Early Retirement Costs You Might Have Missed And How To Save For Them

While early retirement is the dream for many, if you plan to retire before you turn 65, there are several costs to consider before doing so.

The reason? Medicare coverage gaps. You give up your employer-provided health insurance when you retire, and Medicare doesn't kick in until age 65. This means you're on your own at a time when your health care costs may be near their peak. Insurance companies charge policyholders higher premiums as they get older, which means they'll claim a bigger chunk of your retirement money.

As a savvy credit union member, you know the advantages of planning ahead for your retirement years. Let's look at a few ways you can plan for the cost of your early retirement:

1. Short-term insurance

One popular option is to look for an emergency-only or high-deductible insurance plan (HDHP). These plans feature inexpensive monthly premiums but offer little in the way of coverage. These budget-friendly insurance options are great if private health insurance is too expensive.

2. Open (and use) a Health Savings Account

A Health Savings Account (HSA) is a special tax-advantaged account for your savings that allows you to defer taxation on the money. The idea is that the money you spend on health care costs shouldn't be taxed. So, you can save money to pay premiums, deductibles, and other healthcare-related expenses.

These accounts have been growing in popularity this year. If your family insurance plan has a deductible of $2,500 or more, you can open an HSA at your credit union. You can contribute up to $7,000 to your HSA per year, tax-free. Many employers also provide matching contributions to HSAs as part of their benefits package.

While withdrawals from your HSA are allowed only for medical expenses, this rule is waived for people 65 or older. While non-medical withdrawals are taxed, the money still grows tax-free. Many financial planners are advocating the use of HSAs as a kind of "shadow IRA." With them, you reduce your current tax burden while saving for retirement.

3. Budget

The best thing you can do to determine if retiring early will work for you is to budget. To get started check out this retirement calculator to learn about what type of savings plan you will need prior to retiring.

4. Meet with our team

Once you have weighed the pros and cons of early retirement, started your budget our team would be happy to meet with you to offer advice, investment options and other services that will help set you up for success. As your financial partner we love nothing more than helping you get to this exciting (and well deserved) point in your life.