How To Afford Health Insurance If You Retire Early

At What Age Are You Eligible For Medicare

Once you reach 65, you are generally eligible for Medicare. Some people become eligible for Medicare earlier. You may be eligible if youve received Social Security Disability Insurance for 24 months, regardless of your age, or if you have certain disabilities, such as amyotrophic lateral sclerosis , or permanent kidney failure.

Bridging The Gap Between Retirement And Medicare: Early Retirement Health Insurance Options

Many baby-boomers are facing the prospect of retirement. For some in this age bracket a lifetime of hard work will add up to a good pension and ongoing benefits after they leave the daily grind. But for others, including those whose employers have converted their retirement benefits, the prospects are more precarious.

In conjunction with the National Association of Insurance Commissioners, I want to offer these tips for those who are considering early retirement or who are already exploring their retirement health insurance options.

As you age, health care becomes an even more important commodity, but unless you have a good employer plan health insurance can be harder and more expensive to obtain prior to reaching Medicare eligibility at age 65. If your employer is not offering to extend health insurance coverage beyond your retirement date, here are some options for finding continuing coverage.

Best Customer Satisfaction: Kaiser Permanente

• Top-ranked for customer satisfaction by J.D. Power

• 5-star Medicare star ratings

• Highly rated by the NCQA

• Very low drug deductibles

• Only offers Medicare Advantage plans

• Limited availability

• Relatively high premiums

Kaiser Permanentes Medicare Advantage plans rank very highly for customer satisfaction and quality. Both the CMS and NCQA confer their highest star ratings on Kaisers MA plans, and the company took the top spot in the 2022 J.D. Power Medicare Advantage Study.

Kaisers plans are limited, however, in both scope and geographical availability. The company covers just eight states , plus the District of Columbia. It only offers Medicare Advantage plans, not Part D or Medigap, and HMOs are the most common plan type.

Kaiser plans, generally, have very low drug deductibles, but relatively high premiums. But if you are looking for a Medicare Advantage plan with great customer satisfaction ratings, live in an area covered by Kaiser, and prefer an HMO, these plans are worth considering.

Learn more in our Kaiser Permanente review.

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If You Retire Before Age 65 Without Health Coverage

The yearly period in the fall when people can enroll in a health insurance plan for the next calendar year. Open Enrollment for 2023 runs from November 1 through January 15, 2023. Enroll by December 15 for coverage that starts January 1.

How Much Money Do I Need To Retire

The critical question that will determine how much you need to retire is how much youll plan on spending in retirement. Most people tend to underestimate how much money they will need in retirement.

Given how critical the question of how much we will spend in retirement is to our financial planning, we give it very little thought. For many of us, we simply assume that we will spend about the same amount of money we currently spend. Then we think, well, the mortgage and other debts should be paid off, so Ill probably spend even less money than I do now.

This type of thinking can lead to woefully underfunded retirement plans.

More people are retiring with debt than ever before. If you are assuming you will retire debt-free, then you better make paying off all debt a priority in your budgeting process.

The next thing most people fail to fully account for in their retirement planning is medical expenses. The average U.S. couple retiring at 65 can expect to pay $280,000 in medical bills. If you plan on retiring in your 50s, 40s, or even 30s, you should be prepared to pay well over $300,000 in medical bills.

Putting aside the fact that people are too optimistic about their ability to retire debt-free and that they fail to account for how much their medical costs will increase in retirement. We often overlook a simple truth. The more free time we have, the more money we will spend.

• Company cell phones
• A certain number of meals

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Who Will Pay For Your Health Care In Retirement

Who will pay for your health care expenses in retirement? This is a good question, whether retirement is just around the corner oreven if it is still far off in the future. Maybe your answer is Medicare will pay for it. And thats partly true, with emphasis on partly. Medicare, the nations federal health insurance program for people over the age of 65, pays benefits if you are eligible for Social Security. If youve noticed the term FICA on your pay stub that stands for Federal Insurance Contributions Act youve been paying into Medicare.

But heres the rub: Medicare covers some medical expenses, but not everything. And it isnt free you pay Medicare premiums in retirement,and these premiums can increase as the years go by, as can your out-of-pocket expenses. Thats why you need to be thinking about having a plan to cover your health care costs beyond Medicare.

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Ways To Save For Health Care In Retirement

Health care: Its one of the largest expenses you can expect in retirement, after housing and food.1 And its not likely to go down. Why?

• Lifespans have increased since Social Security was developed.1
• Heath care inflation is typically greater than general inflation.2
• Chronic illnesses and age-related health problems have increased.3
• The median retirement age is 62. Medicare kicks in at 65.4

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Maybe Retirement Is In Your Reach Afterall

This is not an endorsement for the ACA but a way to provide options and clarity on a topic that can be uncomfortably confusing. It is bothersome to see people grind out their last few years of work to hit that magic number of 65. Had they known they had this option, maybe they would have enjoyed a few more years in retirement.

