I normally try to post articles that are helpful for Baby Boomers. As we approach retirement our insurance needs change. If we have been disciplined enough to follow the financial plans of the TV financial gurus, we will have several hundreds of dollars in savings and there will be no need for any life insurance of any sort.
Unfortunately, not all of us have been as disciplined as we would have liked. The average American has less than $70,000 in savings on the day he retires. When the average American spends over $240,000 on medical expenses that Medicare does not pay during retirement, it is obvious that $70,000 is not sufficient.
Fortunately, those of us who do not have the swollen bank accounts still have a financial future. It can be secured with insurance.
Ideally, when we retire there will be no need for insurance. If you are single and willing to let the government take care of you, that might be an option.
Millions of Americans are satisfied with the amount of money they get from Social Security retirement. If they are not too picky about where they live and remain healthy they can be content during their golden years. If they get sick enough to need a nursing home or a Home Health Aide, since their only income is Social Security and they have no savings, they should be able to qualify for Medicaid.
However, millions of Americans are not willing to spend their golden years as a ward of the state. They do not want to be dependent on the fickle American government.
Since the laws change every time the political winds change, relying on government benefits is a gamble. Something that may be available on the day you retire may disappear a few years later.
Government benefits are a nice luxury to have but appropriate insurance planning is required if you do not want to run the risk of a future congress and president taking that benefit from you.
Take time to think about the last few years.
- Medicare is heading towards bankruptcy and the politicians in D.C. are looking to make major adjustments to the program.
- Title VIII of the PPACA was repealed with the American Taxpayer’s Relief Act of 2012. With it all federal programs to help Americans with Long Term Care expenses went away.
- State regulated Medicaid programs are the only governmental programs to help with Long Term Care expenses. They are even more volatile than federal entitlement programs.
In this post I want to briefly describe some changes that need to be made to your insurance portfolio as you plan for retirement if you are married and have not been able to accumulate the several hundreds of thousands of dollars required for a comfortable retirement.
I am not a believer in “Everybody needs Life insurance.” In my opinion, if you need it, you need it. If you don’t, Life insurance is a waste of money.
Over the past couple of weeks I have written a series of post on legitimate reasons for life insurance. Most of them are applicable to our kids. Ideally, by the time you retire, you have no need for life insurance.
However, a great many Baby Boomers, do not have an extra $10,000 in savings or a pre-planned funeral. For them a minimal Final Expense type of Life insurance plan is sufficient.
(If you planned ahead and got a “participating” Whole Life policy in your late 40s, there is a good chance that the dividends exceed your annual premiums at this point. If that is the case all you need to do when you retire is to change your dividend option to pay your premiums for you. If you do, you will not need to pay any future premiums out of your pocket.)
LONG TERM CARE
One expense that is often over-looked as people plan for retirement is the cost of Long Term Care. The odds that you will need Long Term Care at some point in life are staggering.
Assuming you are able to live a full life-span, the odds of you needing Long Term Care are around 70%.
The good news is that not everyone who needs Long Term Care require nursing home care. Only 15% of those who make claims for Long Term Care require institutionalization.
That means that 85% of those that need Long Term Care are able to keep a significant portion of their independence. They just need a little help.
Unfortunately, that help can be quite expensive. The least expensive help would be a “non-skilled” Home Care Aide. They still cost a little over $30,000 a year to hire one for 40 hours a week.
If you retire with less than $70,000 and are forced to hire a Home Care Aide, your spouse will have to learn to “do without” since your savings will be needed to pay your Home Care Aide.
If you were planning to leave your life savings to your children, the cost of hiring a Home Health Aide can eat up the inheritance you planned to leave for your children and grandchildren.
Long Term Care insurance that pays the costs for a Home Care Aide eliminates your need to invade your savings if you suffer from the frailties that are so common with the elderly.
(If you elect to get a smaller Long Term Care insurance plan that covers the cost of Home Health Care Aides in your mid-50s or early 60s, the premium will be close to what you are conditioned to spend on Life insurance.)
Medicare is similar to the health insurance you had during your working years but it is not exactly the same. There are some differences that you will need to prepare for.
The health plan you had at work probably had an annual deductible. That is not the case with Medicare. Unless you have to be readmitted to the hospital for the same condition within 60 days of discharge, you must pay the Medicare A deductible each time you are admitted to the hospital.
If you are admitted to the hospital Medicare A will pay for all of the hospital expenses except for the deductible. However your doctor’s bills from both in and out of the hospital will be paid under Medicare B.
With Medicare B, Medicare will only pay 80% of the approved amount of your doctor’s bills and out-patient medical treatments.
The Major Medical plan you had before you retire probably had an, “Out-of-Pocket Maximum.” After you paid that amount of medical bills out of your own resources, the insurance company would pay 100% of your medical bills for the rest of the year.
Medicare B has no “Out-of-Pocket Maximum.” That is a major reason the average American must spend $240,000 on medical bills during retirement. They are responsible for 20% of their doctor’s bills, even if they have Medicare.
Medigap plans will pay all, or part, of those expenses for you.
(You cannot buy Medigap before you enroll in Medicare. The extent of planning that you can do is to understand your Medigap options. I recommend starting to study your options after your 63rd birthday. That way when you turn 64 and start getting bombarded with confusing marketing material from the insurance companies, you will already understand your options. Your only decisions will be if Medigap is right for you and which insurance company you want to use.)
Traditional Medicare does not pay for prescription drugs. If you will want that type of coverage you will need to get a Medicare D plan.
When you enroll in Medicare, you will be eligible for Medicare D under your Initial Enrollment Period. If you choose a Medicare D plan during that time, your coverage will be effective on the first of the month after your application is confirmed.
However, if you do not elect a Medicare D plan during your Initial Enrollment Period, you will have to wait to join until the next Annual Enrollment Period or you qualify for a Special Election Period.
If you are able to qualify for a Special Election Period, you coverage may start sooner than if you must wait for the Annual Election Period.
If you must use the Annual Election Period, your coverage will not start until the following year and you will be charged a penalty premium for each month that you could have had Medicare D but did not. That penalty will last for the rest of your life.
(Since the plans change from year to year, there is not much sense taking the time to research the details of the plans until right before you enroll in Medicare. The only real planning that Baby Boomers can make ahead of time is to decide if they are going to enroll in a Medicare D plan if they elect to use Original Medicare.)
If you want to learn more about insurance planning for retirement, click the photo below.