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Retirement Planning

Retiring Early? Strategies for Funding Health Care

By July 17, 2023No Comments

For many, early retirement is an important life goal. But even if you don’t miss your work once you step away, you might miss the convenience of employer-sponsored health care. You’ll have to be strategic about funding your health care needs before becoming eligible for Medicare at age 65. Here’s a look at several popular approaches to funding health care following an early retirement.

A Health Savings Account

Health savings accounts (HSAs) offer triple tax benefits plus a way to pay for health care. Contributions are tax-deductible, meaning you can reduce your taxable income by the amount you contribute. The funds in the HSA grow tax free, and withdrawals for qualified medical expenses are also tax free. The funds remain available for qualified medical expenses throughout your lifetime, providing the potential for a long period of tax-free growth.

Individuals can open and contribute to an HSA as long as they meet eligibility requirements including enrollment in a high-deductible health plan (HDHP). Note that once you’re enrolled in Medicare (or any other health insurance option such as those discussed below), you’ll no longer be able to contribute pre-tax dollars to your HSA. However, you can still use accumulated HSA funds for eligible medical expenses. After age 65, you can also use the funds for nonmedical expenses.

Coverage Through a Spouse’s Employer

If you’re retired but your spouse isn’t, you may qualify for health insurance through their employer-sponsored plan. Not all employers offer health insurance to their employees’ partners, and some that do impose a surcharge or require the nonemployee partner to pay more for their coverage. You typically must enroll in your spouse’s health insurance within 30 days after your retirement; if you miss that window, you’ll have to wait for the next open enrollment period.

Private Health Insurance

Private health insurance is a common choice for individuals who retire before Medicare eligibility. You can explore purchasing an individual policy directly from insurance companies. You can also compare prices on the Health Insurance Marketplace created under the Affordable Care Act. Wealthier individuals can opt for a high-end plan offering comprehensive coverage that provides access to a wide network of health care providers.

Self-Funding Health Care Expenses

Retirees with substantial wealth may choose to self-fund their health care expenses. Covering medical costs out of pocket provides financial flexibility because money not needed for health care can be deployed elsewhere. This approach can also provide more control over health care choices—not every doctor or hospital accepts every insurance, but they all happily accept cash. One drawback of self-funding is a lack of bargaining power. Insurance providers negotiate rates with health care providers, often lowering costs significantly—but you may not be able to or want to. And, because a serious illness or accident can be very costly, the pay-out-of-pocket option is best for those with hundreds of thousands of dollars available to cover worst-case scenarios.

Consult With Your Advisor

If you’re considering retiring early, your wealth advisor team can help you pinpoint a health care funding solution that best suits your unique needs while fitting well within your broader financial plan.

Because the administration of an HSA is a taxpayer responsibility, you are strongly encouraged to consult your tax advisor before opening an HSA. You are also encouraged to review information available from the Internal Revenue Service (IRS) for taxpayers, which can be found on the IRS website at

This article is being provided for informational and educational purposes only. It should not be construed as an individualized recommendation or personalized advice. Please contact your financial, tax, and legal professionals for more information specific to your personal situation. The information and opinions provided have been obtained from sources deemed reliable, but we make no representation regarding the accuracy or completeness of the information. 

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