When to retire is probably the most important – and vexing – decision a worker can make. Myriad factors play into that choice, including health status, financial situation and the availability of health insurance when one does retire. That last factor has taken on more importance ever since full retirement age for Social Security benefits was ratcheted up to 66 from 65, while eligibility for Medicare has held at 65. Until 2003, the eligible age for both programs was 65.
Recently, researchers at the Center for Retirement Research at Boston College studied the impact of Medicare eligibility on when a worker decides to leave the workforce. The paper, “How Important is Medicare Eligibility in the Timing of Retirement?” was authored by Norma B. Coe, Mashfiqur R. Khan and Matthew S. Rutledge.
For those employees nearing retirement at age 64 who qualify for health benefits after they retire – which make up about 44 percent of all workers – Medicare eligibility is unlikely to influence their retirement decision, the researchers asserted. Yet for the remaining 56 percent without retiree health insurance (RHI), Medicare is potentially their only option for health care benefits, rendering the mismatch between Social Security and Medicare eligibility an even more compelling consideration.
Many take route 66
With the age for full Social Security benefits pushed up to 66, the Center for Retirement Research analysts charted a corresponding spike in retirement at that age. That shouldn’t come as a tremendous surprise; age 66 remains the standard “reference” retirement age and the traditional retirement age at many employers.
Yet at the same time, there was a bump up in those exiting the workforce at age 65. Considering that delaying the initiation of Social Security benefits results in higher payments, why would a worker take an earlier, lesser amount?
Having no other option besides Medicare for health coverage may explain why a worker would opt to retire before full retirement age. Indeed, the researchers estimated that 30 percent of the surge in retirement at age 65 was attributable to Medicare eligibility. Further, workers without RHI are 6.5 percentage points more likely to retire in the month they turn 65 than those who have health care coverage in retirement.
Though an important consideration now, Medicare availability may not be as vital a factor in retirement decisions going forward based on several dynamics, the researchers concluded. As more companies decline to offer retiree health care coverage or pare down benefits, Medicare eligibility will remain a chief piece of retirement planning. If the Medicare eligibility age is raised to age 67 – as several experts have suggested – then workers would stay on the job longer to qualify for that program.
Perhaps the most critical component as to whether one retires at 65 or 66 is PPACA. The controversial, and still under construction, law could make coverage more accessible and affordable for older workers without employer-sponsored health insurance, thereby negating the Medicare factor. “If coverage in the exchanges is comparable to Medicare coverage then workers may be freed to retire on their own terms, and not have to wait for Medicare eligibility,” the report concluded.