluate your healthcare options until then. This week I talk with health insurance guru, Misty Kimbrough, about your healthcare options before age 65.

Invest Wisely: 3 things you can do to ignore the voices in your head

I'm starting to hear voices in my head. Maybe you are too. They're asking, "Should I move to the sidelines? Should I wait to invest?" Certainly we've heard these voices on our beloved financial media outlets. Over the last 3 weeks or so, equity markets have had some big down days and it's making people nervous.

Don't base your investment strategy off of intuition, regardless of how well reasoned you think it is. The fact is professional investors struggle with timing markets. Even those that have great "market calls" can't do it consistently enough to be of much use to you or me.

Stop chasing rainbows. Turn off all financial news that peddles predictions, forecasts, etc. Don't fall for the siren sound of predicting the future. It's hard to tune out. We all want certainty. We crave it. It's uncomfortable to sit with not knowing. You must, though, if you are going to focus on the things you can control.
Revisit your cash reserves. Having enough cash so your long-term investments can be long-term. Selling at the wrong time because you need the money can be disastrous to your portfolio. Initially target 3 months lifestyle expenses and increase it if your income is less certain. For retirees, we target 18 months of expected lifestyle expenses.
Rebalance your portfolio. If you haven't rebalanced your portfolio to your target risk/return profile, do it. Part of investing wisely is consistently rebalancing to your targeted risk/return profile.

Plan Well: Health Insurance Options Before Age 65

This week I talk again with Misty Kimbrough from Red Apple Insurance. She and I discuss the insurance landscape if you've been blessed to retire early. We discuss:

How COBRA coverage works
Insurance options before you're eligible for Medicare
Individual insurance plans (Bronze, Silver & Gold)
How to structure your individual policy
Should you go on your spouse's plan
Insurance add on options.

Retirement Answers: How Do I Choose Long Term Care Insurance

This week I added a 2-page fact sheet to give you the basics on long term care insurance. You can access it for free by clicking the cool button below:

The Retirement Answer Man Episode #34

Welcome! Welcome to the Retirement Answer Man Show. My name is Roger Whitney. Thank you so much for joining me today. This is the show dedicated to helping you achieve that balance between living well today without sacrificing your tomorrow.

Now, can you imagine that? Can you imagine being confident in your financial future? Feeling comfortable enough to live well today and confident enough that you’re not sacrificing your tomorrow and that you’re actually on a good path? I really worry whether many people can have that confidence so they can achieve that balance of living well today and still feeling comfortable about tomorrow.

There is so much uncertainty in the world and there always is but there’s so much uncertainty amplified – whether it’s healthcare costs, living too long, ISIS, the world economy, government, inflation, debt. There are so many uncertainties in the world that are amplified for us. That’s what I want to stress. There’s always uncertainty, right? It’s just amplified, over the last five years especially, and that is causing a lot of people, in my opinion, to sacrifice a lot of their current lifestyle, to feel so uncomfortable about their future that they forget to live well today.

They forget that today is the only life that they have. They don’t need to necessarily save a ton more or live without or worry about things so much and sacrifice the only life they have. I think we’re a little bit out of balance there and that’s the mission of the show – to help you find that beautiful balance between feeling comfortable enough to live well today and enjoy the journey of your life and have confidence that you’re on the right path regardless of what the future holds because, at the end of the day, in your life or in the future, nobody has a clue.

It’s the future. Only God has a clue of what the future holds and I think our job in finding that balance is focusing on the things that we have some influence over; focusing on making lots and lots of little small decisions in our financial life, in our career, and in our family life; and making those little decisions over and over again. As your life unfolds, you’ll course-correct your path regardless of what the future holds for you. That’s what we’re trying to achieve here. That’s what I pray that I’m helping you achieve through this podcast – finding that balance between living well today without sacrificing your tomorrow.

