Transitioning from employer health care to Medicare can be confusing. Vanguard’s experts share their research insights.

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Talli Sperry: Jackie, we’ve gotten a lot of questions about this transition that happens through health care expenses. So I’m going to ask a question from Mark who’s from Portland, Oregon: “How should we plan for this transition, moving from employer health care to Medicare?”

Jacklin Youssef: We found in our research that that is one of the factors that impacts your annual health care expenses. It’s how you ultimately will be transitioning from your working years (having employer-subsidized health care coverage) into retirement (potentially losing that employer subsidy). And depending, of course, on the level of the subsidy that the employer provided, that can clearly impact how much of an incremental increase you’re looking at actually covering.

Recognizing, of course, that that means you as an individual need to make sure you have a pretty good understanding of what your employer’s offering in terms of coverage, how much is the level of subsidy compared to other employers, and what type of coverage you’ll have when you’re retired. Whether that will be at 65, knowing that you’ll be looking into one of the Medicare options, and we’ll perhaps talk about this later. Or if you’re looking at even retiring before 65, then you need to find a way to bridge your coverage through Medicare, recognizing that your increase will probably be significantly higher, at least for that period of time.

So stopping to learn what you have and what you will have in the future will inform that part of the decision.

Steve Weber: Because it’s important to realize that you’re paying for health care before you retire and after you retire. Health care expenses don’t suddenly materialize for the first time at retirement. It’s just that a good portion of that cost before you retire for a lot of people is covered through an employer subsidy that’s kind of invisible to most of us.

We all know that we have these benefits and that they’re worth something, but we don’t really think about how much they’re worth. When we actually hit retirement, if you don’t also have retiree health care benefits, suddenly that amount that was invisible to you becomes visible very quickly.

Jacklin Yousef: That was actually a personal Aha! moment for me as we were going through the research ourselves.

Important information

For more information on the topic of health care costs in retirement, reference Planning for Health Care Costs in Retirement, a research paper authored by Vanguard and Mercer Health and Benefits.

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