Healthcare Costs and Retirement
By Jeremy Reif, CRPS
Are you confident in your retirement savings amount, ready to take the step into retirement, or have healthcare costs issues leading you to consider retirement? Whatever your reason for wanting to retire early, many people in this situation stay in the workforce longer than they’d like for one major reason: healthcare.
Medicare doesn’t kick in until age 65, and Cobra only covers 18 months after leaving a job, so if you are 55, 60, or 62, how can you afford health insurance premiums if you aren’t working? There is a way to bridge the gap – the affordable healthcare system.
Affordable Healthcare Basics
Let’s take a brief look at how the Affordable Healthcare Act works. It is an income-based system, which means that the higher your income, the lower the government subsidy you will qualify for. Currently, there are three income tiers for the corresponding healthcare tax subsidy. For example, if you and your spouse earn around $78,880 and below combined, you would qualify for a subsidy. The subsidy is based on a sliding scale based on the federal poverty level. The higher your income, the lower the subsidy you qualify for. There are ways to lower your income and maximize your subsidy.
Creating An Income Strategy
If you are planning to retire before you reach age 65, you have an opportunity to maximize your subsidy by creating a strategy for your retirement income. So if you have a 401(k), CDs, Roth IRAs, checking and savings accounts, stocks, bonds or other tax-free investment vehicles, you’ll need to decide which ones to tap into first.
By taking income from strategic places, you could potentially show very little, if any, income, resulting in higher subsidies and lower premiums. As an example, if the only income that shows up in the health insurance calculation is Social Security, then you could receive one of the highest subsidies available. The goal is to protect the income needed for your retirement expenses so that your retirement lifestyle does not suffer.
Unpredictable Politics
The government is aware that this income loophole exists and is trying to address it. Once a loophole is abused, such as the file and suspend option for Social Security, a change will most likely occur.
The question is whether or not an ObamaCare change would affect someone who is already retired.
Let’s say you have a major medical condition and only retired because ObamaCare got rid of the pre-existing health condition restrictions. You felt safe giving up your employee health insurance but are worried that a change will affect you.
While there is no guarantee, history tells us that the government usually draws a line in the sand, and the adjustments only affect those going forward. That means it would be very difficult for the government or insurance companies to make significant changes for people already on the affordable healthcare program.
Discover Your Options
Just like any other major financial decision, you should always work with an experienced professional to set up an income plan so your healthcare-influenced choices do not affect your future retirement abilities. If you would like to see how you might be able to retire before you reach age 65, contact me and mention that you read my article.