6 Ways to Tell if You're Financially Ready to Retire

Retiree Healthcare costs

I agree with the author and disagree with the previous commenter on both of his points.

Individual health insurance purchased on the "open market" is of course more expensive than group insurance with the same coverage. In many cases individual policies can be cheaper, but only with less coverage or more restrictions than a similar group policy. This is especially true for the group the author is referring to - retirees under age 65, not yet eligible for Medicare but typically having much higher claims than those still working.

One may or may not have copays, deductibles, or out of pocket costs if they purchase a supplemental policy. Of course, they have to pay for the policy as well. The website Medicare.gov estimates the average total cost for a 65 year old in good health on Medicare (without prescription drug coverage) to be $4,200, or $8,400 for a couple. In Charlotte, NC, the website shows supplemental policies available with estimated total costs of $3,000 to $4,500 per person per year depending on the benefits covered.

If the average cost for a couple is $8,000 in 2008, that amount will surely increase each year. Assuming typical medical trend rates of 9% grading down to 5% over 8 years, that couple will have paid out $200,000 in less than 16 years. Even if those future payments are discounted back to today (using the current 4% annual rate earned by the Trust Fund), the $200,000 will buy them less than 20 years of coverage. Given the improvements in mortality we are experiencing, many couples will need more than that.

David Kendall of CA @ Aug 08, 2008 20:09:07 PM