In 2009, roughly 1.5 million Americans filed for bankruptcy.
Most of them were middle-class, well-educated homeowners, just like
you. Do you know what caused most of those bankruptcies? It wasn't
a fancy adjustable rate mortgage or backlash from the financial
crisis. According to a study published in the August 2009 American
Journal of Medicine, more than 60% of bankruptcies have their root
cause in medical bills.
"Unless you're a Warren Buffett or Bill Gates, you're one
illness away from financial ruin in this country," says Harvard
researcher and lead author Steffie Woolhandler, M.D. Or, as one of
my clients, a physician, said to me, "You are just one step away
from the banana peel!"
The bottom line is that funding ever-increasing healthcare costs
is almost certainly one of your biggest risks - if not the biggest
- in retirement. And since we know it is very difficult to take
effective action once you are already in financial crisis, it is
important that you answer the following questions
If you are planning to retire before age 65...
1. Do you have retiree healthcare benefits available through
your employer or union? Is it available for just you or you and
If you are among the few who have retiree benefits, count your
lucky stars. According to a February 2003 Issue Brief by the
Employee Benefit Research Institute, only 12% of private U.S. firms
offered retiree healthcare benefits. That number is expected to
continue shrinking in the future because of rapidly rising
Even if you do have coverage, remember that not all plans are
good plans, nor are they necessarily affordable. You also must be
aware, as an early retiree, that your employer is not required to
continue to offer you coverage and may discontinue the plan at any
2. Do you have any pre-existing conditions which would impact
your ability to get coverage?
This is an especially important question for those who will
access the private insurance market. Individual insurance goes
through a medical underwriting process. If you are un-insurable due
to a chronic illness or condition, your only option may be the
state high risk pool, which is usually very expensive.
3. Have you examined the relative merits of all your
For example, someone with retiree coverage may also be eligible
for COBRA and private insurance. It is important to look at the
benefits available under each policy and their relative costs. What
is the lifetime maximum? Are there survivor benefits? What are the
Another issue to consider is the possibility of a change in
health status. If you are not eligible for retiree benefits, COBRA
might be a good option, for 18 months, to bridge the gap until you
become eligible for Medicare. But if COBRA won't get you to
Medicare eligibility, you might be better off taking private
coverage now, assuming you qualify, to hedge the risk of an illness
cropping up in the 18 month period that makes you un-insurable.
4. Do you know when and how to enroll in Medicare?
Even if you are eligible for retiree benefits, your company will
require you to enroll in Medicare at age 65. At that point, the
retiree policy generally becomes second-to-pay. If you receive
Social Security benefits prior to age 65, (which we don't advise),
you will automatically be enrolled in Medicare Part A. You must
elect whether to enroll in Parts B,C and D.
If you delay Social Security benefits, you will need to contact
Social Security some time during the three months prior to your
65th birthday to enroll. You absolutely do not want to miss the
initial enrollment window, which begins three months before your
65th birthday, includes the month you turn age 65 and ends three
months after that birthday.
5. Have you purchased long-term care insurance?
While a serious illness or injury has the potential to run up
medical bills in the hundreds of thousands of dollars, long-term
care has the potential to cost in the millions over a span of ten
to twenty years. Hopefully, you have done this much earlier, but if
not, provided you are still healthy enough to qualify for a policy,
this is a must.
Nearly 40% of those who need long-term care are under the age of
60. Our rule of thumb is all clients, over the age of 40, with
under $3.5 million in investable assets must have a long-term care
policy. This is non-negotiable. Over $3.5 million, we still believe
it is advisable.
(NOTE: Snider Advisors offers a free special report on long-term
care insurance titled, Long-Term Care Insurance: Frequently Asked
Questions, which demystifies the issues surrounding long-term care
insurance and gives you guidance on how to start getting this
all-important piece of your financial plan in place.)
If you plan to retire at 65 or older...
1. Again, are you or your spouse eligible for retiree benefits
through your employer?
Make sure you review the cost and benefits. The employer plan
will be second-to-pay after Medicare. If it is a good plan, which
not all of them are, it may make sense to use your employer
sponsored plan as a Medicare supplement. Otherwise, you will want
to purchase a Medicare Supplement policy separately during the open
2. Have you purchased Long-Term Care Insurance?
The longer you wait to purchase long-term care, the more
expensive it will be and the more likely you are to have a
condition which drives up premiums or makes you altogether
uninsurable. The ideal age to purchase long-term care is in your
40s. But the next best time is now. When you turn 65, there is a
70% chance you will need at least some some long-term care at some
point in your life.
3. Do you understand Medicare enrollment procedures and
It is important you go through the Medicare enrollment process
promptly to avoid a gap in coverage. A gap in coverage may result
in higher premiums for the rest of your life. Also, pre-existing
conditions, which are not a consideration as long as there is no
gap in coverage, enter the equation if you fail to enroll promptly
before age 65. Finally, Medicare Supplement insurance, as long as
it is purchased in the six months after your 65th birthday, is not
subject to underwriting either, but will be if purchased outside
the open enrollment period.
4. Do you know where to get help with questions regarding
healthcare coverage and strategies for covering the costs?
There are many public resources available. Most state
Departments of Insurance have a lot of helpful information
available on their web sites, as does the Social Security
Administration and Medicare. Private advisors can also help.
Possible resources include the Benefits Department of your employer
or union, insurance consultants, and retirement planners.
Don't wait until retirement sneaks up on you to begin looking
for answers to these questions. Remember that a large percentage of
Americans are forced to retire earlier than they had planned. So do
your homework and if you need help ask for it from a qualified
No statement in this article should be construed as a
recommendation to buy or sell a security or to provide investment
advice unless specifically stated as such. All investments involve
risk including possible loss of principal.