How Early Retirement Could Mean Higher Medical Bills
July 28, 2014
Many of us like the idea of early retirement. We have visions of relaxing on a beach somewhere, enjoying our money. However, this might not be the case when you retire early. In fact, early retirement could actually result in higher medical bills.
According to a recent study reported on CNN Money, retiring at age 62 instead of age 65 means an additional $51,000 in medical expenses.
Of course, most of us don’t consider retiring at age 62 as early retirement. Most of us think of early retirement as something that happens between the ages of 45 and 55. So the problem is even bigger, because the $51,000 figure comes because Medicare coverage doesn’t kick in until age 65. So if you plan to retire 10 or 20 years before you are eligible for Medicare, your healthcare expenses could be a very big deal.
How to Deal with Medical Expenses in Early Retirement
If you are serious about retiring early, you have to consider the medical aspect of the situation. You are likely to be surprised how much health insurance costs, and how much you pay in medical expenses, once you no longer have access to your employer-subsidized plan.
The Patient Protection and Affordable Care Act
If you are in good health, you might be able to get an affordable health insurance plan on one of the state-run healthcare exchanges set up after the passage of the Patient Protection and Affordable Care Act (PPACA – also called “Obamacare”).
You can also look into COBRA coverage from your former workplace, but the reality is that COBRA insurance is often quite expensive. It’s probably not a bad idea to visit your state’s health exchange for more information and possible coverage.
Another possibility is to make use of a Health Savings Account (HSA). Now, before you decide to retire, set aside money in one of these accounts.
For 2014, the contribution for an individual is $3,300 and for a family the limit is $6,550.
If you have a high-deductible health plan right now, and you qualify for the HSA, it can make sense. Your contribution is tax-deductible, providing you with an immediate tax benefit. On top of that, you also have the advantage of tax-free growth. As long as you withdraw the money for qualified healthcare expenses, you don’t have to pay taxes on it.
If you are contemplating early retirement, the use of the HSA is a great way to prepare for future expenses. It’s one of the best accounts out there when it comes to saving up for medical costs.
“Working” During Retirement
You might also consider working during retirement. This doesn’t have to be a “traditional” job. Consider consulting, freelancing, or starting a business. This can provide you with a little extra cash flow to help you cover healthcare costs, and you can choose to do something you love that also keeps you busy.
Saving Money During Retirement
And, of course, you need to save money as much as you can. If you plan on an early retirement, you will need to factor increased medical costs on top of your other expense calculations. It makes sense to set aside an extra amount of money in an effort to boost your nest egg.
If you haven’t consider the extra health care costs that come with early retirement, there’s a good chance you aren’t saving enough.
So there you have it. Are you still considering an early retirement? Leave a comment and tell us why or why not!
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