Could Obamacare be Your Ticket to Early Retirement?

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Are you thinking of retiring early? That has to be one of the single most common questions I get from clients. It happens all the time: you start to get increasingly tired of the “corporate rat race” and begin thinking more and more that you want to get off the hamster wheel.

Or you see your loved ones face health events, and it dawns on you that nothing lasts forever. Or you are laid off from your job and start thinking more about your future and what you really want. I can’t begin to tell you how many times clients have faced these sorts of situations and have asked me about retiring early. By retiring “early” we mean retiring before the age of 65. And there is a reason for that.

It’s because for many people, even if they have been doing all the right things for many years such as working diligently on building their nest egg, and paying off their debts, there is still one huge obstacle to overcome in order to retire early: the cost of health care. Until you’re age 65, you don’t qualify for Medicare. Which means that if you want to retire early, you’ve got to come up with a way to budget for health care costs, in addition to all your other living expenses. For many people, this cost could easily run $15,000/yr. or more, and if you had pre-existing conditions…forget about it! No chance of getting coverage. In many cases, this was the one single issue that prevented people from being able to retire early. Took the option off the table entirely. But now there could be a real gamechanger in the mix: Obamacare! So pay close attention, because here are the ways that Obamacare could revolutionize your retiring early:

Pre-Existing Conditions: Basically…this issue is just gone, starting in 2014! Poof, just like that! Starting on January 1, 2014, it became illegal for health insurance companies to discriminate based on pre-existing conditions. So if you’re being treated for high blood pressure, or sleep apnea, or high cholesterol, or MS, or a myriad of other conditions that used to make it so difficult and/or impossible to find health insurance coverage…it’s now a whole new world for you, because none of those things matter any more! Now you can get coverage just like anyone else.

But as if that’s not enough…there’s more! That’s because a surprising number of people are not aware of the following:

Subsidies: Not only are you now going to be eligible for coverage regardless of pre-existing conditions, but under the rules of Obamacare you may also be eligible for a subsidy to help pay your premiums! That’s right…under the new rules, subsidies are available to individuals and families whose income is at or below 400% of the poverty line. That means if you’re an individual with an income of around $45,000/year or less, or a family of two with an income of about $62,000/year or less, you will likely qualify! Not only that, but the subsidies under Obamacare increase in relation to your age…meaning that the older you are, the greater the subsidy! For many people, this could mean a world of difference in the cost of their health insurance coverage as compared to just one year ago!

Planning Opportunites: This gives rise to some interesting planning opportunities. Firstly, note that the subsidies are based on income, NOT net worth. So you could have significant assets such as huge balances in your IRA, 401(k) or investment accounts, or a house that’s all paid off…and theoretically still qualify as long as your income fits within the guidelines! Secondly, if you’re under age 62, you won’t be drawing Social Security benefits yet, which would mean that you have a lower income…and you could even choose to delay taking your social security benefit, perhaps until you reach normal retirement age (usually age 66) and/or qualify for Medicare, thereby qualifying for a higher benefit for the rest of your life! Thirdly, you could actually make certain moves intentionally in order to reduce your income and thereby qualify for subsidies… such as contributing to IRA accounts, and/or minimizing or postponing IRA withdrawals, both of which would give you a lower income for purposes of qualifying for the subsidies!

In summary: The new law is certainly complex and takes detailed analysis for every individual situation. But there is also no question that the advent of Obamacare has completely transformed the landscape when it comes to the possibility of retiring early. So open your eyes and pay attention to the new rules…what a difference a year makes! Until next time…happy planning!

 

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