Early Retirement Costs You Might Have Missed and How To Save For Them
Mar 27, 2015
Retiring early is the dream. You get to spend more time with your family and enjoy your hobbies while you’re healthy enough to do so. You can say goodbye to the workday world and begin your permanent vacation.
However, a new study released in June 2014 by Fidelity Investments warns retiring early might cost you in ways you didn't expect. At Widget Financial, we want to make sure you are prepared for the additional costs you can expect to pay, such as an extra $17,000 per year in medical expenses.
The reason for these extra costs? Medicare coverage gaps. You give up your employer-provided health insurance when you retire, and Medicare doesn’t kick in until age 65. This means you’re on your own at a time when your health care costs are near their peak.
As a savvy credit union member, you know the advantages of planning ahead for your golden years. Let’s look at a few ways you can avoid sticker shock at your retirement party:
1. Short-term insurance
One popular option is to look for an emergency-only or high-deductible insurance plan (HDHP). These plans feature inexpensive monthly premiums, but offer little in the way of coverage. These budget-friendly insurance options are great if private health insurance is too expensive.
This option is best if you’re retiring just before age 65. You can afford a few months of risk before Medicare coverage starts. However, you’ll still want another savings option to help with massive medical bills.
2. Open a savings certificate for major medical expenses
You likely use savings certificates to keep an emergency fund on hand. These savings instruments are ideal for building up money in case of a rainy day. You may want to create one specifically for your health care costs.
A 6- or 12-month certificate provides the perfect combination of accessibility and growth. Once you turn 65, you can add your remaining funds to your other retirement savings or even use it to finance a vacation!
3. Open (and use) a Health Savings Account
A Health Savings Account (HSA) is a special tax-advantaged account for your savings that allows you to defer taxation on the money. The idea is that the money you spend on health care costs shouldn’t be taxed. So, you can save money to pay premiums, deductibles and other healthcare-related expenses.
Planning for your future health care costs can be scary, but it’ll be much scarier to go into retirement unprepared. Sit down with a representative from your Widget Financial today to discuss how you can save for your health care in retirement. You’ll thank yourself later.