I’ve come across numerous people over the past several years who decided to retire early. Some are people I know, while others are ones I read about or heard about from friends. A common reason given for early retirement is Covid, or maybe an employer closed down or a layoff occurred. Sometimes it’s just because the idea of not going to work every day is appealing and they decide to take Social Security at age 62.
Unless you have a really good pension, a fat 401(k) or fully funded IRA early retirement is often a bad idea. First, you are beginning to spend down your retirement savings five or ten years early, forcing the same savings to stretch five or ten years longer. In addition, Social Security benefits are roughly 30% lower when taken early compared to full retirement age. Another reason it can be a bad idea is health insurance.
Medicare eligibility does not begin until age 65. Even with Obamacare subsidies, retiree health insurance can still cost $3,000 a year or more with a $9,000 deductible. In other words, you cannot afford to get sick, which is what many early retirees are discovering.
One woman told Business Insider she used up much of her retirement savings on two years’ worth of cancer treatments. Then it mentioned her age is 61. Not only is she still four years away from Medicare eligibility. She was not even old enough for Social Security. She is now afraid she will never be able to fully retire.
It’s a story all too familiar for some older Americans: An unexpected health crisis derails their retirement planning. With insufficient help from health insurance or Social Security, medical bills eat up any savings or income they have.It’s another example of how the retirement crisis is playing out among America’s older residents — and a sobering warning for younger workers as retirement savings gaps widen and cancer rates rise.
The American Cancer Society estimates over 2 million new cancer diagnoses and about 600,000 cancer deaths this year in the US, though the cancer mortality rate has fallen since 1991. About 40% of people with a cancer diagnosis deplete their life savings within the first two years, while cancer survivors are 2.7 times more likely to file bankruptcy.
Some people even told Business Insider their Social Security check and pension weren’t enough to get by on and pay cost-sharing for expensive medical care. Too many people don’t take medical costs into consideration when saving for retirement. Medicare coverage isn’t even enough to avoid hefty medical bills due to cost sharing, many complain. One woman who Business Insider talked to estimated she spent more than $1 million on cancer care, much of it out of pocket, and was forced to declare bankruptcy.
Though she’s in remission, she’ll have to keep working. Her Social Security covers her mortgage and not much else.
I’m left wondering how someone could have $1 million in out-of-pocket cancer care, while retired and still be paying on a mortgage. Something just doesn’t sound right.
Like many baby boomers BI spoke with, Marion cut back on discretionary spending like vacations, dining out, cosmetic treatments, and new clothes purchases. Others have drastically reduced spending on necessities like healthy food.
The takeaway from the Business Insider article is that unexpected medical costs in retirement can put a real dent in retirement savings. This is especially true of people who have not planned for retirement or retired early before they have access to Medicare. Ultimately this cautionary tale is about retirement planning, not medical care. Part of retirement planning is making sure you have access to health insurance and the money to pay cost-sharing until you reach Medicare eligibility and after. One family member referred to a 65th birthday as winning the birthday lottery, due to Medicare eligibility. Retirement experts warn that Americans should put more thought into planning for medical costs in retirement.