Retirement doesn’t look the same that it did in years past. The typical picture of working for one company for 30+ years and then collecting a pension when “it’s time” is fading from modern memory.
Today, people are redefining what it means to retire—what it looks like, feels like, and ultimately becomes. Take Serena Williams in her pivotal retirement announcement. She says,
I have never liked the word retirement.
Maybe the best word to describe
what I’m up to is evolution.
This new idea of retirement has been gaining momentum, and while it can be liberating, it also comes with unique challenges and considerations.
One of the primary concerns people must understand when undergoing a non-traditional, work-optional, or early retirement plan is securing proper healthcare coverage.
Generally, you have to wait until you’re 65 to enroll in Medicare (unless you have a qualifying reason). So what can you do to protect yourself—and your wallet—during this coverage gap?
Check With Your Previous Employer
Just because you leave your job doesn’t necessarily mean you forego your health coverage. Some employers allow you to retain your medical insurance, even after you leave, though many reduce or remove the coverage once you’re eligible for Medicare.
You may also need to meet specific criteria like years of service or type of position (salary, hourly, contract, etc.) to qualify.
If continued coverage is an option, check the fine print for things like:
- If you have to move to a specific plan
- What your total premium and out-of-pocket costs would be
- If you’d need to make any changes (doctors, hospitals/facilities, medications, etc.) due to this new coverage
A lot of companies will offer some type of health plan for former employees, and it may simply be a discounted plan that past employees can pay to enroll in. Review your plan’s document or talk with HR to see how the company handles retirement insurance benefits for previous employees.
Turn To Your Spouse or Partner
Many couples retire at different times, so if your spouse/partner is still working, check on the health benefits their employer provides.
It’s common for companies to offer coverage for spouses/partners and dependents. Often, this coverage is a little more expensive than it is for the active employee, but rates are usually reasonable.
Since retirement counts as a qualifying event, you can typically enroll in this type of plan outside traditional open enrollment windows. Having your spouse add you to their coverage will likely be the most cost-effective option we discuss today, so if your partner has a solid health plan, this could be an excellent move.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides workers the (temporary) right to continue their company’s group health coverage if it ends because of layoffs, retirement, disability, and other qualifying events.
If you’re retiring early, that’s a qualifying event, and under the law, you are eligible to receive COBRA coverage on the first day of your retirement. You also have up to 60 days to decide if you’d like to pursue this route; after that time elapses, your coverage stops.
This isn’t a permanent solution, as coverage can only last 18 or 36 months, so it’s best for people with a smaller coverage gap or who just need a little more time to find the right health plan.
While COBRA may be one of the most convenient options (you don’t have to make any changes to your coverage or care), you certainly have to pay for that convenience.
With COBRA, you absorb the entire cost of your healthcare. When you’re used to your company picking up roughly 80% of the tab, that can be a real shell-shock moment when the entire amount falls on your shoulders.
Shop For A Plan On The Health Insurance Marketplace
If all else fails, go shopping!
With the Health Insurance Marketplace (also known as the exchange), you can browse for available plans in your state and preferred networks. Retiring early qualifies you for special enrollment, so you’re able to select a plan when you retire, even if it’s outside of open enrollment.
Searching for a health plan on your own may cause a “deer in headlights” look to flood over your face, but don’t panic. There are two big things to think about as you select a new health plan:
- Your current (and near future) coverage needs. What types of doctors do you see regularly? Will you need a procedure or surgery in the next 12 months? What medications are you taking, and what might you require if you have a planned event? Do you see your health needs changing, like expanding your family?
- Your budget. When evaluating your budget, consider the total cost of care, including premiums, copays, coinsurance, deductibles, and out-of-pocket maximums. Analyzing these numbers comprehensively gives you a better idea of how much the plan will actually cost you and what you need to budget for the coverage you require.
Try to look for plans that most closely match your previous coverage, so you don’t experience a notable gap, like having to change primary care doctors or paying more for specialist visits.
Look Into Premium Tax Credits
One way to keep costs at bay is to see if you qualify for premium tax credits, which lower the cost of your premium. How do you know if you’re eligible? Calculate the following:
- Household size (including dependents)
- Modified adjusted gross income (MAGI)
- Your state (primary residence)
The American Rescue Plan dramatically expanded the eligibility for premium tax credits in the 2021 and 2022 tax years, so be sure to take advantage of this refundable credit if possible.
Keep in mind that the rules are rather strict, and it’s important to keep an accurate record of your household income and size, as any changes could impact how much of a credit you qualify for (if you qualify at all). And if the IRS finds discrepancies, you may owe money.
For many people, retirement isn’t about never working again. Instead, it’s more about shifting your focus and attention to other pursuits you’re passionate about. For you, retiring from your full-time job might mean opening the door to engaging in meaningful part-time work.
Whether you want to remain with your previous employer, use your skills and experience to consult, or find a part-time job that aligns with your interests (book store, nonprofit, garden center, etc.), you may be able to secure health coverage.
Several companies offer medical insurance to their part-time or even contract workers. Keep in mind that the coverage may be more limited or expensive than if you were a full-time employee. But that might be a good trade-off: access quality health care coverage without maintaining the stressful pace of your pre-retirement career.
Budget For Your Healthcare Gap Early
As health costs in the United States continue to skyrocket, proactively planning for your medical needs in retirement is imperative, especially if you retire before you’re eligible for Medicare.
Funding your healthcare gap years may take some careful thought and planning. Consider the following:
- Take advantage of an HSA. If you have a high deductible health plan, you’re eligible to save in an HSA, which can help elevate your cash flow plan for medical needs. HSAs boast tax-free contributions, growth, and qualified distributions, so you could use the funds to help pay for medical costs before Medicare kicks in.
- Earmark extra funds for medical needs. If you know that retiring early or making work optional is a goal, start planning for that now by investing a little extra money each month for that purpose. We can work together to decide where you can invest it, like a brokerage account.
When it comes to retiring early, healthcare can be a significant line item you don’t want to overlook. By saving intentionally while you’re working, you set yourself up to support your retirement evolution, whatever you decide it looks like.
At Woven Capital, we’ve helped so many people use their money to fund incredible and inspirational lives, and we’d love to do the same for you.
Give us a call today to see what’s possible with your money.