Retiring Early? What About Health Insurance?

Welcome to this week's edition of The Weekly Trail Report, where we share,

1 Story, where real stories of architects and engineers meet tailored financial strategies,

1 Actionable Tip, to provide actionable insights and guide you towards financial success,

1 Financial Term, to demystify key concepts and empower your decisions.

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1. Story: Kevin Can Retire Early

“This all looks really great,” I said, “you know, you could retire this year if you’re ready.”

Kevin turned to me with a look of surprise, “What?”

Kevin and his wife Shannon had been clients for some time now. Together we had built a plan for how to get them to retirement, and this was one of our check-ins to track their progress towards the goal.?

Shannon had just stepped away from her career the year before, and while we had originally targeted 65 for Kevin’s retirement, their dedicated progress towards saving along with significant gains in their investments put them ahead of schedule.??

This put me in the wonderful situation of getting to let a client know that not only had they met their goal, they had exceeded it.?

“Yep,” I said, “the numbers don’t lie. You’re ahead of schedule—if you’re ready you can start thinking about your last day of work.”

His face split into a wide grin, and I couldn’t help but grin right back. “Okay, but does retiring early change anything else in the plan?” He asked.?

“Well, we’ll need to sort something out for health insurance,” I said.?

Kevin was a partner at his engineering firm, and he and Shannon were currently still covered under his insurance through work. One of the reasons we had targeted his retirement date at 65 was so that they could go right from his work insurance to Medicare. Retiring before 65 complicated that.?

“We’ll need to figure out your coverage for the next three years until you turn 65 and Medicare covers you,” I clarified.?

“Oh,” Kevin replied, “well that seems like a pretty big hurdle.”

“Not necessarily” I said, “there are a lot of options out there, and we should be able to find one that will make sense for you two.”

Together we reviewed the options, and dug into what would work best for them:

Negotiating Extended Coverage from Kevin’s Firm

This would be the simplest and most effective option if Kevin was ready to step away. As a partner, Kevin had a high likelihood of success for making this happen, and it would also be the cheapest option with the best coverage. He figured he could at least make this happen for a couple months.

Moving to Part Time

Kevin’s firm also provided optional insurance for part time employees. If he didn’t want to fully retire right now, he could move into a part-time role without affecting their coverage. This would be a great compromise, especially if Kevin wanted to continue working for a few years.

Affordable Care Act Marketplace

This is the most common option for retirees who weren’t eligible for Medicare. It would take a little bit of time and research, but we would be able to find a viable option for Kevin and Shannon through the marketplace.?

At the end of the conversation, Kevin realized he still needed to answer some questions for himself:

1. Did he even want to retire early?
2. If yes, then was he interested in moving to part-time work, or did he want to fully step away?

When he left, Kevin said, “well I'll go talk it over with Shannon. I really can’t believe we’re at the point where it’s up to me to decide if I want to fully step away or not!”

By the end of our meeting, Kevin was confident that regardless of whether he wanted to fully step away, move to part time, or just stick to the plan to retire at 65, he and Shannon were taken care of.

2. Actionable Tip: Pre-65 Health Insurance Options

Medicare starts when you turn 65. Prior to that point, most people get health insurance through their employer or business.?

If you don’t fall into either of those categories, what do you do?

Here is a list of options:

1. Part-time job

• You can always get another job primarily for the insurance - that being said, if you want to retire early, you probably aren’t interested in a part time job

2. Negotiate with employer to continue coverage

• Potentially you can negotiate with your previous employer to cover you for a certain period of time. Usually this would only be for a limited time to help you find a more permanent solution.

3. COBRA

• Extends your previous insurance
• Only good for 18 months
• Generally most expensive option

4. Term Major Medical Plan

• Typically doesn’t cover pre-existing conditions or prescriptions or pregnancy
• Good option for healthy and/or younger individuals
• Term lengths are based on the state

5. Healthcare Sharing

• There are groups, typically religious, that offer cost sharing plans
• Typically doesn’t cover pre-existing conditions
• Usually need to sign a statement of faith or follow a specific set of rules

6. Affordable Care Act Marketplace

• Most common option
• Covers pre-existing conditions
• Comes in 3 different tiers
• Cost depends on income level and state you reside

3. Financial Term: COBRA Insurance

The Consolidated Omnibus Budget Reconciliation Act also known as COBRA, is a program that helps people maintain health insurance coverage for a period of time if they lose it from their employer.

Qualifying events include voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.

You have 60 days to enroll in COBRA once your employer sponsored benefits end. Even if you don’t enroll right away, you are covered starting the day your prior coverage ends.

COBRA costs what you paid as an employee for the insurance + what your employer paid + a 2% administrative fee. This usually makes it fairly expensive and is meant to be a temporary measure until you can find another means of insurance.

Happy Trails,

Ryan

Disclaimer: We employ fictional characters to illustrate financial concepts faced by individuals in the architecture and engineering industry. Any resemblance to real persons, living or dead, is coincidental. While the stories are inspired by our experiences, the specific details, circumstances, and outcomes mentioned are entirely fictional and created for educational purposes only. Real client information is strictly confidential and never disclosed without explicit consent. Our aim is to provide relatable examples for educational purposes, respecting the privacy and confidentiality of our clients.