Early retirement
The average retirement age is 63, according to the Center for Retirement Research at Boston College. But you can't enroll in Medicare until you're 65, so if you're looking to retire early, you've got to make sure you have health insurance, unless you're a high-stakes gambler.
Ask the easy questions first: Does your employer offer insurance benefits during retirement? Or can a still-working spouse add you to that policy?
If not, retiring at 63 may mean continuing on your former employer's plan for 18 months, the maximum allowed by Consolidated Omnibus Budget Reconciliation Act, or COBRA. You get guaranteed coverage under the group plan with none of those pesky pre-existing condition exclusions. But you have to cover the premium yourself.
A less expensive alternative is a high-deductible plan with a health savings account. But if you go that route, you need enough cash set aside "to make it work," says Alicia H. Munnell, director of the Center for Retirement Research. In your early 60s, you can expect premiums of at least $500 per month with a $2,000 to $5,000 annual deductible.
Sam Gibbs, senior vice president with eHealthInsurance.com, provides this sample premium estimate:
- A robust 55-year-old with no health issues, living in North Carolina, with a $2,000 annual deductible, could get a policy for $500 per month.
- At age 63, a policy for the same healthy person with the same deductible would cost $715 per month.
You also want to allow for annual rate increases on premiums. Historically that's been about 5 percent to 10 percent, says Gibbs.
But the problem for many early retirees isn't even the price -- often it's getting coverage at all. Before you commit to retiring early, "Make sure you qualify for individual insurance," says McClanahan. "If there are health issues, you will have trouble getting health insurance." And that could mean delaying retirement until age 63, and using COBRA until you're covered by Medicare. For help in finding the best health-insurance policy, visit InsureMe.com.
There are other options to enable you to retire before that, but your success could depend on where you live and how much income you have.
Four states -- New Hampshire, New Jersey, Maine and Massachusetts -- offer what's called "guaranteed issue" -- if you apply, they must accept you, says Gibbs. "It's more expensive, but for people with a condition, it may be their only choice," he says.
Some states have what they call high-risk pools but it's not cheap, and may limit benefits or have high deductibles, adds McClanahan. Other states either don't offer high-risk pools or aren't adding new members to the pools they have.
If you have maintained continuous coverage and exhausted COBRA, you are entitled to buy private insurance under the Health Insurance Portability and Accountability Act, or HIPAA. "But the rate can be anything," says Cheryl Matheis, vice president for health strategy with the AARP. For information on HIPAA policies and high-risk pools, check out StateHealthFacts.org.