Early Retirement Checklist Part Two: Insurance, Family, and Social Considerations Prior to FIRE

We recently reviewed the many monetary considerations one must entertain before choosing to retire early. For one, you must have enough of it, but there’s a lot more to it than that.

For the details, please revisit Early Retirement Checklist Part One: Money Considerations Prior to FIRE.

Retirement is much more than solving a math problem, and today we shift our focus to some of the other items that should be on the forefront of your mind if you’re considering an early exit from the land of the working.

Insurance tends to be at the top of the list of conundrums for many would-be early retirees, particularly health insurance, although there are additional insurance questions that should be addressed.

Those insurance issues are more or less money issues, too, but there are a host of family and other social concerns that ought to be contemplated before taking the big leap. Today, we’ll touch on those, as well.

 

Early Retirement Checklist Part Two: Insurance, Family, and Social Considerations Prior to FIRE

 

Health Insurance in Early Retirement

 

I know many people — far too many people — who continue to work solely for their employer-provided health insurance.

It’s a big deal.

And it’s often the first question that comes up when people contemplate the difficulties of FIRE. “But what will you do for health insurance?”

The answer: pay for it.

Buy some healthcare coverage. It’s not one simple trick, it’s not sexy, and it’s not what anyone wants to hear. But it’s what you’ve got to do.

For roughly the first half of my 13-year career in anesthesia, that’s what I did. I was an independent contractor paid via 1099 and I purchased an over-the-counter Blue Cross Blue Shield health insurance plan.

For the latter half of my career, I was an employee, and my employers subsidized the premiums for my health insurance coverage.

Now that I’m reverting back to a self-employed individual, I had to go shopping.

 

Healthcare Sharing Ministries

 

I considered healthcare sharing ministries. These are not true health insurance, but are cost sharing programs that mimic insurance in many ways.

There are notable differences, however. Most require you to attest to religious beliefs, typically Christian. With those leanings, they typically will not cover costs related to “unholy” activities such as premarital sex, drug abuse, or excessive drinking.

Depending on the plan, there may be a cap on how much of your healthcare costs will be shared with other members.

On the positive side, these plans cost quite a bit less than standard health insurance and there are more than a million satisfied members of these plans, some of which have been around for decades. Also, you’re not tied to a particular group of physicians or any geographic location. There’s such thing as a facility or doctor who is “out of network.”

While I took a close look at this option, I opted not to join.

I’ve got kids who will soon be teenagers and I’ve been known to enjoy a beer or two. I sincerely hope we’ll never have to deal with any medical issues related the unsavory issues mentioned above, but I can’t guarantee it’ll never happen, either. Insurance is meant to be a safety net, and this type of net had too many gaping holes for this fisherman.

 

 

Traditional Health Insurance

 

In early 2018, I published a guest post on the upcoming availability of short-term and catastrophic health insurance plans without penalty starting in 2019.

I briefly looked into short-term plans, but they have some serious shortcomings, like lifetime and annual caps that can be quite low and major gaps in what they actually cover.

A catastrophic plan is more appealing to me. That’s what true insurance is meant to be — protection from financial ruin from a rare but potentially catastrophic event. I can afford to pay for routine care costing hundreds of dollars or surgeries costing thousands, but a multiple-six-figure or seven-figure tally from cancer treatment or a lengthy ICU stay could definitely be disruptive to our financial future.

Essentially, catastrophic coverage is what you get with a bronze plan via the healthcare exchange. You also get the benefits that every ACA-eligible plan must provide, including an annual preventive care visit and no denials based on pre-existing conditions.

Some of these plans also offer the ability to make Health Savings Account (HSA) contributions. I’ve been maxing out an HSA for a number of years, and the ability to continue doing so is appealing. Healthcare sharing ministry plans cannot offer this benefit.

Finally, most retirees will qualify for subsidized insurance. If your income is under four times the poverty level based on your family size, you can expect a subsidy to help pay the cost of an ACA plan. This is where tax planning (see Part I) comes into play. If your modified adjusted gross income (MAGI) is one dollar over a cliff, you may end up losing a healthy subsidy.

Since I’m not a typical retiree — I expect to continue earning a decent income, I don’t anticipate qualifying for a subsidy. But I did choose an ACA plan — a bronze plan with HSA — it will initially cost us $909 per month for a family of four, or about $11,000 a year, unsubsidized.

