Retiring Early? Here's What You Need to Know About Health Insurance

Introduction

Retiring early can be a dream come true for many individuals. The idea of having more free time to pursue hobbies, spend time with loved ones, and travel is enticing. However, early retirees often face challenges when it comes to health insurance. In this blog post, we will explore the options available for those who retire before the age of 65 and discuss the costs and considerations associated with each option.

Options for Early Retirees

If you plan to retire early, you generally have three options for health insurance:

1. Continuing insurance through an employer
2. The Consolidated Omnibus Budget Reconciliation Act (COBRA)
3. The federal exchange created by the Affordable Care Act

1. Continuing Insurance through an Employer

If you are retiring from a company, find out what options are available to you as a former employee. Some companies offer continued coverage through programs like COBRA. However, it's important to note that these plans often come without subsidies, making them more expensive compared to other options.

2. COBRA

COBRA allows individuals to keep their employer plan after leaving a job. However, it's important to consider that this option may not be subsidized, meaning you will be responsible for the full cost of the premiums. It's crucial to evaluate whether the cost of COBRA is affordable for your retirement budget.

3. Affordable Care Act

The Affordable Care Act (ACA) provides a federal exchange where individuals can purchase health insurance plans. The ACA also offers subsidies based on income, making coverage more affordable for many early retirees. By exploring the federal exchange, you can compare different plans and determine if you qualify for any subsidies.

The Costs of Early Retirement Health Insurance

The cost of health insurance during early retirement can vary significantly based on factors such as income, family size, and location. While some individuals may find affordable options, others may face higher premiums.

According to healthcare.gov, in 2020, the average unsubsidized health care plan cost $456 for individuals and $1,152 for a family per month. These costs can be a significant financial burden for early retirees, especially if they have a limited retirement income.

Affordable Care Act Subsidies

One option to reduce the cost of health insurance is to qualify for subsidies through the Affordable Care Act. The income limits for subsidies change over time, so it's essential to stay up-to-date with the latest information. For example, a household size of five can make up to almost $120,000 per year and still be eligible for subsidies.

Justin McCurry, who retired at 33 years old, shares his experience with health insurance subsidies through the Affordable Care Act. Despite having a modest retirement income of around $40,000 per year, McCurry pays only around $130 per month for his family's insurance through the federal exchange. However, the cost of insurance can vary based on income and family size.

Planning for Health Insurance Costs

When considering early retirement, it's crucial to plan for health insurance costs well in advance. Starting conversations about health insurance options two to three years before retirement can help you prepare and make informed decisions.

By researching different plans and estimating costs using resources like healthcare.gov, you can gain a better understanding of what health insurance might cost during your retirement years. Additionally, speaking with financial advisors can provide valuable insights and help you create a comprehensive retirement budget that includes health insurance expenses.

Conclusion

Retiring early can be a fulfilling chapter in your life, but it's essential to be aware of the challenges and considerations associated with health insurance. As an early retiree, you have several options for coverage, including continuing insurance through an employer, COBRA, or the federal exchange created by the Affordable Care Act.

Remember that health insurance costs can vary significantly based on factors such as income, family size, and location. Exploring subsidies through the Affordable Care Act can help make coverage more affordable for many early retirees. However, it's crucial to plan for these expenses well in advance and have open conversations with financial advisors to ensure a smooth transition into early retirement.