Early retirement is a dream for many. While saving enough to accomplish this goal is challenging, it’s just the beginning. Here are five challenges you must include in your early retirement planning.
It seems as if everyone these days is planning for early retirement – or at least planning to plan for early retirement.
Saving and investing a lot of money is the obvious starting point. But there are also early retirement challenges that you must be prepared for. That part of the equation is just as important as building up a sizable retirement portfolio.
Here are five of those early retirement challenges, and how you can prepare for them.
1. Health Insurance – There’s No Medicare Before Age 65
You won’t be eligible for Medicare until you turn 65. And you’ll no longer be in a position to take advantage of an employer sponsored health insurance plan. As a result, you will almost certainly have to get a private plan on your state’s health insurance exchange. WARNING: It won’t be cheap!
Under the Affordable Care Act (ACA), health insurance companies can no longer charge you a higher premium if you have pre-existing health conditions. That’s the good news. But the bad news is that they are fully allowed to charge higher premiums based on age. And since you probably will be retiring around 50 or later, you can expect those age-adjusted premiums to be pretty ugly.
What’s more, you can also expect that they will faithfully increase each and every year. Yes, we know Washington promised us lower health insurance premiums. But unfortunately, that’s not what happened. Premiums have gone sky high.
You can get an estimate of what you are health insurance premiums will be by checking out Healthcare.gov’s Health Insurance Plans and Prices page. While it can tell you what your premiums will be at a future age, it can’t tell you how much those premiums will be by the time you finally do retire.
In order to keep the premium to a minimum, plan to have a high deductible. A $6,000 deductible and $6,500 out-of-pocket maximums are common. You can combine the high deductible plan with a Health Savings Account (HSA). With an HSA, you will have a tax-sheltered way to pay your co-pays and deductibles.
There is one possible silver lining here. Since you’ll be retired, and your income will likely be lower than what it is right now, you might actually qualify for an ACA subsidy. That will lower the cost of your premium at least a little bit.
2. Accessing Retirement Savings Before Reaching 59 ½
As you probably know, accessing your retirement savings before turning 59 ½ is tricky. If you do, you will not only be subject to ordinary income tax on the amount withdrawn, but also a 10% early withdrawal penalty. That means that your tax-sheltered retirement plans won’t be a good source of income in your early retirement years.
There are a few ways that you can get around this problem:
1. Have sufficient taxable investments to draw on during the early years of your retirement. You won’t get the…
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