MONEY Ask the Expert

Do You Really Need Medigap Insurance If You’re in Good Health?

140603_FF_QA_Obamacare_illo_1
Robert A. Di Ieso, Jr.

Q: We are in good health and have a Medigap Plan N for 2014. With same expected health in 2015, do we need anything more than Medicare A, B, and D plans? —Norbert & Sue

A: Medigap, a private insurance policy that supplements Medicare, picks up where Medicare leaves off, helping you cover co-payments, coinsurance, and deductibles. Some policies also pay for services Medicare doesn’t touch, like medical care outside the U.S.

This additional insurance is not necessary, but, says Fred Riccardi, client services director at the Medicare Rights Center, “if you can afford to, have a Medigap policy. It provides protection for high out-of-pocket costs, especially if you become ill or need to receive more care as you age.” (If you already have some supplemental retiree health insurance through a former employer or union, you may be able to skip Medigap; you also don’t need a Medigap policy if you chose a Medicare Advantage Plan, or Medicare Part C.)

If you purchase Medigap, you’ll owe a monthly premium on top of what you pay for Medicare Part B. The cost ranges from a median annual premium of $936 for Medigap Plan K coverage to $1,952 for Plan F coverage, according to a survey of insurers by Weiss Ratings. The median cost for your plan N was $1,332 a year.

Even if you didn’t end up needing your Medicap policy this year, however, think twice before you drop it.

If you skip signing up when you’re first eligible, or if you buy a Medigap plan and later drop it, you might not be able to get another policy down the road, or you may have to pay far more for the coverage.

Under federal law, you’re guaranteed the right to buy a Medigap policy during a six-month open enrollment period that begins the month you turn 65 and join Medicare, says Riccardi. (To avoid a gap in coverage, you can apply earlier.) During this time, insurance companies cannot deny you coverage, and they must offer you the best available rates regardless of your health. You can compare the types of Medigap plans at Medicare.gov.

You also have a guaranteed right to buy most Medigap policies within 63 days of losing certain types of health coverage, including private group health insurance and a Medigap policy or Medicare Advantage plan that ends its coverage. You also have this fresh window if you joined a Medicare Advantage plan when you first became eligible for Medicare and dropped out within the first 12 months.

Most states follow the federal rules, but some, such as New York and Connecticut, allow you to buy a policy any time, says Riccardi. Call your State Health Insurance Assistance Program to learn more.

Outside of one of these federally or state-protected windows, you’ll be able to buy a policy only if you find a company willing to sell you one.And they can charge you a higher premium based on your health status, and you may have to wait six months before the policy will cover pre-existing conditions.

MONEY Health Care

Why Obamacare Is Making Medicare Open Enrollment More Confusing

Tangle of Stethoscopes
Comstock Images—Getty Images

The time to sign up for an individual health insurance plan overlaps with the annual window for switching your Medicare plan. Here's how seniors can navigate this tangle of health care choices.

This is enrollment season for two huge public health insurance programs: Medicare and the Affordable Care Act health insurance exchanges. For older Americans, the overlapping sign-up periods can lead to confusion and enrollment errors.

Insurers offering Medicare and ACA policies have big money at stake, and consumers are subject to a blizzard of marketing messages. Annual enrollment for Medicare prescription drug (Part D) and Advantage (Part C) plans began Oct. 15 and runs until Dec. 7; shopping for healthcare policies in the marketplace exchanges created under the ACA began Nov. 15 and ends Feb. 15.

Consumer assistance groups report that some Medicare enrollees mistakenly think they must also enroll in the ACA exchanges. And for people with ACA plans who are turning 65, the transition to Medicare can be tricky. Here are some common questions about enrollment overlap, and answers aimed at helping older Americans keep things straight.

Q: What should I do about the ACA marketplaces if I’m already on Medicare?

Nothing. The policies sold on the exchanges are for Americans who don’t have coverage through an employer. And it is illegal for someone to sell you an exchange plan if the provider knows you are covered by Medicare. You can’t buy a Medicare Advantage, Medigap or Part D drug plan through the ACA marketplaces; to enroll in these plans, visit the federal government’s Medicare Plan Finder website.

Q: I bought health insurance this year on my state’s exchange, but I’m turning 65 in December. Do I need to shift to Medicare then?

It’s critical that you move to Medicare as soon as you are eligible. The enrollment window starts three months before your 65th birthday and ends three months afterward.

