Personal Finance

I'm going through a rough patch in my career and am considering retiring with my $5 million portfolio - how can I handle health insurance though?

Kristin Hitchcock

Published: November 24, 2024 11:41 am

24/7 Wall St. Key Takeaways:

• If you’re in a strong position to retire early, it’s important to consider how you’ll pay for healthcare, which can be incredibly expensive. 
• Remember, FIRE isn’t just about hitting a number. It’s about having all your ducks in a row and retiring comfortably! 
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

Planning for healthcare is essential for early retirement. Health insurance and out-of-pocket costs are expensive, easily reaching thousands a month. Therefore, it’s important to plan healthcare if you’re planning on retiring early, as you won’t be eligible yet for Medicare. (And, when you do become eligible, Medicare costs can be confusing.)

A recent Reddit post brought this to the forefront. The Redditor is ready to jump ship and retire, but they’re reasonably concerned with healthcare costs and wondering about their potential options. 

Let’s take a look at the potential options this Redditor (or anyone retiring early) could use to bridge the gap in early retirement. Working with a financial advisor can help you pick exactly what plan works best for you! Remember, this is just my advice, not financial advice. 

The Importance of Healthcare in Retirement

The Redditor has a history of cancer and ongoing health issues, which makes health insurance even more important. However, everyone should plan for health coverage in retirement. They mention ACA’s silver or gold plans, but these come with costs and coverage considerations. 

Healthcare planning should be central to FIRE, especially for those with pre-existing conditions.

Preparing for Healthcare Costs in Retirement

Healthcare costs tend to be more expensive in retirement than before retirement for two main reasons. 

Firstly, people tend to have more expensive healthcare costs as they get older simply because they have more healthcare problems. No matter whether you’re retiring early or not, you should plan for your healthcare costs to get more expensive. 

Secondly, healthcare is impacted by inflation just like everything else. Premiums will rise in the future, as will out-of-pocket costs. Build in extra wiggle room to account for this increase in cost as the years go by. 

Plans to Consider

So, how do you get your healthcare costs covered in early retirement? Here are some options:

• ACA Plans: Silver and Gold ACA plans could offer adequate coverage, but premiums, deductibles, and co-pays need a thorough comparison. Look into subsidies based on income post-FIRE.
• Consider Private Insurance: The most straightforward option is to purchase health insurance out-of-pocket, but this can be expensive. 
• Budget for Out-of-Pocket Costs: Include potential high deductibles and medication costs in annual spending plans.
• Health Savings Account (HSA): Max out contributions to an HSA while still employed for tax-advantaged savings on medical expenses. This is a common way many individuals save for early retirement, but you do have to qualify for one of these accounts. 

Which plan should you get? Well, that depends largely on your goals and financial situation. Some individuals may qualify for an HSA, which may be more cost-effective than purchasing a standout health insurance plan.