Those who keep a close eye on American financial trends for consumers are commonly predicting that a lot more of us will choose to retire early in 2014 and future years. Implementation of the Affordable Care Act means that for the first time in a long while, the financial aspects of health care for those under 65 will not be tightly bundled into those people's employment. It's big news that with the reforms the government built over the past few years, your health insurance won't be tied to your job, and that will encourage not only entrepreneurial activity, but also different models for retirement.
Reports show how health care reform will have a supersized impact on retiring workers who are waiting for Medicare to kick in. Many of these early retirees and others without traditional group insurance plans are on federal COBRA benefits, which are exorbitantly expensive, or purchasing expensive individual private policies through the market. With state insurance exchanges will come regulated prices, protection for pre-existing conditions, and other important elements that can mean greatly reduced expenses for private health insurance, along with much greater access for that pool of people who want to retire before age 65.
Tips for early retirement
Although many will see this kind of announcement as an automatic green light for an expedited exit from the workaday world, there are some specific pieces of advice that individuals or couples can use to plan an early retirement that works.
One of these is to check the actual prices of available private insurance through the state exchanges, while also looking at federal subsidies. Families earning up to 400% of the poverty level can get these subsidies from the government to lower their actual costs -- but getting an accurate price is key before making any decisions about early retirement, according to some reports.
Another big element is to look at the other costs of retirement, including housing, travel, and a long-term lifestyle. Each of us has our own unique plan for retirement. Some have saved their whole lives in order to enjoy their golden years, while others have plans to minimize expenses that will help them to live better on a shoestring budget that might involve Social Security and private savings. In any case, someone retiring early will need more money, to cover more years, from their current age to 65 and beyond.
Taking advantage of retirement options
As retirement nears, individuals can also check out the exact terms of their IRA or 401(k) plans. These tax-deferred accounts allow for tax-free savings but may be taxed according to income when the money is taken out. That means strategic timing is key for making use of the money you've stored away through these efficient investment vehicles.
Alternative revenue streams
This is an important issue for early retirees as well. Even for younger career professionals, finance experts often recommend having diversified streams of income. This recommendation can have a lot of different meanings -- it can apply to a situation in which someone moonlights in his or her own industry or in another field. It can apply to someone putting money into a small farm or other local business on a property, or using capital saved from a job to invest in real estate. Again, having these revenue sources can be great for retirees, so long as the money is not enough to trigger big tax increases in those IRAs or retirement accounts.
Many financial planners cite widely distributed numbers showing that many Americans have not adequately saved for retirement, but the true picture of your finances in retirement involves your specific goals and how much money it takes to support them. Assessing health care costs, planning the use of public and private retirement money, and building a projected budget will help provide realistic results for those who feel like it's their time to leave the nine-to-five world and start enjoying their retirement.
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Justin Stoltzfus is a contributor to WiserAdvisor.