What to Do for Health Insurance Before Retiring: ACA Options for Early Retirees

Health insurance can be a daunting aspect of retirement planning, especially in the United States where it’s not universally covered. For individuals retiring early, health insurance costs can be a significant financial burden. However, there are options available through the Affordable Care Act (ACA) that can help reduce these costs.

ACA and Health Insurance Subsidies

The ACA, often referred to as Obamacare, provides subsidies to lower-income individuals and families to help them afford health insurance. The amount of subsidy you qualify for is based on your Modified Adjusted Gross Income (MAGI). MAGI is your adjusted gross income (AGI) plus certain tax-exempt income, such as interest on municipal bonds.

If your MAGI is below 400% of the federal poverty level (FPL), you may qualify for a subsidy to lower your monthly premiums and out-of-pocket costs. The subsidy is available to individuals and families who purchase health insurance through the Health Insurance Marketplace.

For example, if you are a single individual with an AGI of $30,000, your MAGI would be $30,000. This means you would qualify for a subsidy to help you afford health insurance. The amount of your subsidy would depend on your income and the plan you choose.

Tax Bucketing for ACA Subsidies

To qualify for ACA subsidies, it’s important to manage your income carefully. One strategy is to use tax bucketing. This involves distributing your assets among different types of accounts, such as pretax, Roth, and after-tax accounts. By controlling the amount of income you draw from each account, you can optimize your MAGI and qualify for the maximum subsidy.

Planning for Healthcare Costs

Besides subsidies, there are other ways to plan for healthcare costs in retirement. Here are a few tips:

– Estimate future medical expenses: Determine the potential cost of health insurance premiums, deductibles, and other out-of-pocket expenses in retirement.
– Build an emergency fund: Have a dedicated fund set aside for unexpected medical expenses.
– Consider long-term care insurance: Long-term care can be a significant expense in retirement. Consider purchasing long-term care insurance to cover the costs of assisted living or nursing home care.
– Downsize your home: If your house is too large or expensive to maintain, consider downsizing to a smaller home with lower property taxes and utility bills. This can free up funds for healthcare costs.
– Work part-time: If your retirement savings are limited, consider working part-time in retirement to supplement your income and cover healthcare expenses.

Remember, health insurance is an essential part of retirement planning. By taking advantage of available options and planning carefully, you can ensure you have access to quality healthcare without breaking the bank.

If you’re considering early retirement and are unsure about your health insurance options, seeking professional guidance from a licensed insurance agent is highly recommended. They can help you understand your eligibility for ACA subsidies, develop a tax-efficient retirement income strategy, and find the best health insurance plan for your needs.