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As a former city employee turned financial advisor, I've seen firsthand how healthcare costs can catch retirees off guard. I’ve learned that successful retirement planning requires a deep understanding of healthcare costs and coverage options. Don’t let your retirement be derailed by unexpected medical expenses. The Reality of Healthcare Costs in Retirement Recent data shows that a 65-year-old retiring today should expect to spend approximately $165,000 in healthcare costs throughout retirement [8]. This figure can be particularly concerning for Washington State public employees transitioning from active service to retirement. The Washington State Advantage One unique aspect of being a Washington State public employee is access to the Public Employee Benefits Board (PEBB) program. While private sector employees often face uncertainty about post-retirement healthcare options, Washington public servants have a structured system designed to provide continued coverage. However, understanding how to maximize these benefits requires careful planning and consideration. Understanding Your PEBB Benefits: The Foundation of Your Healthcare Security Eligibility Requirements To qualify for Public Employees Benefits Board (PEBB) retiree coverage, you must:
The transition from active employment to retirement requires careful timing. I recommend starting your planning process at least 12 months before your intended retirement date. This gives you ample time to:
The cost often takes soon to be retirees off guard. Let’s spend some time going over the 2025 healthcare plan options. If you’re going to retire in 2026, the costs will likely be higher than this. Non-Medicare Coverage Single subscriber monthly premiums for popular plans:
Monthly premiums for 2025:
When selecting your coverage, consider:
When you reach 65, your coverage structure undergoes significant changes:
Missing Medicare enrollment deadlines can result in permanent penalties. Key dates to remember:
Washington State has implemented WA Cares, providing qualifying residents with up to $36,500 (adjusted for inflation) for long-term care costs, funded by a 0.58% payroll tax [5]. This program can be a supplement to your retirement healthcare planning. However, this is just a fraction of long-term care costs, additional planning must be done to ensure you’re covered if you need long-term care. Supplemental Long-Term Care Considerations Consider whether you need additional long-term care coverage based on:
Beyond Basic Coverage: Emergency Planning Having seen the impact of unexpected medical expenses – I cannot stress enough the importance of building an emergency medical fund. While PEBB provides excellent coverage, having additional savings can provide peace of mind and financial flexibility. Building Your Healthcare Emergency Fund Consider setting aside funds for:
Action Steps for a Secure Healthcare Future
Let's address some frequent misunderstandings I've encountered while advising public employees: Myth: "PEBB coverage automatically continues into retirement." Reality: You must actively enroll within 60 days of your employer-paid coverage ending. Myth: "Medicare replaces PEBB coverage at age 65." Reality: Medicare and PEBB work together, with Medicare becoming primary and PEBB secondary. Myth: "Healthcare costs are fixed in retirement." Reality: Costs typically increase with age, and premiums adjust annually. Proactive Planning Makes the Difference One of the most valuable lessons I’ve learned is that early planning leads to better outcomes. Those who start planning their healthcare coverage early often have more options and fewer surprises in retirement. Looking Ahead Healthcare planning for retirement is complex, but as Washington State public employees, you have access to valuable benefits and resources. The key is understanding and optimizing these benefits while building additional financial safeguards. Get Started Today Ready to take control of your retirement healthcare planning? Here are your next steps:
Sources: [1] https://www.hca.wa.gov/assets/pebb/51-0275-retiree-premiums-2025.pdf [2] https://www.hca.wa.gov/assets/pebb/51-0275-retiree-premiums-2024.pdf [3] https://wssra.org/view/download.php/about-wrssa/retirement-planning/retirement-planning-guide [4] https://www.hca.wa.gov/employee-retiree-benefits/retirees/medical-plans-and-benefits [5] https://wacaresfund.wa.gov/how-it-works [6] https://wssra.org/view/download.php/misc-downloads/retirement-planning-guide [7] https://hr.uw.edu/benefits/retirement-plans/nearing-retirement/insurance-during-retirement/ [8]https://newsroom.fidelity.com/pressreleases/fidelity-investments--releases-2024-retiree-health-care-cost-estimate-as-americans-seek-clarity-arou/s/7322cc17-0b90-46c4-ba49-38d6e91c3961 [9] https://kingcounty.gov/en/legacy/audience/employees/benefits/retirement [10] https://www.plansponsor.com/health-care-retirement-will-cost-average-315000/ -Seth Deal
