Peter Dunn

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

People say scary stuff to me all the time. They exclaim audacious goals and risky propositions. Frequently, their frightening financial declarations are wrought with short-term risks and an air of temporary discomfort, but every once in a while, I hear a phrase that sends shivers down my spine because I know what a mistake it can be. Darryl, you said one of those not-so-magical magical phrases — "I’ve always had insurance through the company, and I’m not quite sure what buying my own insurance looks like."

If you don’t have a retirement health care plan, you don’t have a retirement plan.

A quick perusal of health insurance premiums for a 55-year-old couple in Detroit yields a stark realization — anyone who chooses to retire at 55 better have a ton of retirement income earmarked specifically for health insurance coverage. Premiums for very basic coverage ranged from $800 to $1,500 per month.

Even people who retire with health care benefits from their employer have reason to be concerned. In the fall of 2015, a report revealed that major U.S. companies could save an estimated $3 trillion by pushing workers and retirees to secure health care through the ACA (Affordable Care Act) exchanges. For example, let’s say you retired at age 55 from the place you worked for 32 years. When you retired, you were allowed to continue with your health insurance provided by your employer. That coverage may have cost you a few hundred dollars per month. But if companies start to push retirees toward the exchanges, a few hundred dollars won’t be enough to cover the cost of insurance via the exchange. Several Fortune 500 companies have already begun this transition, and their retirees are paying the price.

Darryl, per your statement, not only will you have to reduce your spending in retirement because of your lower monthly income, but you will also need to account for the increase in health care costs. That could be a swing of $3,500 per month or more. It is highly unusual for a person to be able to change spending habits that significantly transitioning from working to retired in just a four-month period.

There’s no doubt Americans are behind the eight ball from a retirement savings standpoint. Every year we’re bombarded with statistics suggesting our lack of accumulation will be our retirement downfall. While that is likely true, the cost of health insurance in 2016 is nearly as devastating. For “everyday Americans,” early retirement is a pipe dream because of the cost of health insurance. It’s hard enough to retire at 55 without having to worry about an additional $18,000 per year health insurance price tag.

There isn’t a set retirement age in the United States, but because of the cost of health insurance, I consider access to the less expensive Medicare at age 65 to be the realistic barrier of entry. Medicare isn’t necessarily free, but the cost pales in comparison to insurance obtained through the health care exchanges.

I know you didn’t give me a ton of info to go on, but Darryl, if I were you, I wouldn’t retire in May. Very few people can handle a negative income swing of $40,000 at age 55, especially when a person has legitimate doubts about his ability to retire. However, if you can generate $12,000 to $18,000 in excess annual income to cover health insurance come May, then you may have an outside chance to call it a career.

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