Reasonable Healthcare Options for Early Retirement (Before Medicare at 65)
Tim provides an overview of healthcare options for those considering retirement before age 65, but are concerned about medical expenses in retirement. He introduces Move Health, a firm that helps navigate pre-Medicare coverage, and shares a case study showing how using ACA and ARP tax credits can significantly lower annual premium costs for early retirees.
Are you under 65 but have built enough of a nest egg that you think you can get to and through retirement? But you're concerned about healthcare between, let's say maybe, age 60 and 65 when Medicare kicks in?
Are you saying to yourself, I have enough to retire and get me through retirement, but I don't want to spend $20 or 30 grand a year on healthcare between age 60 and 65?
If that's the case, then you are in the right place today because we have partnered with a firm called Move Health. They work throughout the nation, and I'm going to go through a case study.
This is going to be a high-level video, short and sweet. There are other videos out there that are long and way more detailed, but this is basically just an introduction to show you what is available out there for you.
Of course, if you want something that's going to go down in the weeds for your particular situation, reach out to us and we can hook you up with Move Health and do a full plan for you for retirement, since that's our specialty.
A lot of times we have people come to us and they say, I'm 59 and I think we've got plenty of assets to retire. We're doing great. We're comfortable. We want to do a few things. We don't need to do anything outlandish, but we don't want to spend $20 or $30 grand a year on health insurance until we're 65, until Medicare kicks.
Introduction to Move Health
In the video, I show a few slides to introduce Move Health. Move Health says "We exist to make healthcare coverage simple and clear."
That's great because our Medicare program, and basically anything to do with our government tax-wise or any program or subsidy or credit, can be extremely confusing. So we're glad they're out there. We met them recently, and we wish we had met them sooner because of the great stuff that they've been able to do and how they've been able to help people.
- They have 60 plus years of experience among their team.
- They have pre-65 health insurance options, which is what we're going to talk about today, but they also help with Medicare coverage, and they can help you find the lowest cost each year for your Parts B and D premiums.
- They are licensed throughout the country, and they are fully certified to assist with implementing any tax credits on the Affordable Care Ace (ACA) Marketplace.
- They are not compensated by commissions, so they're probably going to generally recommend a supplemental plan as opposed to a Medicare Advantage plan because the coverage is generally better for people that have a little better situation for retirement, but not always. Sometimes the Medicare Advantage plan is going to be better all around.
Then, obviously, they're going to help with the ACA credits and the American Rescue Plan (ARP) credits, which is what we're here to talk about today.
Case Study
We start with this: "My financial adviser says I can retire, but I don't know what to do for health insurance before I turn 65."
I've ran into this before, even with people with means and they can afford it. They tell me they don't want to spend $26,000 a year on health insurance. They say, "I don't hate my job that much. I can work another few years."
But let's take a look at what we can do with these credits. So, as with most things, a case study is the best thing to look at to illustrate.
We have a sixty year-old couple, and they're ready to retire and, of course, spend more time with their grandchildren. A lot of times in my situation the grandchildren are a key aspect of what retirees want to focus on in retirement, which is perfect.
So for the past 35 years, they've been covered by an employer plan, and now they're thinking that in retirement they're going to be making about $85,000 a year with pensions or maybe taking money out of a tax deferred account.
Changing Income Each Year
Another thing to consider is a lot of times we can change around income each year based on what you actually have. If you have a large joint account maybe you can drop your income or raise it and that's going to make a big difference on how we can make sure that we're getting the best rate for you or the best credits for you for healthcare.
We're also going to look out over the next 20, 30, or 40 years of your retirement and say if we do this now and then at 65 maybe we can start doing some really good tax planning to lower your lifetime tax liability.
Again, it's a comprehensive plan. Maybe we have a few years where we say we're going to drop your income down for a few years until you get to age 65 and then we're going to start doing Roth conversions to lower that lifetime tax liability.
ACA and ARP Credits
A big point to consider in this case study is that with these ACA and ARP credits, it does not matter what your net worth is. You can be a multi-millionaire, and if you can keep your income low enough, you're still going to be able to maximize these credits. That's a key point.
You can have a few million dollars in your nest egg, but if you can keep your income lower, that's all it's based off of. They don't look at your net worth or your assets or anything. They're just going to say, this is your income, so you can get these credits to help pay for your ACA plan.
This is how the advanced premium tax credits work. First of all, you can't have an employer that's going to pay for your plan, obviously, and then the options that we have are going to be Medicare and Medicaid. We're going to focus on Medicare and these credits and premiums are going to be based off of your MAGI or your modified adjusted gross income.
What is the American Rescue Plan (ARP)?
Most people know that the ACA is the Affordable Care Act, but what is the American Rescue plan? It was one of the legislations passed during COVID-19 that affected a lot of stuff kind of under the radar. The biggest thing I want you to remember with this is it removed the income cap for ACA subsidies, and it made health insurance subsidies available to those even with income over 400% of the federal poverty level.
It also puts a cap of 8.5% of your MAGI for what you can pay towards healthcare premiums. This is set to expire at the end of 2025, but even if it does, we still have the Affordable Care Act.
If we can basically change things around to lower incomes and make sure that we stay under a certain amount until age 65 to get these credits, it can be a huge deal and I'm about to show you how.
Plan Comparison with Credits
Again, we have a 60 year-old couple in Dallas, Texas, and they have a modified adjusted gross income of 85,000.
If they do nothing and they don't try to get the credits this is what they're going to pay for each type of plan:
- Bronze is a little over $17,000
- Silver is a little over $22,000 for the annual premium
- And gold is almost $30,000 in annual premiums
Let's say we work with Move Health and we get some credits that are available.
- Even at $85,000 income in retirement, it's going to drop the bronze plans all the way down to a little over $1,600 a year, so that's a huge difference, right?
- The silver plan is just under $7,000 a year, so again, that's a lot more palatable than paying $22,000 a year for premiums.
- Then the gold plan, the best plan, is going to be a little over 14,000, but huge difference.
Now let's say we can cut that $85,000 in annual income in half again to $42,500. Now the reason for that is, like I said, maybe they had a joint account or they waited to flip on a pension or whatever because they had other assets, and we were going to allow some other stuff to grow.
- Well, if we can do that, you pay zero for the bronze plan.
- The silver plan plan, which is generally pretty good coverage, deductible drops to $3,800 and the annual premium drops to $692, so a huge difference, right?
- Then the gold plan is going to be dropped all the way down to $8,000 per year in annual premium.
This is a very big opportunity for people that are thinking about retiring early before 65, but of course, as Move Health says, "Effective healthcare planning matters." If we can save somebody that wants to retire before they get to 65, we can save them over $100,000 in annual healthcare premiums.
Do you think they're going to like that? Of course they are! And I'm going to feel great because we've helped them get to their retirement and be able to retire early without worrying about the crazy cost of our healthcare.
Bottom Line
This was a high level view of what we can do for using the ACA and the ARP credits to make sure that we are lowering your healthcare cost before 65. If you'd like to hear more, please reach out. We'd love to help you with this.
If you've been self-employed for years and you want to retire and you want to make sure you have good coverage until you get to age 65 because you think you've done well enough, reach out to us. We'd love to take you through all of it and make sure you're you're threading that needle correctly and most effectively and efficiently to maximize your retirement.
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