As financial planners, we spend a lot of time talking about the three tiers of your Federal Employee Retirement System. Social Security benefits, your annuity payments, and withdrawals from your Thrift Savings Plan will provide three streams of income in retirement. But considering the average couple will spend about $275,000 on medical expenses throughout their retirement years (Fidelity, 2017), it makes sense to carefully evaluate your healthcare options as an integral part of your retirement plan.
Luckily, federal employees enjoy terrific benefits with regard to their healthcare options, too. Most American workers face a dilemma if they stop working before age 65 (the age of Medicare eligibility): Pay for their own healthcare, or enroll in a potentially expensive health insurance plan on the open market. Federal employees, luckily, have more options.
If you choose to retire before age 65, you won’t be able to receive Medicare yet. But you do have the options of choosing retiree health benefits from a Preferred Provider Organization (PPO) or a Health Maintenance Organization (HMO). Some retirees even opt for a high-deductible plan, with a very low premium, that only covers catastrophic risks (generally this is not recommended at this age, but might feel like a good fit if you’re in excellent health).
When evaluating your options, consider factors such as:
- Premiums – monthly payments for coverage
- Co-payments – the amount you will pay each time you visit the doctor
- Annual deductibles – can you afford to pay this much before your insurance kicks in to cover the rest? Have you budgeted for deductibles?
- The cost of prescription medications – what does the plan cover?
- Other medical equipment or services – what do you anticipate needing? Are they covered? If not, have you budgeted for the expense?
- How many years will you need this plan, before you become eligible for Medicare?
Healthcare is one of the largest expenses for most retirees, so weigh these decisions carefully. Since your out-of-pocket expenses will impact your final budget, let’s discuss these options at your next meeting, and make any necessary adjustments to your retirement plan.
