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Picture this: You're 57, eligible to retire from your state job with 30 years of service, but you won't be eligible for Medicare for another eight years. You assume your PEBB retiree coverage will handle everything until then. Then you discover that without employer contributions, your health insurance premiums jump from $200 to $850 monthly, routine dental cleanings cost $150 out of pocket, and if you need long-term care, Medicare won't help at all until you turn 65—and even then, coverage is extremely limited.¹ For state and local government employees in Washington, understanding what your insurance won't cover is crucial whether you're retiring before or after 65. The gaps in coverage create different challenges at different ages, and can create unexpected expenses that derail even the best retirement plans. Core Principles Understanding healthcare coverage gaps requires grasping these key principles that change dramatically at age 65: 1. Before 65: You Pay Full Freight for PEBB Coverage As a retiree under 65, you'll pay the full premium for PEBB coverage without employer contributions. This can mean monthly premiums of $850-1,200 compared to the $200-400 you paid as an active employee.² 2. After 65: Medicare Has Major Coverage Holes Traditional Medicare Parts A and B exclude routine dental, vision, and hearing care entirely.³ Your PEBB coverage becomes secondary, but significant gaps remain. 3. Long-Term Care Coverage Is Almost Nonexistent at Any Age Before 65, PEBB offers minimal long-term care coverage. After 65, Medicare only covers skilled nursing for up to 100 days after a qualifying hospital stay.⁴ Most long-term care is custodial care, which neither covers. 4. Prescription Drug Coverage Changes at 65 Before 65, you rely on PEBB prescription coverage. After 65, Medicare Part D caps out-of-pocket costs at $2,000 annually starting in 2025, but this only applies to covered medications.⁵ Your 4-Step Strategy for Managing Healthcare Coverage Gaps Step 1: Understand How Coverage Changes Before and After Age 65 Before Age 65 (Early Retirement): As a public employee retiring before 65, you can continue PEBB coverage, but you'll pay the full premium without employer contributions. Monthly costs jump from roughly $200-400 to $850-1,200 for medical coverage alone.⁶ You're also not eligible for Medicare, so PEBB is your primary coverage with all its limitations. After Age 65: You must enroll in Medicare Parts A and B to keep your PEBB coverage. Your PEBB plan becomes secondary insurance, helping cover some of Medicare's gaps. However, new limitations appear that didn't exist with your working-age PEBB coverage. Key action items:
Before Age 65: PEBB retiree plans offer some dental and vision coverage, but with annual maximums typically around $1,000-1,500 for dental. Once you hit these limits, you pay full price. Hearing aids aren't covered at all. After Age 65: Medicare excludes routine dental, vision, and hearing care entirely. Your PEBB coverage may help, but gaps remain significant. Average annual costs for retirees: $766-$992 for dental care depending on coverage.⁷ Universal Costs Regardless of Age:
Long-term care means you need help with daily activities—bathing, dressing, eating, using the bathroom. Neither PEBB nor Medicare covers much of this, regardless of your age. The True Costs in Washington:
For Early Retirees (Before 65): Your biggest challenge is the dramatic increase in premium costs plus coverage gaps. Calculate:
Alternative Approaches for Different Retirement Ages For Early Retirees (Before 65): The Bridge Strategy: Purchase temporary health insurance to bridge the gap to Medicare eligibility, then switch to PEBB plus Medicare at 65. This can save money if you're healthy but carries risk. For Traditional Retirees (65+): The Medicare Advantage Route: Choose Medicare Advantage plans that include dental, vision, and hearing benefits instead of traditional Medicare plus PEBB. However, you'll lose PEBB coverage entirely. For Any Age: The Self-Insurance Approach: Build a dedicated healthcare fund rather than purchasing additional insurance. Plan to save 15-20% of your retirement income specifically for healthcare costs not covered by your primary insurance. Action Plan Take these steps in the next 30 days:
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-Seth Deal
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You've worked in the public sector for decades, building your career and your retirement benefits. Now you're looking at your four-bedroom house and wondering if it still makes sense. With your kids grown and your retirement approaching, downsizing might seem like the obvious choice. But the decision isn't always straightforward. The timing and financial impact of downsizing can significantly affect your retirement planning. Core Principles of Smart Downsizing Before diving into the details, here are the key principles every Washington public employee should understand:
