How to retire early and reduce your health care costs

How to retire early and reduce your health care costs

If you are considering retirement before age 65, you are likely to be balancing the emotion of the possibilities of what is coming in your life during this important transition with some legitimate concerns.   One of those concerns is how to pay one of the biggest expenses during your retirement years: out-of-pocket medical care.

The cost of medical care is already expensive for most households.   As retirement approaches, the perspective does not improve much.   In fact, according to Fidelity, on average, a couple can spend $ 275,000 on health care expenses during their retirement years.   This figure is based on an estimate for 2017 and represents an increase of 6 percent over the previous year ($ 260,000 in 2016).

The problem with these types of estimates is that they are based on an early retirement age of 65 years. So, what happens if you retire early?   As you may have anticipated, retiring before age 65 could significantly increase your anticipated health care costs.

How much will increase their costs health care estimates   If you retire before Medicare eligibility at age 65?   You can calculate your health care costs using this calculator provided by AARP   :

AARP Healthcare Cost Calculator

Where to get health insurance coverage

Proactive health insurance planning is necessary to try to keep your health care costs as low as possible.   Reviewing your health insurance options will help you move forward with confidence with your retirement plans according to your terms.   These are the health insurance options for employees who accept an incentive from the early retirement program:

Get coverage through the health plan sponsored by your spouse's employer.     If your spouse is still working and is eligible for health insurance coverage through your employer, the process of finding a backup insurance policy can be an easy solution.   This is because each time a spouse loses health insurance coverage after accepting an early retirement offer, this is considered a qualified event for the purpose of being added to an existing plan.   Be sure to begin the process of discussing your retirement options as soon as possible if you are married, so that you can coordinate when you will be retiring from the workforce.

Get coverage quotes from the private insurance market.    

 If you are relatively healthy, you should review your options in the private insurance market.   start date of your retirement, the greater the likelihood that it will benefit you to buy the right insurance.   The private insurance market offers a wider range of coverage options.   But individual and family health insurance plans can end up costing you more money.   That said, it does not hurt to take a look at private insurance options and compare prices.

You can start comparing insurance plans and prices using an online market.   Some examples of useful sites include     ehealthinsurance.com  gohealthinsurance.com.  Another recommended option includes working directly with an insurance broker.   Just keep in mind that if you choose to obtain health insurance coverage under COBRA or the Affordable Care Act, you are encouraged to compare and compare the costs of the premiums and the amounts of coverage.

Explore coverage options under the Affordable Care Act (ACA).   

 When you lose coverage provided by your employer, this is considered a qualified event for the purposes of obtaining coverage under the ACA.   This means that you can get coverage outside of the normal open enrollment period.   For early retirees, this is important due to the fact that income-based subsidies are available under the Affordable Care Act.   Depending on the amount of your new family income after early retirement, you may qualify for an insurance premium subsidy.

These subsidies are based on your modified adjusted gross income during the year in which the policy is in effect.   You can begin to compare the policy options in your state in Healthcare.gov.   You can also estimate if you will qualify for income-based grants using the     Health insurance market calculator    Available through the Kaiser Family Foundation.

Check with your current or former employer to see if you are eligible for retiree health coverage.    

 The proportion of retirees covered by the health insurance for retirees provided by the employer has decreased significantly in recent decades.   According to the Kaiser Foundation, only between 16 and 25 percent of retirees had supplemental Medicare coverage.   If you have health insurance for retirees available, be sure to pay attention to the dates of service and the age requirements for eligibility.  It is also important to find out how those benefits change as you get older.

Use  COBRA  Maintain group coverage for 18 months.     

When you retire, you can choose to continue your group coverage under     COBRA     for 18 months but your premiums are likely to increase significantly as you will now pay the full premium yourself.   An exception would be if you have dollars of retiree health plans available to offset the costs if you have access to a health plan for retirees.   Keep in mind that if you have a health savings account, you can use the HSA funds to pay the insurance premiums for continuation health care coverage through COBRA.

The benefit of choosing COBRA coverage is that your insurance coverage and you will not have to change providers.   The drawback is that you are now losing the employer-based subsidy and will pay the full cost of your health insurance premium.

In the event that you have a pre-existing condition and retire within 18 months of turning 65, COBRA may end up being your best option in this period of uncertainty.     While you continue to pay your premiums, you can keep coverage until you are eligible for Medicare.   If you do not have a pre-existing condition, choosing COBRA will give you a little extra time to determine your next steps for insurance.   However, you may find prohibitively lower cost coverage when you obtain coverage from the ACA.

Look for part-time work that provides access to health insurance coverage.     

Some employers are more generous than others in the benefits department.   If you are considering a part-time job during retirement, you may be able to generate additional income by obtaining health insurance coverage.   It is very likely that you still have to cover all or most of the cost of your health insurance.   However, by participating in a group plan, you can have access to more complete coverage.   Check if potential employers in your area provide health insurance for part-time workers.

Ways to take control of your future health care costs

Here are some other things to keep in mind that will help you reduce your health care expenses:

Take advantage of a health savings account while you're still working.     

If you are covered by a health plan with a high deductible, you can save for future health care costs in a health savings account (HSA).   Health savings accounts are very beneficial because they offer a triple tax exemption.   The money you deposit in HSAs reduces your current taxable income, increases deferred taxes and leaves your tax-free account whenever you use it for health-related expenses.   

Develop healthy habits that help you before and after your retirement.     

Avoiding problem behaviors such as smoking and obesity can help you avoid staying on the path to high current and future costs.   It is also important to become an informed patient.   According to health education providers such as EdLogics, the focus on education for more than 50 high-cost conditions, including metabolic syndrome, heart disease, and diabetes, will help people to take action and improve their health and well-being in general.

A Merrill Lynch survey from Bank of America revealed that almost two-thirds do not save as much in their retirement plans at work because of the costs of medical care.  Smart health habits can help keep your costs low during retirement.   But a healthy lifestyle can also be the key to building greater savings for retirement.

Create a budget plan for retirement.    

 Creating a rough estimate of your lifestyle spending needs and wants can help you fully assess your desired retirement income needs in today's dollars.   This can also be useful when examining the impact of various expenses that may change once you leave your job (health insurance premiums, travel, etc.).

Increase your cash reserves.     

Most financial planners recommend maintaining at least 3 to 6 months of living expenses in an emergency fund.   If you retire early, you should consider saving more than this baseball stadium estimate.   The creation of short-term liquid savings in accounts such as a savings account, interest verification, money market fund, short-term CD or treasury bonds can help you cover the projected maximum costs of health disbursement.   These additional savings can also be useful to keep your taxable income as low as possible.

Health insurance subsidies are based on adjusted gross income for the year in which you want coverage.

Use smart income tax planning techniques to keep your premium costs low.     

Most likely, do not retire before establishing a basic income plan.   Similarly, you must have a basic tax plan to help you find ways to structure your retirement income wisely.   For early retirees who rely on guaranteed insurability through the health market, tax planning can also help you reduce your premiums.   Tax-free income from a Roth 401 (k), Roth IRA or HSA can be a valuable part of your tax plan.

As mentioned above, ACA insurance subsidies are based on income for the current premium year.   Effective tax planning can help you meet lifestyle spending objectives and minimize the cost of health insurance coverage.