I’ll admit it. We did it. It’s true.
We retired without a clear plan for health insurance in retirement.
This post was inspired by a note from a longtime reader, who is on the brink of an early retirement and is wondering what to do about health insurance in retirement. Here’s what his wife wrote:
“…He said you guys were pretty much on the same page but did have questions about how you handled private insurance. Do you have anything you’ve written you can send me?”
My answer to that e-mail was “Not Yet”, but it spurred me to finally write this post. Today, I’ll share what we’re doing about health insurance in retirement. Plot Buster, it remains an Unsolved Mystery.Our plans for health insurance in retirement are Unsolved. We retired anyway. Here's why... Click To Tweet
Delaying Retirement Due To Health Insurance
I’ve had a lot of folks tell me that they’re holding off on retiring because they don’t have retiree medical insurance. In my humble opinion, the lack of a clear health insurance option is not, in and of itself, a sufficient reason to delay retirement for everyone. For many folks, it likely makes sense to delay retirement (e.g., those with insufficient financial resources to pay for expensive private insurance).
However, for many others, not having a clear plan for health insurance in retirement is an obstacle which can be overcome. At least I hope that’s the case, since we’ve been retired for 100 days as I write these words, and we still do NOT have a clear plan for health insurance in retirement.
In spite of this gaping hole in our retirement plan, we retired anyway.Personally, I don't think the health insurance issue is sufficient, in and of itself, to warrant continuing to work. Click To Tweet
Important: Health Insurance is one of the biggest issues you’ll need to resolve as you face retirement. Do NOT make a decision based on what you read in a blog post. Spend time researching this topic, and become knowledgeable enough on the topic to make your own decision. Do NOT assume that the path we’re taking is right for you. This is a huge risk area in retirement, and a decision only you can make. I’m sharing our decision only for the sake of demonstrating how we decided to deal with this critical retirement planning issue. We could certainly be “wrong” (I really, really hope we’re not!). Whatever you do, I strongly urge you to NOT forgoe medical insurance under any circumstance.
Why We Retired Without A Health Insurance Solution
I’ve been thinking about this post for a long time, but I’ve struggled with what to write. Today, I’m taking the plunge, and explaining why we retired without a clear plan for health insurance in retirement.
When I began planning for retirement 5 Years Prior To Our Retirement Date (see The Ultimate Pre-Retirement Checklist), my employer was still offering retiree medical coverage, which my employer paid for. I knew these plans were dying quickly across Corporate America, and decided to assume our Corporate health insurance in retirement plan would be discontinued by the time I retired. I built a line for health insurance in our Retirement Spending Plan and plugged in a number from thin air.
Unfortunately, it was the right assumption to make.
Shortly after I started my early planning for retirement, my employer announced they were discontinuing the retiree medical insurance benefit. While many others freaked out about the announcement, I just kind of nodded my head and thought to myself, “Yep, I knew that was coming”.
Lesson Learned: It’s good to make conservative assumptions in your retirement planning. Better to assume to worse, and get a surprise to the good, than to plan for the best and have a negative announcement throw your plans off track.
Insurance Is Only A Number (Or Is It?)
Since that first assumption 5 years ago, health insurance has always been in my view “only a number”. A cost to be assumed, not unlike the myriad other costs we have to ensure our resources are capable of covering before we make the decision to retire.Health Insurance is a major cost in retirement, make sure you're assuming the worst before you conclude you have enough money to retire. Click To Tweet
While many articles point to the fact that the “average couple can expect to spend $275,000 on health care expenses through their retirement years”, I found that kind of statistic difficult to deal with when trying to determine When Can I Retire.
More important to me was the annual cost of private insurance for an early retiree. As I started to research the annual cost of private health insurance for early retirees, I was shocked. My research led to the writing of “Obamacare Is Falling Apart”, where I cited the problem of many insurers pulling out of the marketplace and annual cost increases of 10%.
Based on my research, I assumed we’d be paying $2,500/month for health insurance in retirement, inflating at 5% annually.
Due to my pension, we’ll not be eligible for any Obamacare subsidies and will be required to cover the full cost of private health insurance in retirement. I fear my assumption may be too conservative, but at least it’s a number.
Or Is It?
The biggest concern I have is not the cost of insurance (it’s only a number, right?), but rather the availability of private health insurance in retirement. We’ve covered the assumed costs in our retirement spending plan through our Retirement Investment Drawdown Strategy (if we didn’t, I wouldn’t have retired, and would have chosen to endure the One More Year Syndrome for at least another year).
Availability, however, is another story.
The two biggest risks we face are: 1) further exits from the insurance companies in our area, or 2) experiencing a serious illness before we enter the private marketplace which may bring up the infamous pre-existing condition constraint (an area of likely legislative revision before we’re in the market).
We’ve chosen to accept those risks, and are focusing our first few years of retirement on maintaining a healthy lifestyle, getting plenty of exercise, eating right and praying. I’m taking Spin classes 3X/week and Barre Above 2X/week at our local health club, which I’m also supplementing with frequent swimming and mountain biking now that we’re living full time in the mountains. Now that we’re retired, we’re also taking time to cook more healthy meals, and are focused on eating right. Control what you can control, right?
What Are We Doing For Health Insurance Now That We’re Retired?
Given the focus which the Affordable Care Act is getting in Congress and the reality that it will likely be a moving target for some time, we decided that it wasn’t worth it for us to continue working until we had an answer to this puzzling mystery of health insurance in retirement. June 8, 2018 was My Last Day Of Work. I’m Retired!!
