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Health Insurance Changes

Entergy employees are you jumping off that bridge your mamma warned you against?

Everybody else is retiring because of the health insurance changes, shouldn’t I?

In recent weeks we at Sound Financial have heard many questions from our clients about their Entergy health insurance changes. How much will this cost me? How will this change my coverage? How will this affect my life?

 These are great questions and should be answered. Yet, we challenge you to ask a different question:
 How do I make this decision?

 In fact, retirement is a huge decision, so how do you make that decision? Should health care changes alone really drive you into retirement? That seems to be the trend lately, but does that make it right?

 These are few of the facts: Beginning in 2015, Entergy retirees will be separated from active employees into their own distinct health insurance pool. In 2019; Entergy will CAP its portion of the annual contribution increase in retiree’s health insurance costs at the lesser of the rate of inflation or the actual cost increase.

 What does this mean? Obviously this is not a swimming pool, to bad huh? An insurance pool allows a company to predict its insurance costs by using the collective experience of large numbers of people. A larger pool of people is typically more predictable and often less expensive. So, how might this affect you? First, Entergy retirees health insurance cost will probably go up because of this. Yet at age 65, the vast majority of retirees begin using Medicare as their primary health insurance. For you, as an Entergy retiree, the Entergy health insurance will be your primary coverage for a limited time. Therefore this change is not as scary when you look deeper.

 OK, so now what is this CAP? First, if you, an Entergy employee, retire on or before November 30, 2014 (your last date on payroll) the CAP does not affect you. However don’t call the pension department yet, we do not believe that this is a reason to retire. This CAP means that beginning in 2019 Entergy will pay a portion of its retiree’s health insurance premium, just like it does today. It will pay an annual increase in that premium, just like it does today. A decrease is possible but unlikely. The change is that Entergy will CAP or limit its annual increase to the lesser of the actual increase or the rate of inflation.

 We have heard employees say they are retiring because of this change. First, it is not our job to tell you when to retire. With that in mind, we do not think that this is a reason to retire. Chasing grandkids, volunteer work, and fishing can be a “reason” to retire but not this.

 Why not? Consider this example: A 60 year old (any reasonable retirement age will work) earns $60,000 a year before tax or approximately $39,000 after taxes and deductions, plus a $300,000 401k. If this person retired at age 60 they could produce a $39,000 net income with their Entergy pension, investment income, and at age 62 social security. Using reasonable growth and COLA increase assumptions, this person’s income could grow over five years to be $47,000 at age 65.

 If this same person, using these same assumptions, would have worked those five years and retired at age 65, because of earnings, delaying income, and allow for investment growth, they could retire with a $68,000 (net) annual income and possibly $440,798 in an investment account.

 That is a $22,000 a year difference! That’s take home, after taxes. That is a significant income difference and should be considered.

 Once again, should I retire? Turn this emotional question into a math problem and do the math for yourself. Look at the Entergy published future health insurance cost estimates. The retiree and spouse $500 deductible PPO is $1060 a month without the cap and $1110 a month with the cap. This is an estimated difference of $50 a month, $600 a year, five years in the future. In our retirement example, that person would have $22,000 a year higher income to pay the $600 a year higher health insurance costs. According to these estimates, in our opinion it does not make sense to retire!

 It seems that the latest retirement trend is for people to retire because of health insurance reasons. Yes, health insurance is important, but retiring because of it is letting one piece of your plan dictate to the whole. We don’t think that is a good idea.

So, how do you make this decision for yourself? Do the math, see if it makes sense. We would be happy to help you look at these details, see how they affect you, and make a plan for you to retire when you are ready and prepared.

Investment advisory services offered through Sound Financial Strategies Group, Inc.("SFSG"), a Registered Investment Adviser.  Securities offered through Comprehensive Asset Management and Servicing, Inc., ("CAMAS") Member FINRA/SIPC.  SFSG and CAMAS are separate and unrelated companies. Neither SFSG nor CAMAS are endorsed by, retained by, or affiliated with Entergy.

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