Covering Health Insurance to Retire Early
Key Points
Medicare coverage doesn’t start until 65-years-old, so planning for health insurance coverage if you retire early is essential.
A common option is usually to get on your spouse’s employer-provided plan, unless you’re both looking to retire early.
It’s important to consult with your advisor on your best way to bridge the gap.
Early retirement is an exciting goal that opens up many possibilities — more time to travel, hang out with family or enjoy your favorite hobbies. There are a few considerations, one of the most important being healthcare. Medicare coverage begins when you turn 65-years-old, and not a day sooner. If you’re considering an early retirement, evaluating your options on obtaining health insurance coverage between early retirement and age 65 is important.
COBRA Coverage
If you go straight from employer-provided health insurance at work into retirement, you may be eligible for COBRA for an abbreviated period of time. The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires companies who employ at least 20 people to offer a temporary extension of health coverage in certain circumstances. You and your family could be covered for up to 18 months. If you’ve become eligible for Medicare, the coverage for your spouse and children can last for 36 months.
The downside to COBRA is its expense and short-term coverage. It generally costs 102% of your original premiums, and you have to pay all of it since your employer no longer covers anything. However, if you’re close to turning 65, it might be a good solution for you.
Spousal Health Insurance
If your spouse has employer-provided health insurance offered at their workplace, this is going to be the easiest option. Your spouse has to continue to work, of course, so if you’re both looking at early retirement, this will not be an option. You should be able to join your spouse's plan upon leaving your job, since this would be known as a SEP (Special Enrollment Period).
Purchasing Private Health Insurance
Although private health insurance is expensive, this is another common option to bridge the gap between when you retire and when you become eligible for Medicare coverage. Depending on how many family members need to be covered, we typically like to budget at least $15,000 a year on medical coverage. A new expense like this should be something to keep a close eye on. It would be highly suggested to discuss a large annual expense like this with your advisor. They could help you evaluate whether this option would be feasible for your cash-flow planning..
Affordable Care Act (ACA) Marketplace
The Marketplace is also an option; however, there are income restrictions. The income restrictions for health insurance through the Marketplace (also known as the Health Insurance Exchange) are based on the Federal Poverty Level (FPL) and vary depending on the type of assistance you're seeking. For high-net-worth individuals, this isn’t usually an option.
Choosing Health Insurance for Retiring Early
Choosing a plan to keep you insured may involve more than one of these options. For instance, you could go on COBRA for 18 months and then join your spouse’s plan or purchase health insurance.
Whatever you’re thinking is right for you, you’ll want to discuss your options with your financial advisor. At Capstone, we help high-net-worth individuals and families see what added expenses do to their overall financial health. We can model any changes to help make sure that you’re not derailing your goals. Sometimes, it may be necessary to delay retirement a couple more years. We can help you look into each option to evaluate its feasibility. It’s always better to be prepared.
How Your Health Factors into Retiring Early
You’ll also want to take stock of the health and wellness of everyone you’re looking to cover. Better health generally correlates with longer life expectancy, requiring early retirees to help make sure their savings can last for potentially several decades. Health status also affects the need for long-term care, which can dramatically influence retirement plans and savings. Good health, on the other hand, allows for more flexibility in retirement, including the ability to work part-time if desired.
Mental health is equally important, contributing to better financial decision-making and overall well-being in retirement. Investing in preventive care can reduce future health costs but requires upfront expenses. Family health history and lifestyle factors such as diet, exercise, and habits like smoking or drinking can also impact long-term health and associated retirement costs. All these factors combined make health and wellness critical considerations in planning for early retirement.
Whatever your situation, looking at the facts openly will help you decide what’s best for you and your family.
Disclosures:
This article is not a substitute for personalized advice from Capstone and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed by other businesses and activities of Capstone. Descriptions of Capstone’s process and strategies are based on general practice, and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review by contacting us at capstonefinancialadvisors@capstone-advisors.com or (630) 241-0833.