I found an excellent article about obtaining health insurance in early retirement on Yahoo Finance this week. It reminded me that I wanted to go into a little more detail about what I learned when I started seriously preparing for early retirement. Health insurance is one of the most concerning areas for early retirees who will not have a group policy available to them.
I’ve written before about what I do for my own health insurance. But before I settled on a plan, I did a lot of reading and research and that was quite an eye opener. I knew I would be paying more for a less comprehensive health plan than I had from my employer, and I was OK with that. I did not know how difficult and outrageously expensive it can be for some people to obtain an individual policy. I also did not realize that often times when you are quoted a premium on some of the websites like eHealthInsurance, those rates apply to only the healthiest individuals. After you submit your detailed application and are approved, your premium may be higher than what was originally quoted on the site. After I submitted my application, for example, I received an acknowledgement and also was told that many applicants pay about 30% more than the “best case” premium. I was very fortunate; I obtained the lowest rate. Apparently, though, not all applicants are so fortunate.
Here are some of the important things I learned as I researched individual health insurance.
1. Location Matters. Plans and premiums vary enormously from state to state. I will talk more about why this is another time, but in short, some states “pool” all applicants regardless of health history, requiring that the insurance companies offer insurance to everyone. The result of this, while beneficial to someone with a complicated health history, is that those in good health end up paying more. And it turns into a vicious cycle - some healthy individuals, balking at the cost of policy, either go without or leave the state. Which makes the “pool” a more concentrated group of unhealthy individuals, driving rates up further.
This means that if you are thinking of moving out-of-state, you’d better do your homework ahead of time and determine what rates will be for you in the new state.
2. Exclusions are more Common than I Thought. I had heard vague discussions about exclusions for pre-existing conditions, but didn’t realize how hard it can hit someone obtaining an individual policy. In a group policy, such as an employer may offer, this tends to be less of an issue. But when you apply for your own policy, the insurance companies ask for a fairly exhaustive health history and pinpoint areas of potential expense to them. Again, I believe this may vary from state to state, but companies may identify and exclude certain health problems for a specified period of time (or permanently). I had always assumed that this would apply to major health issues such as heart disease, diabetes, or cancer, and was shocked when it was applied to me as well. When I submitted my application, I was careful to list every doctor’s visit for any reason in the requested time period. One small issue I had dealt with a couple of years prior was tendonitis in my thumb. Imagine my surprise when I learned that my policy, if I accepted, would exclude tendonitis of the hand and fingers for about a year. This was not really a big deal to me but drove home the point that the insurance company may exclude a wide variety of conditions, and obviously some of these could have a major impact on your finances.
3. Be Thorough and Precise on your Application. I felt almost paranoid as I filled my application in, fearful that I would forget some minor medical issue that had cropped up in the past few years. Why was I so worried? Because I’ve read stories about insurance companies refusing to pay claims (and dropping the policy) for an individual that may have left something off their initial application. These stories may be rare, but it does underscore the importance of providing a detailed health history when asked.
4. Premiums Online May not be what You Get. As I mentioned above, your premium may be higher than the rate first shown on a website. This is why it is important to really research the facts before you retire.
5. Your State might have a High Risk Pool. I also learned that some states in the US have a high-risk pool policy, a sort of policy of last resort. If you cannot obtain coverage through an individual insurance carrier, you may be able to obtain a policy (typically a high-deductible policy) through your state. Although I did not fall into this category, I was curious and researched availability in my state. I found there is a high-risk plan available, only to individuals who cannot be covered elsewhere, and that the premiums were not as high as I expected. Again, this will vary considerably from state to state.
6. HIPAA gives you specific rights. It is a good idea to familiarize yourself with HIPAA and the rights it gives you.
7. COBRA may be an option for 18 Months. For those who are leaving an employer’s group policy, you may have COBRA rights that will enable you to continue your policy at your own expense for 18 months. Since I knew I would need insurance for much longer than 18 months, I didn’t bother with this, but it could be helpful if you only need coverage for a short period of time, or if you need it as a “bridge” until you obtain another policy.
