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Tuesday, October 8, 2013


Story first appeared in USA TODAY.

Joanne Jacobsen says she did everything right when she was planning for retirement.

"I've been planning my retirement since I was in my 30s," says the 63-year-old Venice, Fla., resident. "I'm pretty good at doing a budget. I knew what I would get from my company, and I knew what I would get from Social Security."

What she did not plan on was her former employer ending health insurance benefits for retirees. "An extra $6,000 to $10,000 a year was not factored in," she says.

Jacobsen is among a group of retirees who have seen their former companies either end health benefits for retirees or increase their premiums. She went to Capitol Hill two weeks ago to testify about the trend. She says she worked for Verizon for 30 years before she was laid off in 2002. She now works in real estate.

"Retirees no longer have any sense of security, whether they retired last week or 20 years ago," she says.

According to the Employee Benefit Research Institute, only 17.7% of employees today offer retiree health benefits, down from 29% in 1997. Also, according to the EBRI report, while many employers have dropped the benefits for future retirees, those that continue to offer benefits have raised premiums or reduced benefits.

But, financial planners say, while losing benefits can cause a major shock to a retiree's finances, there are ways to lessen the impact.

"The reality is, just as with any phase of life, it is impossible to plan for everything," says Dana Anspach, founder of Sensible Money in Scottsdale, Ariz., and author of Control Your Retirement Destiny. "To a certain degree you have to have flex money in retirement –- funds that can be redirected when/if unexpected things happen."

Jacobsen, originally from Massachusetts, testified at a U.S. Senate Special Committee on Aging hearing chaired by Sen. Bill Nelson, D-Fla., on "The Retirement Crisis." She says several of her former co-workers at Verizon who also retired to Florida, are in the same predicament. One, she says, now has to rent out her Florida vacation condo to pay for the insurance her former employer no longer provides.

Steve Kreisberg, director of collective bargaining for the American Federation of State, County and Municipal Employees, said the health care benefits are being withdrawn in both the public and private sectors.

"If somebody has worked a career, and been promised retiree health care, there are moral and legal obligations," he says. "We are going through that right now with the city of Detroit. The city is seeking to substantially reduce retiree health care benefits."

Kreisberg says the city of Detroit, which has filed for bankruptcy protection, has about 20,000 retirees. "Some of them are eligible for Medicare, some are not," he says. There are similar issues in Los Angeles, Illinois and Connecticut, he says. "It's been happening with increasing frequency."

The options, for retirees who lose their health care: Medicare, for those who are eligible, he says. "For those not eligible, fortunately we have the Affordable Care Act. That is literally a godsend to these employees who have lost coverage. They would be people who cannot get coverage. Pre-existing conditions would put it out of reach."

There are other options, says Anspach. For retirees who have company-provided or company-supplemented insurance and want to plan for the possibility of their company reducing benefits in the future, their best option is to price private insurance such as a Medicare Advantage Plan or Medicare Supplement plan, and then build that potential expense into their retirement budget, she says.

Larry Rosenthal, president of Rosenthal Wealth Management Group in Northern Virginia, agrees that retirees can better prepare if they have the cash reserves and have a line item in their financial plan.

"Corporations are still trying to do more with less, and wherever they can cut, they cut," he says. "People can try to get prepared for something like this."

He says people have to budget rising health care costs or unanticipated future costs of health care. "You take a couple that's 70 years old," he says. "All of a sudden they get a letter saying their expenses are going up $5,000 a year. That could blow a hole in somebody's budget.

"There's really no solution after the fact," he says, "other than you've got to make spending choices. Now, instead of three vacations a year, take two. Go out to dinner get one entrée instead of two."

"That's why it's important to run a financial plan from a cash-flow perspective — to make sure you plan for the unexpected."

Added Anspach: "For retirees who find themselves in a situation with unexpected bills, one option is to take a look around the house for valuables that can be sold. Many people have gold jewelry that is rarely worn, or perhaps collectibles or antiques that have value.

"For those who are still planning, we advise they head into retirement with an emergency fund — money that was not considered 'available' for retirement income in their plan," Anspach says. "This emergency fund is there to be used for sudden unexpected expenses."

Jacobsen said it bothers her that companies are getting away with withdrawing health benefits and pensions, especially the companies that are doing well financially.

"I'm not sad, I'm mad," says Jacobsen. "You can't work 30,40, 50 years and then have the rug pulled out from under you. They dare doing it because the court system is letting them do it."