Planning your retirement is tricky. And the earlier you attempt to retire, the more challenging it becomes. The main reason is that the sooner you retire, the longer you’ll have to live on your savings and retirement income, subjecting you to a greater risk of running out of money.
Another reason retiring early can be daunting is maintaining health insurance coverage until Medicare kicks in.
Here’s this week’s question from our forums:
Say you’re in your early 60s, you want to retire and you have enough in your retirement to do so. Where can you get insurance? Will it be too high? Are we all doomed to work until we are 65, or like in my case I think they moved it up to 67, just to have insurance?
Before we begin, let’s clear up something this reader is confused about. Their question is about finding affordable health insurance should they retire before they’re eligible for Medicare, which kicks in at age 65. That age has not been moved back to 67. What has been moved back for many people, however, is the age at which you become eligible for full retirement benefits from Social Security.
When you’re eligible for Social Security depends on when you were born. To see the age when you’ll become eligible for full Social Security benefits, you can check out this calculator.
How can anyone afford insurance when they retire early?
It wasn’t long ago that if you were planning to retire before you were eligible for Medicare, you had a big problem.
Say, like most Americans, you got your health insurance through work. If you chose to retire at age 62, the youngest age at which you could receive Social Security, you’d have three years until you turned 65 and became eligible for Medicare. Unless your employer offered health insurance for retirees, you were then faced with two choices: either pay for private health insurance or risk going without.
For many, paying for private health insurance wasn’t a viable option, for one of two reasons. The first was expense. Because the older you get, the more health insurance costs, the price of private coverage was simply too high. The second was insurability. By the time we reach 62, many of us have developed a health issue that would have rendered us uninsurable. In other words, in the past, insurance companies wouldn’t take you at any price.
Result? Because living without health insurance meant risking one’s entire net worth, people like the reader above were forced to continue working until they turned 65 and were eligible for Medicare.
Happily, however, these impediments to early retirement no longer apply.
How Obamacare has changed where and how long we work
If your goal is to get into a heated discussion, the easiest way to do it is to say the word Obamacare. Think I’m exaggerating? Read the comments on stories like Why I’m Republican and Love Obamacare or 8 Steps to Prepare for Obamacare. Or check out a 2015 Fox News poll, which suggests three-quarters of Republicans think Obamacare will ultimately be a bad thing and three-quarters of Democrats think the opposite.
Pretty divisive stuff.
But when it comes to the Affordable Care Act, there’s one thing that’s tough to argue. Obamacare has given Americans flexibility they’ve never known. That’s because of two key features: You can’t be turned down, and if you qualify, Uncle Sam helps pay the tab.
Because you’re now guaranteed coverage, those who were uninsurable are no longer tied to a job simply to maintain insurance. And because you may qualify for a subsidy, you’re now able to leave a big company and strike out on your own.
And salient to this discussion, should you wish to retire early, you may now do so and rest assured you’ll be able to find affordable coverage until you reach 65.
Here’s an example: Me
To illustrate how Obamacare can help our reader with early retirement, I went to healthcare.gov and scoped out the possibilities, using myself as an example.
I’ll be 60 tomorrow, so I’m a likely prospect to retire early. In addition to my age, I told Healthcare.gov that I’m a Florida resident and earn about $30,000 per year.
The result? For the cheapest plan, the subsidized cost would be $79 per month for a policy with a $6,300 deductible.
I can also use myself as an example to what life was like before Obamacare. For the last few years, I’ve been covered by my wife’s work-related policy. But before that, because I’m self-employed, I paid the entire cost of my heath insurance. I just went back and looked: In August 2012, when I was 57, I was paying $693.04 monthly for a policy with a $6,000 deductible. And since that policy increased in price every year, you can bet I would have been paying way more than $700 monthly by now.
Without the subsidy and competition offered by Obamacare, retiring early for my hypothetical self would likely have proved impossible. It wouldn’t be easy to pay nearly 30 percent of my monthly income for health insurance. And keep in mind, I’m healthy. If I had any number of ailments that could have rendered me uninsurable, I wouldn’t have been able to get coverage at all. I would have been in the exact situation our reader is afraid of: forced to work until I’m 65 and Medicare eligible, or forced to retire without insurance and risk my life savings in the event of a serious illness.
We don’t know whether our reader is a supporter or detractor of Obamacare. But we can guess that after reading this, they’ll soon be able to retire and think about it for as long as they choose.
Got a question you’d like answered?
A great way to get answers to just about any money-related question is to head to our Forums. It’s the place where you can speak your mind, explore topics in-depth and, most important, post questions and get answers. It’s also where I often look for questions to answer in this weekly column. You can also ask questions by replying to our daily emails. If you’re not getting them, fix that right now by subscribing here.
I founded Money Talks News in 1991. I’ve earned a CPA (currently inactive), and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here.