Failure to enroll will saddle you with expensive premium penalties. Monthly Part B premiums jump 10% for each 12-month period that you could have had coverage but didn’t—for life. That can add up: A senior who fails to enroll for five years ultimately would face a 50% Part B penalty—10% for each year. Penalties also are applied for late enrollment in Part D, under a different formula.

Q: When I shift into Medicare, can I just stick with the company that insures me in the ACA exchange?

You probably could do that; many of the nation’s biggest health insurers operate in both Medicare and the ACA exchanges. But brand loyalty isn’t advised here. Even if you’ve been satisfied with your provider, that company’s Medicare prescription drug plan may not offer the same coverage you had in the exchange. And the Medicare Advantage plan may not include the same network of providers or level of benefits.

Treat Medicare sign-up as a new shopping exercise. For starters, think about whether you want traditional fee-for-service Medicare or Advantage, a managed care alternative. Traditional Medicare allows you to see any health provider that participates in Medicare, but you’ll probably want to add a standalone prescription drug plan and a Medigap supplemental policy. With Advantage, you’ll be limited to in-network providers, but most plans have built-in prescription drug coverage and cap out-of-pocket spending.

Q: I qualified for tax subsidies in the ACA exchanges. Will those continue when I go into Medicare?

No. The ACA subsidies offset premium costs for households in a wide band of income, from 100% to 400% of the federal poverty level. This year that worked out to an annual income of between $11,490 and $45,960 for an individual, and $23,550 to $94,320 for a family of four.

Medicare enrollees can get assistance with premiums if they meet certain income and asset tests through the Medicare Savings Program. Another program, called Extra Help, can offset most or all prescription drug costs. The Medicare Rights Center’s website has a summary of these programs.

MONEY retirement planning

Five Takeaways on Retirement from the Midterm Elections

With Republicans controlling Congress, expect a push to cut Social Social and Medicare benefits—and maybe new ideas to encourage savings.

Retirement policy wasn’t on the ballot in last week’s midterm elections. But the new political landscape could threaten the retirement security of middle-class households.

With Republicans in full control of Congress, expect efforts to cut Social Security and Medicare benefits. And more Republican-controlled statehouses mean more efforts to curtail state and local workers’ pension plans. One positive note: Congress and the White House could find common ground on some promising ideas to encourage retirement saving.

Here are five policy areas to watch that could affect your retirement security.

SOCIAL SECURITY

The midterm results boost the odds that Social Security cuts will be in the mix if the brinkmanship over the federal debt ceiling or budget resumes.

Social Security does need reform. Its retirement trust fund will be exhausted in 2034, when revenue from payroll taxes would cover just 77% of benefits. Meanwhile, the disability program will be able to pay full benefits only through 2016. If Congress doesn’t act, 9 million disabled people will see their benefits cut by 20%.

Republicans have advocated higher retirement ages, less generous cost-of-living increases and means-testing of benefits. Some Democrats have fought for expansion of benefits and revenue for the program but haven’t been backed by President Obama or congressional party leaders.

How deeply could benefits be slashed? If previous conservative proposals are any guide, anywhere from 15% to 20%, with young people taking the biggest hit.

MEDICARE

The GOP has pushed Medicare reform plans that would “voucherize” the program, replacing defined benefits with a set amount of cash that beneficiaries could use to shop for coverage in a Medicare exchange. That would raise premiums for seniors in traditional Medicare by 50% in 2020 over current projections, according to the Congressional Budget Office.

AFFORDABLE CARE ACT

The ACA isn’t a retirement program, but it has helped older Americans by beefing up Medicare benefits covering older people who had trouble obtaining insurance and were too young for Medicare. This year the rate of uninsured 50- to 64-year-old Americans fell from 14% to 11%, according to the Commonwealth Fund.

The percentage would be smaller if the U.S. Supreme Court hadn’t given states an opt-out option on Medicaid—it has been expanded in only 27 states and the District of Columbia. Meanwhile, congressional Republicans continue to threaten funding, and the ACA faces a new Supreme Court threat. If the court rules that tax subsidies on marketplace premiums can’t be offered on the federal exchange, exchange insurance marketplaces will be on life support in all but 13 states with their own exchanges.

PENSIONS

Republicans will control 31 governors’ offices and 30 state legislatures, the most since the 1920s. That means we can expect the attack on public sector pension benefits to accelerate.