We’ve developed a plan to cover the first 30 months of our retirement, and we’re hoping that the market sorts itself out by the time we finally have to make the plunge into the health insurance market in January 2021.
We had the financial means to retire, and we decided that the Freedom Of Retirement was worth the risk that we’d be able to find health insurance once our 30 month plan expired.
COBRA – 18 Months (July-Dec 2019)
In August of this year, I made my first payment of $1,067 to our insurance company for the continuation of COBRA benefits (maintaining the same benefits I’d enjoyed as an employee, but covering 100% of the costs myself). I’ll be making this payment monthly through December 2019, and enjoying a fine health insurance in the process. Ironically, COBRA was once viewed as an option of last resort, but many folks are now deciding (as did we) that it’s the best insurance available for the money. Too bad it’s only available for 18 months…
Retiree Health Insurance – 12 Months (Jan-Dec 2020)
As I mentioned earlier, my employer previously had a retiree health insurance plan which was discontinued several years ago. Fortunately, they decided on a long lead time before they discontinued this plan, and I’ll be able to catch the final year of the benefit before it expires. It’s slightly subsidized by my previous employer, but the subsidy is fixed as the annual cost continues to increase. Therefore, our annual premium for 2020 will be approximately $1,500+ per month, but at least we have an option which provides full insurance coverage for one more year at a cost below our assumption of $2,500 per month.
2021 – When Unsolved Must Become Solved
For now, we’re enjoying our Freedom (immensely), and keeping an eye on the retirement health insurance dynamics. We have some time to sort things out and we’re confident that we’ll find a solution. I’ll be turning 58 in 2021, and will have to cover 6+ years of insurance through the private marketplace before my wife and I are eligible for Medicare. We’re well informed and far from naive about the issue. We’ve recognized our potential risks and made a conscious decision that the benefits of an early retirement outweighed the risk of health insurance in retirement.
At this point, the options for 2021 appear to be:
The Affordable Care Act: While it’s messy, the reality is that The Affordable Care Act has shone a light on the whole issue of health insurance in retirement. The wheels in Washington are grinding, and we’ll be watching closely to see what evolves over the next 2 1/2 years
Private Insurance: Regardless of what happens with the ACA, private insurance will likely continue to be an option in some form. We’ve bookmarked the helpful sites at ehealthinsurance.com and gohealthinsurance.com to give us access to private insurance options, and I’ve had some discussions with my insurance guy about resources he has available to assist in the evaluation of private insurance options.
Health Sharing Ministries: Many early retirees have pursued health sharing ministries due to their markedly lower cost than “traditional” insurance. There are tradeoffs, but these appear to be a viable option. We’ll continue to monitor developments in this space, and will likely evaluate this option as a potential 2021 solution.
If all else fails, the reality is that I’ll only be 58 years old in 2021. Worst case, I could always go back to work, right? (Ugh, the thought). Seriously, there are many part-time jobs which provide health insurance, and it’s an option that we should always leave on the table. I had an interesting chat with a 60-something-year-old recently. He’s driving a bus for the local school district, primarily for the health insurance benefit. “It’s GREAT insurance”, he says, “and I get up early anyway. They’re desperate for drivers, you should give them a call”.
Let’s just say I’m not making that phone call yet, but I did make a note of it…
What Other Early Retirees Are Doing For Health Insurance
As part of my ongoing research into this issue, I’m keeping a close eye on what other early retirees are doing for health insurance in retirement. I’m maintaining a Google spreadsheet with links to articles that other bloggers have published on how they’ve solved the health insurance puzzle, and I’ll continue to track this topic as we approach our 2021 decision point. I’m paying attention, and I hope to learn from others who have walked this path ahead of me.
** If you’ve solved your health insurance in retirement puzzle, please leave a comment on this post. I’ll refer back to this post as we approach the 2021 decision, and may reach out to you to see how your “solution” is holding up.
A Note On Medicare
A final note regarding Medicare. Obviously, this post is focused on health insurance solutions for early retirees. Once a retiree reaches 65 years of age, Medicare becomes the obvious solution. It’s a huge topic, and well beyond the scope of this post. If you’re interested in Medicare, you’ll be happy to know that I’ve lined up an expert on Medicare issues who will be publishing a guest post on The Retirement Manifesto in the coming months.
The decision on when to retire is filled with uncertainty. How will your investments perform? What if that inevitable bear market raises its ugly head? How much will you spend in retirement? What impact will inflation have on your spending? What should I do about Long Term Care?
In my view, health insurance in retirement is nothing more than one more uncertainty to deal with. Sure, it’s a BIG uncertainty. Regardless, the “health insurance in retirement” issue is not necessarily a reason to continue working if all other pieces in your puzzle line up. You, however, may disagree, and I’m fine with that. Just realize that nothing in life comes without risk. Heck, even continuing to work comes with risk (see Will You Be Forced To Retire Early).
Retirement is about recognizing these uncertainties, continually gaining knowledge on issues of particular importance to your situation and evaluating all of your options. Ultimately, each of us must make an educated decision about what we’re going to do. For those areas where an immediate decision isn’t required, put a system in place to continue to monitor developments so you’ll have all of the facts at hand when you do need to finalize your decision.
Only you can decide when you’ll retire, and what risks you’re willing to accept. In our case, we retired in spite of a foggy outlook on how we’re going to solve our health insurance in retirement puzzle in 2021. At this point, I have no regrets.
I hope it stays that way.
What About You? Are you continuing to work for the sole purpose of maintaining health insurance? If you’ve decided to retire early, what are you doing for your health insurance in retirement? Finally, am I nuts for choosing to retire without fully resolving the health insurance puzzle? Let’s chat in the comments…