Thinking of Retiring Early? It Might Cost You $50,000!


Are you thinking of retiring early? Maybe you are tired of your job, you are in transition, or you are just mentally ready to retire.

Whatever the reason, when you compare your retirement income to your expenses, make sure you consider what could be your biggest hidden expense before you make that decision: healthcare.

According to a report released by Fidelity Investments, “if a couple retires at the age of 62 instead of 65, they will face an additional $51,000 in additional medical expenses, not including over-the-counter medicines (like allergy medicine or pain relievers). Since they are not eligible for Medicare until age 65, unless they have a spouse that is still working or coverage from a former employer (rare, and getting rarer), they will have to purchase private insurance.”

Oh, but wait, the Affordable Care Act (ACA) takes care of that, right? Fortunately, one of ACA’s benefits is to ensure that you are not denied for pre-existing conditions, but you will still need to purchase private medical insurance which can be expensive. According to the Fidelity report, “it may cost around $17,000 per year for health care premium and out-of-pocket expenses if the example couple purchases a policy on one of the exchanges.”

Adding to the problem, if they also decide to start Social Security benefits at age 62 instead of 65, they will receive a 24% reduction in income from the amount they would receive if they waited until age 65.

Is this increase in health care premium a recent issue? Not really. Heath care premiums have been increasing for years. The Kaiser Family Foundation reported that in 2011, the average premium rose 8% for individuals and 9% for family coverage. However, while the ACA has allowed many more Americans to receive medical coverage, there is wide speculation as to the long-term impact of the ACA on individual health care premiums. Some experts believe that the premiums will continue to rise at a rate much greater than inflation.

There is help for some early retirees. The government is offering subsidies to moderate income families, thereby lowering their out-of-pocket costs. However, most joint income families won’t qualify for these subsidies. If you wait until age 65, the costs go down significantly, though Fidelity reported that,  “A couple retiring at age 65 can expect to dole out an average of $220,000 for health care costs over the course of their retirement.”

Their study assumes that both husband and wife are in average health and live to age 82 and 85, respectively. The study added that “retirees with chronic health conditions or those that live longer will likely face much steeper tabs.”

There are options to help cover the increase in healthcare costs, such as Social Security, pension, savings, and other income.

But healthcare premiums are just one of the many expenses that an individual or couple needs to take into consideration, no matter when they decide to retire, to help ensure a successful retirement. That is why it is important to sit down with a professional who not only understands these critical issues, but can help you plan. Please give me a call at 440-779-1430 if you would like to get started!


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