The National Association of State Retirement Administrators and the Center for State & Local Government Excellence reviewed pension reforms by 29 states this year and found reductions in annual benefits ranged from 1.2% (Pennsylvania) to 20% (Alabama); the average across all states was 7.5%.

RETIREMENT SAVING

A grand bargain on the federal budget could limit pre-tax contributions to 401(k) accounts, an idea floated regularly in tax reform discussions. And ideas aimed at helping lower-income households save for retirement could gain ground. The Obama Administration has asked Congress to create a national automatic IRA option and is rolling out a limited version called the MyRA.

Meanwhile, Senator Marco Rubio (R-Florida) has called for a government-sponsored 401(k)-style account for Americans who don’t have a plan at work. He would like to open up the federal Thrift Savings Plan to private-sector workers. That’s attractive because the TSP boasts low costs, a short and easy-to-understand set of investment choices and options to convert savings into an annuity stream at retirement.

Another idea I like: the “baby Roth.” The plan’s architect projects that an initial contribution of $500 to an infant’s Roth IRA, with subsequent annual contributions of $250, would grow to $131,800 at age 65, versus $35,300 for an account started at age 25.

It’s disappointing that few candidates campaigned on ideas that would help the middle class build retirement security. Democrats could have boasted about how the ACA is helping older Americans. And polls show that expanding Social Security and keeping Medicare strong are winning issues across partisan divides and demographic groups.

MONEY retirement income

Retirement Withdrawal Strategies That Can Pay Off Big

To figure out the right pace for your retirement withdrawals—and to avoid ending up in higher tax brackets—start planning before you stop working.

Having your own tax-deferred retirement account is a bit like having one of those self-titrating morphine buttons that hospitals use: Press it whenever you need quick relief.

But once you’re retired and able to tap your 401(k) or individual retirement account (IRA), it’s not easy to titrate your own doses of cash. Withdraw too much, and you use up your nest egg too quickly; too little, and you might unnecessarily crimp your retirement lifestyle.

Overlaying the how-much-is-enough question are several finer points of tax planning. Because you can decide how much money to pull out of a 401(k) or individual retirement account, and because those withdrawals are added to your taxable income, there are strategies that can help or hurt your bottom line.

That’s especially true for early retirees trying to decide when to start Social Security, how to pay for health care and more. Here are some money-saving withdrawal tips.

CURB TAXABLE INCOME

If you are buying your own health insurance via the Obamacare exchanges, keep your taxable income low to qualify for big subsidies, advises Neil Krishnaswamy, financial planner with Exencial Wealth Advisors in Plano, Texas.

“It’s a pretty substantial savings on premiums,” said Krishnaswamy.

Here’s an example using national averages from the calculator on the Kaiser Family Foundation web page. Two 62-year-old spouses with annual taxable income of $62,000 would receive a subsidy of $8,677 a year, against a national average premium of $14,567. If they took another $1,000 out of their tax-deferred account and raised their taxable income to $63,000, they would be disqualified from receiving a subsidy.

Not every case may be that dramatic, but it’s worth checking the income limits and available subsidies in your own state.

DELAY BENEFITS

If you retired early, consider taking out extra money to live on and delaying Social Security benefits until you are older. Withdrawing money from retirement savings hurts. You not only lose the savings, you lose future earnings on those savings. And in most cases, you have to pay income taxes on withdrawals from those tax-deferred accounts.

But Social Security benefits go up roughly 8% a year for every year you don’t claim them. And even after you claim them, they rise with the cost of living and are guaranteed for life. When you draw down your own savings to protect a bigger Social Security payment, tell yourself you are buying the cheapest and best annuity you can get.

PLAN IN ADVANCE

Plan ahead for mandatory withdrawals. In the year you turn 70 1/2, you have to begin drawing down your tax-deferred IRAs and 401(k) accounts and paying income taxes on those withdrawals. Unless you expect to be in the lowest tax bracket at the time, it makes sense to start withdrawing at least enough every year before then to “use up” the lower tax brackets.

For single people in 2014, you’re in a 10% or 15% marginal tax bracket until you make more than $36,000 a year. For married people filing jointly, that 15% bracket goes up to $73,800. It’s a lot better to pull out that money in your 60s and use up other savings to live on, than it is to save it all until you are 70 and then withdraw large chunks at higher interest rates.

GET A GOOD ACCOUNTANT

You may want to use early years of retirement to take the tax hit required to move money from a traditional IRA into a Roth IRA that will free you of future taxes on that money and its earnings.

