Insurance is a must if you’re retiring early

By Janina Latus Musick

If you're reading this, you're at least dreaming that you can retire early, kick back and live your version of the good life. Your money is well invested, and you and your financial advisers agree that you can cover expenses well into your expected lifespan.

Before you say hasta la vista -- or worse -- to your boss, there are certain gritty realities to consider.

• Reality No. 1: You're not going to get younger during retirement.

• Reality No. 2: People generally don't get healthier as they get older.

• Reality No. 3: Insurance, health and otherwise, is a good thing to have if you're going to get less healthy.

So let's talk about insurance.

Health insurance

If you're retiring early, you're not eligible for Medicare, which kicks in at age 65. And while you may be healthy as a horse now, you're entering an age when, well, medical insurance becomes increasingly important. A very basic health-insurance policy on the open market for a 62-year-old non-smoker will cost you around $300 a month, depending on where you live and what deductible you choose. If you smoke, it jumps to more than $400 a month.

Under laws based on the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly called COBRA, your employer's insurance company has to offer to keep covering you for 18 months after you leave your job, but you have to pay the entire premium, including the part your employer used to pay. That can get expensive, and, depending on your age, it may not last long enough to get you to Medicare. So think about alternatives.

George Gunset retired from his job as a business reporter and editor at the Chicago Tribune when he was 61. It would have cost him $500 a month to keep his existing coverage under COBRA, and he'd only be 63 when it ended. Instead, he picked a less-comprehensive option through the Tribune's retirement program that costs him $300 a month but only covers 80% of his medical expenses. Luckily, his wife Linda, who's younger by a few years, is covered by her employer.

"Remember that you typically have a family policy at work, but when you go to Medicare, it turns into a one-person policy," says Larry Johnson, a certified financial planner in the Chicago area.

There are better deals out there. Like Gunset, your former employer may offer continuing health insurance as part of your retirement package, especially if the company is encouraging early retirement, Johnson says. These policies are more likely to cover pre-existing conditions, too.

You also may find less expensive coverage through a club or association that offers the same benefits at a better price, or better benefits at the same cost, he says. Look to your college alumni organization, your local Chamber of Commerce or your former professional association for a deal.

Dental insurance

For anywhere from about $10 a month for an individual to $60 a month for a family, you can get coverage for everything from a basic cleaning to crowns and gum disease, according to the National Association of Dental Plans. Related products called Discount Referral Plans are membership organizations that make agreements with dentists to give members a discount on services.

The biggest of these, AmeriPlan, charges $11.95 a month for an individual and $19.95 for a family. It also includes discounts on vision, prescription and chiropractic care. Before you plunk down the money, though, figure out if you would save more than the annual membership fee of $143 for yourself, or $239 for your family, on covered services. The companies advertise savings of 25% to 65% on particular services, so if a dental cleaning usually costs $80, for example, it will cost $60 under the discount plan. That saves you $20, but you'll have spent at least $143 in premiums to get that savings.

Medications

Don't forget the cost of medications. You may not be taking any medications now, but, as you age, it's likely you'll be taking maintenance medications for blood pressure, diabetes or high cholesterol.

 1 | 2 | next >