So you’re ready to sock away half your income, earn more through side hustles and aggressively invest so you can become financially independent and retire before age 50.
But a big obstacle threatens to keep you from joining the financial independence/retire early movement, popularly known as FIRE: the high costs of health care and health insurance.
Without a job and too young for Medicare, what health care insurance options remain for early retirees and their family?
A handful, it turns out.
“There are already tens of millions that provide their own health insurance whether they’re retired, freelancers or independent contractors,” says Leif Dahleen, 43, author of the blog Physician on FIRE and an anesthesiologist by trade. “It’s not any different. You just put it in your budget.”
Dahleen is a member of the FIRE movement. He and other adhereents laid out the following health coverage options if you’re planning to retire early.
You don’t need an employer to buy health coverage straight from an insurer. In some cases, if you have a side gig that you incorporate, you may be able to write off some of health care insurance costs as a business expense, says Sam Dogen, founder of the blog Financial Samurai who has been financially independent since 2012.
Considerations: It’s costly. Dogen, 41, pays $1,760 a month, or $21,120 a year, out of pocket for a platinum plan for his family of three. They could have saved $100 to $200 a month by opting for a bronze or silver plan, but the cost would still total more than $1,500 a month.
“It’s an absurd amount of money,” Dogen says. “Either way you cut it, paying for unsubsidized healthcare is extremely expensive in America.”
New rules created under the Trump administration allow insurers to sell short-term policies – up to 364 days – that exclude the minimum benefits that the Affordable Care Act plans must provide, such as prescription drugs, maternity and mental health care.
These plans, which often cover more catastrophic medical events, are cheaper, but come with high deductibles. Some early retirees rely on these plans for basic coverage and then use their own funds to pay for uncovered expenses, typically routine check-ups.
Considerations: Many of these short-term plans are limiting. For instance, many won’t cover any pre-existing conditions. So, if you develop a chronic condition like diabetes, you may no longer qualify for coverage when it comes time to renew the plan.
Old job benefits
Jillian Johnsrud’s family – her husband and five children – receives health coverage from TRICARE, a health care program for uniformed service members, retirees, and their families. Her husband served nine years in the Army before becoming injured and was forced to retire before serving the standard 20 years of service.
Similarly, others who worked for the government may be able to get health care benefits in early retirement.
Considerations: You may still have to pay some costs out of pocket. Johnsrud, who is 36, has a $450 annual deductible and must pay 20% for doctor’s visits and other medical costs. Johnsrud’s family budgets $300 to $400 a month for uncovered medical and dental expenses.
“It’s still our third largest expense,” says Johnsrud, the author of Montana Money Adventures. “Once my kids hit braces age, that will be higher.”
When the couple pays off the mortgages on their two rental properties, that extra money will go toward future medical costs as they age.
Health care sharing programs
Health care sharing programs are faith-based programs that facilitate voluntary sharing among members for eligible medical expenses. Members pay a monthly share – similar to a premium – and tap the pool of money when they need to cover health costs.
The monthly share of these programs is often much more affordable than traditional health care insurance premiums, and the coverage typically comes with lower out-of-pocket limits compared with high-deductible plans.
Dahleen is considering this route when he finally retires full time later this summer. He currently has a part-time schedule at a medical center in Minnesota, which also provides his family, and him, with health care.
Considerations: Because these programs have a religious affiliation, you may be required to belong to a certain church or make a statement that you believe in a higher power, says Dahleen.
“Some are more specific than others,” he says.
Some won’t cover pre-existing conditions for the first few years, while others won’t extend coverage to smokers. Some medical costs may be excluded – such as drug addiction treatment or pregnancy outside marriage – because they run afoul of the program’s beliefs, Dahleen says.
If your income is low enough in your early retirement years, you may qualify for subsidies for purchasing insurance through the health insurance exchanges or marketplaces created by the Affordable Care Act. That’s what many FIRE aspirants do, says Dogen.
“For a family of three, I need to make less than 400% of the Federal Poverty Limit, or $83,120, to be eligible for healthcare subsidies under the ACA,” he says.
Considerations: The less you make in income the more you qualify for a subsidy. Make too much, you won’t qualify. There’s also an uncertain future surrounding the ACA given the political climate.
“If you’re getting a subsidy, that’s great but I wouldn’t count on that lasting forever,” Dahleen says. “It’s subject to change at any time.”
Some early retirees choose to work a part-time job to get health insurance. For instance, Johnsrud has a friend who is a bus attendant for the school system, working an hour and a half in the morning and again in the afternoon.
“They get full benefits and if the bus isn’t running, they aren’t working,” she says, noting her friend gets plenty of time off, including summers and other school breaks off, but still maintains coverage.
Another popular part-time job among FIRE achievers is working at Starbucks, which provides health insurance to part-time workers.
Considerations: It’s may not be the “early retirement” you’re looking for. You lose some of the flexibility and are tied to a job for benefits only.
Those who plan to spend those golden years abroad often depend on travel medical insurance, which often comes with evacuation insurance in case you need to be flown back to the U.S., says Dahleen. These ex-pats typically pay for more routine medical and dental procedures out of pocket in other countries where health care is more affordable,
“It all depends on what your current level of health and level of risk are,” he says.
Considerations: This only works if you’re traveling overseas for much of the year. You also need to be comfortable with seeking medical care in a foreign country.
Keys to success
Research ahead of time: Dahleen has spent months looking into options and comparing coverage costs.
As he was planning his early retirement, Dogen asked his employer how much his coverage cost each month to better understand the private market.
Plan for higher costs down the road: If history is any indication, health care costs are going to outpace inflation. Plan accordingly. Calculate costs to increase 5% to 7% a year to create a cushion.
Invest in your health: Johnsrud tries to head off injuries and preventable diseases by working out five days a week and eating better. She also paid for a personal trainer and nutritionist.
“We’re able to devote more time to meal prep now,” she says. “We have more time to do more of the preventative health care.”