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Managing Health Care Costs

Your plans for the future shouldn't just be about what happens to your property or financial affairs. The longer you live in retirement, the greater the likelihood that you will need to use health insurance or arrange for long-term care.

Health Insurance

Health care costs are likely to be one of the biggest expenses of retirement. Most individuals become eligible for Medicare at age 65. This means you need to get health insurance coverage somewhere else when you retire at an earlier age. Check whether your employer offers a retiree health insurance program as part of your retirement benefits, or if you can convert what you have to an individual policy.

You may also be eligible to get health insurance at group rates from your former employer under COBRA—a federal law that typically entitles you to continue your employer’s coverage for up to 18 months. In addition to COBRA, you may have other options to get health insurance. For instance, if you are married and your spouse continues working after you retire, you may be able to get health insurance under your spouse's company health plan, if one is available. And under the 2010 Patient Protection and Affordable Care Act, you may be able to obtain health coverage as you retire, even if you opt to get COBRA coverage. You can find details on the Health Insurance Marketplace website. Compare the benefits and the cost of all available options so you can decide what health insurance works best for you.

Smart Tip:
Visit the National Association of Insurance Commissioners' website for additional information on health insurance options.

Long-Term Care Insurance

Long-term care insurance is a risk-management product to help cushion the financial blow of prolonged and expensive elder care or custodial care.

Like other forms of insurance, most long-term care policies have caps, or maximum benefit amounts. That means almost no policy will pay for the total cost of your long-term care. But having this kind of insurance reduces the amount you're responsible for paying—perhaps leaving more assets available for your spouse, if you have one, to live on in the meantime.

Be aware that all long-term care policies have a list of trigger events, which mark the point at which you qualify for benefits. These events may be a doctor's order or a point at which you're unable to perform a specified number of what insurers call your customary activities of daily life, or ADLs, by yourself. ADLs include tasks such as dressing or bathing yourself, being able to use the bathroom and feeding yourself. That said, not all long-term care policies cover cognitive impairments, such as Alzheimer's disease, when you're still able to perform most ADLs.

For additional details on long-term care insurance, review the information offered by the National Association of Insurance Commissioners.