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I’ve been having conversations with lots of public sector employees lately. One of the biggest concerns that I have been hearing is they are not sure if their pension will be enough for the retirement they’ve envisioned. If this resonates with you, you’re not alone. According to the National Institute on Retirement Security, 55% of Americans are concerned about their ability to achieve a secure retirement [1]. As a former city employee who now helps state and local government employees plan for retirement, I am on a mission to help Washington State public employees become aware of what the gaps are and how to fill them. Understanding the Gap Your pension provides a solid foundation for retirement, however, many are surprised that it’s not enough to fully meet your retirement needs. Based on my experience, if you worked a full career in public service, your pension will only replace 50-60% of pre-retirement income. Let me share a hypothetical story….Sarah, a PERS 2 member, assumed her 25 years of service credit would provide a comfortable retirement. After getting her DRS benefit estimate, she was shocked to discover her pension would only provide about $4,250 a month – ½ of her current income. This gap is what I call the “pension comfort disconnect,” and it’s more common than you might think. This gap becomes particularly significant when considering factors unique to Washington State. Consider the cost differences between living in Spokane and Seattle. The cost of living in Seattle is over 30% higher in Seattle than in Spokane [2]. Common Misconceptions There are a number of additional misconceptions that I’ve encountered that can lead to inadequate retirement preparation. 1.“Healthcare costs are fully covered in retirement” While some agencies offer retiree healthcare benefits, many don’t, and Medicare doesn’t begin until age 65. You will need to purchase a policy through PEBB, SEBB, or the healthcare marketplace. Even if your organization does offer some sort of health care benefit it will be more expense in retirement than during your working years. The Fidelity Retiree Health Care Cost Estimate shows that a 65-year-old retiring in 2024 will spend on average $165,000 in healthcare and medical expenses in retirement [3]. Long-term care costs in Olympia average $171,550 for a private room in a nursing home [4]. These health care numbers are staggering, and you need to be prepared for any situation. 2.“I can’t save additional money for retirement while contributing to my pension” You should consider and can use other supplemental retirement savings vehicles. Here’s a list of some common options available:
The PERS 2 employee contribution rate is 6.36%. The LEOFF 2 employee contribution rate is 8.53%. In my experience, the most successful and prepared retirees are saving at least an additional 15% beyond their pension savings. Bridging the Gap: Action Steps Here are concrete steps that you can take to strengthen your retirement planning: 1.Maximize Your Deferred Compensation Contributions You can contribute both pre-tax and post-tax (Roth) contributions to DCP. Once you separate from your employer, you can withdraw these funds penalty free before 59.5. There are very few other qualified retirement plans that have this flexibility. If you contributed on a pre-tax basis, your withdrawals will still be subject to ordinary income tax. Some agencies offer matching contributions, so be sure to take full advantage of employer matches. Consider increasing your contributions by 1% each year and if you're contributing on a percentage basis already, each time you get a pay increase, your contributions will increase. 2.Understand Your Pension Formula DRS has a benefit estimator through your online account that can be used to estimate your pension benefit. For PERS 2 members, your benefit calculation is 2% x service credit years x average final compensation [5]. Be sure to check the specific calculation for your plan. As you approach retirement, consider how overtime or additional duties to increase your final compensation calculation. Plan for the survivor benefit option that best fits your family’s needs. 3.Build Multiple Income Streams Contributing to a Roth IRA and a taxable brokerage account gives you different buckets of money to pull from in retirement. Think about part-time work or consulting opportunities in retirement. 4.Create a Healthcare Strategy As you approach retirement, research health care bridge options if you’re retiring before Medicare eligibility. Long-term care costs are skyrocketing and you need to be prepared for them through either long-term care insurance or through specific savings. Consider utilizing a HSA if you’re eligible. 5.Plan for Tax Efficiency Your pension is taxed at ordinary income rates. As you’re saving for retirement, consider strategically locating investments across accounts with different tax treatments. Local Context Matters Washington State's diverse geography creates unique retirement planning considerations. Housing costs, tax implications, and lifestyle expectations can vary dramatically based on where you live. A retirement income that might be comfortable in Spokane could feel tight in Seattle. Recent data from the Washington State Office of Financial Management highlights these regional differences [6]:
