The issue of healthcare is one that keeps people in jobs far longer than they’d like. I’ve seen up close how someone with chronic health issues must deal with these choices, and in certain situations, the choices can be difficult.
Medicare coverage doesn’t begin until age 65, so where does that leave someone who stops working prior to that birthday? The issue of being able to afford health insurance on one’s own, even with the potential for subsidies through Obamacare if one’s income is low enough, can prevent people from leaving bad working environments. If you’re a working professional in your sixties but not a top executive, your chances of being able to quit one job and start fresh in another are quickly diminishing. Companies can’t discriminate against employees or potential employees based on age, but if you’re perceived as being close to retirement, you’re going to have a hard time getting hired in a new job.
Banking Deal: Earn 1.75% APY on an FDIC-insured money market account at CIT Bank.
Unless you’ve been planning for decades to retire early by saving as much of your excess cash as possible to pay for potential medical expenses, it doesn’t take a intensive analysis to determine you’d be better off if you continue to work, even in a bad environment, until Medicare is an available option.
Not everyone has this choice. According to a recent survey by Fidelity, retirees left the workforce at age 62 on average, many not because they were dissatisfied with their work environment, but because health issues or physical limitations prevented them from continuing at their job.
There are ways to reduce health care costs on your own, like choosing a lower-cost high-deductible health plan. That could save money in premium payments, but this would only work for retirees who don’t expect to have many health issues before age 65. Through my own observations of people close to me, the likelihood of being close to retirement age without any health issues is low, even among people who have been living healthy lifestyles throughout their lives as adults. The body and mind age, entropy increases, and there’s little science can do about it today.
A common motivation message in today’s world is that it’s possible not only to retire early, but to retire extremely early. In general, and especially for the middle class, extremely early retirement is a myth foisted on the public. Retiring at or before the age of 30 — or even 35 — is not going to be possible without earning a lot of money quickly, saving almost all of it, and living a lifestyle that most middle class Americans would not be interested in.
And even then, many of the loudest early retirement proponents cheat: for instance, one might forget to mention one has a spouse who is not retired, whose income is covering day-to-day expenses, and whose job is covering health insurance and medical care for the family. That’s great, but it’s hard to call a household retired without changing the definition of retirement.
If you do retire in your thirties or even forties, you have at least a couple of decades before you’d be able to qualify for Medicare. Fidelity’s respose to the survey mentioned above included research that shows that someone who retires at age 62 rather than 65 can count on spending an extra $17,000 a year for health care before Medicare begins; imagine extending out that expense several decades in addition to the effect of rising health care costs and inflation by the time Millennials reach age 65.
So how can you retire today and manage paying for the increasing costs of health care?
1. Cheat, like many others. I’m not saying cheat the healthcare system, I’m saying cheat about how you consider yourself retired. Today, people “retire from the rat race” and open up their own businesses. The idea of being an entrepreneur is the farthest thing from being retired as possible because starting your own business requires much more work than clocking in at a corporate job in a cubicle every day. And you have more bosses than ever before — in the form of clients.
Nevertheless, people want to call this retirement, and who am I to argue with the shifting nature of the English language? So become a successful business owner (as if the decision to do so and the ability to succeed go hand-in-hand — they don’t) and let your business’s profits cover your healthcare expenses.
2. Cheat, like some more others. As I mentioned, you can call yourself retired if your spouse still works and his or her company covers most of the costs of your family’s healthcare. People actually do this. As long as your spouse doesn’t mind your being a freeloader, why not dump the responsibility of paying for living expenses on your better half?
Now, maybe you have saved up money over time and have invested a lot of that for the future. But wouldn’t you rather have the profits from your investments reinvested for the future while having today’s work-income pay for today’s expenses?
3. Save up for a long time. I wish I had known right from the beginning the realities of living expenses — many of which I have still yet to experience because I am still relatively young and healthy. I started my career out of college with a salary so low and basic expenses so high that savings was impossible. I don’t regrey my career choices but maybe I would have compromised differently, earlier than I did, with my living situations.
It’s easy to judge with the benefit of hindsight.
If retiring before age 65 is a goal for anybody, they must start planning today for the cost of healthcare without Medicare. And like any government program, you never know what the future holds. Medicare might not exist in its current form in 30 years. There’s a possibility a national healthcare system will be expanded, but there’s also a possibility that it will be more difficult to qualify for Medicare if it exists.
So contribute the maximum possible (whether bounded by mandated maximum investments or the confines of your net income) to your 401(k) and take advantage of Health Savings Accounts. At the same time, monitor your expenses so you know that the money you spend on a daily basis is going to enrich your life somehow rather than to disappear in a wasteland.
