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Health insurance, the great retirement roadblock

Dear Pete,

I think I’m ready to retire. I’m 55 and my wife is 55 too. Based on my age and time on the job, I’m able to retire with a pension this May. My pension is about $2,500/month less than what I make now, but we may be able to make it work if we cut back spending. Our main concern is health care. I’ve always had insurance through the company, and I’m not quite sure what buying my own insurance looks like. We need pretty good coverage because we’re both on several medications. Have you ever heard of people not retiring because of the cost of health care?

Darryl, Detroit

I have heard of this, Darryl. I’d wager to say, affording healthcare in retirement is the most overlooked part of a retirement plan. It’s treated as an afterthought, when in reality it could derail the most solid of retirement plans.

When you leave your employer, you lose health insurance. Yet, you don’t qualify for medicare until you are 65 years old. If you and your wife retire at age 55, that’s 10 years of healthcare coverage you’ll have to pay for on your own. How bad could it be? Well, I looked into it. Very basic health insurance for a 55 year old couple in Detroit is about $800-$1,500 per month. Does your retirement plan have space for an extra $18,000 a year? For 10 years?

Even if your employer will allow you to continue on their health plan, you have reason to worry. They may allow it for a few years, costing you a few hundred dollars for insurance, but eventually they’ll push you out to the Affordable Care Act (ACA) exchanges. Many companies are starting to do this to save money. This is where you’ll find the cost of basic healthcare to be very expensive.

Darryl, I believe your financial life is prepared for retirement at 55 in a perfect world, but the cost of healthcare is simply too extreme for me to safely recommend you jump at early retirement. Unless you can come up with an extra $18,000 a year for the next 10 years, it’s better to wait it out.