If you are considering retirement before age 65 but think you cant due to health insurance, we encourage you to investigate this option. The websites mentioned above are easy to navigate and understand. We have seen this method used as an effective tool to retire earlier than previously anticipated.

We are not health insurance experts but have seen the health insurance marketplace mature nicely, and you could potentially benefit from it if you hope to retire early.

Have A Good Overall Retirement Plan

Covering your health costs whenever you retire early or late is important.

Having an overall plan for how to fund retirement is absolutely necessary.

A really good retirement plan defines how much money you have now and in the future and it describes how much you are spending now and in the future. The NewRetirement Retirement Planner is an easy-to-use tool that helps you figure this out. This tool was recently named a best retirement calculator by the American Association of Individual Investors .

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Health Benefits In Retirement

Health insurance eligibility in retirement depends on whether you are a state or local employee and what your employer offers. If you are not certain about what your employer offers, go to the Benefits Available to Me page to search for your benefits by current employer name, or last employer name if you are retired.

Health Sharing Plans May Be An Option

Health Sharing plans, also known as health sharing ministries, are plans that are based on the idea of sharing bills with individuals who are grouped under a certain set of values. It works by paying in a certain amount of money each month and when you have an unexpected medical expense, the Health Sharing plan will chip in to help out. You should note, that these plans are very limiting and individuals that have certain lifestyles may not be accepted.

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What About Health Insurance

If youâre planning to retire at age 62, youll also need to provide for your health insurance since you wont be eligible for Medicare until you turn 65. If you have a working spouse, you might be able to remain on his or her plan. Since âBillâ is a single man, he will need to look at other options.

The Consolidated Omnibus Budget Reconciliation Act â better known as COBRA â will allow Bill to stay on his employers health care plan for a maximum of 18 months. It will probably be more expensive than when he was an employee, and since he canât stay on it until he is 65, he will have to find coverage through the Affordable Care Act, for instance, when his COBRA coverage ends. Billâs options will vary based on where he lives, and these plans may also be quite costly.

Also, remember that Medicare will not cover all health care costs. Most people on Medicare purchase either Medicare Supplement Insurance or a Medicare Advantage Plan, either of which will add health coverage expenses to your budget.

Your Health Insurance Options In Retirement

Once you turn 65 years old, you become eligible for Medicare but enrolling in coverage isnt as simple as it may seem. There are different types of Medicare coverage available, depending on your specific healthcare needs.

Original Medicare includes Part A and Part B coverage. Part A covers trips to the hospital and other types of emergency care, while Part B covers doctor visits and some other preventative services. Prescription drug coverage isnt covered within Parts A or B, so youll need to enroll in separate Part D coverage for help with this type of care.

Also, routine care such as dental and vision care isnt typically covered under Original Medicare, so youll need to foot the bill for those costs. Keep in mind that if you have a dental or vision emergency, Medicare typically will cover those expenses. But for routine teeth cleanings, eye exams, etc., those will need to be paid for out-of-pocket.

For more expansive care, you can instead opt for a Medicare Advantage plan. These plans are similar to the type of insurance you likely have through an employer, in that they typically cover everything from hospital visits to prescription drugs to routine care. The downside, then, is that this type of coverage is often more expensive than Original Medicare.

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Individual And Family Health Insurance

In some cases, buying your own health insurance may be your only or best option for finding coverage before you age into Medicare.

Navigatingthe health insurance marketplace can be difficult, especially if youve onlyreceived health insurance through your employer in the past. But eHealth ishere to guide you through it!

Youwhich runs from November 15th through December 15th, inmost states, for coverage starting on January 1st of the followingyear. However, you will likely qualify for a special enrollment period when youretire this 60 day enrollment period allows you to enroll in health insuranceanytime of the year.

How To Plan For Healthcare Needs Before Retirement

When I was working towards financial independence, I always baked in the cost of healthcare and inputted a 5% annual healthcare cost growth rate. Healthcare costs, childcare costs, and tuition costs are three of the fastest growing costs in America. For early retirees, being able to generate enough passive income to pay for these expenses is the bare minimum.

To determine my healthcare cost in retirement, I asked my employer what the full non-subsidized healthcare cost they paid per month for me was, then I built my healthcare cost model.

Even though we budgeted to pay $1,400+/month in healthcare costs after both of us left our full-time jobs with subsidized healthcare, it still was a big shock. We had to first get over the fact that we both were no longer getting steady paychecks twice a week. Then we had to get used to paying a large new monthly expense.

One good solution I have for everyone is to start doing some enjoyable freelance work on the side to help cover your costs. As an early retiree, you still have valuable skills to leverage. You also suddenly have plenty more time in the day to do things you enjoy.