You may pull a lot of money out of your account in one year and spend it over two or three years, to keep yourself qualified for subsidies in most years.

You may titrate your withdrawals to keep your Medicare premiums (also income linked) as low as possible.

The best way to optimize it all? Get an adviser or accountant who is comfortable with a spreadsheet and can pull all of these different considerations together.

Related:

When do I have to take money out of my 401(k)?

How will my IRA withdrawals be taxed in retirement?

Are my Social Security payouts taxed?

MONEY Health Care

Why You Should Forget About Ebola and Get a Free Flu Shot Instead

Flu Shot Sign
Getty Images

Americans are nearly as worried about Ebola as they are about catching the flu. But influenza is the risk you should pay attention to. And you probably don't need to spend a penny to protect yourself.

Take a break from worrying about Ebola and get a flu shot this fall. While the Ebola virus has so far affected just four people in the United States, tens of millions are expected to get influenza this season. More than 200,000 of them will be hospitalized and up to 49,000 will likely die from it, according to figures from the Centers for Disease Control and Prevention.

A new HuffPost/YouGov poll of 1,000 adults found that the flu is perceived as only slightly more threatening than the Ebola virus, however. Forty-five percent of people polled said that the flu posed a bigger threat to Americans than Ebola, but a substantial 40% said it was the other way around. Fifteen percent said they weren’t sure.

“Ebola is new, mysterious, exotic, highly fatal, and strange, and people don’t have a sense of control over it,” says William Schaffner, a professor of preventive medicine and infectious disease at Vanderbilt University.

Influenza, on the other hand, is a familiar illness that people often think they can easily control, Schaffner says. “They think, ‘I could get vaccinated, I could wash my hands’ and prevent it.”

Yet that familiarity may lead to complacency. Flu shots are recommended for just about everyone over six months of age, but less than half of people get vaccinated each year.

Now there’s even more reason to get a shot. The health law requires most health plans to cover a range of preventive benefits at no cost to consumers, including recommended vaccines. The flu shot is one of them. (The only exception is for plans that have been grandfathered under the law.)

The provision making the vaccine available with no out-of-pocket expense is limited to services delivered by a health care provider that is part of the insurer’s network.

Depending on the plan, that could include doctors’ offices, pharmacies, or other outlets.

Medicare also covers flu shots without patient cost sharing.

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.

MONEY Social Security

Why Your Social Security Check Isn’t Keeping Up With Your Costs

Next year retirees will see their benefits rise by the inflation rate. But that may not be the best measure of seniors' true spending.

Social Security’s annual inflation adjustment is one of the program’s most valuable features. But it’s time to adjust the adjustment.

Retirees will get a 1.7% bump in their Social Security benefit next year, according to the Social Security Administration, which announced the annual cost-of-living adjustment (COLA) on Wednesday. Recipients of disability benefits and Supplemental Security Income also will receive the COLA.

That reflects continuing slow inflation in the economy—the COLA has averaged 1.6% over the past four years—but it’s not enough to keep up with the higher inflation retirees face.

My in-box fills up with angry e-mail messages about the COLA every year. So if you’re gearing up to accuse Washington politicians of conspiring against seniors, please note: By law, the COLA is determined by a formula that ties it to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is compiled by the U.S. Bureau of Labor Statistics (BLS).

There is good news about this year’s COLA: Beneficiaries will keep every penny. There won’t be any offset for a higher Medicare Part B premium, which typically is deducted from Social Security payments. The premium will stay at $104.90 for the third consecutive year.

Still, the COLA formula should be revised as part of the broader Social Security reform that Congress must tackle. Many economists and policymakers say the CPI-W doesn’t measure retiree inflation accurately.

“From an ideal math perspective, what you want is a calculation based on an index that matches retirees’ cost of living,” says Polina Vlasenko, a senior research fellow at the American Institute for Economic Research. “The CPI-W is constructed to measure spending patterns of urban wage earners, and it’s pretty clear that retired people spend differently than wage earners.”

A recent national survey by the Senior Citizens League illustrates the cost pressures seniors, especially those living on fixed, lower amounts of income, face. Half of retirees said their monthly expenses rose more than $119 this year, while an even higher percentage (65%) said their benefits rose by less than $19 per month.

Other research by the group, based on BLS data, shows that Social Security beneficiaries have lost 31% of their buying power since 2000. Among big-ticket items, the largest price hikes were for property taxes (104%), gasoline (160%), some types of food and healthcare expenses.