Step 1: Calculate Your True Housing Costs Most people only think about their mortgage payment. Your real housing costs include much more. Start by adding up these monthly expenses:
Step 2: Assess Your Home's Current Market Value Washington's real estate market has seen significant changes in recent years. Get a current market analysis from a local realtor or use online tools as a starting point. Consider these factors:
Step 3: Project Your Future Housing Needs Think beyond just square footage. Consider your needs for the next 10-20 years. Ask yourself:
This is where downsizing can really pay off. Calculate the difference between your current costs and projected new costs. Case Study: Tom, a DRS Plan 2 member, downsized from a $450,000 home to a $275,000 condo. His monthly savings were:
Step 5: Factor in Your DRS Benefits Your retirement benefits can influence your downsizing decision in several ways. Consider how downsizing affects:
Not everyone needs to downsize completely. Here are three alternative strategies: The Rental Income Approach: Keep your current home and rent out rooms or convert part of it to a rental unit. This works well if you're in a high-demand rental area. The Gradual Transition: Move to a smaller home in the same area first, then consider relocating later if desired. This reduces the stress of major life changes happening at once. The Reverse Mortgage Option: If you want to stay in your home but need more cash flow, a reverse mortgage might work. However, this is complex and should be carefully evaluated with professional help. The Geographic Arbitrage Strategy: Move to a lower-cost area within Washington or to a state with favorable tax treatment for retirees. Your Action Plan Ready to move forward? Follow these steps:
Sources and Resources -Seth DealProtecting Your Nest Egg: A Washington State Public Employee's Guide to Weathering Market Storms6/12/2025 As a Washington State public employee, you've worked hard to build your retirement savings through your DRS pension, Deferred Compensation Program (DCP), and Social Security. But retirement brings a fundamental shift from accumulating wealth to preserving and spending it wisely. This transition from your working years to retirement years requires a completely different approach to managing market volatility and protecting your nest egg. Core Principles of Market Protection in Retirement Understanding these fundamental principles will help you make smarter decisions about protecting your retirement savings:
Step 1: Understand the Transition from Working Years to Retirement During your working years, market volatility was actually your friend. When markets dropped, your regular DCP contributions bought more shares at lower prices. Dollar-cost averaging worked in your favor over decades of saving. Retirement flips this equation completely. Now you're taking money out of your investments regularly to cover living expenses. If you're forced to sell investments during a market downturn, you lock in losses that can never be recovered. This is called sequence of returns risk, and it's one of the biggest threats to retirement security. Consider two retirees who experience identical average returns over 20 years, but in different orders. The one who faces poor returns early in retirement may run out of money, while the one who experiences good returns early may preserve wealth for decades. This is why your investment strategy must change as you transition from accumulation to withdrawal mode. Step 2: Build Your "War Chest" of Safe Money Create a buffer of cash and conservative investments equal to approximately 5 years of your maximum anticipated withdrawal needs. This war chest serves as your protection against being forced to sell growth investments during market downturns. Here's how to structure your war chest:
Maria, a retired state employee, maintains her war chest in a combination of savings accounts and the DCP Stable Value Fund. When markets dropped in early 2022, she drew from her war chest instead of selling her stock investments, allowing them to recover. Step 3: Implement a Guardrails Spending Strategy Guardrails provide a systematic framework for adjusting your withdrawal rate based on your portfolio's performance. Instead of withdrawing the same amount every year regardless of market conditions, guardrails help you spend more when your portfolio is doing well and less when it's struggling. Here's how guardrails work for spending:
Step 4: Coordinate All Your Income Sources Your retirement income likely comes from multiple sources, and each has different characteristics that affect your overall strategy: DRS Pension: This guaranteed monthly income provides your foundation and reduces the pressure on your investment portfolio. The larger your pension relative to your expenses, the more risk you can potentially take with your DCP investments. Social Security: Another guaranteed income source that adjusts for inflation, providing additional security. DCP Account: Your variable income source that requires careful management to last throughout retirement. Tom, a highway engineer, receives $3,200 monthly from his DRS pension and $1,800 from Social Security, covering about 70% of his living expenses. This strong foundation allows him to take a more growth-oriented approach with his DCP investments while maintaining his 5-year war chest. Step 5: Monitor and Adjust Based on Performance Review your guardrails and war chest annually, making adjustments based on:
