Q&A: I am retiring early. I need health insurance. What should I do?

Q:

I am a soon to be 61 year old full time corporate accountant.  I am single. My plan is to semi-retire age 62, work part time, collect early reduced social security benefits, and to start collecting from my traditional IRA monies.

Major issue with this scenario is maintaining my medical health insurance. I cannot work part time at my current place of employment and continue receiving full medical, dental, vision health benefits. Therefore, I will be open to looking elsewhere for part time employment within the next twelve months.

Feedback regarding part time employment with full medical benefits appreciated. Any specific company or industry maybe I should concentrate? How do I find these companies? What are my best searching methods?  I would like to continue in a corporate environment, but I am flexible. Suggestions, comments, questions appreciated. Thanks!

A:

Yes, healthcare is a big issue for those people retiring before they are eligible for Medicare at age 65.

“Obamacare” is a possibility. However, in my experience, the coverage that you receive from many healthcare providers is less-than-optimal for “Obamacare” subscribers compared with those getting health coverage from traditional large group insurers.

I have found that many health care providers will not offer coverage to those getting individual insurance. That coverage does not have to be directly from the Obamacare exchange. Simply getting individual coverage directly from health insurance companies also seemed to result in providers backing away from offering insurance.

Your best bet is to try to get group insurance. As you mentioned, you’d like to continue working in the corporate sector. As an account, I suspect that it should not be too difficult to find work. You might find it difficult getting health insurance as a part time employee. Employers aren’t required to provide health insurance for part-time employees, even if they provide coverage for full-time employees.

Regarding discounts and subsidies on Obamacare, please be aware that all of your income counts when determining your eligibility for subsidies. This includes interest, capital gains distributions, and dividends. Given the low interest rate environment we have been living in for several years, I suspect that you don’t have too much in the way of interest income, but you may have capital gains and dividends.

If you have your money in an S&P 500 index fund, the fund will throw off both capital gains and dividends each year. If you own individual stocks, especially higher yielding stocks, those will throw off dividends each year. Even lower yielding stocks can result in sizable dividends. For instance, let’s look at Coca-cola. The company has paid a consistent dividend since 1920 and has increased its payout for the past 54 years. Coke’s average annual diivdend growth rate for the past 10 years has been 9%. So even if it was only paying a 3% yield 10 years ago, that 9% annual increase would mean that you would be receiving over 6.5% yield on cost. Several large holdings with sizable dividend yields and large annual increases could result in enough income to minimize of perhaps even eliminate any subsidies in your healthcare costs through the Affordable Care Act.

Of course, any money in your retirement accounts won’t count towards your annual income until you start drawing upon it. You mentioned that you plan to withdraw money from your IRA each year along with your early Social Security benefits. Both of these income sources will impact your ability to receive subsidies as well. Further, you may want to consider holding off on your Social Security benefits. Remember that each year you delay taking your benefits will increase your future benefits by about 8.5%. Of course, if you believe your other investments will outperform these gains, this might not be the prudent decision, but it’s tough to assume more than an 8.5% annual growth rate on your portfolio, especially if a sizable portion is in bonds.

I hope that you are able to find suitable employment during your early retirement years. You may want to approach consulting companies and see if they would be interested in employing you on a part time basis, hopefully with health insurance.

Best of luck

 

originally published: Morningstar

 

 

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