Insurance coverage

Liz Weston: Health insurance coverage concerns complicate retirement decisions

Dear Liz: I work for a wonderful company that has a generous profit sharing plan. I’m 61 and plan to work until I’m 65 and eligible for Medicare.

Due to some health issues, I am reducing my hours and this will significantly reduce my income for the next four years. I thought it was a good plan because it preserved my health insurance, but now I wonder if the drop in income will affect my profit sharing when I retire. I know the final distribution is based on income and time spent at work. Should I retire now, when my income has increased, or should I wait until I am 65?

Answer: There are a lot of moving parts in any retirement decision. How much will health insurance cost and how will you pay for it? How much have you saved and how long are those funds likely to last? When is the best time to apply for Social Security and how will it affect your retirement fund withdrawals? (It is often best to delay Social Security as long as possible and dip into retirement savings instead, especially if you’re the primary breadwinner, but individual situations vary.)

Money is a finite resource, but so are time and energy. Each extra year of work could improve your financial situation, but means one less year to enjoy your retirement.

Consider speaking to your human resources department to find out exactly how your reduced hours are likely to affect your profit sharing payment. Then take those numbers to a paid financial planner who can review the rest of your finances and discuss the best path to retirement with you.

Dear Liz: As a 44-year-old county employee, I was offered the opportunity to contribute to Social Security in the mid-1970s. It was not required and I declined. When I retired in 2004, I didn’t apply for health insurance because I mistakenly assumed I wouldn’t qualify. I have since learned that I can apply for Medicare but will have to pay $499 per month as a late enrollment penalty on top of the monthly premium. Do you know a way to cancel part of the late penalty?

Answer: As your situation shows, not getting good health insurance advice can be costly. Failure to enroll in Part B coverage, which pays for doctor visits, can result in penalties of 10% for each 12-month period you were eligible but did not enroll. Sanctions are usually permanent.

There is an appeal process, but your chances of success may not be great unless you can prove that you delayed registration due to bad advice you received from a government official. Medicare has more information on his website.

Liz Weston, Certified Financial Planner, is a personal finance columnist for Nerd Wallet. Questions can be sent to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.