Low COLAs also cut into future benefits for Americans who are eligible for benefits (ages 62 to 70) but haven’t yet filed. When you delay taking benefits until a later age—say, full retirement age (66)—you get full benefits increased by the COLAs awarded for the intervening years.

COLAs are prominent in the debate over Social Security reform that is likely to be rekindled in the next Congress. COLA reform could involve more generous adjustments – or a benefit cut. A cut would be achieved by adopting the “chained CPI,” which some say more accurately measures changes in consumer spending by reflecting substitution of purchases that they make when prices rise. The Social Security Administration has estimated the chained CPI would reduce COLAs by three-tenths of a percent annually.

A more generous COLA would come via the CPI-E (for “elderly”), an alternative, experimental index maintained by the BLS that is more sensitive to retirees’ spending. That index generally rises two-tenths of a percent faster than the CPI-W.

Congress has been gridlocked on Social Security, but public opinion is clear. The National Academy of Social Insurance (NASI) released a national poll Thursday that shows 72% support raising benefits. The survey also asks Americans to say how reform should be paid for. The most popular options (71%) included a gradual elimination of the cap on income taxed for Social Security ($117,000 this year, and $118,500 in 2015) and a gradual increase over 20 years on the payroll tax rates workers and employers both pay, from 6.2% to 7.2%.

Poll respondents also backed adoption of a more generous COLA, such as the CPI-E.

“Seniors are noticing the very small COLAs, and they just have a feeling that prices are going up more than that,” says Virginia Reno, NASI’s vice president for income security policy. “If you measure the market basket separately for seniors, average inflation has been a bit higher because they spend a larger share of their money on healthcare, and for things like housing and heating.”

Read more from the Ultimate Retirement Guide:

MONEY Medicare

Some Medicare Advantage Plans Have Hidden Risks—Here’s How to Avoid Them

hands using measuring tape
Nils Kahle

Although they promise quality care at lower cost, some Medicare Advantage plans fall short. Before you enroll, here are key questions to ask.

Seniors have flocked to Medicare Advantage in recent years, attracted by savings on premiums and the convenience of one-stop shopping. But as the annual Medicare enrollment season began this week, a memorandum from federal officials to plan providers surfaced that serves as a big red warning flag.

The upshot: Assess the quality of any Advantage plan before you sign up.

The memorandum, first reported by the New York Times, described ongoing compliance problems uncovered in federal audits of Advantage and prescription drug plans. These include inadequate rationales for denial of coverage, failure to consider clinical information from doctors and failure to notify patients of their rights to appeal decisions. The audits also uncovered problems with inappropriate rejection of prescription drug claims.

Advantage is a managed care alternative to traditional fee-for-service Medicare. It rolls together coverage for hospitalization, outpatient services and, usually, prescription drugs. Advantage plans also cap your out-of-pocket expenses, making Medigap supplemental plans unnecessary.

The savings can be substantial. Medigap plan premiums can cost $200 monthly or more, and stand-alone drug plans will average $39 a month next year. Enrollees have been voting with their wallets: 30% are in Advantage plans this year, up from 13% in 2005, according to the Henry J. Kaiser Family Foundation.

Advantage plans are subject to strict rules and regulations, and must cover all services offered in original Medicare, with the exception of hospice services. Some offer extra coverage, such as vision, hearing, dental and wellness programs.

And there is evidence that the quality of these plans is rising. Medicare uses a five-star rating system to grade plan quality, and plans can earn bonus payments based on their ratings. Average enrollment-weighted star ratings increased to 3.92 for 2015, from 3.86 in 2013 and 3.71 in 2013, according to Avalere Health, an industry research and consulting firm. Avalere projects that 60% of Advantage enrollment will be in four- or five-star plans next year, up from 52% this year.

But the Medicare memorandum focuses on problems outside the rating system. “It’s about basic blocking and tackling and whether a plan adheres to the program’s technical specs,” says Dan Mendelson, Avalere’s chief executive officer. “These are the basic functions that every plan should be able to handle.”

Nevertheless, consumer advocates say they deal with these compliance problems regularly, and more often with enrollees in Advantage than in traditional Medicare.

“The most typical problems have to do with plans that are making it difficult or impossible for people to get their medications,” says Jocelyn Watrous, an advocate for patients at the Center for Medicare Advocacy. “They impose prior authorizations or other utilization management rules that they make up out of whole cloth.”