In summary, what I would advise anyone thinking about early retirement would be to start researching cost and availability of individual health insurance long before your expected retirement date. In fact, I would go one step further and say that you should probably actually apply for the policy you are interested in, to determine whether you will be approved, what exclusions might be applied to your policy, and what your premium and deductibles would be. I applied for insurance about 4 months before I left my employer’s plan, and had overlapping policies for about a month. Although I hated to waste the money on the unnecessary premium I paid for that month, it was the best I could do to time the policy so that I had assurance of a plan in place before I absolutely had to have it.
And a final word - I have no expertise in the area of health insurance, only my own experience and the research I have done. I strongly discourage you from making any decisions based on my experience alone. Rather, I encourage you to thoroughly research your own options for health insurance well before you need it.
Tags: planning
Welcome new readers coming over from the MSN Money Smart Spending article. You may be interested to see the original article referenced, When What you Really Want Costs More: Is the Price Ratio Worth It?. Please feel free to look around; I hope that you will find something of value here. If you are interested in being notified of future posts at Retired at 47, please consider subscribing to the RSS feed. Thanks!
Long before the internet was a household word, I was a mail order shopper. The old-fashioned way, from glossy color catalogs and brochures. It probably did not save me any money, but it did save time and was so much more convenient. Admittedly, I do not enjoy shopping in stores (I know, this is somewhat odd for a woman, but there it is). What drives me up the wall when shopping in a store is finding the perfect item but then not finding it my size. Or my color. When I shopped by mailorder (and now on the internet) I could just specify what I want, in the color and size. Either they have it or they don’t, but I don’t have to go on a wild-goose chase through the racks.
Now, though, I think I can honestly say that there are so many advantages to shopping on the internet that you can really save money. The following list is the top 5 ways the internet saves me money:
1. Comparison Shopping - With a search engine and knowledge of a few competitive sites, I can easily compare prices and shipping. Often, I can read other customer reviews to determine quality and customer service as well.
2. Discount Shopping - Amazon, Overstock, eBay, you name it. It is so easy now to find a ready-made sale.
3. Search for Coupons & Discounts - When getting ready to make a purchase online, I do a quick search to see if there are any coupons or discounts being offered. About half the time, I find something. Sometimes it is a percentage off, sometimes dollars off, sometimes free shipping. Definitely worth the extra few minutes of my time to look. And for those merchants that I visit on a regular basis, I sign my email up with them. I periodically get notified of special offers and free shipping that way.
4. Save on Gas - With the cost of gas, driving around town to shop is no longer an insignificant cost. Although you often pay shipping when shopping online, with perseverance you may be able to find a free shipping offer.
5. Minimize the Impulse Purchases - Yes, it can still happen on the internet but it is not as likely. That adrenaline rush doesn’t usually kick in as fiercely when looking at a website as compared with being face-to-face with the new object of our desire. For most people, it is easier to look away from the website than walk away from the store. The one thing the internet purchase cannot give you is immediate gratification, and this is frequently what we need to satisfy the “buyer’s high”.
Remember, though, when shopping on the internet to only shop with a trusted vendor. When I make purchases on eBay, I use PayPal so that my credit card information is protected. And make sure that you are on a secure website before ever giving out your credit card information.
Syd at Retirement: A Full Time Job wrote a great post last week about mistakes she made on her way to early retirement. Like me, she retired in her 40s and blogs about her experience getting to and enjoying early retirement.
I’ve been intending to write a post about some of the big mistakes I made along the way as well. I think it’s important to realize that we can make mistakes, really big mistakes even, and rebound from them. Did they cost me anything? Absolutely, some cost me big bucks and added to the years it took to get here. In fact I’m pretty sure that if I had started planning earlier and not made some of the big mistakes, I could have retired considerably sooner. But that is water under the bridge, and I’m here to admit some of what I did wrong so maybe you won’t have to.