Well, to help you along that journey, in today’s Invest Wisely topic, we’re going to talk about some of the voices I’m hearing in my head. I’m hearing voices! And those voices are saying maybe I should get out of the market. Things have been a little rocky lately. Maybe I should go to the sidelines. So, we’re going to talk about those voices that seem to be appearing and how you might be able to deal with them if you’re having those voices in your head. No, you’re not crazy. It’s a normal reaction.

In our Plan Well segment, I talk with Misty Kimbrough, my healthcare expert, on healthcare insurance options before you’re eligible for Medicare which is a big gap here. Those are the gap years, if you retire a little earlier than Medicare eligibility rules allow which is age 65. I just had a couple in the last three months retire at 61 so they have a four-year gap year between Medicare and we had to work through these solutions. Misty Kimbrough will help lay the landscape for how you deal with those gap years in the event that you’re blessed enough to be able to retire before Medicare kicks in.

This week, I started a new weekly thing on my blog. Each week, I’m going to post a brand new worksheet. The worksheet I posted this last week was “How Do I Choose Long Term Care Insurance?” It’s a two-page worksheet and, if you’re considering long term care insurance, I highly recommend you read this first because it gives you the basics of how long term care insurance works with no sales pitch around it. You can find that in the Retirement Answer Library which is located at rogerwhitney.com. If you want access to it, just go to rogerwhitney.com, register on the right-hand side for the Retirement Answer Library, and you can find this worksheet “How Do I Choose Long Term Care Insurance?”

It’s going to focus on questions like:

What does long term care insurance cover?
How much coverage should I buy?
Some of the must-knows of every long term care policy,
When to consider buying,
Things that you need to be aware of,
When is the right time to buy?
What’s some of the costs of waiting?

It’s a good framework if you’re entering that discussion of whether or not you should buy long term care insurance. You can get that in the Retirement Answer Library right on rogerwhitney.com.

All right, before we get started, let’s have the all-important disclosure and that is only you know your entre financial situation. I don’t know anything about you. Nobody on the internet knows anything about you. So, please, take this podcast and my blog –and, really, anything else on the internet – as helpful hints and education. Before you make any decisions in your life, make sure you consult the people that know you – that could be your tax advisor, your legal advisor, or your financial advisor. That’s not just a great legal disclosure to please lawyers; it’s also a fundamental principle about planning well.

Let’s move to the investing corner. I guess this is sort of a confession but I’m hearing voices in my head. I’m actually hearing them over the telephone in some conversations and those voices are, “Maybe now is not a good time or maybe now is a good time to move to the sidelines in terms of the markets? Maybe now is not a good time to invest that excess long term cash?”

I’m not just hearing these through the telephone. I’ll tell you; I’m hearing these voices in my head, too. I have these emotional reactions – like everybody else – when markets start to get a little waffly. Over the last month or so, a lot equity indices – that’s how you pronounce it, I believe – are down over five percent so we have some softness in the market, especially international markets, and that makes us all a little nervous and it makes me a little nervous, too. That’s why I use checklists and frameworks to help control those.

Let’s talk about some of these voices that we may all be feeling and hearing in our head. The problem nowadays is we don’t just hear them in our head; we hear them on television, in the newspapers. There are many very well-reasoned, researched articles and commentary on why the market should go down and there are a lot as to why it should still go up.

The fact is that most professionals struggle with timing and they never consistently get it right – not enough to really make a difference in investment strategy. I mean, let’s look at a little bit of history.

Do you remember back in 2009? Do you remember February of 2009? That was right near the bottom of that economic collapse. In February of 2009, the Russell Value Index was down over 48 percent from November of 2007 so you had lost almost half of your value in the Russell Value Index and most equity indexes were still the same way. And, at that time, we had what? We had Japan, we had money printing infinity, we had a slow recovery, we had toxic banks, sovereign debt. It was a scary time to invest and there was definitely no logical reason we thought to invest.

