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How will you handle health insurance before Medicare?

how to handle heath insurance before Medicare

Here are 4 options to bridge the gap between retirement and age 65.

Happy Tuesday!

Do you plan on retiring before age 65?

What are your plans for healthcare before you’re eligible for Medicare?

You probably have more options than you know. Even better, it’s likely that your costs will be lower than you expect. Crazy, right?

I’m going to go through your options and show you how a little tax planning can make a big difference when it comes to insurance costs. You know I have to get tax planning in there somewhere.

But a few things before I get to that…



  • How to find your most affordable healthcare option

  • How to plan your retirement income to reduce your healthcare costs

  • Where to find helpful resources on health insurance


Let’s talk about your options.

  • COBRA Coverage

  • Joining spouse’s plan

  • Short Term Plan coupled with HSA

  • ACA Marketplace Plan with Subsidies

Most people know about COBRA coverage. That is, keeping your current insurance for up to 18 months after you leave an employer.

I find that most people flinch when they find out just how expensive COBRA coverage really is. When you take away the employer contribution, it’s often unreasonably expensive. There are usually better options than COBRA.

If you’re married and your spouse is working, you can look into adding yourself to their healthcare plan. This can be an okay option, but not the cheapest. It can be helpful when it comes to supplemental coverage like vision and dental. The downside to joining your spouse’s plan is that it’s likely similar in price to COBRA.

If you’re in good health, especially if you only have a year or two before you turn 65, then a short term plan might be sufficient. Short term plans are effectively catastrophic coverage only and don’t provide much in the way of prescription coverage or preventative care.

I would only recommend a short term plan if you also have a Health Savings Account to pay for preventative care during that time period. (You have an HSA, right? It’s the only triple tax-free account available, so you should!) The HSA can offset any out of pocket costs you might incur.

The last option is probably the best. Buying a plan through an exchange, aka Obamacare, is likely to be your most cost efficient option for full coverage. ACA plans, understandably, got a bad name when they were rolled out. The system was terrible and coverage was hit or miss.

The good news is that plans have evolved over the last few years and now they’re a good choice. Even more importantly, subsidies have changed and more people are eligible. This is especially important for early retirees, because subsidies are based on taxable income and as an early retiree, you control your taxable income.

Let’s look at an example:

For a married couple, both age 60, with no dependents, a Silver plan would be approximately $1,662 per month. Pretty expensive.

If that married couple has an AGI (taxable income) of $80,000, they’ll receive a subsidy for $1,095 per month, bringing their out of pocket cost down to only $567.

If the same couple has an AGI of $40,000, their subsidy will be $1,570 per month. That leaves them paying $91 per month for coverage. I said that your costs might be lower than you expect and I meant it.

Tax Planning

The key here is keeping your taxable income low through proper tax planning. As I showed, your taxable income makes a big difference in the amount you pay. So how should you keep your income low? Through an efficient withdrawal strategy.

Start by looking at your guaranteed income such as Social Security and any pensions you might have. You can’t really change this. Beyond that, you need to be aware of the tax consequences of withdrawals from the various types of accounts.

You’ll want to lean on your non-retirement dollars early on, as those will have a lower tax rate. If you need to supplement with Roth withdrawals, this can also be a good time. Finally, use Traditional IRA dollars when you know that you have room to withdraw and stay in a lower tax bracket.


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