Chattanooga native Erik Boehm: tackling the unknowns of post-retirement healthcare costs
Originally from Chattanooga, Erik Boehm developed expertise in international and institutional investment by launching his financial career in the Czech Republic in 1989, working for both a local bank and an emerging equity fund. He returned to Chattanooga in 2004 and worked with Merrill Lynch to advise individuals and families, and in 2011 he and a partner co-founded Stone Bridge Asset Management. Erik is a graduate of New York University’s Stern School of Business, Johns Hopkins SAIS, and Georgetown University.
When it comes to retirement planning, healthcare costs can create some uncertainty, but there are good ways to anticipate and plan for them, says Boehm.
“He’s one of the big unknowns, so it’s something that makes it tough and gives people that ‘I can’t plan for this’ feeling,” Boehm said. “But just realizing that there are elements of healthcare and retirement that you can start to quantify and plan for is an important thing to know.”
This interview has been edited for length and clarity.
Q: What are the main factors people need to consider when it comes to covering the costs of health care in retirement?
A: No one is sure exactly what kind of medical services they’ll need in retirement, but one of the first places to start when it comes to health care spending in retirement is to look at your medical and family history. How do you live your life? Are you healthy, active, eating well? One important thing that anyone can do in an attempt to reduce their health care costs in retirement is to live a healthy lifestyle. Genetics is something no one has control over, so you can’t completely control the results, but there are things you can do statistically to help yourself.
Another thing that is important to understand is that Medicare is the main source of health care in retirement, but I think a lot of people think Medicare is free. There is one part of Medicare that is free, but there are different parts of Medicare. There is a free catastrophic insurance component that covers necessary hospital visits, but what if I just want to go see my doctor or get cancer screening or need to take prescription medication ? These all require you to pay a premium on top of the free item. Recognizing this is important.
Another thing to realize – and it’s getting scary – but we’ve all heard that health care costs are rising faster than inflation for a long time. The Medicare administration has predicted the rate of increase in Medicare premiums, and it is about 5.7% over the next 5 to 10 years. This is several times the normal inflation rate. It’s a little scary, but we have to think about it, especially since our Social Security checks are not tied to Medicare’s inflation rate, but to the broader inflation rate.
Q: How do these variables affect when people should retire?
A: About a third of retirees retire at 62, and that’s before they reach full retirement age. 62, you don’t get a full Social Security check, and that early start reduction lasts throughout retirement.
The other thing is that you don’t have access to health insurance until you are 65. People who retire really need to have access to insurance. There is an additional cost to early retirement.
About 30% of those who take Social Security at 62 do so because they don’t have insurance and have to pay for insurance, so they shoot themselves in the foot. You have to understand, how am I going to be insured between 62 and 65, when at least you become Medicare eligible?
Q: So how do people typically get coverage before age 65?
A: The most common scenario is that my spouse will continue to work and I can be covered by my spouse’s plan – this is the best solution, and it happens often. The least affordable way is to purchase private health insurance. If you retire from a company and they have COBRA, which allows you to continue this coverage, few companies will help you pay the premiums. When you are still employed, they subsidize your premium. If you stay with COBRA after retirement and don’t have the grant, it may be more expensive than going to the private market.
If you plan to retire early, you should plan for this gap – either your spouse has a plan that you can benefit from, or you should plan to set aside savings to pay for that 3-year period. We have had clients who have told us “My job is super stressful, I can’t go on like this, but I’m going to keep working, I’m going to work in a less stressful place where I can get health care because of it 3- one year period. ‘ These are things you need to think about in advance.
The most common thing we see is that people retire and then come to us and say “Hey, I retired, I’m looking for an advisor,” and my advice is to talk to an advisor before you go. retire, and do it well in advance. There are things you can’t control, but one thing you can control is when you stop working, for most people, and you can control within your budget how much will I save, you can try to control how much I will spend in retirement.
Are there rough estimates that people should work from in planning health care costs? Is there a way to create a roadmap that takes into account some predictable costs?
Medicare has predicted some numbers, so you can get an idea of the cost of Medicare premiums. Premiums are means tested, so depending on income the premium may increase, but the lowest level will be around $ 4,500 per year for an individual’s premium. This covers things like your doctor’s visits and your prescription plan, and you can also purchase a Medigap plan which covers any additional fees, deductibles, and co-payments you’ll have. But without adding any bells or whistles or including your deductibles and co-payments, which you’ll likely have at some point, you can at least budget for premiums of around $ 4,500 a year, and those will go up. If you are at the top of the retirement income scale, it will be a little more than double.
A few companies are trying to estimate the costs of retirement, and it will be more of an average, but Fidelity has a number that projects if a couple are 65 and retire, then over the course or their lives based on the annuity tables. , they will spend about $ 300,000 on health care during retirement. This includes premiums, deductibles and all expenses. A lot of people want to plan their kids’ college and a number of vacations, or want to have money to leave a legacy for my kids, but if you can afford to plan like that, you should plan for the care of my kids. health. the costs too.
Q: Are there any resources or tools that people should consult or consider when planning for health care coverage in retirement?
A: The best investment tool is a health savings account that you create for health care expenses in retirement. The real beauty of an HSA is that it is triply taxed. When you invest the money, you get a tax deferral and you can invest it, so you get tax-free growth in the plan while it’s there. When you withdraw that money for medical purposes – to cover qualifying medical expenses – you also don’t pay taxes downstream. The limitation is that you must be on a high deductible health plan to use an HSA. If you maximize your contributions to your HSA, which are $ 3,600 for an individual and $ 7,200 for a family, when you have an uncovered expense you go to your HSA to pay for that expense, you are not. taxed on this expense. But if you can afford to pay these costs outside of the HSA, you can let that money grow and invest it and create a nest egg for yourself that has a triple tax advantage. And when you retire, you have funds only qualified for medical expenses. Another advantage of this approach is that the money that comes from an HSA is not included in the income used to check the resources of your health insurance premiums.
Q: Where should people start their planning?
A: The Medicare.gov website is very helpful. Fidelity and T. Rowe Price both have good information online about this. But it’s a good idea to talk to someone who has some knowledge of these different options to make those decisions based on what you know about your family history and what medications you may already be taking.