While HSAs offer a great tax-free investment option, financial advisors should ensure their clients are aware that they will face tax penalties if they make contributions to an HSA once they are 65 or older and enrolled in Medicare Part A. This complication typically occurs either because:

  1. Someone signs up for Social Security before full retirement age and, unbeknownst to them, is automatically enrolled in Medicare at age 65; or

  2. They enroll in Social Security after age 65 at which point their Medicare Part A is given to them six months retroactively, subjecting any HSA contributions made for that time to tax penalties.

Evaluate Health Insurance Marketplace Plans For Early Retirees

While just 25 percent of workers plan to retire before age 65, about one-half of retirees leave the workforce earlier than they’d planned, according to the EBRI 2015 Retirement Confidence Survey. Often this is the result of hardships such as health problems or disability, but nearly one-third also report retiring early because they can afford to do so.

One crucial aspect of retiring early is understanding how to secure affordable health care until becoming Medicare eligible at age 65. Only 39 percent of employers offer medical benefits for early retirees, according to the PWC 2015 survey, and many of them are scaling back or eliminating these benefits as they look to manage costs. For example, one company we assisted with health-care benefits coordination was in the unsustainable position of providing health insurance to more early retirees and retirees than its current employees.

Changing economic forces are affecting early retirees’ options as well. Even early retirees who have employer-provided health coverage may benefit from plans offered through the public Health Insurance Marketplace. Often, pre-retirees can find a plan that better meets their needs at a more affordable price on the public exchange.

The Marketplace remains a bit messy—and scary—with at least one major carrier indicating they will scale back their participation and plan offerings, which could trigger increased premium rates for consumers if more nimble and savvy competitors don’t fill the gaps. The Marketplace isn’t well understood and may come with political bias, which provides financial advisors with an opportunity. Educating your clients about these dynamics can help them overcome misconceptions about Marketplace plans, such as that the plans have poor benefits. The truth is that all Marketplace plans offer a minimum of 10 essential health benefits, such as prescriptions, hospitalization, emergency services, lab services and preventative and wellness services. With multiple options available, your clients may be able to find a plan that more closely matches their health-care needs and budget than the handful of plans or fewer offered by their former employer.

Some people who have higher pre-retirement incomes struggle to understand subsidies and cost sharing in the Marketplace. Because subsidies are based on taxable income only, not assets overall, these subsidies aren’t just for low-income individuals. Subsidies are available for individuals with modified adjusted gross income (MAGI) of up to 400 percent of the federal poverty level. For a household of two people, the MAGI amount is $64,080. You have a role here, too: financial advisors can help clients identify ways to reduce taxable income and help ensure they are eligible for greater cost-saving subsidies.