These variations can significantly impact your retirement planning strategy. The Impact of Career Choices Your career path within public service can significantly affect your retirement outcomes. Based on my experience working with various municipalities, here are some considerations:
Planning a secure retirement demands careful planning and the right strategy. Whether you’re just starting your public service career or nearing retirement, now is the time to assess your retirement strategy and identify any gaps that need attention. Sources [1] https://www.prnewswire.com/news-releases/83-percent-of-americans-believe-all-workers-should-have-a-pension-new-national-institute-on-retirement-security-report-finds-302070695.html [2] https://www.numbeo.com/cost-of-living/compare_cities.jsp?country1=United+States&city1=Spokane%2C+WA&country2=United+States&city2=Seattle%2C+WA [3] https://newsroom.fidelity.com/pressreleases/fidelity-investments--releases-2024-retiree-health-care-cost-estimate-as-americans-seek-clarity-arou/s/7322cc17-0b90-46c4-ba49-38d6e91c3961 [4] https://www.genworth.com/aging-and-you/finances/cost-of-care [5] https://www.drs.wa.gov/plan/pers2/ [6] https://ofm.wa.gov/washington-data-research/statewide-data/washington-trends/economic-trends/median-home-price -Seth DealYou've worked hard, saved diligently, and now you're enjoying your well-earned retirement. But even in retirement, life can throw curveballs. An unexpected home repair, a sudden medical expense, or even a once-in-a-lifetime opportunity can strain your carefully planned budget. That's where an emergency fund comes in. As a financial advisor, building a war chest containing an emergency fund and high-quality short duration bonds in a diversified investment portfolio is something I help my clients with on a regular basis. Let's explore why you need an emergency fund and how to build and maintain it effectively. Why You Need an Emergency Fund in Retirement You might be thinking, "I'm retired. I've already saved. Why do I need an emergency fund?" Here's why:
How Much Should You Have in Your Retirement Emergency Fund? While working, the general rule of thumb is 3-6 months of expenses in an emergency fund. In retirement, you might want to take a different approach: General Guidelines: For those near retirement or in retirement, having approximately 7 years of expenses in high quality, short duration bonds in your investment portfolio will provide a war chest to draw upon. The exact dollar amount that you have saved up is going to be very dependent on your unique situation. Example:
Factors to Consider:
Building Your Emergency Fund: Strategies for Retirees If you're starting from scratch or looking to boost your emergency savings, here are some strategies: 1. Start Small, But Start Now Even small, regular contributions can add up over time. Action Step: Set up an automatic transfer of $50 or $100 per month to your emergency fund. 2. Reassess Your Budget Look for areas where you can trim expenses to redirect money to your emergency fund. Pro Tip: Review subscriptions and memberships. You might find services you no longer use or need. 3. Consider Part-Time Work A part-time job can provide extra income to build your emergency fund while keeping you active and engaged. Idea: Look for flexible, enjoyable work that aligns with your interests and skills. 4. Use Windfalls Wisely Dedicate a portion of any windfalls – like tax refunds or inheritances – to your emergency fund. Rule of Thumb: Consider allocating 50% of windfalls to your emergency fund until you reach your goal. 5. Optimize Your Retirement Account Withdrawals If you're taking required minimum distributions (RMDs), consider setting aside a portion for your emergency fund. Strategy: If your RMD is more than you need for expenses, direct the excess to your taxable brokerage account. Where to Keep Your Emergency Fund Your emergency fund should be easily accessible but not so accessible that you're tempted to dip into it for non-emergencies. Good Options:
Once you've built your emergency fund, maintaining it is crucial. Here's how: 1. Regular Reviews Review your emergency fund at least annually to ensure it still meets your needs. Checklist:
If you dip into your emergency fund, make a plan to replenish it. Strategy: Temporarily reduce discretionary spending or consider taking a larger distribution from retirement accounts (if feasible, but keep in mind tax consequences) to rebuild your fund. 3. Adjust for Inflation The purchasing power of your emergency fund can erode over time due to inflation. Action Step: Increase your emergency fund balance by 2-3% annually to keep pace with inflation. 4. Balance with Other Financial Goals While important, your emergency fund shouldn't come at the expense of other financial priorities. Consider: Balance building your emergency fund with other goals like charitable giving or legacy planning. Tapping Your Emergency Fund: When and How Knowing when to use your emergency fund is as important as having one. Here are some guidelines: Appropriate Uses:
