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Costs of Health Insurance Can Give a Chill to Plans for Early Retirement

November 19, 2000|LIZ PULLIAM WESTON

Q My husband and I are planning to retire in our mid-50s. We will have just enough money to squeak by until we can withdraw without penalty from our investments. However, do you know what we can do for medical insurance? I know we can use COBRA for 18 months after retirement, but what is available and how much does it cost before Medicare kicks in?

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A You may be working a little longer than you had planned.

If you'll have only enough money to "squeak by" until 59 1/2, you probably won't have enough money to pay for health insurance, which is likely to run you several hundred dollars a month.

The Consolidated Omnibus Budget Reconciliation Act of 1985, known in benefits shorthand as COBRA, generally requires companies to extend health coverage for up to 18 months, but you're required to pick up the bill.

Once COBRA expires, you'll need to find individual coverage, which may be even more expensive than what your employer provided. You might want to talk to an experienced insurance broker for an idea of what coverage is likely to cost in your area.

Alternatively, you might choose "catastrophic" coverage, which protects you from disastrously high medical bills and typically has a low monthly cost--somewhere between $20 and $150. But these policies come with a large deductible--typically $2,000 per person each year. Again, that's money that will need to come out of your own pocket.

You won't be eligible for Medicare until age 65, so you could be facing 10 years of picking up some pretty hefty bills. Going without health insurance isn't an option, by the way--one serious illness could wipe out all you've put aside and turn your early retirement into a long-term nightmare.

Defining 'Active Management'

Q I usually enjoy and agree with your column, but I couldn't quite believe my eyes when I saw you suggesting that "buy and hold" as an investing strategy was dead. I'm not about to turn my money over to some broker so he can try to time the market, making fat commissions for himself in the process!

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A The reaction to that column ("Letting Go of the Old Notion of Buy and Hold," Nov. 10) was so interesting that I had to go back and reread what I'd written. I just wanted to make sure my editor hadn't inserted the words "Time the market!" or "Sell stocks now!" because that seemed to be what some readers thought they had read.

Others understood the point but wondered about the timing, saying they believed the kind of market volatility that required investor vigilance had actually started long before this year. And that's a good observation.

The column was a rumination on the idea that the time had passed when we could buy individual stocks or bonds, stick them in our portfolios and forget about them. The tribulations of AT&T and Xerox, to name just two, show that even titans can stumble.

The revolutions affecting business and technology are forcing us as investors to pay far more attention to the ongoing risks our investments face--or we risk being capsized by changes unimaginable just a few years ago.

The column quoted Abraham Gulkowitz, chief strategist for Deutsche Bank, and Bob Veres, editor of a newsletter for financial planners, who both saw more active management as a key to investment success.

Active management does not mean churning a portfolio to generate more commissions for a brokerage firm, as you suggest. It does mean keeping track of the corporate ratings and competitive climate that affect your investments so you're not blindsided by a bond downgrade or the bankruptcy of a once-vital company.

This is not a revolutionary thought or even one that's particularly new. It did bear repeating as markets continued to gyrate and give back some of the extraordinary gains we've experienced in recent years.

Of course, all this is moot if you're a true passive investor, choosing only index mutual funds. But if you're an active participant in the market, whether through actively managed mutual funds or individual stocks and bonds, it might behoove you to pay closer attention to the risks you're taking.

The idea of "buy, hold and forget about it" is dead. The idea of investing for the long term, however, is still very much alive.

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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times' Web site at http://www.latimes.com/moneytalk.

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