When someone says that their ideal retirement age is before the age of 65, and especially if it’s significantly before then, the first question I ask is, “What is your plan for health insurance?” You see, while it may be a lot of clients’ #1 goal to retire as soon as financially possible, what a lot of them don’t factor in is the impact of this one question.
Consider the following excerpt from an article posted at USA Today. In this case “Darryl” and his wife, Detroit-area natives, are thinking of retiring at age 55. Darryl will have guaranteed pension income at that point (their main source of income), which he admits is still not enough to cover their current living expenses. But he feels that with cutbacks retirement is doable. He also provided the most important tidbit of information – he’ll have no health insurance provided by the company once he retires, and he’ll have to buy his own once he leaves…
———————————————————
By Peter Dunn
If you don’t have a retirement health care plan, you don’t have a retirement plan.
A quick perusal of health insurance premiums for a 55-year-old couple in Detroit yields a stark realization: Anyone who chooses to retire at 55 better have a ton of retirement income earmarked specifically for health insurance coverage. Premiums for basic coverage for a couple ranged from $800 to $1,500 per month.
Even people who retire with health care benefits from their employers have reason to be concerned. In the fall of 2015, a report revealed major U.S. companies could save an estimated $3 trillion by pushing both workers and retirees to secure health care through the ACA (Affordable Healthcare Act) exchanges. For example, let’s say you retired at age 55 from the place you worked at for 32 years. When you retired, you were allowed to continue with your health insurance provided by your employer. That coverage may have cost you a few hundred dollars per month. But if companies start to push retirees toward the exchanges, a few hundred dollars won’t be enough to cover the cost of insurance via the exchange. Several Fortune 500 companies have already begun this transition, and their retirees are paying the price.
For “everyday Americans,” early retirement is a pipe dream because of the cost of health insurance. It’s hard enough to retire at 55 without having to worry about an additional $18,000/year health insurance price tag.
There isn’t a set retirement age in the United States, but because of the cost of health insurance, I consider access to the less expensive Medicare at age 65 to be the realistic barrier of entry. Medicare isn’t necessarily free, but the cost pales in comparison to insurance obtained through the health care exchanges.