Healthcare is our biggest question mark too. We want to retire at 60. My spouse says we’ll just pay for healthcare until we can get Medicare. But approx $120,000 for 5 years of healthcare is a lot! (For us anyway.) I’d prefer that he just work part time at his org so he can keep the health insurance.
I hadn’t thought about saving through an HSA. Maybe we will do that once we are done paying for college - thanks for the idea!
No doubt insurance is a major consideration for retirees.
I too am a federal retiree. When we have to get Medicare our insurance will actually be MORE expensive, because we will have to pay extra for Medicare (first world problem, I know) and continue our fed employee BCBS coverage. I know some people just get one or the other, but many get both. We will do more research as it gets closer.
I think you can only do that if your employer offers a high deductible plan with a HSA.
We’ve had that option for a while now and we opted for it while still paying for college. Since the $ that is withdrawn is tax free, there was no downside to contributing.
Like @FallGirl we have retiree healthcare benefits. We can continue to contribute to our HSA after retirement until Medicare.
Deb–you are correct. One needs to be enrolled in a High Deductible Health Plan in order to contribute to an HSA. It is an excellent savings vehicle–triple tax-advantaged–but you need the free cash flow and the enrollment in the HDHP. Earnings grow tax-free, and unlike a 401K plan, withdrawals are not taxed as long as they are used to pay for health care expenses. That difference is where the triple tax advantage comes from since 401K disbursements are taxed. Another bonus is that HSA contributions are not subject to FICA while 401K contributions are.
If someone is eligible to contribute to an HSA and cannot manage to fund both a 401K and the HSA, I would suggest funding the 401K only up to the employer match and then funding the HSA up to the allowable maximum.
Nice that there’s an employer contribution. We too have HSA’s and choose that plan over a higher premium lower deductible plan. The tax deduction is a big plus and then the tax free growth of the HSAs is a bigger plus. Keeping track of all the expenses I don’t reimburse ourselves for out of the HSA now, make it easy to know that we’ll have no problem years from now withdrawing the money when we want if we need it for anything else. We have far exceeding our unreimbursed medical expenses each year but don’t pull out from the HSA at all. I have a brother with one as well who is on a really expensive medication that uses the HSA up in 2 months. I’ve told him not to touch the HSA and just use his own money so the HSA can gain the tax free advantage and that he should take money from elsewhere instead of paying taxes on gains or dividends, but he doesn’t want to listen to that smh. Clearly he has high medical expenses. This reminds me that I need to work on him again to understand why he should take the money from another resource of his.
@CT1417 HSA withdrawals are never taxed if paid for unreimbursed health care expenses at any age. You don’t need to be over 65 to use them and not be taxed. I have had an HSA for years and on the rare occasion I have distributed the funds for health costs, they are not taxable.
Big fan of HSA’s but my former company only started offering HD plans a few years before I retired, so the amount of money invested in them will not move the needle and is not worth the hassle to keep a separate account (highly recommend Fidelity for HSA investments), so I’m cashing them out.
Have your brother look at a co pay assistance program for the medication he’s on. It could help with his deductible on a high deductible plan. Many newer very expensive medication have these options. Definitely something to look into.
Sorry! My bad, and you are completely correct. I will edit my post so as not to perpetuate incorrect info.
There are a couple of changes post-65, but that is not one of them. Distributions for non-health care expenses are no longer subject to a penalty after age 65, but will be taxed as income, whereas pre-65, disbursements for anything other than health care are taxed and subject to penalty.
I believe that Medicare and employer insurance premiums can also be reimbursed tax-free post-65.
One other benefit of the HSA is that contributions to the account are not subject to FICA while 401K contributions are. It really is an excellent choice, when available. If one can afford to pay all medical expenses out of pocket while working, those expenses can be reimbursed from the HSA at a later date. The only restriction here is that one cannot itemize medical expenses and then request reimbursement for those same expenses later. (No double dipping.)
The money in the HSA will have continued to grow completely tax-free. I expect to use the HSA funds for health care expenses in my later years.
Plain old savings pre-retirement but, before we retired, we paid off the house, have no car payments, and live in a low COL area, so that $1,700/month healthcare bill is our main expense and will melt to Medicare for DH next year, me the following year. We just discharged all debt and planned for the cost before we stepped off at 58/59. We had COBRA for the first 18 months.
I will add that we discharged all debt three years before we retired and basically saved almost every discretionary penny of two high incomes during those debt-free years which, along with the 529 we didn’t have to spend for college due to our son choosing a service academy, enabled us to comfortably leave our paychecks two years earlier than planned. We’ve been retired now for four years and still haven’t had to touch the portfolio or take SS.
This is where I am coming from. The discussion about HSAs and similar is understandable, but it’s getting into the weeds. My question is really what’s the cash replacement value of the health coverage benefit I get from my employer? The only answer I feel confident in asserting is: a lot, but not infinite. I need to narrow that down before retiring.
Personally, I would like to retire before I’m eligible for medicare, but I wonder if some kind of downsized career would be a better option if I could find a willing employer. Earnings at my current level come with pressure and time commitment. I do not have the coveted Silicon Valley “FU money”, but I’m doing OK.
You don’t need FU money to retire early and afford healthcare on the market. The key is to have no other debt at retirement. While I will have no debt and can afford healthcare out of pocket to retire early, I’m toying around with the idea of consulting during those years just to fund my medical expenses.
Also look to Canadian pharmacies for pricing. Have to pay out of pocket, but the savings can be substantial.
This is the way to go, since you can then deduct insurance premiums and medical expenses. Depending on how you set things up, a C corp can be helpful to maximize healthcare deductions, though it is less tax efficient in other ways.
The next few years we’re focusing on paying off the house and completing the necessary renos (roof, siding, etc.) while still working the “career” path; we’re also thinking about consulting for the last few years. House will be paid with no other debt, so hoping that’ll give us flexibility to pick and choose projects and still afford to pay for health care until Medicare kicks in.
Husband is going to retire in 2 months at 50. He might join the workforce down the road when he is bored in a year or two. I am stay at home so i guess i am retired long ago. We could do this because his company provided health insurance.
We have an HSA, but even though we could purchase a private plan, the ones here are not good options. If DH doesn’t work til he is 65 or doesn’t (it would be a miracle if he did) get offered a package to bridge to retirement, we’d use the HSA $ to pay for COBRA. Yes, its expensive, but IMO its worth it. I wish we lived in a state with better private healthcare options.
The simplest scenario is to buy the COBRA plan from the employer after you leave. Then the difference between your premium contribution and the full price COBRA premium is what your medical costs would increase by.
However, if you switch to a different type of plan, then you have to calculate the difference between your current costs (both premium contribution and any copayments, deductibles, etc.) for your current situation and the total costs under a different type of plan in order to figure out how much your medical costs would increase by.
There’s a time limit, though, right? I didn’t know the details, but a quick search says it’s 18 months if you leave voluntarily.
I agree that this is a useful comparison, just not a longterm solution.
Yes, there is a COBRA time limit, but if it will get you to Medicare, that may be enough.
On the other hand, if it will not, then you need to look at the more complicated scenario of comparing the costs of other plans that you can get individually, as described above.
The other component is that (assuming the employee isn’t fired for gross misconduct), if your employer had less than 20 employees they don’t have to offer COBRA.