 

Life Insurance

 

The most popular form of life insurance for readers of this blog will be term life insurance. It’s cheap (compare rates here) and serves a singular purpose. If you die, your heirs will be financially independent after collecting the proceeds. If you’re retiring early, you should already be financially independent even with you alive and kicking, making this insurance redundant.

If you’re still paying those premiums, I would consider stopping. Your policy will lapse and that’s maybe another $50 in your pocket every month.

If you have the other kind of life insurance, which would be some form of cash value life insurance that can go by any of a bunch of different names, re-evaluate whether or not it makes sense to continue owning this policy (or if it ever did in the first place). The answer in both cases is likely “no,” but if you’re looking at an estate tax “problem,” there may be a good reason to keep it.

If you’re ready to move on from your policy, The White Coat Investor has some thought on how to dump it.

 

Disability Insurance

 

Much like term life insurance, I see little reason to continue paying to insure your income after reaching financial independence. If you don’t need the income to enjoy the life you’re leading, you don’t need the costly insurance on it, either.

An argument can be made that a severe injury could leave you handicapped and make your life more expensive than it was before. If you feel the odds of that happening are high enough and you don’t have enough of a cushion in your portfolio to absorb any extra costs, you can do as you wish.

Also note that after retiring, your own-occupation policy becomes a total disability policy. That is, it will only pay benefits if you can’t do any job since you voluntarily left your own occupation on your own free will.

 

Umbrella Insurance

 

You’re wealthy. That makes you a target. Don’t put your millions at risk when you can get umbrella insurance to protect those millions for a couple of hundred dollars per year.

 

Insurance Costs

 

It can be difficult to model your annual insurance budget in early retirement. The only constant you can expect is change.

Dropping term life insurance can save you a little. Dismissing disability can save you a lot.

It’s best to plan on health insurance costs rising faster than inflation, and the costs increase as you age, also. If a new national healthcare policy is adopted, this could change drastically. Otherwise, be prepared to budget up to $20,000 to $30,000 a year or more for so-so healthcare coverage depending on where you live and the size of your family.

If, like me, you’ve got kids cruising the neighborhood on their bikes, understand that when they transition to cruising Main Street in your hand-me-down cars, your auto insurance premium will skyrocket, as will the cost of that umbrella policy.

 

Where There’s a Will…

 

Many employers offer free legal services, including the creation of a will. Before you walk out the door for the last time, be sure to take advantage of any such benefit you may have. This is also a good time to revisit estate planning in general,  updating your will and/or trust if need be.

 

 

Social and Family Considerations

 

Much like the money issues we discussed previously, these are boxes that you begin to check years before you actually pull the trigger and give notice that you’re leaving your job.

 

Retire On Something

 

The common quotable is that you should retire “to something.” I’ve also stated you should retire on, with, from, under, before, in and for something.

The gist is that retirement should be as much or more about what you plan to do next than being done with what you were doing before. Your days and weeks don’t have to be fully scheduled, but developing hobbies and interests that warrant further exploration is something you should do before dropping from 40+ hours a week at work to none.

 

Have Non-Work Friends

 

If your primary social outlet revolves around your work family, be prepared to be lonely when you divorce them all at once. Even if you plan to “stay in touch” at the occasional happy hour or softball game, without the same trials and tribulations you once shared on the job, you may realize you have less in common and not a whole lot to talk about.

Long before you retire, and throughout your life, it’s a good idea to have friends from a variety of backgrounds that share interests that have nothing to do with work.

I’ve found them in places like homebrewing clubs and a curling club. For you, it may be a gardening class, a book club, a gathering wine enthusiasts, or some combination thereof. Running, biking, bowling, praying… whatever you’re into, other people are, too. Find them.

 

“Honey, I Quit my Job.”

 

If your spouse wakes you up frantically on Monday morning, worried sick that you’ll be late for work, and you say, Oh, yeah, about that…” you can expect to be in trouble. And you deserve to be.

I don’t actually think people make these big life decisions on a whim or forget to mention them to their partners, but these are important conversations to have.

How will the family dynamic change after retiring? What household tasks can or should be reassigned? How can I continue to get out of doing dishes for the next fifteen years? These questions need to be answered!

If your partner is also working, what’s his or her timeframe to retirement? If you work longer, will that facilitate him or her retiring sooner? Will being around each other maybe dozens of more hours per week be good for your relationship? Or too much?

Are your finances combined, separate, or partially comingled? Should that change after retiring?