I worry sometimes that, when I talk about personal finance, frugality, and early retirement, it could come across as preaching. I would hate to think that’s true; I respect the choices that others make, even if they are not mine. Many people ask me how I was able to retire at such a young age and I really like to share my thoughts and experience on the matter. My way is most definitely not the only way. Perhaps the most important message I can impart is this: it is your focus on the goal that matters most. Mistakes happen, and some may be costly ones. If you can stay focused and not let those big mistakes derail your dream, you can still get there (although you may have to make adjustments along the way).
So, here goes. Some of my big mistakes, although surely not the only ones:
1. I was heavily invested in individual tech stocks leading up to the tech bubble burst of 2000. I was foolish and proud and fancied myself a knowledgeable stock trader. I never added up exactly what I lost, but I think it was in the range of 1/3 of my invested assets. I don’t know what was more painful - learning that I really didn’t know what I was doing, or the years it added to my early retirement plan. So now, when I sing the praises of asset allocation, at least you know why.
2. Not even thinking about retirement until I was in my late 20s. I don’t remember how old I was when I first participated in a 401(k) or retirement plan, but it was not even on my radar until my late 20s. Of course I got serious about retiring when I was 32, but not investing in those early years really cost me.
3. While I was busy not investing for retirement in my 20s, I decided to become a homeowner by purchasing a condo. In addition to keeping me house-poor, it was not a good investment. I remember one of my friends looking at my budget and asking, “but how do you intend to clothe yourself?”! Stubbornly, I went ahead with it and while I was able to make ends meet, I saved no money and ultimately lost money when I was finally able to sell the place. I think I let the romantic notion of homeownership cloud my judgement on the value of the investment.
4. Leaving too much money “hanging out at the bank”. I am still a little guilty of this. Money that is not invested in stocks and bonds still needs to be put to work. I need to remain vigilant about evaluating (and regularly re-evaluating) good solutions for liquid/cash investments. I have to remember that money not earned is as costly as money spent.
And one more thing they we may not necessarily think of as a financial mistake, but was certainly a life-event that had financial ramifications, was a divorce in my early 30s. I was fortunate to be able to share in half the gain in the home we owned, but I have had friends who were unlucky in the timing of their homeownerships; they purchased a home at or near the peak of the market, then had to sell at significantly reduced prices. I know several who, while going through a divorce, had to come up with the funds needed to bring to settlement to make up a shortfall when selling their homes. Ouch. So why do I even bring this up? It may seem slightly off-topic, but making a mistake when choosing a partner can have huge financial implications, besides the obvious emotional ones. My ex-husband and I were in our 20s when we married and probably didn’t take the decision seriously enough.
So, maybe you feel better about some of your own mistakes now? I hope this list leaves you with the encouragement that what you need to succeed to early retirement is a goal, planning, and determination. Flawless execution is not required.
Tags: money management, planning
This week’s Festival of Frugality was hosted by Living Almost Large. It is a clever edition with inclusion of some celebrities who are notably frugal. Some of my favorite frugal stories this week include:
I’ve had a fascination with Tumbleweed Houses ever since I first learned about them, and love hearing stories about people living in tiny spaces.
A good reminder to keep an open mind and keep looking for cheaper but acceptable solutions.
I love stories like this. It gives me hope that living beneath our means will become mainstream someday.
And my story, Can I Still Fit in If I’m Frugal?, was included in the festival.
The Carnival of Personal Finance was hosted this week by The Personal Financier. How many of the “Famous Last Sentences” have you heard? I found myself nodding as I read through them! Some of the particularly good articles this week included:
An excellent list of things we are eligible for or can start doing at various ages. Take notes as you read this one!
Particularly good as it mentions areas we may not examine as often when looking for unnecessary expenses and lost possibilities for discounts and rewards.
I am happy to say that my article, Forget About Doing what You Love, was included in the carnival.
A tremendous amount of work goes into putting these carnivals and festivals together; many thanks to The Personal Financier and Living Almost Large for jobs well done!
