Early retirement and planning for medical costs

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Early retirement and planning for medical costs

Postby TheDoctor » Fri Mar 22, 2013 6:56 pm

For anyone who's planning on retiring before age 65, how do you plan for health insurance / medical expenses prior to becoming eligible for Medicare? I'm aiming for early retirement and am investing with a goal of becoming financially independent, but I'm not sure how to plan for the loss of employer health insurance if/when I decide to stop working.

The Medical Spending in Retirement wiki entry is currently empty and I didn't find anything obvious from searching the forum, so I apologize if this has been answered before.
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Re: Early retirement and planning for medical costs

Postby Johm221122 » Fri Mar 22, 2013 7:14 pm

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Re: Early retirement and planning for medical costs

Postby hicabob » Fri Mar 22, 2013 7:25 pm

Probably obvious - but getting/staying healthy should be a priority which keeps costs down and retirement fun up, so listen to the doc when he tells you to exercise 4 times/week or more and get that BMI under control.
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Re: Early retirement and planning for medical costs

Postby Raybo » Fri Mar 22, 2013 7:28 pm

I retired in 2000 at 48. I've always paid for my own health insurance and know that I can expect 10% increases year after year from Kaiser, my insurer. While I find this increase outrageous, that estimate has been accurate for past 15 years or so.

In my retirement model, I assume that medical costs will grow at 10% per annum until I am 65. At that age, I assume they will continue at that rate, but not increase. I have no idea what medicare coverage will cost me but am assuming it won't be any higher than approximately 75% higher than what I am paying now (about $600/mo).

Ultimately, you have to decide if you want to work longer to have more of a cushion or retire earlier and run the risk of running low on money at an advanced age. Only you can decide how to play that trade-off.

My spending is still well below a 4% burn rate so even with escalating health insurance costs, I am keeping my expenses down to where I feel comfortable.
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Re: Early retirement and planning for medical costs

Postby J295 » Fri Mar 22, 2013 10:29 pm

Perhaps our experience will help you. We are 53 and the full rate premiums under my firm's BC/BS health plan are $13k for both of us ($1500 deductible per person). I recently transitioned from full time to part time and took a pretty thorough look at health insurance, since we both have pre-existing conditions (thanks be to God, I am doing well following cancer --- which does not discriminate between those like me who for decades exercised and ate right, and those that don't). We are on COBRA now and plan to use the national exchange next year (no pre-existing condition limitations). You may wish to view this site for projected premium and out of pocket maximums under the exchanges. http://laborcenter.berkeley.edu/healthp ... alculator/ Note too that subsidies are available (in the form of tax credits) for persons who satisfy certain MAGI limits.

Hope this helps, and best of luck.
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Re: Early retirement and planning for medical costs

Postby jeffyscott » Sat Mar 23, 2013 9:26 am

Our income will be under $60,000 and so we plan to pay 9.5% of income in health insurance premiums.
press on, regardless - John C. Bogle
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Re: Early retirement and planning for medical costs

Postby Rich in Michigan » Sat Mar 23, 2013 10:03 am

Does your employer allow you to continue enrollment in their group medical plan, albeit with higher premiums?

Both my wife and I retired at 60 and we both had that option with our respective companies, either as individuals or family coverage. Yes, the premiums went up markedly, and no the employer no longer contributed, but ours is still a good deal. Great coverage at a better price than we could get on the open market.

You should investigate that if you have not done so already.

Planning for medical costs is an important factor in any retirement decision and even more so for early retirees.
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Re: Early retirement and planning for medical costs

Postby rec7 » Sat Mar 23, 2013 10:06 am

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Re: Early retirement and planning for medical costs

Postby rec7 » Sat Mar 23, 2013 10:14 am

Question if one person is over 64 and one person under is that still counted as 2 people in the family or just 1 on the Calculator?
Also do we count the income of the person that is over 64?
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Re: Early retirement and planning for medical costs

Postby Mitchell777 » Sat Mar 23, 2013 10:16 am

The ACA will probably be my plan. I thought of retiring the past couple years but health insurance was the issue. I hope to go in the next year and use COBRA first, then probably switch to the ACA (since I will not qualify for a government subsidy on the ACA). I want to be careful regarding any political comments, but I was quite interested in both the Supreme Court decision and the election because I could not think of retiring if I was on my own for health insurance. Even now, with all the bickering I feel like I want to wait until I have a bit more visibility on the ACA. I had a friend who retired in his 50's, Actually he lost a couple jobs after 17 years with the same company. I watched him jump from one insurance policy to another over the years as coverage was discontinued or the rates went so high he had to find other coverage. He often seemed to have to fight with the insurer to get them to cover things. His health deteriorated over those years. I recall how happy he was when he turned 65 and went on Medicare because it had been such a stresser in his life. At 66 he was dead. Not sure if better coverage would have made a difference but it has had an impact on my thinking, justified or not.
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Re: Early retirement and planning for medical costs