This section has more questions than answers, and the Q&A is going to look different for every couple. If these discussions don’t take place, resentment can build up in surprising ways, as I learned in Work Optional. Communication, as always, is key.

 

 

Huge Little Kids

 

If you’ve got little ones at home, the impact of retiring early can be huge for both you and them.

First, you have to recognize that you’ll need more money to retire early when you’ve got to cover the expenses of more than one or two people.

Children need your time and attention, and they also need spendy stuff like shelter, food, clothing, entertainment, and education. I did my best to estimate how much time they’ll add to your working years based on income and spending habits. It’s years, not months. Funding 529 plans alone can add years to your career.

In some cases, though, retiring early to be with your children can save you money. Leaving a low-paying career to avoid paying for childcare for three is likely to be a net-positive in the early years. Homeschooling versus paying for private school is another monetary win.

The non-monetary aspects of retiring early with or for your kids can also be tremendously impactful. Just to see their smiling or scowling faces every morning and evening can be delightful when it’s something you’re not used to being around for.

The lack of regular employment gives you opportunities to do all sorts of things as a family that might not have been possible otherwise. In my first six to seven months of “funemployment,” we’ve got plans to travel as a family to Washington, D.C. and Las Vegas (where I have fall and spring conferences) while spending two months each in Ecuador and Spain in between.

Having two boys increased my financial independence number, but I was also given two excellent reasons to reach it more quickly and to take decisive action once we were comfortably FI.

 

Don’t Forget the Retirement Party!

 

Listening to Jim lament his lack of a retirement party on the ChooseFI podcast, I really felt for the guy. Anyone who had left a positions like his was thrown a proper soiree. Since he was at least twenty years younger than the average retiree, he was essentially disrespected by his boss and punished for being a diligent saver who could afford to retire at a young age.

I say if no one throws you a party, I say plan your own. When I lost my first “permanent” job due to an imminent bankruptcy, the hospital couldn’t afford to send me off with a retirement cupcake let alone a sheet cake or a proper party.

I felt I deserved something, though, so I organized a sendoff of my own at the local brewery. Since I owned a small part of the place, I got a sweet discount on the beers, but I did foot the bill and had a great time. Earlier this summer, as I was packing up our house, I found a gift certificate for a local restaurant in a farewell card from that party that I was about to throw out. My wife and I enjoyed lunch at the place just the other week.

In two days, my department is throwing a retirement party for me. That will be a fun item to check off the list. And yes, the shindig will take place at a local brewery.

 

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What other items would you check off your list prior to FIRE? 

 

19 comments

  • Great post.
    Too many magazine articles about “preparing for retirement” write only about IRAs and 401Ks. That is such a small part of it.

    Financially I could probably quit now (although it makes a lot of assumptions about the future).

    I get so much out of work. Service, challenge, pride in work, friendships, structure, connections, meaning, identity, etc.

    But the benefits are a huge deal as well. Several of us in my family have health issues. I would not be able to get a new individual life or disability insurance policy.

    Similar health insurance isn’t really available to me. If it were, it would be prohibitively expensive.

    There are many reasons I keep working. Some financial, some not.

    For those who know they want to FIRE, this is a great list to think deeply on.

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  • Once again I learned something new. I didn’t know you could still contribute to an HSA after retirement. That’s good to know as I would continue to contribute to an HSA to reduce my tax obligations.

    Health insurance is the big unknown for me. I probably would not qualify for the health sharing ministries anyway, but for those that do it would be an interesting option to consider. There is certainly a “danger zone” between the time you retire early and the time you qualify for Medicare. This can be decades for some so it is a big consideration before you pull the plug.

    • You don’t even need earned income to make HSA contributions, but the higher your income (earned or unearned), the bigger the deduction and advantage of having an HSA.

      It’s good to know it’s an option going forward, though.

      Cheers!
      -PoF

  • Outta here

    Semi retiring in 6 weeks and moving out of state. Have no idea where/how to shop for an HSA health plan. Online? Local broker? Any thoughts.

  • Joel

    Great write-up, and lots to think about. In case you weren’t aware, when your boys start driving, your umbrella premiums will go up — a lot. And unlike auto insurance, there’s no good student discount.

    I would say the main reasons I haven’t retired yet are on the personal side. Fear of losing control of my own time, as odd as that sounds.

