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Retirement Planning: A Road Bump in Your Plans April 14, 2009

Posted by retirementwithaplan in Uncategorized.
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There is a good chance, at this stage in the game, that you know someone who is out of work. For whatever reason this person(s) no longer is employed, one thing you can be certain of: they are losing valuable time building up retirement assets.

041409_tm_2009As I have mentioned on numerous occasions in the past, a retirement plan is basically a worst case scenario plan, something that if you are fortunate and diligent with its construction can be so much more. But the best plans have a minimum baseline that you should be striving towards, no matter. More than that is simply, to turn a phrase, icing on the cake.

And on numerous instances in the past I have discussed the high and still rising cost of health care. Not only is this a drain on the amount of money you could be investing for that far off, sometimes distant future, it will also impact how your retirement dollar is spent. Can a lesson be learned from the current wave of unemployment about securing some kind of coverage for those who are close to retirement and might face the possibility of bridging an insurance gap?

The option to retire early can be tempting. COBRA allows you to tap your former employers health plan for eighteen months following your departure from the company. This often doesn’t come cheap. The cost to you is the full premium price plus at least a 2% set-up fee. If you suspect that your employer may be looking to downsize more than they already have, you will need to find out two things in order to adjust your plan.

If your company is self insured, then you can plan on making the full COBRA payment. Currently there are plans in place enacted by the Obama administration (The American Recovery and Reinvestment Act) to help defray the cost of that insurance. Sixty-five percent of the cost of continuing coverage through COBRA is covered for eligible applicants. (A good plan if you are getting hints that things are not going well – which the WARN Act was supposed to help with by providing sixty days notice prior to mass-layoffs at larger companies – is to begin saving at least twnety, if not 35% of that payment in advance in a separate account).

Another albeit more costly option can be found at is least expensive, like so many things, when you are young. Consumer-directed health plans (CDHPs) coupled with an HSA plan through your employer can provide an interesting alternative to the plan. CDHPs contain a high-deductible medical insurance plan (this is only beneficial if you are in relatively good to excellent health, hence the appeal to younger workers and the ability to tap the deductible) that often is tied together with another type of savings/investing plan hosted by your employer called an HSA.

The HSA allows the plan participant to use pretax dollars to grow an account that covers the employees health care needs. These plans often have well-care coverage built right in. The plan is designed to pay for eligible medical care expenses. Not only can those underutilized funds be carried forward, they can also be used for tax-free reimbursement of post-retirement insurance premiums.

The hope that insurers have for CDHPs presents some problems. It will, they claim raise cost consciousness and when it comes to health care, this is often overlooked by those that have insurance with low deductibles. Wanting the best care is not always getting the most affordable. HSAs were supposed to stem the tide of at-all-costs care. What is may do is keep needed visits to the doctor from happening now when they may be curable, chosing instead to defer the savongs into the future when you may really need it.

HSAs are still owned by more individuals than are offered through companies.

Short-term insurance offers another option and can be calculated into a fixed budget – and planned for well in advance. The policy has a fixed ending date but usually can be terminated befiore then if needed. But for some, the timing is difficult to determine (but a ballpark estimate of the cost can help you plan while you are still employed.

If you answer yes to any fo the following questions, you are not eligible for coverage.
1. Do you currently have health coverage that is not due to expire prior to your requested effective date of short term coverage?
2. Are you, or your spouse, currently pregnant?
3. Have you been declined coverage for permanent health insurance due to health reasons?
4. In the past few years, have you received treatment for heart problems, stroke, diabetes, cancer, blood disorders, diabetes, alcohol/drug dependency, or HIV/AIDS?

The essence of good plan is the ability to plan well in advance. Having some information about what that future may hold is also helpful.

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