Consumer advocates urge Medicare enrollees to restrict their shopping this fall to four- and five-rated plans, of which plenty are available in most parts of the country. “If a plan consistently gets four or five stars, all other things being equal it will be a high performer,” says Joe Baker, president of the Medicare Rights Center.

Few Medicare enrollees roll up their sleeves to shop, however. A study by Kaiser found that, on average, just 13% of enrollees voluntarily switched their Advantage or drug plans over four recent enrollment periods. And focus groups with seniors conducted by the foundation last May found that few pay attention to the star ratings.

“Seniors said they don’t use the ratings because they don’t feel they reflect their experiences with plans,” said Gretchen Jacobson, associate director of the foundation’s Medicare program. “Even when we told them that their plan only has two stars, many just wanted to stay in that plan.”

Advocates say the star ratings are just a starting point for smart shoppers.

They say you should check to make sure health providers you want to see are in a plan’s network. You should also consider how you would react if any of those providers disappeared during the 12 months that you are locked into the plan. Advantage plans can—and do—drop providers. UnitedHealth Group, the industry’s largest player, made headlines last year when it dropped thousands of doctors in 10 states. Advantage plans in Florida, Pennsylvania, California and Delaware also terminated provider relationships.

Also be sure to examine the prescription drug “formularies” in your plan—the rules under which your medications are covered. And talk with your doctors about any plan you are considering, especially if you see specialists for a chronic condition.

The Medicare memorandum to plans also underscores the importance of appealing denied claims, Baker says. “Appeal, appeal, appeal—it’s like ‘location, location, location’ in real estate.”

MONEY retirement planning

Smart Moves for Controlling Health Care Costs in Retirement

stethoscope with golf ball
pixhook—Getty Images

Planning for later-life medical costs is essential. These steps can keep you healthy longer and ease your worries.

It’s clear that planning for later-life health care costs is essential for a secure retirement—but figuring out what to do about them is a lot less clear. Out-of-pocket health expenses are not only a big-ticket item but are not predictable or controllable. No wonder few of us build financial strategies for future health needs, preferring the ever-popular ostrich plan: Place head in sand and hope for the best.

“Less than one out of six pre-retirees has ever attempted to estimate how much money they might need for health care and long-term care in retirement,” according to a report by Merrill Lynch and Age Wave, a consulting firm. Knowledge about Medicare is abysmal, the survey found, even among those already enrolled in the program.

And a recent health benefits survey by the Employee Benefits Research Institute, a non-profit retirement industry think tank, found that while nearly half of workers were confident about their ability to get the treatments they need today, only 30% were confident about that ability during the next 10 years, and just 19% are confident once they are eligible for Medicare.

Having a plan is a good way to build confidence. So start by taking a look at the mirror and asking yourself: How long do you think you’ll live and how healthy will you be in your later years?

“A 65-year-old male in excellent health can expect to live to age 87, while the same male in poor health has a life expectancy at age 65 of approximately 81 years,” said a recent study from the Insured Retirement Institute, a trade group that pushes annuity investments. A 65-year-old female in excellent health has a life expectancy of 89, or 84 in poor health. An average couple age 65 has a 40% chance that one or both will live to age 95.

While living to an old age may be better than what’s behind Door Number Two, it may prove costly. Old-age health expenses tend to be loaded into the last few years of life, often to deal with chronic illnesses, especially Alzheimer’s.

Average out-of-pocket health care expenses for that 65-year-old male will be an estimated $246,000 for the rest of his life if he is in poor health and dies at 81, the IRI study said. The lifetime bill rises to $345,000 for the healthy man who survives to an average age of 87.

Adopting healthy lifestyle habits may significantly reduce older-age health expenses. Just as important, it’s the best investment you can make in a higher quality of life during your later years.

The Merrill Lynch-Age Wave study recommends these proactive planning steps:

  1. Map out future out-of-pocket health expenses, including estimating future Medicare premiums and co-pays.
  2. Learn how Medicare and long-term insurance work.
  3. Develop contingency plans, for you and other family members, should illness cause lost income from an extended work disability.
  4. Broaden your planning to include those family members most likely to comprise your caregiving and financial support network.

The IRI report, not surprisingly, sings the virtues of using annuities to provide guaranteed lifetime streams of income to deal with long-running health care expenses. Many financial advisers prefer other investments. But you should at least look at annuity options as part of your long-term financial planning anyway.