As a Washington state retiree, you have some unique factors to consider:
Ready to build or optimize your retirement emergency fund? Here's your action plan:
Sources:
-Seth DealAs a former city employee and current financial planner specializing in Washington state public sector benefits, I’ve seen firsthand how the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) have complicated retirement planning for our public servants. The recent passage of the Social Security Fairness Act on December 21, 2024, brings transformative changes that will affect millions of public servants across America [1]. The Problem These Changes Solve For decades, Washington state public employees have faced reduced Social Security benefits due to two provisions:
As someone who's helped State and Local government employees navigate these complex rules, I've seen these provisions significantly impact retirement planning strategies. Key Changes and Timeline Immediate Impact
Financial Impact According to Social Security Administration projections [4]: WEP-Affected Employees:
GPO-Affected Spouses:
Washington State-Specific Considerations Understanding Your DRS Pension and Social Security Important Note: Your Washington State Department of Retirement Systems (DRS) pension remains unchanged by this legislation. The changes only affect your Social Security benefits. Here's what this means for different Washington public employees. Have you ever worked in a position where you were not paying directly into Social Security? If the answer to this is “yes,” then this is relevant to you. In practice, I have seen that firefighters are the largest group who are not paying into Social Security. However, I have seen members of numerous DRS plans who are not paying into Social Security. Be sure to review your current and prior employment history to help understand how this law impacts you. Action Steps by Career Stage Near Retirement (Within 5 Years)
Mid-Career (5-15 Years from Retirement)
Early Career
Tax Planning Implications Critical Considerations:
Common Pitfalls to Avoid Based on my experience with WA public sector employees:
When to Seek Professional Help Consider professional guidance if you:
Sources:
-Seth DealAs a Washington state public employee, you've dedicated your career to serving others. Now it's time to ensure that your legacy is protected, and your wishes are honored after you're gone. Estate planning might not be the most exciting topic, but it's crucial for securing your family's future and ensuring peace of mind. Let's explore the essential elements of estate planning tailored specifically for Washington public servants. Why Estate Planning Matters for Washington Public Employees Before we dive into the specifics, let's consider why estate planning is particularly important for you:
1. Will: The Foundation of Your Estate Plan A Will is the cornerstone of any estate plan. It outlines how you want your assets distributed after your death. Key Considerations for Washington Public Employees:
As a public employee, you likely have benefits that pass outside of your Will through beneficiary designations. Important Assets to Review:
3. Power of Attorney: Managing Your Affairs A power of attorney (POA) allows someone to make decisions on your behalf if you become incapacitated. Types to Consider:
4. Healthcare Directive: Expressing Your Wishes Also known as a living will, this document outlines your preferences for end-of-life care. Key Decisions to Address:
While not everyone needs a trust, it can be a useful tool for many Washington public employees. Benefits of a RLT:
6. Estate Tax Planning: Navigating Washington's Tax Landscape Washington is one of the few states with its own estate tax, which can impact estates valued over $2.193 million (as of 2024) [2]. Strategies to Consider:
7. Long-Term Care Planning: Protecting Your Assets Long-term care costs can quickly deplete an estate. As a Washington resident, you have some unique considerations. Key Points:
8. Digital Asset Planning: Don't Forget Your Online Life In today's digital age, don't overlook your online accounts and digital assets. Items to Address:
9. Pension Survivor Benefits: Understanding Your Options As a public employee, your pension likely offers survivor benefit options. Understanding these is crucial for estate planning. Key Decisions:
10. Charitable Giving: Leaving a Lasting Legacy If you're charitably inclined, consider incorporating giving into your estate plan. Options to Explore:
Creating Your Estate Plan: A Step-by-Step Approach Ready to put your estate plan together? Here's a roadmap to guide you:
Ready to protect your legacy? Here's your action plan:
Sources:
-Seth Deal |
AuthorsBob Deal is a CPA with over 30 years of experience and been a financial planner for 25 years. Archives
April 2025
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