According to data from the Organization for Economic Co-operation and Development (OECD), life expectancy for both women and men over 65 years of age has increased significantly in the last five decades. The OECD attributes this increase to advances in the health sciences, improved access to medical care, and greater awareness to maintain a healthy lifestyle, among others. In the United States, men can expect to live an average of 18.1 years beyond 65, while the expectation for women is around 20.6 years. One of the issues that people over 60 are most concerned about is preserving their quality of life as they age. With indicators pointing at increased longevity and more people looking to retiring before they’re 65, it’s crucial to evaluate early retirement healthcare options.
Retiring Earlier to Live Longer and Better
Recent studies show a proportional relationship between early retirement with greater longevity and better quality of life post-retirement. In fact, such studies have given rise to philosophies such as the FIRE movement. Keep in mind that retiring early isn’t for everyone. Many people actually end up sacrificing their quality of life in order to achieve a lackluster early retirement. It’s important to keep your current financial situation in mind when considering when to retire, as well as your future financial goals, including how you plan to spend your retirement.
Retiring early requires a keen look at your early withdrawal capacity, your accumulated savings, and a forecast of monthly expenses. It’s essential to remember that a significant cost throughout retirement will be your healthcare. Medicare eligibility, for example, starts at age 65, so you may initially be on your own in terms of health expenses and medical bills. If you’ve taken a comprehensive look at your holistic financial situation and decided that early retirement is right for you, here are the top 4 early retirement healthcare options.
Top 4 Early Retirement Healthcare Options
Group Health Insurance Sponsored by Your Last Employer
A relatively uncommon occurrence, some government entities and private sector companies allow early retirees to continue with the insurance they already had. The retired individual continues within-group bargaining available to the actively employed population, for a fixed time. For example, an individual that retires at 60 from one of these companies may continue on the same healthcare coverage plan until they are eligible for Medicare at age 65.
A variation of previous-employer-sponsored healthcare is the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA states that employers with 20 or more employees allow qualified former employees and/or their spouse or dependents to keep their health insurance plan for 18 months post-employment. In some states, this practice includes smaller employers (2 to 19 employees). The downside is that the employer can demand that the person cover up to 102% of the healthcare premium payment.
Prior to the creation of the Affordable Care Act (ACA), early retirees ran the risk of incurring huge health expenses as insurers had the ability to deny coverage to people with pre-existing medical conditions and charge higher coverage rates for seniors. The ACA created a public market for health insurance and provided subsidies to people whose income does not exceed 400% of the federal poverty level ($49,960 for an individual, $67,640 for a couple, and $103,000 for a family four in 2020) to make health insurance more affordable. At HealthCare.gov, users can search for a state or federal public insurance market, for states that do not have an exchange.
Shared Health Plans
Shared health plans are agreements in which a group of people pays a monthly rate that is used for the health expenses of its members. These monthly rates are generally less expensive than a traditional health insurance premium, but many times these programs do not cover pre-existing medical conditions. As stated by Michael Kitces, a top financial planning blogger, “Unlike health insurance, healthcare sharing programs are not binding contractual agreements.” They are also often known as “health sharing ministries” because the members of these groups typically share religious faith.
Early Retirement Healthcare Options
Retiring, be it as part of the FIRE movement (which is risky,) or simply opting for early retirement due to your financial situation, requires particularly thoughtful financial planning. Early retirement healthcare options include growth health insurance sponsorship, COBRA coverage, Public Health Insurance Exchanges, and Shared Health Plans. The costs associated with each vary, as well as the situations in which you may qualify for the options. The most important thing to consider is if early retirement is an option for you- make sure it aligns with your holistic financial plan. Work with your financial advisor to ensure your early retirement plan and overarching financial plan takes into account each phase of your life: you will thank yourself in the future.
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