Want to Retire Early? 5 Steps to Lowering Healthcare Barriers to Retirement

Early retirement is a dream many people have, but one of the biggest barriers they face in deciding if or how to retire early is healthcare. Most Americans are eligible to enroll in the federal Medicare program at age 65. Retiring before age 65, however, leaves many people at odds over how to pay for health care costs and how to access health insurance coverage. During their working years, many people rely on their employers for health insurance; 2022 data from the Kaiser Family Foundation shows that 57% of U.S. citizens and residents get health insurance through a workplace or employer.¹ So, what are your options when you want to leave the workforce and retire before your Medicare eligibility begins at age 65? 

Health Savings Accounts

First, if you are currently enrolled in a workplace healthcare plan that offers a Health Savings Account (HSA), contribute as much as you can while you are still working. In 2024, annual HSA contribution limits are $4,150 for an individual and $8,300 for a family. If you are over age 55, you can make an additional $1,000 catch-up contribution this year. 

HSA contributions are TRIPLE tax-free! This means HSA contributions reduce your federal and state tax liability and are not subject to FICA taxes. The key is not to spend HSA savings while you are working.  HSA funds can be used to pay for any medical or health-related expenses, including doctor’s office visits, dental and vision care, prescriptions, hearing aids, and more. You can even use money in an HSA to cover a portion of tax-qualified long-term care insurance, as well as nursing homes and skilled in-home care. You can’t use HSAs for health insurance premiums, but you can for COBRA insurance after your separation from service from your employer. 

Roth IRA’s, Tax Credits, and Part-time Employment

Second, your Roth IRA can be a source of funding to pay for health care costs or health insurance premiums. You can withdraw the basis (i.e., contributions, not growth) from a Roth account for any purpose at any time, without penalty. 

 

Thirdly, review what subsidies or tax credits may be available to you based on your state of primary residence. Some people find their lower income in retirement qualifies them for subsidies and tax credits they were not eligible for previously. Visit healthcare.gov or call 1-800-318-2596 to see your options.

 

Fourthly, consider you or your spouse working part-time at a preferably low-stress job that offers health insurance coverage.  Some major companies that offer these benefits to their part-time employees include Costco, Whole Foods, Lowe’s, Starbucks, and Staples, to name a few. 

Health Insurance

Finally, consider an individual health insurance plan with catastrophic coverage, which often comes with a lower premium. When you pair this coverage with a well-funded HSA, you can cover your insurance premium out-of-pocket then tap your HSA for any costs not covered by the catastrophic plan.  There are often different short-term, alternative coverages available for you to consider. You can also call local hospitals and medical networks to find out what plans may be available in your state.   

With any decision on health care and insurance, remember your options are dependent on your health, geography, and funding sources. If you are in good health, the best plan is to have good savings/HSA.

Talk to A Financial Advisor

If early retirement is your goal, it’s important to plan and have a conversation with a financial advisor before you retire, so you can devise a plan and prepare yourself financially for the realities of early retirement. 

 

Book a consultation with one of our advisors at Theia Financial today! We are ready to discuss your retirement goals and needs and craft a plan for you based on our holistic Theia Blueprint Process which considers Income Planning, Wealth Management, Tax Planning, Protection Planning, and Leaving a Legacy. Our purpose is to educate and guide Accomplished Women as you plan for your future! 

¹Health Insurance Coverage of Nonelderly 0-64