I'm Retiring Before Age 65. What Do I Do About Health Insurance?Submitted by Financial Planning Solutions, LLC on August 15th, 2019
I'm retiring before age 65. What do I do about health insurance? Blog 8-16-19 RF
When one reaches age 65, they are eligible to receive Medicare (Assuming certain conditions apply). Medicare is a federally funded program that provides health insurance to those age 65 and over. (It can also be available for those on Social Security Disability before age 65).
But what if you are no longer employed before age 65? What are your options?
Here's where it can get tricky. When one works for a company, usually their employer subsidizes some of these health insurance premiums. As you know, health insurance can be expensive and these employer subsidies make the cost more tolerable.
So what exactly are your options?
- Continue coverage through your employer
If you worked for a company with at least 20 employees, you can continue coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act) at the full price. (There can be an administrative cost of 2% added to the premium so it can actually cost you more than the full price). By the way, one only has 60 days from termination to elect the COBRA option). Usually one can remain on COBRA for 18 months. However, there are some exceptions to this rule.
If one is disabled before the 60th day once on COBRA, the length of coverage can extend from 18 months to 29 months.
- Coverage for your younger spouse
Many times, one retires and is at or close to age 65 (When Medicare is available) but they have a younger spouse that is further away from 65 and still needs insurance.
If you are less than 18 months away from being eligible for Medicare, the term can be extended 36 months after you became eligible. This would allow you to go on Medicare and have your younger spouse continue under COBRA.
- Obtain insurance on your own through your state health insurance exchange
Many can find cheaper coverage than their COBRA options and if one is not far from 65 (When Medicare is available) this could make sense. I have known a couple of people that were close to 65 that were healthy and chose to not obtain any coverage and take their chances.
I would NOT recommend this strategy as the risk could be too great. Since we no longer (At the time of this writing) have any preexisting condition restrictions, obtaining coverage is not difficult (Although can still be quite costly). Having coverage can be critical to ensure you aren't financially wiped out in the event something really bad happens before Medicare kicks in.
Lastly, there could be subsidies in the way of a tax credit based on your income. When retired, income usually goes down so there may be an opportunity to be eligible for a tax credit on personal health insurance. (This would be before Medicare kicks in). Here's more on the tax credit: Click HERE.
To see how this credit could help you, here is a link to a calculator: Click HERE
When it comes to insurance, there are many roads to go down.
We will help you determine what's best for you based on YOUR situation.
I'm here to help.
All the best.
Rick Fingerman, CFP®
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.