Postby chicagobear » Sun Mar 24, 2013 6:35 pm

rec7 wrote:Looks like mine will be free.
http://laborcenter.berkeley.edu/healthp ... alculator/


So is this correct that the maximum for a single person will be $635 per month regardless of pre-existing conditions? That's less than I expected.
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Re: Early retirement and planning for medical costs

Postby TheDoctor » Mon Mar 25, 2013 12:52 am

Wow, lots of responses and useful information. Thanks to everyone who's responded so far!

hicabob wrote:Probably obvious - but getting/staying healthy should be a priority which keeps costs down and retirement fun up, so listen to the doc when he tells you to exercise 4 times/week or more and get that BMI under control.


Good advice. As a commuter cyclist, I think I've got this one under control :-)

Raybo wrote:I retired in 2000 at 48. I've always paid for my own health insurance and know that I can expect 10% increases year after year from Kaiser, my insurer. While I find this increase outrageous, that estimate has been accurate for past 15 years or so.

In my retirement model, I assume that medical costs will grow at 10% per annum until I am 65. At that age, I assume they will continue at that rate, but not increase. I have no idea what medicare coverage will cost me but am assuming it won't be any higher than approximately 75% higher than what I am paying now (about $600/mo).

Ultimately, you have to decide if you want to work longer to have more of a cushion or retire earlier and run the risk of running low on money at an advanced age. Only you can decide how to play that trade-off.

My spending is still well below a 4% burn rate so even with escalating health insurance costs, I am keeping my expenses down to where I feel comfortable.


I know health insurance costs are outpacing inflation by a wide margin which is scary to me. When I figure how much annual income I'll need in retirement (in current dollars) I usually inflate the estimate by a bit, but as health insurance costs have continued to increase so much I find it hard to predict how much it will actually cost me per year. 10% annual increases indefinitely seem unsustainable, both for my retirement planning and for insurers as a whole. Hopefully the ACA will provide some relief, although I'll admit I know very little about it. I'll have to do some research.

Rich in Michigan wrote:Does your employer allow you to continue enrollment in their group medical plan, albeit with higher premiums?

Both my wife and I retired at 60 and we both had that option with our respective companies, either as individuals or family coverage. Yes, the premiums went up markedly, and no the employer no longer contributed, but ours is still a good deal. Great coverage at a better price than we could get on the open market.

You should investigate that if you have not done so already.

Planning for medical costs is an important factor in any retirement decision and even more so for early retirees.


This may very well be a possibility in the future, but it's nearly impossible to predict what company I will be working for when I retire. I'm still pretty young (26), and although I like my current employer I'm likely to switch employers multiple times throughout my career (I've already changed full-time jobs once since graduating college). When I get within a few years of my projected retirement age, I'll investigate this option but for now I'm assuming it won't be possible as I create my retirement plan.
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Re: Early retirement and planning for medical costs

Postby SimonJester » Tue Mar 26, 2013 8:24 pm

Hmmm Question, if you retire you have no income other then say interest and capital gains for the year. So you could have several million in a Roth IRA and pull out as much as you want and still have no / low income and qualify for the Federal Premium Subsidy?

Or a family of 2 age 55 can have $21,405 in income and only pay $54 a month!

So I can pull 100k out of a Roth IRA and 21,405 from a 401K and pay 54 for health insurance?

Seems like a very good reason to convert a traditional IRA to a Roth IRA the last few working years.

I wish my company would allow in service withdraws and roll overs :o
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin
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Re: Early retirement and planning for medical costs

Postby RenoJay » Wed Mar 27, 2013 12:03 am

I plan to retire in mid 40's, but have been paying out of pocket for my family's health insurance for decades. There are brokers and websites who specialize in this stuff, and eventually it becomes just another monthly expense like the water bill. I don't think twice about it anymore. Our premium for a family of four was about $1,000/month then I complained to my broker, he pulled some strings, and now it's less than $500/month. (Our deductible went up by $1,000 per person...a small potential price to pay for a guaranteed $6,000 in savings per year.) Anyway, if you're going to retire early and are currently on a corporate plan, you may want to make the switch to a private plan a year or so before leaving work. (And ask work if they'll reimburse you for what they're saving by not paying your medical.)
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Re: Early retirement and planning for medical costs

