The FIRE movement is continuing to spread across the United States, with more and more millennials asking themselves whether it’s possible to become financially independent and retire early. I’m working towards FIRE myself — the math suggests I could be financially independent in under a decade, if I continue earning and saving money at my current rate.
But although I can deliberately keep my expenses down by living in a mid-sized city, going car-free, and setting (and sticking to) a budget, there are some big-ticket costs that I just can’t avoid. Health insurance is the big one.
How to do health insurance after early retirement is a big challenge for some FIRE followers. Health insurance premiums can be as expensive as a rent or mortgage payment, not to mention the annual deductible — so people in the FIRE community are actively trying to figure out ways to bring down the costs. Here are a few of the ways that early retirees are handling their health care expenses.
Buying health insurance through the Affordable Care Act
The Affordable Care Act (ACA), which allows people to purchase qualified health insurance plans on their own, has been a boon for early retirees. Before the ACA, many people could only find good health insurance through their employer; although there were a handful of health insurance plans available for individuals, they tended to be significantly more expensive and/or provide much less coverage.
This isn’t to say that ACA health insurance plans are cheap, or even moderately priced. As a freelancer who uses the ACA to stay insured, my Bronze plan comes with a $442.83 monthly premium and a $6,200 deductible, though I’ve been able to get that premium reduced thanks to health insurance subsidies.
Sam Dogen, who retired at age 34 and blogs about early retirement at Financial Samurai, also gets health insurance through an ACA plan. “My family went through a broker and decided to go with a Platinum plan for the family of three. The cost of the plan is $1,760 a month, as we do not qualify for subsidies. We feel paying $21,120 a year in healthcare premiums is outrageous given we are a healthy family who never goes to the doctor, so far. However, we realize that it’s our duty as healthy Americans to help subsidize the less healthy and less wealthy, so we are fine with it.”
Many Affordable Care Act health insurance plans, including mine, are high-deductible health plans (HDHPs) that are paired with a health savings account (HSA). A HDHP/HSA plan lets you make pre-tax contributions into your health savings account, which, if you wish, you can then invest in the stock market to maximize growth potential. You can withdraw HSA contributions to pay for qualified medical expenses, and anything left in the account when you turn 65 becomes part of your retirement fund.
This means that some financially independent individuals, such as Paula Pant of Afford Anything, use their HSA solely as another savings vehicle. “I don’t use my HSA to cover healthcare costs,” Pant says. “Instead, I use my HSA as a supplemental retirement account. I pay out-of-pocket for healthcare costs, and the money inside my HSA continues its multiyear streak of tax-deferred growth.”
Pant, like me, has a Bronze ACA plan — but hers is considerably less expensive than mine, even though we’re close to the same age. “I opted for the lowest-premium plan available in my state because I’m 35 and generally in good health. My plan costs approximately $235 per month.”
If you’re planning on retiring early and getting your health insurance through the Affordable Care Act, it’s worth asking whether you’re in the best state for health insurance costs. (I live in Iowa, which is not a great place for competitive ACA premiums.) Of course, some FIRE followers take the next step and ask themselves whether they’re in the best country for health insurance costs — or whether they could get better and more affordable insurance elsewhere.
Getting expat health insurance and going abroad
Kristy Shen and Bryce Leung are the authors of Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required. These two early retirees quit their jobs at 31 and now travel the world; they blog about FIRE and travel at Millennial Revolution.
Shen and Leung also do health insurance a little differently than most people. Instead of taking out an ACA plan, they signed up for expat insurance. As Shen explains: “We chose IMGlobal for expat insurance because they have the best value for money. They have a flat insurance rate and there’s no penalty for picking a shorter time frame. This is great for us since we can flexibly choose to buy the insurance monthly or for the entire year.”
For the first two years of their travels, Shen and Leung combined their expat insurance plan with a travel insurance plan: “We used World Nomads for travel/medical insurance for the first two years. This is great for those who are doing a gap year and have insurance back home. They cover the cost of temporary medical care and repatriating you back to your home country.”
If you’re also interested in traveling after you FIRE, taking out an expat insurance plan could be a lot less expensive than trying to get insured through the ACA. Healthcare is often less expensive overseas, after all — so it makes sense that expat health insurance would be less expensive as well. Be aware that some plans limit the amount of time you’re able to spend in the United States; lose your expat status, and you lose your health insurance.
Finding other creative solutions to health care coverage
Some early retirees get even more creative with their health insurance plans. On Reddit, for example, one early retiree describes how he enrolled in a master’s program to take advantage of student health insurance — and is taking a deliberately low course load to maximize the time he can remain covered as a student.
Other financially independent individuals do what’s called “Barista FIRE,” in which they find an employer that offers health insurance to part-time workers — such as Starbucks, which is probably how this method got its name — and work the minimum number of hours required to remain both employed and insured. And some early retirees might have a spouse with a job they enjoy. Although the family could be financially independent without the spouse’s income, the spouse keeps the job and the health insurance coverage.
People who FIRE often start their own businesses after they retire. Depending on the type of business they set up, they may be eligible to take advantage of the health insurance plans offered to small business owners. These health insurance plans are generally less expensive than individual or family ACA plans, and a few states even let freelancers or solopreneurs take advantage of small business group health insurance — another good reason to think carefully about where you’re going to live after you FIRE.
You should also think about any additional types of insurance you may need after you retire — and yes, that includes life insurance. As Tanja Hester, who retired at 38, told us in an interview on how to live a work-optional life: “You shouldn’t assume that, just because you’re financially independent and don’t need to work anymore, there’s no place for life insurance.” So get your health insurance taken care of, and then do the math on whether an affordable life insurance plan will fit into your FIRE budget as well.
Nicole Dieker is a full-time freelance writer. Her work regularly appears on Bankrate, Lifehacker, The Write Life and numerous other sites. She is the author of Frugal and the Beast: And Other Financial Fairy Tales.
This article is sponsored by Haven Life Insurance Agency. Haven Life does not endorse the strategies or movement discussed here. Opinions are those of the individuals interviewed.
Haven Life Insurance Agency offers this as educational information only. Haven Life Insurance Agency (Haven Life) does not provide tax, legal or investment advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your own tax, legal, and investment advisors before engaging in any transaction.