If you’re especially worried about running out of money in your 80s— and, God willing, your 90s—then you should explore deferred annuities. Often called longevity insurance, a deferred annuity can be designed to not begin payouts until old age. If you buy one of these products in your 50s or 60s, the insurance company will provide very attractive payment terms. And it should, of course, because it will have the use of your annuity purchase money for 20 or even 30 years, with a good chance you’ll die before they have to pay you a cent.

The other insurance product worth a close look is long-term care insurance. Increasingly, this product is being linked with annuities to provide purchasers with choices—receive annuity payments or use the money for a qualifying long-term care needs. Generally, such hybrid products provide less bang for the buck than a pure annuity or long-term care policy. Also, keep in mind that your goal here should be to protect you and your family from ruinous health care bills. This is primarily an insurance product, not an investment.

Finally, the best annuity around is Social Security. It offers lifetime payments, annual inflation protection and government payment guarantees. That’s why I pound the drum of deferring Social Security until age 70, if it makes sense for your financial, family and longevity profile.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY retirement planning

8 Things You Must Do Before You Retire

sébastien thibault

Getting ready to retire? The moves you make in the months before you call it quits can smooth the way to a secure future.

After working diligently for more than 30 years—so you could set yourself up financially for your golden years—the glow of retirement is finally on the horizon. Alas, it’s not time to relax just yet.

Each day more than 10,000 baby boomers enter retirement. Yet only around one-quarter of workers 55 and older say they’re doing a good job preparing for the next phase, according to the Employee Benefit Research Institute. The last 12 months before you call it a career is especially critical to putting your retirement on a prosperous path. It’s time to get your portfolio, health care, and other finances in order so you can enjoy your new life.

THE TURNING-POINT CHECKLIST

12 Months Out:

Dial back on stocks now. You still need the growth that equities provide, but even a 15% market slide in the year before you retire can erase four years’ worth of income. Cap stock exposure to around 50% in your sixties, advises Rande Spiegelman, vice president of financial planning at Schwab Center for Financial Research.

Raise cash. Your paychecks are about to stop. So as you downshift from stocks, move that money into a savings or money market account to fund at least one year of expenses, says Judith Ward, T. Rowe Price senior financial planner.

Set a realistic retirement budget. Use the worksheet on Fidelity’s free retirement-income planner to list all of your fixed and discretionary expenses. Then use T. Rowe Price’s free retirement-income calculator to see how safe that level of spending is likely to be, based on the size of your nest egg and age.

6 Months Out:

Play out Social Security scenarios. You can claim Social Security at 62, but if you can hold off until 70 your checks will be 76% bigger. Tool around FinancialEngines.com’s free Social Security Income Planner to find the best strategy for you.

Figure out how you’ll pay for health care. Check if your company offers retirees medical, long-term care, and other insurance coverage. If you won’t get health insurance and aren’t yet 65 (when you qualify for Medicare), then compare plans offered via the Affordable Care Act at eHealthInsurance.com. Or use COBRA, where you can stay on your employer plan up to 18 months after leaving.

3 MONTHS OUT:

Begin the rollover process. In a small 401(k) plan, average fund expenses can run north of 0.6% of assets. You can cut those fees at least in half by shifting into index funds at a low-cost IRA provider. See if your plan provides free access to investment advisers to help you decide.

Sign up for Medicare. Nearing 65? You can enroll for Medicare up to three months before turning that age. Also, figure in supplemental plans to cover expenses that Medicare does not, such as dental care and prescription drugs.

Get a running start. Put your post-career itinerary into action. Research volunteer groups that you want to join, reach out to contacts if you plan to keep a hand in work, start a new exercise routine, or begin planning that big trip.

MONEY health insurance

You Can Now Buy Health Insurance at Walmart. Should You?

America's largest retailer is expanding more aggressively into the insurance market, hoping to become the go-to place for all your health care needs. But the store is far from the only place to get your coverage questions answered.

UPDATED: 5PM ET

Want help choosing a health insurance plan? Superstore Walmart is betting that many consumers do—and that they will visit a big-box store for guidance.

The company announced this morning that it is teaming up with the health comparison website DirectHealth.com to house insurance agents in 2,700 of its 4,300 U.S. stores. The agents will help shoppers understand and compare individual insurance plans as well as private Medicare plans, including drug, supplemental, and Advantage policies.

