We all have the picture in our minds about retirement; sitting on the beach, reclined in a chair under an umbrella with a sangria in your hand, not a care in the world. Unfortunately, you might have to wait longer than you would hope to hear those waves crashing behind the sounds of your favorite Jimmy Buffet record. The average age of retirement in the United States is around 63 and can vary by state. Despite that, you are not eligible to collect Medicare benefits until you turn 65. So, if you plan to retire early, you need to make sure you have a solid plan in place to pay for insurance before you turn 65 and can join Medicare. Here are a few insurance options to hold you over until then:
If you are forced into early retirement, you might want to look into the COBRA act as an insurance option. The Consolidated Omnibus Budget Reconciliation Act gives employees the right to continue to pay for their group health insurance they would no longer have if they were to lose or quit their jobs or reduce their work hours. While COBRA is not an actual insurance plan, the act provides you with the option to keep your workplace health insurance for around 18 months. The length of the coverage you can acquire because of the COBRA act all depends on your qualifying event.
An event that causes an employee or their dependent to lose their health coverage is a qualifying event. Termination of employment and reduced work hours not caused by gross misconduct qualifies you for COBRA coverage. Cost of COBRA insurance comes out to the total cost of your health plan premium plus a 2 percent service charge. For someone within a year or two of turning 65 and becoming eligible for Medicare, this is a potential option to hold you over.
One option to consider when planning for a pre-65 retirement is self-insuring. If you plan ahead and start putting money aside for early retirement, an HSA can be a good option for you. A Health Savings Account is a medical savings account that is attached to a high deductible insurance plan. To qualify for an HSA, you will need to pay the minimum of $1,350 for a single person or $2,700 for a family. These are numbers that are defined by the IRS. There is also an annual limit to the amount you can contribute pre-tax. $3,450 can be contributed as a single person, while $6,900 can be contributed to a family account.
If you are over the age of 54, you have the option to contribute an extra thousand dollars annually. The money that you put in an HSA account can be contributed tax-free. You also do not have to pay taxes while you grow the account nor are you taxed for making withdrawals. Money that is in an HSA truly is tax-free. Even after you turn 65 and qualify for Medicare, you can withdraw the money in your HAS without penalty. Because of the tax advantages, an HSA could be the right option for you.
Another option to look at when planning for early retirement is the private insurance market. Early retirees can benefit from looking around and weighing their options in the private insurance marketplace. If you live a relatively healthy lifestyle, this might be the best option for you. You have the option to do the research yourself or work with an insurance broker to find the right plan for you. This also gives you the option to shop around and obtain coverage quotes with right monthly cost you are looking to pay for. Though the private insurance marketplace can give you plenty of options for coverage, it could get costly when looking at individual and family insurance plans. Start by comparing the difference between an HMO or a PPO plan, and then figure out which of the options makes the most sense based on your specific health care needs.
Other Options for Early Retirement
Other ways to acquire insurance when retiring early include part-time work and spousal plans. Some people might benefit greatly by easing into retirement and avoiding a complete change in lifestyle. If this is the case for you, part-time work that allows you to obtain health insurance might be the best route to take when retiring early. There are more options for part-time work with health insurance than you may think; whether that is staying with your current job and scaling back on work or going out and finding another job part-time.
In most cases, you will need to work around 20 hours a week to become eligible for insurance. With that said, it is usually more affordable than taking the state health insurance route. Another Option is to go on your spouse’s employer plan. If your significant other still plans to work after you retire, you can always check and see if you can be covered in their plan. Doing this may be your best option when deciding on how much you want to pay for insurance. Even if your spouse is already retired, you may be able to be added to their retiree medical coverage.
Early Retirement: Additional Resources
If you think you want to go the part-time route, here are some internal resources we recommend:
Just because you have not hit age 65 and are then not eligible for Medicare does not mean you can not retire. There are of options available to you for health insurance that can cover you until then. It is essential to find the plan that is right for not only your health but your savings as well. Make sure you do the research to find the right short-term plan for you!
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