Weekend Reading: 3 Ways Early Retirees Can Minimize Their Health Insurance Costs

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
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Weekend Reading

If you’re planning on retiring before you’re eligible for Medicare coverage (age 65), one major component you’ll need to account for is healthcare.


The fact of the matter is, health care costs are rising, and under certain circumstances, they can quickly deplete your retirement nest egg.

Prioritize planning ahead: To secure health insurance on your own before you can go on Medicare, one course of action is to look at subsidies through the Affordable Care Act (ACA). Pricing for various plans is fully dependent on your income threshold, and premiums are capped at 8.5 percent of adjusted gross income. In the end, it all boils down to managing your income in order to qualify for certain plan premiums. This article lists three strategies to help you do so:

📌Strategy #1 – Delay Social Security: Due to the fact that Social Security benefits are counted as part of your income for calculating insurance premiums, claiming Social Security later will help lower your income, allow you to get higher subsidies and provide more income in your middle or late retirement years, when you might need it the most.

📌Strategy #2 – Minimize withdrawals from retirement accounts: Withdrawals from 401(k)s, IRAs and other related accounts also determine the level of health care subsidy you can get. Plan to avoid large-sum withdrawals while looking for intermittent health care by taking them in the year(s) before or after you retire, and putting that money aside in a liquid savings account.

📌Strategy #3 – Build a cash cushion: In the year leading up to retirement, continue putting additional savings in your liquid savings account, as well as any capital gains from taxable investment accounts. The end goal is to build up readily available cash which can be tapped for health care expenses until you can apply for Medicare.

The reality: Health insurance prior to Medicare doesn’t have to cost a fortune, and you might be surprised that with some good planning, it could actually be cheaper than Medicare.