Postby freddie2011 » Wed Mar 27, 2013 7:53 am

My husband retired last year at age 63. We pay 37.5% of his health care premium -- $357 -- and his employer pays the rest. Additionally, he has $25 co-pays on doctor visits and a $3000 maximum out of pocket expense which we will easily reach due to several surgical procedures he is undergoing. The prescription coverage is not bad, but not as good as my Silverscript Medicare Part D. So, when you calculate medical costs, be sure to add your maximum out-of-pocket expense to the total annual premium expense, and throw in a few extra bucks for prescriptions. We knew we had these expenses ahead of us when we were planning his retirement so the only surprise we had was that the $25 co-pays are not part of the $3000 maximum out-of-pocket. Many of his doctor visits have been post-op visits and they have not charged us the $25 co-pay for those, thus savings us a few hundred dollars.
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Re: Early retirement and planning for medical costs

Postby midareff » Wed Mar 27, 2013 9:24 am

I'm retired (2012) and pay about $250 a month for Medicare and another $300 for AARP United Plan F and Rx preferred. I was able to keep my wife on my former employer's medical plan .. AvMed at about $475 a month. I would have to say her plan is a Cadillac, mine a Rolls Royce.... but then the liability of uncovered medical bills in case of sickness or accident in South Florida would wipe out any lifetime of savings, so that is a no go.

So there you have it $12K + annually if you stay healthy, slightly more if you don't. 'm guessing both plans will go up next year.... 5% to maybe 10%, with a potential benefit reduction of her plan. It's the 800 pound Gorilla in the room, ... figure worst case and add 15%.
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Re: Early retirement and planning for medical costs

Postby Wagnerjb » Wed Mar 27, 2013 9:51 am

TheDoctor wrote:For anyone who's planning on retiring before age 65, how do you plan for health insurance / medical expenses prior to becoming eligible for Medicare? I'm aiming for early retirement and am investing with a goal of becoming financially independent, but I'm not sure how to plan for the loss of employer health insurance if/when I decide to stop working.


My company provides a subsidy for retiree medical coverage. I understand it is most valuable for the years between retirement and 65, but the company also subsidizes a Medicare supplement plan as well. However, last year as part of a corporate reorganization my company dramatically cut the company subsidy. Nonetheless, as part of the education program on the new (reduced) plan, the company showed the full cost of retiree medical coverage.

I will retire soon in my mid-50's and I will be able to afford the "full cost" of retiree medical coverage. While I do expect to get a modest company subsidy, I have seen these reduced recently and thus my budget will be able to withstand a complete withdrawal of the subsidy.

Best wishes.
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Re: Early retirement and planning for medical costs

Postby floydtime » Wed Mar 27, 2013 4:34 pm

SimonJester wrote:Hmmm Question, if you retire you have no income other then say interest and capital gains for the year. So you could have several million in a Roth IRA and pull out as much as you want and still have no / low income and qualify for the Federal Premium Subsidy?


Correct, the law as it stands now does not look at how much you have (to determine subsidies). It looks at your income* to determine subsidies.
* - specifically, your MAGI

I do not want to use Medicaid, so I will draw income of at least 138% of the poverty level from my investments each year in (early) retirement, so that I am above the Medicaid threshold. This puts my insurance cost around $100 per month (for a family of 4).

EDIT - I think both interest and capital gains count towards your MAGI, so if I understand your question correctly, your MAGI would be too high to get a subsidy. Having millions in savings does not effect whether or not you get a subsidy. Drawing more than 4x poverty level means you don't get a subsidy.
"Do not value money for any more nor any less than its worth; it is a good servant but a bad master" - Alexandre Dumas
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Re: Early retirement and planning for medical costs

Postby Hexdump » Sun Mar 31, 2013 1:07 pm

I think somewhat related so,,,,,
Does anyone know what the plans being offered by the exchanges will look like ?
Deductible ?
Office Visit costs ?
Annual exams ?
Prescriptions ?
Etc ?
Etc ?

All those good things that I worry about ?
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Re: Early retirement and planning for medical costs

Postby stoub » Sun Mar 31, 2013 6:14 pm

Hexdump wrote:Does anyone know what the plans being offered by the exchanges will look like ?

It's still early days and each state may be different. Things should be finalized by October.

I'm in California, which I believe has made more progress than most states. Here's the finalized plan benefit designs and a report that analyzes how premiums might change, though negotiations with the insurers on premiums are still several months away.
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