The agents will be in stores from this Friday, October 10, through December 7, a time frame that captures the kick-off of the annual enrollment periods for both individual health plans and private Medicare policies. Medicare open enrollment starts October 15; you can begin shopping for an individual policy for 2015 on November 15.

“For years, our customers have told us that there is too much complexity when it comes to understanding their health insurance options,” said Labeed Diab, president of Walmart’s U.S. health and wellness group, in a press release announcing the program. Since 2005, Walmart has hosted insurance agents from individual insurers in some stores to answer questions and enroll customers in health plans. This new program expands on that.

A bid for more health care business

This move isn’t the first time Walmart has dabbled in health care. The company has been slowly adding retail clinics to many of its locations, letting shoppers get primary care such as strep tests and treatment for ear infections at the store. Walmart’s total number of clinics, though, falls far short of what pharmacy chains CVS or Walgreens offer.

By adding insurance agents to its stores, the retailer appears to be aiming to get consumers to think of Walmart as a one-stop resource for health care. Walmart will not receive commissions on the sale of health plans, the Associated Press reports, but hopes the agents will attract consumers who will then rely on the stores for other health care needs, such as prescriptions. The agents will receive a commission from the insurers whenever a patient enrolls in a plan in the store, The Washington Post reports.

Where else to get help

In announcing the program, Walmart noted that many consumers have difficulty understanding their health plans. While that’s true, Walmart will be just one of many places where you can find guidance. Other comparison websites, such as ehealthinsurance.com and gohealthinsurance.com, already offer online and call-in assistance, though neither have retail locations around the country.

So should you head to Walmart face-to-face help with an individual or Medicare plan? The store will offer individual plans from 300 carriers, and Medicare plans from 13 firms. So you should be able to find options in your area. But keep in mind what other help is out there.

•For individual health insurance plans: Unless you qualify for a special enrollment period because you, say, lost your employer-based coverage or got divorced, you are generally locked out from buying a new individual health insurance plan or switching policies until the annual open enrollment period, which this year begins November 15 and runs through February 15. You’ll be able to buy a policy either through your state insurance exchange (find yours at healthcare.gov), an insurer, a comparison website, or an insurance agent.

Once open enrollment begins, many community centers and non-profits around the country will be staffed with counselors, navigators, or other assisters who can offer explain a plan’s details (though many aren’t supposed to tell you which plan is best for you). Find a group offering assistance in your area at localhelp.healthcare.gov. For questions about a plan sold on the public exchange, Healthcare.gov lists the 1-800 number for your state.

Unless you qualify for a subsidized policy under Obamacare (in which case you may be required to buy through an exchange), you should compare policies on the exchanges with those sold directly by insurers. You can find a local insurance agent who can sell you an on- or off-exchange individual policy at nahu.org. Comparison websites also list details for both types of plans, though there’s no guarantee every off-exchange plan available from an insurer will be listed on each site.

One caveat: the in-store agents will be able to explain plan details and help with comparison shopping, but they won’t be able to actually enroll you in an individual plan in the store, according to a Walmart spokesperson. To sign up you’ll need to call Direct Health, Walmart’s partner, or go to the website. (The agents will be able to enroll you in a Medicare plan while you’re in the store.)

Keep in mind that while DirectHealth.com is required by law to list every plan available through the exchange, it won’t necessarily include the full details for each plan. Instead, the site attempts to determine which plans may best suit you, says Michael Mahoney, senior vice president of marketing at GoHealth, which powers the DirectHealth.com comparison site. “We want to make sure people have the right amount of choice without overwhelming them,” he says. You decide if you’d rather see all your options, or only a limited choice.

•For private Medicare plans: You can make changes to your Medicare drug or Medicare Advantage plan starting on October 15. It is a good idea to analyze your current plan and new options every year instead of sticking with what you’ve got, since plans and premiums change and new options appear.

The Medicare Rights Center offers a national help line (800-333-4114) to help seniors understand the program and determine if their income qualifies them for other resources, such as a prescription drug subsidy. Your local State Health Insurance Assistance Program offers one-on-one assistance to Medicare beneficiaries and their families. Find your state’s at shiptalk.org.

The medicare.gov tool run by the Centers for Medicare and Medicaid Services lets you compare plans in your local area. This tool also lists every possible plan available to you, which is not the case with Walmart’s program. For example, a 67-year-old woman who lives in one Northern California zip code and takes no drugs has 11 Part D prescription drug plans options listed on DirectHealth.com. On medicare.gov, that same woman would find more than 30 choices.

 

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