If you become a sole proprietor or create a company, you may be able to write off some or all of your healthcare costs as a business expense. If your business effective tax rate is 25%, you could save 25% on healthcare costs. However, check with a tax professional first.

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What Are Some Issues With Fire

As we said, many people want to know how to retire early nowadays. However, they might be doing it for the wrong reasons, and it may have looked cool in an influencers video.

If you only look at that, it may seem picturesque. You prepare enough money and cash flow to sit back and relax. You sit at the beach, sipping drinks as the sun goes down.

Then, the credits roll, right? Thats what would happen if this was a movie. However, you cant lounge around forever, and youll soon have to pack up and leave.

Afterward, youll have to figure out life beyond your 40s or 50s. Sure, you have money to sustain yourself. But what will you do then? This is a problem with the FIRE movement, along with:

• FIRE may burn your present life You may say the FIRE uses the present as fuel. It involves working and investing so much now for your later years. You may miss out on things you could only do at a certain age.
• Keeping the FIRE going We said its all about living below your means. You will have to do that forever, without the occasional splurge. All that is saving and investing, and you might not be able to enjoy it.

See if the FIRE movement appeals to you because it goes away from your current job. If thats your reason, perhaps you shouldnt be learning how to retire early.

Instead, you might need another job. Fortunately, you can now choose from so many remote work options. Earn money while doing other stuff you like.

What Are Some Of The Costs I’ll Have To Pay For In Addition To Insurance Premiums

Most plans provide that you’ll have to pay a deductible before your insurance kicks in, a portion of your health care costs. You might also have to make copayments or pay coinsurance even after you reach your deductible. But many policies have an out-of-pocket maximum. Your insurer will pay 100% of your costs for the year after you’ve spent this amount.

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The Private Insurance Market

You might also think about the private insurance market if your household income is too high to qualify for a subsidy under an ACA plan and if you’re in good health. Policies that are sold in the private market are sometimes called “off-exchange plans.” You can purchase them directly from the company or through an agent.

Strategy #: Delaying Social Security

How much you get in Social Security depends on a sliding scale set by the Social Security Administration based on your age, how many years you worked, how much you contributed to Social Security and when you claim. Although you can claim starting at age 62, the payments rise for every month you delay claiming until age 70, when your benefit hits its maximum.

Social Security income is counted as part of your income for calculating insurance premiums on the marketplace. Therefore, claiming Social Security later will lower your income and enable you to get higher subsidies in the intermediate years between when you retire and age 65, when Medicare kicks in.

Delaying claiming Social Security is therefore beneficial to your entire retirement strategy, because it results in higher ongoing income when you could really need it in middle or late retirement. Married couples especially can take advantage of Social Security claims strategies to minimize health care costs. For example, the lower-earning partner could claim early while the higher-earner can wait to claim this minimizes income for the couple that counts toward the current health insurance subsidies.

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Early Retirement Health Insurance Are You Eligible For Cobra

In certain circumstances, if you lose your job, you can still be eligible to benefit from your companys group health plan for a limited period of time. Using the Consolidated Omnibus Budget Reconciliation Act , you can expect to be paying about 2% more than the full cost of health insurance on your old companys plan, says founder and CEO of Northwoods Financial Planning, Corey Purkat.

It is going to be more expensive than if you were still employed at a company, but it will still be less expensive than paying for your health insurance on your own, He says. The only way someone wouldnt be eligible for COBRA would be in situations where there was a very good reason a person was let go, such as a criminal investigation.

Continuation coverage under COBRA is typically available for a relatively short period of time, typically 18 to 30 months.

Runner Up Best Medicare Advantage Plans: Aetna

• Ultra-low-cost Part D plans available

• Low premiums and deductibles on 2023 Medicare Advantage plans

• The most MA plans with additional drug coverage in the coverage gap

• Relatively high Medicare star ratings

• A financial strength rating from AM Best

• Deductibles run high on 2023 Medicare Advantage plans

• Below average for customer satisfaction

Aetna was our runner-up for the Best Medicare Advantage Plans for a wide variety of reasons. The companys Part D plans and Medicare Advantage plans offer good value, are well-rated, and offer a wide range of benefits. Aetnas SilverScript SmartRx plan is a very low-cost prescription drug plan, with an average monthly premium of only $5.92 for 2023. Premiums and deductibles on its MA plans are well below industry averages for 2023 as well. And most MA plans include additional drug coverage in the Medicare donut hole.

But there are two reasons why Aetna isnt our top pick for retirees. Aetna ranked 6th out of nine companies in the J.D. Power 2022 U.S. Medicare Advantage Study, which indicates issues with customer satisfaction. Plus, the average out-of-pocket maximum on its Medicare Advantage plans is $5,685.48, which is about $300 higher than the average among major insurers.

Learn more in our Aetna Medicare review.

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