Well, if you fast forward to May of this year, 2014, the Russell Value Index has averaged 7.89 percent since November of 2007. Oops! All those big worries and uncertainty were for naught. The equity markets recovered very strongly and a lot of people missed out on a lot of returns. I’ll admit that I felt the same emotional and logical impacts on all these things as everyone else did – probably more so because of the burden of having to be a fiduciary in helping manage money for people. That’s scary stuff. You want to be the good guy.

Now, here we are with markets near an all-time high and we’ve had a few weeks of very crazy markets of big ups and big downs and now those voices are starting. Should we? It’s the opposite; it’s not, “Is it going to go down further?’ but, “Is it time to get to the sidelines?”

How are you supposed to manage and invest wisely through this? Well, I don’t have all the answers, but I want to give you some steps you can take to help control this and focus on facts and the little things that you might be able to control in your own life. What are you supposed to do? Well, let’s start off with three very basic things before we get to a longer term perspective on it.

The first is stop chasing rainbows. Stop reading all the articles on why it should go up or why it should go down. In fact, I would turn off all the financial news stations altogether. Here I am, I’m a financial advisor. I’m a founding partner of a decent-sized registered investment advisory firm. I don’t watch any financial news. I don’t read financial papers. They bring no value to me helping invest wisely for my clients or to work to invest wisely for my clients. Stop chasing rainbows – that’s number one.

Number two, make sure you have adequate cash reserves if you’re worried about the markets, and even if you‘re not worried about the markets, it’s pretty wise to always make sure you have a lot of liquidity on your balance sheet because cash – although it’s paying almost zero – gives you flexibility and it gives you comfort that you’re not going to have to sell at the wrong time.

How much cash reserves should you have? I need to do a podcast episode on this. I think I did one early on, but I think it’s something that I can talk about a little bit more, but you should always have adequate cash reserves because that will give you some comfort that your long-term assets are truly long-term.

How much should you have? Well, I would say start with three months minimum of lifestyle expenses. If you have a very secure job and you feel comfortable in the consistency of your cash flow – meaning your income – I would have three months living expenses and then you can increase that as you have less secure cash flows and whether that’s because you’re commission-based or you’re an entrepreneur and there’s lots of risk in your own business, you may increase that as high as a year for some people. Once you dial in that cash reserve amount, on top of that, you want to have any outflows that you are going to need over the next 18 months.

So, you’re going to have your cash reserves which could be anywhere from three months to a year or two – depending on how volatile your income is. And then, on top of that, you want to make sure that you have money set aside for things you know you’re going to be buying or spending money on over the next 18 months.

What’s an example of that? Well, I’ll use myself. My son is in college and he goes to Texas Tech University so I know I have a bill coming up in January I think it is. So, I’ll have a bill in January and then I’ll have a bill in August. I’ll have those two tuition payments coming up within the next 18 months. And then, my daughter who is 17 will be getting her driver’s license and will probably need a car of some sort in May – sorry, I’m working through the timeline in my head. Those are the types of things that I know I’m going to have to spend money on. That’s money I want to make sure that I have set aside so I don’t have to go to the markets to sell something to raise the money that will help me keep long term money, investing money very long term.

Now, if you don’t have taxable investment assets to be able to build up that cash reserve, you just do what you can do, throwing money towards your cash reserves to build it up before you add it to any investments, and cash reserves are one of the most important things on your balance sheet and they’re one of the things that a lot of people miss because they’re so worried about missing opportunities.

So, number one is stop chasing rainbows. Number two is make sure you have adequate cash reserves. And then, lastly, make sure that you’ve rebalanced your portfolio to the allocation level that you’ve set for yourself in your investment strategy. Why would you do this? We could have a whole show on rebalancing and we’ll probably do a whole segment on it, at least. But, over the last four years with the equity markets being so good, if you started off with a 60 percent equity portfolio and 40 percent fixed income portfolio, more than likely what happened is your equities kept rising and your fixed income investments didn’t. You may now be at, say, a 70-30 allocation of equities to fixed income when your policy or your plan is to be at 60-40. That means you’re taking a lot more equity risk or volatility than you initially intended to. If you haven’t had a consistent rebalancing policy, now might be a good time to rebalance to the risk return profile that you originally decided upon. It’ been easy not to do that because markets have been so good, but that would be one way of making sure you’re not taking more risk than you’re comfortable with or that you agreed upon.

