Chapter 12: Healthcare and Insurance — Protecting Your Plan

Most people think retirement planning is about investing, saving, and picking the right portfolio. But the truth is simple:

Healthcare is the part of the plan nobody wants to think about — until it becomes the only thing they can think about. This chapter gives you a clear, simple framework for protecting your retirement cash flow from the biggest risks you’ll face in your 50s, 60s, and beyond.

This isn’t about fear.

It’s about building a safety net around the plan you’ve worked so hard to create.

1. Why Healthcare Matters More Than You Think

Healthcare is unpredictable.

Costs rise. Needs change. Insurance rules shift. And as you age, the odds of needing care increase.

But here’s the key:

Just like housing, food, and transportation, healthcare is a recurring cost that must fit into your income flow:

Healthcare sits squarely in the “needs” category.

Protecting your plan means making sure those needs are covered — without blowing up the rest of your budget.

2. Health Insurance Before 65

If you retire before 65, you face a gap:

• No employer coverage
• No Medicare yet
• Private insurance can be expensive

Your options typically include:

1. Employer retiree coverage (rare but valuable)

If you have it, it’s often the simplest bridge to Medicare.

2. COBRA

Expensive, but predictable.

Covers you for up to 18 months after leaving a job.

3. ACA Marketplace plans

Often the best option for early retirees.

Key point:

Your income (MAGI) determines your ACA subsidy — not your net worth.

Taxable IRA withdrawals, Roth conversions, and capital gains all affect MAGI.

Careful planning of withdrawals can dramatically reduce premiums and sometimes qualify you for cost-sharing reductions.

4. Part‑time work with benefits

Some employers offer health insurance to part‑time staff.

This can be a strategic bridge.

The goal is simple:

3. Medicare Basics (Simple, Not Overwhelming)

Medicare has four main parts.

Here’s the clean version:

Part A — Hospital Insurance

• Usually free
• Covers hospital stays, skilled nursing, hospice

Part B — Medical Insurance

• Monthly premium
• Covers doctor visits, outpatient care, preventive services

Note: Part B (and Part D) premiums can increase if your income crosses certain thresholds (IRMAA). See section on IRMAA below.

Part D — Prescription Drugs

• Private plans
• Covers medications

Part C — Medicare Advantage

• All‑in‑one alternative to A + B + D
• Often includes dental, vision, hearing
• Lower premiums, higher out‑of‑pocket risk

The key decision:

vs.

Traditional Medicare = more flexibility, higher premiums, lower risk

Advantage = lower premiums, more restrictions, higher risk

There is no universal “best” choice — only what fits your health, budget, and risk tolerance.

4. Medigap: The Missing Piece Most People Don’t Understand

If you choose Traditional Medicare, you can add a Medigap plan.

Medigap covers:

• deductibles
• copays
• coinsurance
• many out‑of‑pocket costs

It’s the closest thing to “predictable healthcare spending” in retirement.

Important:

You generally get one guaranteed chance to buy Medigap without medical underwriting — when you first enroll in Medicare Part B.

Miss that window, and you may be denied later.

5. IRMAA and Income Planning (Premium Surcharges)

Medicare Part B and Part D premiums can be increased by IRMAA (Income-Related Monthly Adjustment Amount) if your Modified Adjusted Gross Income (MAGI) from two years prior crosses certain thresholds.

• Higher MAGI → higher premiums
• MAGI includes IRA withdrawals, Roth conversions, and capital gains
• Life changes (retirement, divorce, death of a spouse) can qualify you to appeal IRMAA

Practical takeaway: Coordinate withdrawals, Roth conversions, and capital gains with IRMAA brackets to avoid unnecessary surcharges.

6. HSA Strategy (Pre-65 and Beyond)

If you have access to a Health Savings Account (HSA) before 65:

• Contribute while eligible; HSAs offer triple tax advantage
• Invest the HSA; pay current expenses from cash flow and reimburse later tax‑free
• Medicare enrollment stops HSA contributions; Part A is often retroactive up to 6 months — avoid contributing in the months before enrolling

In retirement, HSAs can be a flexible source for medical expenses without increasing MAGI.

7. Long‑Term Care: The Elephant in the Room

Long‑term care is not medical care.

It’s help with daily living:

• bathing
• dressing
• eating
• mobility
• memory care

And here’s the part most people don’t realize:

This is why long‑term care is the biggest financial risk in retirement.

Your options:

1. Self‑funding

If you have strong cash flow and a solid portfolio, you may not need insurance.

2. Long‑term care insurance

Expensive, but can protect your portfolio.

3. Hybrid life/LTC policies

Life insurance with long‑term care benefits.

4. Medicaid (last resort)

Requires spending down assets.

The goal isn’t to buy a product — it’s to have a plan.

8. How Healthcare Fits Into Your Retirement Cash Flow

Healthcare is a need, not a want.

It must be covered before anything else.

Your retirement cash‑flow system looks like this:

Healthcare sits in the “needs” bucket alongside:

• housing
• food
• utilities
• insurance
• transportation

If healthcare costs rise, you adjust wants — not needs.

This is why having predictable coverage (Medicare + Medigap, or a solid Advantage plan) is so valuable.

It stabilizes your cash flow.

9. The Biggest Healthcare Mistakes Retirees Make

1. Retiring before 65 without a coverage plan

This is the most common — and the most dangerous.

2. Assuming Medicare covers everything

It doesn’t. Especially not long‑term care.

3. Missing the Medigap enrollment window

This can cost thousands per year later.

4. Choosing Medicare Advantage without understanding the trade‑offs

Low premiums can hide high out‑of‑pocket risk.

5. Not planning for long‑term care

Even a modest plan is better than none.

10. Enrollment Timing and Penalties (Literal, Not Scary)

• Initial Enrollment Period: around your 65th birthday
• Part B: late enrollment penalties if you delay without credible coverage
• Part D: late enrollment penalties if you delay prescription coverage
• Medigap: guaranteed‑issue window when you first enroll in Part B
• Advantage/Part D: annual and special enrollment periods

Know your windows, make timely choices, and keep documentation of credible coverage.

Action Steps

• Decide your bridge‑to‑65 path (COBRA, ACA, part‑time benefits)
• Choose Medicare path: Traditional + Medigap vs. Advantage
• Coordinate withdrawals/taxes with IRMAA brackets
• Use HSA strategically before enrolling in Medicare
• Build a modest long‑term care plan (self‑fund, hybrid, or insurance)
• Revisit coverage and costs annually within your needs budget

Star to Steer By

Bridge to next: with healthcare and insurance squared away, the next step is seeing how your plan behaves in the real world — the first decade of retirement.