  • sean

    You mentioned creating a “Will.” My understanding is that an “Estate Plan” with a “Family Trust” done properly avoids costly probate where a “Will” does not. This is not my area of expertise but that’s what my research revealed when I took care of this a couple of years ago.
    I see a link in your post that redirects to a post that thoroughly discusses this point.

  • I’m a fan of keeping insurance, both disability and term life, until SORR become attenuated about 25% of the way into retirement. So on 60 year retirement you’d keep it 15 years. If the market treats you very well, maybe you can drop it in 10 years. The closer you get to 65 the less you need it but even at 60 there is some benefit in case of a truly catastrophic situation.

    These insurances act as portfolio insurance. Get disabled, the disability kicks in to cover the extra expense of being disabled. That extra expense is in effect a negative SORR on your life and saves the portfolio which may also suffer SORR from the usual sources. You die and your wife is stuck with a lower SS and higher taxes and inflation risk. Some term life will cover her butt in your absence. Why should your wife have to go back to work because you were short sighted? I think may people think FI is a reality when in fact it’s only probable, and it’s worthwhile to groom the probability toward a successful reality. A little disability isn’t all that expensive and neither is some term life. Running out of money would truly suck.

    You can model the extra risk by using Monte Carlo by adding a year or 2 of bad SOR to your projection. I’ve done the modeling and the difference a dab of insurance makes over 30 or 40 years is not trivial if bad juju happens.

    In your case with a continued income it might be less important but I would still consider it

  • tuky

    Great write-up, and lots to think about. In case you weren’t aware, when your boys start driving, your umbrella premiums will go up — a lot. And unlike auto insurance, there’s no good student discount.

    I would say the main reasons I haven’t retired yet are on the personal side. Fear of losing control of my own time, as odd as that sounds. insurance

  • Jim @ MSW

    Great post. The only thing I would add about the health insurance plans is to point out what I think is the best benefit of them, which is the pre-negotiated rates with the provider network associated with the plan. Those discounts over the “rack rate” charged by providers can be substantial – I have seen bills where the “negotiated rate” for a service was less than 10% of the billed rate. (That is batsh** insane BTW, but I’m guessing that you already know that – and besides, that’s another post!) You could probably negotiate a discount yourself over that rate, but having that already taken care of seems helpful.

  • RocDoc

    Your analysis of FIRE health insurance is very helpful here. I also was not comfortable with the holes in the Health Sharing Ministries plans. I have no problem covering tens of thousands of dollars a year for surgeries or tests or physician visits. But it’s the hundreds of thousands or millions of dollar health disasters that would dent my retirement coffers. Your catastrophic type bronze ACA plan with option for HSA contributions sounds like what I will pursue once I retire. Thank you for doing this great research. Healthcare in retirement has been my biggest concern because it’s a moving target of unpredictability.

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  • Great checklist! I would add setting aside time — whether it’s a quarterly check-in or just a point of time in the future and in your calendar already — where you’ll check in and revisit how you feel about retirement now. Other than the financial aspects, like cash flow and insurance, we didn’t make any big plans for this year (our first year in FIRE) except for travel. That’s our retire TO plan for now, though we’ll revisit in a year and see how this year goes and pick additional places to go (my expectation now) or tweak at that point.

  • Working smart toward achieving future status of “FIRE – side hustle millionaire,” so I can earn a 100% living online 24 hours a day! 🙂

  • GasFIRE

    Good analysis, especially covering your healthcare options. I like the idea of obtaining catastrophic coverage using a bronze plan with HSA. My main concern would be is the network adequate for you and your family? In my area it can be quite limited for this level of ACA, especially among specialists.

  • Thank you just for this great blog post. It absolutely was extensively helpful and to the point. I am glad I found this blog through google.

  • This country is full of people who don’t have jobs, but they have an army of kids. They get everything for free without lifting a finger. It’s the American way. Also, if you’re getting all of your income via qualified dividends or capital gains and you’re in the 15% bracket you will pay $0 in taxes on that income.

    • When’s the last time you looked at the tax rates? The 15% bracket no longer exists and the 0% capital gains rate has been decoupled from the federal income tax rates, but it is very close to the 12% bracket.

      I don’t think I would want to live on the income that government assistance provides. I also don’t see how that comment is relevant to this post.

      Best,
      -PoF

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  • I think in general, as a contractor, you need insurance. It’s for the off chance that you get injured or some part of the structure gets ruined. There are a lot of things that can happen that you can’t plan for or predict, but you can have coverage for them

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