Those are the three things that you can do if you’re starting to hear these voices in your head in terms of the markets. In a future episode, what I want to do is lay a groundwork of how you can structure your portfolio from the beginning. It’s going to be a little bit more than I can do in this episode so I want to have a whole Invest Wisely segment on how you just construct your portfolio right from the start. So, we’ll do that in a future episode but, for now, if you’re hearing these voices in your head, take these three easy steps – stop listening to the financial media and all the rainbow-chasers on what you should do next; make sure you have adequate cash reserves; and make sure you’re rebalanced your portfolio to the agreed upon risk profile that you ultimately placed, assuming that you invested wisely in the first place. Hopefully, these voices will go away now.

Now, I want to turn to my discussion with Misty Kimbrough. Misty is with Red Apple Insurance and she is a lady that we use in our practice. We built a network of professionals that we feel comfortable with from a moral standpoint, from an ethics standpoint, and from a competency standpoint, and Misty is definitely one of those people.

Here’s my discussion with Misty where we talk about the healthcare options for those that retire before they’re eligible for Medicare.

ROGER: So, Misty, let’s say I’m 62 and thinking about retirement. What are my basic healthcare options if I’m 62?

MISTY: Well, your first option is actually, you know, I always recommend that you check with your HR department because they have different programs and things. They might have an early retirement program for you that you could actually keep it to health insurance that you have on a retiree basis, but you want to make sure to check the coverage because the coverage can actually change.

Also, you could possibly be eligible for a COBRA coverage for up to 18 months after you retire. That might be an option for you. And, when I say COBRA, it depends on the size of the company. So, it’s (00:17:25 unclear) for the employee to be able for your company to be required to offer COBRA.

ROGER: Okay. So, if you have a healthcare plan at your employer and you’re 62 and you’re looking to retire, the first step is to check with HR and see if they have any benefits that allow you to keep some of the healthcare coverage until 65 even if you retire then.

MISTY: Yes. Yes, and even if maybe it only lasts for 18 months, but at least you have some options because at least they do have a retirement plan or early retiree program for you that might be the best way to go, depending on how much they’re going to contribute.

ROGER: Okay. And then, the second option is, if they don’t have something like that, or if the coverage isn’t adequate, is looking at COBRA to try to get you to 65.

MISTY: Well, actually, that would only last for 18 months.

ROGER: Right. Well, to get you part of the gap, I guess. So, can you explain COBRA real quickly?

MISTY: COBRA is required. It’s a requirement if you have 20 or more employees for them to offer that coverage for you and it’s all going to depend on, you know, the size of the company. So, for sure, they have to have at least 20 employees.

ROGER: Okay. So, if you work for a company that has 20 employees and you leave or retire or separate service I guess, you have the option of COBRA which is continuing that coverage for 18 months and it’s the identical healthcare coverage, but what’s the difference in cost typically?

MISTY: The cost is that you’re going to be paying them this whole premium. So, a lot of people say, “Well, it’s so expensive.” Well, if you’re the employee typically and it depends on what’s fair and obviously but typically employees are required to pay at least 50 percent of your premium. So, when you see that, sticker stock when you get the COBRA bill, it’s because your company is no longer picking up that 50 percent so you’re paying their portion, at least, of what they had to pay. They at least have to pay 50 percent. In some cases, they pay 100. So, you’re looking at paying the full premium amount.

ROGER: Okay. Then, you get a better appreciation for what healthcare actually costs.

MISTY: Exactly!

ROGER: Then, that might be a good option to do while you try to look for alternatives so you don’t just go uninsured.

