For many, the dream is to retire young. Unfortunately, even if you think you’re doing a great job saving for retirement unless you have retiree health insurance, that dream may not be realistic. The fact is if you plan to retire before age 65 you had better save for health insurance costs.
The definition of early retirement is different for every person. For my purpose, I mean retirement before Medicare eligibility at age 65. Unfortunately, I’m seeing retirees that fall into two camps – those with retiree health coverage who can retire earlier than age 65, and those without it who have to wait to retire until Medicare eligibility.
The trends for retiree medical coverage are not promising. According to the Employee Benefit Research Group (EBRG):
- In 1997, 28.9% of private-sector workers had retiree health coverage
- In 2010, 17.7% had coverage
When the subsequent EBRG analysis comes out, I expect that percentage to be under 15%. The retirement bar has been raised – good if you want to limbo, bad if you want to retire.
Don’t let the door hit you in the retirement assets
There it is in black and white, the days of retiree health coverage are coming to an end. Get used to not having what your parents and grandparents had. Pensions, practically gone. Retiree health? Look at the numbers above. You cannot rely on corporations or the government to take care of you. You have to take care of you. That means planning early and kickin’ up that savings rate substantially.
The health insurance abyss
Early retirement without coverage is the health insurance black hole. That’s where your retirement savings will go until Medicare begins. Everybody knows health care is the largest expense you’ll face in retirement. Not only does the cost increase at a faster rate than most everything else, but we get old, break down, and die. Our slow demise requires a good bit of money. Even though that’s a bit depressing, it’s the truth.
Health insurance is the showstopper
Every discussion about retirement must include a talk about health insurance. It stops dreams of early retirement in their tracks. You don’t have to let that happen. Planning early, expecting nothing from your employer, and saving more can help you get to retirement faster.
Another important point is that you may not be able to retire on your terms. I tell my clients just to prepare for it. If you think it’s a possibility (and when is that not a possibility?), build that into your savings plan. You must always prepare for the unexpected.
All is not lost
The good news is that you do have options when it comes to health insurance before age 65.
Let’s start with the good ol’ hot-button topic of the Affordable Care Act (ACA). I’ll start with my usual disclaimer; I’ve been on the record saying there are both good and bad aspects of the Affordable Care Act. Much needs to be changed, and I hope that eventually occurs.
When it pertains to health insurance for those in the pre-Medicare-eligible group, ACA is a good thing. If you have pre-existing conditions, you can no longer be denied or charged more for coverage, which was not the case before. It was much harder to get coverage.
If the retirement decision is not made by you, but by your employer, hopefully, you’ll get a nice severance package with health insurance. If not, COBRA is always a possibility. Cobra is a continuation of your benefits for at least 18 months after you leave payroll, but you have to pay for this yourself and the price may be steep. This may or may not be better purchasing another individual or family coverage.
Retire and go on your spouse’s benefits. Couples rarely retire at the same time. If one retires, the other spouse may be able to provide benefits for both. This is the most common scenario I see for couples.
Hopefully, you can become a consultant or work part-time. Check out some association or industry groups that provide discounted health coverage.
Veterans’ benefits. First of all, thank you for your service. If you are someone who served in the active military, you may qualify for health benefits. Visit the Department of Veterans Affairs to learn more. http://www.va.gov/healthbenefits/apply/veterans.asp
The key is to plan often, plan early and expect the unexpected. Work the healthcare cost into your retirement savings. Figure out how much of your retirement savings may need to go toward health coverage and how much will be going toward other living expenses.
I hope you found this informative. If you have any questions, feel free to comment below or visit the contact page to get in touch with us.