Three Approaches to Retirement Portfolio Protection Conservative Approach: Maintain a larger war chest (6-7 years of expenses) with tighter spending guardrails. Best for retirees with smaller pensions who rely heavily on their DCP accounts or those who prefer maximum security. Balanced Approach: Use the standard 5-year war chest with moderate guardrails that allow for spending adjustments of 10-20% based on portfolio performance. Suitable for most Washington State retirees with solid pension foundations. Growth-Focused Approach: Maintain the 5-year war chest but use wider guardrails that allow for more aggressive growth investing. Best for retirees with substantial pension income who can handle more volatility in their discretionary spending. Case Study - Linda's Complete Strategy: Linda, a 65-year-old retired teacher, receives $2,800 monthly from TRS and $1,700 from Social Security. Her basic expenses are $4,200 monthly, leaving her needing only $300 monthly from her $450,000 DCP account. She built a $150,000 war chest (covering 5 years of maximum anticipated withdrawals) using savings accounts and the Stable Value Fund. Her guardrails allow her to withdraw between $15,000-$25,000 annually from her DCP based on portfolio performance, with the remainder invested for growth. When markets performed well in 2021, she increased her withdrawal to $22,000. During the 2022 downturn, she reduced to $17,000 and used her war chest to maintain her lifestyle. Your Action Plan
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-Seth DealAs a Washington State public employee approaching retirement, you've likely spent years carefully saving through your DRS pension plan, a DCP account, and Social Security. But have you thought about your complete legacy? More than just financial assets, your legacy includes your values, wishes, and the meaningful impact you'll leave behind. Many pre-retirees focus exclusively on money when planning for their future. However, a truly comprehensive legacy plan addresses both financial security and personal values. This approach ensures your life's work and wisdom continue to benefit your loved ones long after you're gone. Core Principles of Comprehensive Legacy Planning Creating a meaningful legacy requires attention to several key principles:
Your 5-Step Strategy for Comprehensive Legacy Planning Step 1: Create Essential Legal Documents The foundation of any legacy plan is proper documentation. As a Washington State employee, you'll need:
Step 2: Organize Your Financial Records Make it easy for your loved ones to manage your affairs by creating a complete inventory of:
Often, the items that cause the most conflict in families aren't the valuable ones, but those with emotional significance. Address these specifically by:
Beyond physical assets, your legacy includes your values, stories, and life lessons. Consider:
Your digital life is part of your legacy too. Make provisions for:
Case Study: A Washington State Employee's Comprehensive Legacy Plan Tom, a 63-year-old engineer with the Washington State Department of Transportation, created a legacy plan that went far beyond money. Here's how he approached it: First, Tom worked with an attorney to create essential legal documents, including a will, powers of attorney, and healthcare directive. He also updated beneficiary designations on his DRS pension, naming his wife as primary beneficiary with a 100% survivor benefit. Next, he inventoried his assets: a home in Vancouver worth $450,000, his DRS pension ($5,300/month), DCP account ($500,000), and personal property. He created a spreadsheet with account numbers and contacts for his financial advisor and attorney. For personal items, Tom created a memorandum listing who should receive specific items, including his collection of engineering books to a younger colleague and his grandfather's pocket watch to his son. To share his values, Tom wrote letters to his children and grandchildren explaining his life philosophy and hopes for their futures. He also established a $50,000 donor-advised fund focused on engineering education, reflecting his professional values. Finally, Tom created a document with login information for his digital accounts and instructions for handling his extensive digital photo collection and online subscriptions. Your Action Plan for Creating Your Legacy
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-Seth Deal |
AuthorsBob Deal is a CPA with over 30 years of experience and been a financial planner for 25 years. Archives
July 2025
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