MISTY: That is correct. But there is also other options. I mean, you can get individual insurance. A lot of times, people stay on COBRA because they had a health condition that they didn’t qualify for an individual policy. Well, now, with the new ACA or Affordable Care Act, they cannot underwrite you so there is no health issues that could keep you from getting health insurance.

ROGER: That’s a big thing because I recall that when we left a big company and started our company was, if you had a pre-existing condition, you‘re in trouble or you could be in trouble when you go through the individual underwriting. So, all of that’s gone away with the Affordable Care Act, right?

MISTY: Yes, that is correct. Now, you might get a little sticker shock there with the new premiums, but that is one of the reasons why there is no pre-existing conditions that they can actually decline you or rate you up for.

ROGER: Okay. So, the decision would be you look at COBRA and what that is and basically you’re getting whatever that plan offered or you could go to the Affordable Care Act solution which is you can control a little bit more of what level of care you’re paying for, is that correct?

MISTY: Yes, so you won’t be stuck with the one plan that your company offers. You’ll have several options. Like, I can tell you, premium right now in the Fort Worth area for a male or female aged 62 runs from the low end of about $420 a month all the way up to $995 so you’re talking a big difference in deductibles.

ROGER: Yeah, and the difference comes in all of what the deductible scheme of what is covered and the co-pay and all those types of things.

MISTY: Yes, and now we’re on that scale of having plans that go from bronze or gold to platinum and so that’s the range of what the coverage is and so you’ll be hearing that a lot more so that’s something you’ll want to familiarize yourself with as well.

ROGER: Okay. Now, do those premiums vary greatly from state to state? Is each state different or area different?

MISTY: Yes, each area is different. I can go to Granberry from Fort Worth and, on a bronze plan you know, there can be anywhere from the lowest available plan or least expensive plan, there can be $60 to $70 difference in premium.

ROGER: Okay. And then, even if I’m in New York and I go from outside the city to the city, it could be very different so you just have to check where you’re at locally to figure that out.

MISTY: Yes, exactly, very important.

ROGER: Okay. So, that’s what you can do if you’re 62 and thinking about retiring. First, look at COBRA and then look at the individual insurance options which now you don’t have to worry about pre-existing conditions which is always a big issue. Anything else that someone under 65 would need to consider if they’re retiring before they’re eligible for Medicare?

MISTY: Well, I think one thing is looking at there’s always the opportunity that you could qualify for a subsidy. So, qualifying for a subsidy as based on your income so, if you needed help paying for your premium because it is a lot more expensive that what we’re used to prior to ACA compliant plans coming out so you could qualify for a subsidy so that’s something that you need to think about as well that would help you pay for your premium on the individual marketplace.

ROGER: Now, is that subsidy based on income only or is it also based on assets?

MISTY: It’s not based on assets.

ROGER: So, income only.

MISTY: It’s on your modified adjusted gross income.

ROGER: Okay. That’s an important distinction there so that’s good to know.

MISTY: Yes.

ROGER: Well, now let’s say I’m retiring and both my spouse and I are under 65. Now, is that a different scenario if I’m married and we’re both under 65? Do I have different options?

MISTY: Well, with you both being under 65, well, I guess you have one more option and that is going on your spouse’s group plan. So, if she’s not retiring or he’s not retiring, then you may have the opportunity to go on her plan. Otherwise, you’re going to be looking at the same thing. You’re going to be looking at continuing coverage for your employer, purchasing individual coverage, or going through COBRA.

ROGER: And that’s, I guess, with my wife, even though we’re in our 40s, when we left ten years ago to start our business and my wife went to work for a big company, that was a big consideration because our family could be on her plan so I didn’t have to deal with it.

MISTY: Yeah.

ROGER: So, I guess whatever spouse isn’t working when the other one retires, they have to go back to work doing something. That’s a good strategy.

MISTY: Yes, that would work. I will say there’s a little trick to this. I learned the hard way. It’s that, if you are coming off the group plan and you are going to an individual plan, make sure you put youngest spouse as a primary insured.

