It is one of the most discussed reasons people refuse to retire before age 65. There are plenty of reasons someone may not retire, including a lack of income, the fear of running out of money, the loss of identity, boredom, no longer having a sense of purpose. Surprisingly one of the biggest ones we encounter is health insurance. As we age, the presence of health insurance becomes just as much a necessity as income. Some view it as a higher priority, allowing insurance to dictate if/when they can retire.
You can start collecting Social Security as young as age 62 or as late as age 70. However, you can’t go on Medicare until age 65. The gap between age 62 and 65 forces a lot of pre-retirees to postpone retirement until they can go on Medicare to make sure they have adequate health insurance. But this may not have to be the case.
On March 23, 2010, the Affordable Care Act (ACA) was enacted ensuring that all Americans were given the right to health insurance. This new law came with much criticism and confusion. At the time, a lot of the criticism of the ACA concerned the possibility of higher premiums, low levels of coverage, increase in taxes and limited enrollment.
Twelve years later, we have a much better understanding of the ACA and how it can benefit all of us, including those under the age of 65.
When we mention the ACA as an option to those who want to retire by age 65, the first reaction typically is not a positive one. People assume that the insurance coverage is terrible and expensive. That is untrue. The ACA has matured quite nicely since its inception and gives you control over how much coverage you want and need.
The website for my home state’s program, www.nj.gov/getcoverednj/, provides New Jersey residents a comprehensive and easy to understand list of coverage options. The providers are listed so that you can make sure your doctor is in the networks. The plans are administered through companies you know, such as Horizon Blue Cross Blue Shield and AmeriHealth. The best part is you don’t need a Ph.D. to comprehend the offerings. Shocking, I know.
Residents in other states can learn about their options at healthcare.gov or find information about their particular state’s program by visiting www.healthcare.gov/marketplace-in-your-state/.
The cost of health insurance through the ACA, however, does cause real confusion. This is another big deterrent for retiring before 65 with no health care through your employer or your spouse’s employer. The monthly cost to you, the enrollee, is based on your expected household income for the year you need coverage. Here is the good news: When you retire you may have little to no earned income.
For clients who retire before 65, most of the money they live off first could be money in their checking/savings accounts or non-IRA money. These are their most liquid assets. If this is the case, when applying for health insurance, your low income could cause your premiums to be much lower than you anticipated. Your health insurance through the ACA can be at a significantly reduced cost – or maybe even free. In retirement, you can determine your sources of income. That type of flexibility can help.
The enrollment process is simple. If you are planning to retire, that is considered a “life event,” qualifying you to apply and enroll at the time of retirement.
This is not an endorsement for the ACA but a way to provide options and clarity on a topic that can be uncomfortably confusing. It is bothersome to see people grind out their last few years of work to hit that magic number of 65. Had they known they had this option, maybe they would have enjoyed a few more years in retirement.
If you are considering retirement before age 65 but think you can’t due to health insurance, we encourage you to investigate this option. The websites mentioned above are easy to navigate and understand. We have seen this method used as an effective tool to retire earlier than previously anticipated.
We are not health insurance experts but have seen the health insurance marketplace mature nicely, and you could potentially benefit from it if you hope to retire early.
President and Founder, Reich Asset Management, LLC
T. Eric Reich, President of Reich Asset Management, LLC, is a Certified Financial Planner™ professional, holds his Certified Investment Management Analyst certification, and holds Chartered Life Underwriter® and Chartered Financial Consultant® designations.
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