Thinking About Retiring at 55? The Hidden Health Insurance Trap You Must Plan For.

Source Motley_fool

Key Points

  • At 55, you may be able to tap your 401(k) without an early withdrawal penalty.

  • While that flexibility might help you retire early, you won't be eligible for Medicare for another 10 years.

  • Before you make an early workforce exit, consider the cost of staying insured for a decade.

  • The $23,760 Social Security bonus most retirees completely overlook ›

Early retirement isn't an easy thing to pull off. But if you've built a lot of retirement savings, you may find that you're able to leave the workforce well ahead of your peers.

Now one thing you should know is that if you try to tap your IRA or 401(k) before age 59 1/2, you'll typically face an early withdrawal penalty of 10%. But there's an exception to that restriction.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »

A person at a desk.

Image source: Getty Images.

If you have a 401(k) and separate from your employer in the calendar year you turn 55 or later, you're typically allowed to take penalty-free withdrawals from that workplace plan only. This exemption does not apply to 401(k)s through former employers or IRAs.

As such, with enough savings, retiring at 55 may be doable. But if you're going to go that route, there's a big expense you'll need to plan for.

Don't let healthcare costs derail your early retirement plan

If you're used to getting health insurance through your employer, retiring at 55 might leave you paying for coverage on your own. That's because Medicare eligibility typically does not begin until age 65.

In other words, you could get stuck paying health insurance premiums for a whole decade if you leave your job at 55 and don't have a spouse with a workplace health plan you can join. And that cost could easily sink an otherwise solid retirement budget.

Now if you're wondering how much it costs to buy your own health coverage for 10 years, the answer is, there's no particularly easy way to tell. That's because insurance premiums can vary substantially based on factors such as your specific age, your prescription needs, your desire to retain access to specific in-network providers, and your geographic location.

But suffice it to say that if you end up having to cover the cost of health insurance premiums following an early retirement, that may end up being your single largest recurring expense (unless you happen to have an exorbitant mortgage to boot). So your best bet is to do your research before you leave your job at 55 and at least try to narrow a range of costs you might be looking at.

Also keep in mind that premiums and out-of-pocket costs often have an inverse relationship in the world of health insurance. The less you pay for one, the more you might pay for the other. So even if you're able to find a so-called low-cost plan, less expensive premiums may come at the expense of higher deductibles and copays.

Don't get caught off guard

A lot of people know to factor in Medicare costs once they retire. If you'll be leaving the labor force at 55, don't expect the cost of health insurance to mimic that of Medicare during that 10-year gap.

In reality, your costs could be a lot higher. The better you research and plan, the less surprised and stressed you're likely to be.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Market News Today Australia: Nasdaq Sinks 2.6%, Gold Slides as AI Stocks Sell OffNasdaq falls 2.6%, gold drops below $4,100 and oil rises as AI spending fears grow. Explore today's Australian outlook for AUD/USD and the ASX 200.
Author  Mitrade Team
Yesterday 02: 44
Nasdaq falls 2.6%, gold drops below $4,100 and oil rises as AI spending fears grow. Explore today's Australian outlook for AUD/USD and the ASX 200.
placeholder
Bitcoin Price Erases Two-Day Gains After $85,000 Rejection: Will it Fall to $80,000?The Bitcoin price has erased its two-day gains after a rejection near $85,000. Bitcoin (BTC) slid about 4% to an intraday low of $81,652 on Bybit.On-chain data and price charts now point to $80,000 as
Author  Beincrypto
Yesterday 01: 31
The Bitcoin price has erased its two-day gains after a rejection near $85,000. Bitcoin (BTC) slid about 4% to an intraday low of $81,652 on Bybit.On-chain data and price charts now point to $80,000 as
placeholder
Is the XRP Price Heading for a Major Crash? Whale Inflows Hit a 7-Month HighXRP whales sent $112.4 million to Binance, the highest inflow level in seven months, according to crypto analysts. The move signals rising selling pressure from large holders.However, fresh data sugge
Author  Beincrypto
Yesterday 01: 31
XRP whales sent $112.4 million to Binance, the highest inflow level in seven months, according to crypto analysts. The move signals rising selling pressure from large holders.However, fresh data sugge
placeholder
Market News Today Australia: Nasdaq Rallies, Gold Rebounds as Meta Earnings BeatNasdaq rises 1.05%, Meta reports strong earnings and gold rebounds. Explore today's Australian market outlook for oil, AUD/USD and the ASX 200.
Author  Mitrade Team
Oct 22, Thu
Nasdaq rises 1.05%, Meta reports strong earnings and gold rebounds. Explore today's Australian market outlook for oil, AUD/USD and the ASX 200.
placeholder
Is Bitcoin on the Verge of a Deeper Correction? The S&P 500 May Hold the AnswerBitcoin is consolidating near $82,000 to $83,000 after retreating from recent highs above $87,000. A new CryptoQuant analysis warns that the S&P 500 is showing similar weakness.Analysts are split on w
Author  Beincrypto
Oct 22, Thu
Bitcoin is consolidating near $82,000 to $83,000 after retreating from recent highs above $87,000. A new CryptoQuant analysis warns that the S&P 500 is showing similar weakness.Analysts are split on w
goTop
quote