Last Week’s Question of the Week: How many homeowners over the age of 65 currently carry mortgages in the United States? Is it 9 million or 19 million?
ANSWER: Over 9 million homeowners over the age of 65 carry mortgage debt today.
HOST: Your topic today applies to everyone…deciding when is the right time to pull the trigger to retire. And what if you are considering a pre-65 retirement, what should we be aware of?
KLAAS FINANCIAL: This is an important topic. Let’s take a look at helping you decide when is the right time for you by asking some valid questions.
1) What do you mean by early retirement? Is it an age, or a date you have in mind? Or is it to stop what you are doing full time and maybe just cut back or change to a less stressful job? Many people tell us yesterday, and others say they plan to keep working as long as they can. We would encourage our listeners to think and plan towards this transition.
- Keep in mind that the average retirement age is earlier than you may think. According to a 2018 Gallup poll, the average worker aged 50 to 64 said they didn’t expect to retire until age 67. However, the same poll revealed the average person who is currently retired left their job at age 61.
- Among current retirees, 43% said they had to retire earlier than they’d hoped, typically due to either health issues or losing their job, according to the Employee Benefit Research Institute. Early retirement might sound like bliss, but if your retirement savings are not there you could run into problems.
- Reality: According to U.S. Census Bureau data, the average length of retirement is 18 years.
2) Have you taken a close look at your finances and looked at your debt, your assets, your retirement investments and how will you generate income as you go to retire at your target?
- The reality is you want to carry the least amount of debt into retirement. What can you do today to make that happen?
- You will want your investable assets to be the most possible. How can you adjust your spending today, and increase your retirement funding to bring this to a maximum?
- Fact: Most financial planners recommend that you consider that you look at your current income today and assume that you will likely need 70-80% of this income. That should be your target. We rarely hear our clients complain that they have put away too much money as they go into retirement.
HOST: I would imagine that you need to consider what you are going to do about health insurance if you retire before age 65?
KLAAS FINANCIAL: This is the next question we ask our early retirees; what are you planning to do between your early target date and age 65 for your health insurance? In terms of benefits, there are some age parameters to be aware of:
- 62 is the age at which you can start receiving Social Security retirement benefits. (The amount is reduced until you reach your full retirement age.)
- 65 is the age at which you become eligible for Medicare, therefore if you are under 65, under normal circumstances you will not be able to receive Medicare. (Medicare is the federal health insurance program in the United States.) The program consists of: Part A and Part B for hospital and medical insurance. Part C and Part D provide flexibility and prescription drugs. Typically, there is a 7-month initial enrollment period that begins 3 months before you turn 65, includes the month you turn 65, and ends 3 months after you turn 65. A great resource is medicare.gov to learn more about eligibility and getting started with Medicare.
How to you secure and pay for health insurance when you retire in the 62 to 65 age range (or if you retire even younger)? Even if you have only got a month or two before Medicare, going without any health insurance is not a recommended risk as it could mean dipping into your retirement savings to pay for unexpected healthcare expense. Early retirement medical coverage options include:
- COBRA: You may be eligible for COBRA continuation health coverage, which allows you to remain on your employer’s plan for a certain amount of time. You may be required to pay up to 102% of the plan cost (this includes the amount you and your employer paid for coverage plus 2% for administrative costs). Employers with 20 or more full-time-equivalent employees are usually mandated to offer COBRA coverage. Speak with your employer for details, or learn more about COBRA at the Department of Labor website.
- Spouse health insurance: If your partner has access to job-based health insurance, you may want to find out if you are eligible to be added to the plan and what the cost would be.
- VA Health Insurance: Sometimes people forget this may be an option for them. If you are a veteran who served (First of all, thank you if you did!) you may be eligible to enroll for VA Health Care. The Veterans Health Administration is America’s largest integrated health care system with more than 1,700 VA medical centers and outpatient clinics across the U.S. If you served in the active military, naval or air service and are separated under any condition other than dishonorable, you may qualify for VA health care benefits. National Guard and reserve service members who have completed the full call-up period of active duty can apply.
HOST: Are there any other places to get early health insurance when you are under age 65?
KLAAS FINANCIAL: Yes, you can consider these ideas:
- Short term medical health insurance & Hospital Plan Bundles: During this time period, a short term policy may be the right solution. Short term plans provide coverage for 30 to 364 days depending on your state. In Wisconsin, these plans are available through WPS or EHealth and are limited to less than 12 months at a time. Short term plans include a range of benefits that help pay for catastrophic medical events but don’t typically cover preventive care or pre-existing conditions (however, there are some plans on the market that include limited benefits for certain pre-existing conditions as well as some plans with limited preventive care benefits).You can enroll in a bundled plan that includes both short term health insurance and a hospital indemnity plan.
- If you are retiring more than 1 year before age 65, you may be looking at purchasing Major Medical Insurance, or through the Affordable Care Act.
Although the Affordable Care Act’s tax penalty no longer applies, starting with coverage back in 2019 major medical insurance remains the most comprehensive health insurance option and still must adhere to ACA guidelines (e.g., essential health benefits, preventive care, guaranteed issue).
- When you buy a major medical plan through HealthCare.gov or a state-based health insurance exchange, you may be eligible for income-based subsidies that can lower your monthly premium. They are guaranteed issue regardless of your health history, and they must cover pre-existing conditions. Furthermore, your rate can’t be based on health history or pre-existing conditions. If you’re someone who has pre-existing conditions, needs a fair amount of medical care in a given year, and takes prescription drugs, you may want to consider major medical insurance.
- Medical Insurance Cooperatives: These are in a few states that began through the Affordable Care Act. 4 are currently still operating after having begun with 23.
- Faith Based Health Care Plans: These plans offer a more affordable alternative to health insurance with comparable benefits. These plans are often referred to as medical sharing plans. A group of like-minded people come together to share healthcare costs under the banner of a faith-based organization.
- Part-time work at companies that offer health insurance such as Chipotle, Costco, Home Depot, Lowes, Staples, U Haul, UPS, Walmart and the U.S. Postal Service.
Bottom Line: Speak to your financial advisor to figure out when and how to make your future retirement date a reality!
This Week’s Question of the Week: Under normal circumstances, if I retire at age 63, I can get my health insurance through Medicare. True or False?
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.