ROGER: Go ahead and explain that a little bit.

MISTY: Prior to the ACA compliant plans, you could kind of remove and change people around if you thought that it was the best thing for you. Now, you basically have to put in a whole new application and this happened to a client of mine this year and it was just a mess. So, we had to re-apply for her even though there’s no underwriting guidelines that this took a long time and we had to have claims moved over and it was a two-month process. So, it wasn’t an issue before so we didn’t know that going forward. Going forward, I know always that the youngest spouse as primary.

ROGER: One of those little things that I’m sure a lot of people don’t think about when they’re setting all this stuff up.

MISTY: That’s correct. Then it will save you a lot of headache.

ROGER: Okay. So, from a retirement planning perspective, when you’re dealing with healthcare, are there any other avenues and services or products that someone should consider to help defray a lot of these retirement healthcare costs?

MISTY: There are some other products that are out there that can help you as far as helping to take care of your deductible or hospitalization like a hospital indemnity plan which a lot of people are known – you know, AFLAC is doing some of those things that covers some of those costs – but I think also all the health insurance carriers, or I would say not all but the majority of health insurance carriers are now offering those options to send you a hospital indemnity plan which would help pay for part of your deductible.

ROGER: Are those standardized or are they really a case by case difference in each product?

MISTY: They’re definitely different by each product. Each company has different underwriting guidelines. Maybe they pay $295 per day or they pay $100 per day or they pay a flat fee per hospitalization. So, it’s definitely something that you have to look at each company. And now that it’s getting more competitive in the marketplace, you are definitely going to be able to see a difference in premium.

ROGER: And so, these would take the placeholder of a meta gap type of insurance policy which is standardized that you get after age 65, is that correct?

MISTY: Yes. Well, we’re talking two different things now as far as, well, actually, you could have that.

ROGER: Oh, you could still have it even…

MISTY: You can have it for over 65. You can have it in both cases – under 65 and over 65. It can be used in conjunction with your Medicare option or individual health insurance option.

ROGER: Okay. Do you see those types of things used a lot?

MISTY: It’s becoming a huge benefit in the marketplace. I mean, it’s coming out. Like I said, every insurance carrier is coming out with some of those options whether it’s an accident plan, hospitalization, there are these cancer plans. It’s becoming huge. And, also, with everyone or so many people turning 65 and we’re looking at final (00:27:51 unclear) plans becoming more readily available in the market with easier underwriting, and when I say underwriting, it’s just easier to obtain based on health information that you provide. So, yes, it’s becoming a big part of new insurance.

ROGER: Okay. I guess a lot of it comes down to evaluation each person’s individual situation as to whether they’re appropriate or not based on the assets they have and their income and lots of other factors, I’m sure.

MISTY: Yes, and that’s why I definitely say to talk to your HR first when you’re thinking about retiring or your health insurance side of it, get together with a broker, talk to your financial advisor. I’m doing a lot of things that play into this as far as income and how you’re going to be able to afford it.

ROGER: Okay. Now, Misty, where can people connect with you if they want to learn more about this topic of healthcare planning during retirement.

MISTY: Well, I am in Fort Worth, Texas. They can always reach me. My phone number is 1-800-525-7847 and that’s my office number. You can also reach me on my cell phone which is 817-793-7838.

ROGER: Great! Well, Misty, thank you so much for joining me again. We’ll have you back again to talk more about healthcare planning in retirement.

MISTY: Well, thank you for having me.

Well, thank you so much for joining me for today’s show. I really enjoyed having you here.

If you would like access to the How Do I Choose Long Term Care Insurance worksheet, go to rogerwhitney.com and register for The Retirement Answer Library. I just added that last Wednesday.

And, as always, if you enjoyed this podcast and have found value, I would consider it a great favor if you went into iTunes and left a review so we can increase the Plan Well community.

Until next week, this is Roger Whitney, the Retirement Answer Man.