4. Stay as healthy as possible. Life does present you with some choices pertaining to your health. You can choose to eat healthier foods and avoid destructive habits. Healthcare costs for non-smokers, in general, are significantly lower than those for smokers, even when insurance tends to level the playing field somewhat.
But these choices can only take you so far. Bad things happen to people in good health, and that’s more than just accidents. You can’t control your genetics. If there is a hereditary issue that runs in your family, you have a high probability of exhibiting the same issue. The most you can do is prepare for it emotionally and financially.
5. Embrace the idea of preventative care. When I graduated college, I hadn’t been to the dentist in years. I probably hadn’t had a dental appointment since having my races removed during my senior year of high school. And I avoided going for another couple of years. But my father eventually suggested I go, and he gave me the name of his dentist. So I went, and I’ve been going regularly ever sense.
It took me a little longer to begin going to a general practitioner for regular medical check-ups. There was a widely-reported study that regular physicals do nothing to increase health (and reduce healthcare costs), and instead, facilitate more tests and expenses than necessary, so I’m not sure where I stand on visits to the doctor’s office. I do know that, for instance, I have a genetic predisposition towards Type II diabetes, so it’s important for me to watch my weight if I want to avoid the health problems and expenses associated.
I’m now living my life without an employer to subsidize my healthcare and health insurance costs. Perhaps that means I’ve retired, but I’m still trading my time and efforts for an income. I will never qualify for Obamacare subsidies, and I could continue paying for the most expensive health insurance option if necessary. I’m in a relatively unique position today, but if I had made different choices, or if some unforeseen problems arise in the future, affording health care could become difficult.
And thanks to people close to me who have had to make difficult choices, I can see how health care costs can be a significant problem for someone who doesn’t quality for Medicare yet.
How are you figuring the cost of health care in your plan to retire?
Updated October 16, 2015 and originally published June 12, 2014.
{ 7 comments… read them below or add one }
Saving, saving and saving some more. Keeping myself and family healthy always. And i just hope preventive care is all worth it, with all the labs we go through yearly. Thanks for sharing this.
Health care cost is very expensive. We can still have health care with ourselves by having exercise everyday and eating right kind of foods. If possible, be healthy as you can.
We moved to Canada! :-)
I think it makes a lot of sense to change the definition of retirement a bit. People just aren’t using the term the way that it was used in the past. I think its a bit unfair to call yourself retired if you are running your own business or something of that nature, but maybe that’s just what the future holds for the term.
Here’s a worthless tip for all but the young: Spend at least 20 years in the Military branch of your choice. My heath insurance cost, through the military retiree system, ran me $44/month for both my wife and I from 60 (retirement age) through 65 (Medicare age). Out-of-pocket expenses ran $350/year, mostly dental care and $12 co-pays.
Agreed with Marie. Health care is really expensive. If you wanna retire early , what you must have is savings. Lots and lots of savings….
Freelancer here — I feel your pain! Since I pay for my own high-ish deductible health insurance, I apply a wait-and-see attitude toward most ailments vs. running off to the doctor just because my throat is sore.
For me the annual checkup is about prevention. I go to a neighborhood health center where many of the patients are low- or no-income, so the medicos there are pretty good about not prescribing tests that aren’t strictly necessary.
But even a basic blood panel can reveal plenty. I once interviewed a mountaineering guide who was ferociously fit and felt just fine, thanks. For the heck of it, he went to one of those community health fairs and paid $20 for a full blood panel. The test revealed a very weird number involving kidney function. Specifically, both organs were failing.
Within a couple of years he had to have a transplant. Fortunately he was smart enough to have been born an identical twin. ;-)
Point being: The heads-up gave him time to get more tests, learn about his options and ultimately approach his twin. (“Hey, bro, can I borrow….a kidney?”) Thus he was still in fairly good condition when the operation took place; in fact, his recovery was much swifter than his brother’s.
So I would urge people to get an annual exam. I also urge people to get their teeth cleaned twice a year; my sister is a dental hygienist and says it’s a lot easier (and a LOT less painful) to prevent gum disease than to fix it.
She also told me about an uninsured patient who declined a $35 X-ray because she didn’t want to pay for it and her teeth felt fine. Less than a year later she was having extreme pain from a cavity that couldn’t be seen with the naked eye; she ended up needing a root canal. In hindsight, that X-ray would have been a smart move.
Question every test the doctor suggests (a full body scan? really?), but don’t skimp on the basics.