Planning Your Post F.I.R.E. Income and Health Insurance

We have some amazing mentors in the Millionaire Money Mentors forums. Some of them are even accomplished authors!

Over the next couple weeks I’ll be sharing excerpts from some of these authors’ works.

Today we have an excerpt from F.I.R.E. for Dummies — a book that I loved reading and is now my go-to for introducing people to F.I.R.E. 

It’s written by one of the mentors in the forums and makes for a great Christmas present (if you need any ideas).

The section today details two great topics that concern many who are thinking of retiring early — how to manage income and what to do for health insurance.

With that said, let’s get to today’s excerpt…

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Planning Your Post F.I.R.E. Income and Health Insurance

The F.I.R.E. community gets all kinds of pity from people who think we’re just out of luck when it comes to having money to live on. That’s because the conventional thinking is that income can only come from retirement accounts that require you to be 59.5 or older. Epic myth! 

The truth is that F.I.R.E. people — who are some of the smartest people I know — do their homework. So, this question of how to create income to live on in early retirement has been asked and answered a hundred times over. It takes a little planning and forethought, but rest assured there are many ways to do it, as this chapter explains.

Applying the Infamous 4% Rule

Simply put, this “rule” says that 4 percent is the amount you can withdraw from your investments portfolio each year (adjusted for inflation) with little chance of it running out in retirement. In other words, the first year you make a withdrawal, it will be 4 percent. The next year, it will be that same amount plus an extra sum to account for inflation. 

Many opinions about how to apply the 4% rule exist, but don’t let that confuse you or discount it as a reference point. Think of it as a guideline that may require some adjusting. The main adjustment for F.I.R.E. is obviously the fact that you are retiring much younger than the traditional age on which the 4% rule was based. 

The 4% guideline is based on research done in the 1990s by Bill Bengen, using historical returns and inflation. 

Here’s an example: 

• $50,000 in estimated annual spending in retirement 
• $50,000 × 25 = $1,250,000 
• $1,250,000 is your F.I.R.E. number 
• 4 percent of $1,250,000 = $50,000 (+ amount to adjust for inflation each year) to live on when you retire 

As you can guess, there are lots of assumptions factored in to this 4% rule that can make the difference in how well it works. That is the genesis for much of the debate. Here are some factors to consider: 

• The 4% rule factors in inflation, but how much? Some people say 2 percent; others say 3 percent. 
• The 4% rule factors in growth of investments, but how much? Some say
• 6 percent; others say 8 percent. 
• Taxes are not factored in, which may increase your estimated expenses in retirement. If you have tax-efficient investment vehicles, taxes may not be much of an issue. 

Despite the uncertainty of this guideline, the 4% rule is still commonly used because it is simple and offers a good point of reference. Even if you’re retiring early (like in your 40s), I think the 4% rule is still a good estimate to use because there are lots of positives that aren’t considered in the rule that could make your portfolio last even longer. Those possibilities include additional income that may offset what you actually need to withdraw from your retirement portfolio. Here are some examples: 

• Income from part-time work or passion projects (mostly during early retirement years) 
• Passive or semi-passive income from royalties, commissions, or real estate » Pension income (during later retirement years) 
• Social Security income (during later retirement years) 

You can use a calculator to help you figure out your F.I.R.E. number based on the 4% rule. Check out these sites for a few calculators: 

• Mad Fientist FI Laboratory at https://pages.madfientist.com/fi-laboratory
• FIRECalc at https://firecalc.com/
• Playing with FIRE calculators at www.playingwithfire.co/calculators

In addition, your retirement account or brokerage provider usually has a retirement calculator. 

Being the Engineer of Your Income

When you reach F.I.R.E., you are in a unique position to engineer the flow of your income and where it comes from. This also allows you the flexibility to control your taxes on that income. This is a stark contrast to what you were probably used to if your income came from a full-time day job. You had no say in when you got paid or when bonuses hit. 

In this section, I cover creating your own paycheck, living off your investments, and understanding the importance of diversifying the taxes on your investments. 

Getting your “paycheck”

You may feel nervous because during retirement, you may not see a regular paycheck deposit in your bank account like you have for decades. The predictability is no doubt something you will miss.

Without an employer to deposit money on a regular basis, where does your “paycheck” come from? You now make your own through the sources you have so diligently worked to build throughout your F.I.R.E. journey. That may be 

• Royalties, commissions, or other type of passive income 
• Real estate income 
• Investments you draw from 

You can structure your paycheck from these and other types of income. You set up your own schedule for tax withholdings (as long as it follows IRS guidelines). You can “get paid” on a schedule that works for you — it doesn’t have to be every two weeks as it may have been with your job. You may prefer monthly, quarterly, or even annually. 

Annually may not give you enough flexibility throughout the year to shift if needed. This is especially true for taxable transactions like withdrawing from your retirement accounts or selling investments in your brokerage account. 

My first full year of retirement was 2020. Everyone knows what happened in early 2020: the pandemic and the unprecedented economic and financial implications that came with it. Because I was creating a paycheck for myself on a quarterly basis (rather than annually), I was able to shift my finances for the rest of the year to be more beneficial for tax purposes. 

Living off your investments

At some point you will be living off your investments and putting the 4% rule I talk about earlier in the chapter to the test. You spent most of your life in accumulation mode, but now the tables are turned, and it’s time for decumulation. 

The financial shift is obvious: You will need access to a portion of your investments to live on. The behavioral aspects of this process are less obvious. You may f ind some things require an adjustment, such as 

• Taking distributions rather than making contributions 
• Deciding how much to withdraw 
• Allocating your portfolio for retirement 

It’s said that decumulation mode is harder than accumulation mode. My theory for why this is true is that you have spent decades creating the habit of contributing to your investments, and it can be challenging to withdraw from them.

When you’re planning to live on your investments, you can do it yourself or seek a professional who focuses on retirement income planning to help you (see Chapter 8). 

Understanding the importance of tax diversification

Diversification of the tax treatment of your accounts is as important as diversification of the investments themselves. After retirement, you may need to decrease or increase your taxable income in a given year to optimize your tax situation. 

One reason you may need to adjust your taxable income is to qualify for subsidies for health insurance via the Health Insurance Marketplace (www.healthcare. gov). (Read more later in this chapter in the “Getting Health Insurance for Early Retirement” section). If your income is too high, you may not qualify for a subsidy. 

As I mention in Chapter 5, there are a few ways that investment accounts are treated in regard to taxes: 

• Traditional: Pretax at the time you make the contribution but taxed when you withdraw the funds 
• Roth: Taxed at the time of contribution but not taxed when you withdraw 
• HSA: Pretax at the time you make the contribution and not taxed when you withdraw as long as it’s for qualified medical expenses 
• Brokerage account: Only the growth is taxed, but those gains are at a lower rate than your other income 

If you had a high-income year from some sources but you still need funds, you may choose to pull from one of the accounts that has tax-free distributions, such as a Roth IRA or HSA. 

Conversely, if you had a low-income year, it may be advantageous to withdraw from an account that has taxable distributions (traditional) or take advantage of the favorable long-term capital gains from a brokerage account. 

Being able to strategize and make sound decisions based on the tax treatment of different accounts in retirement is powerful. The best way to do that is to have a mix of pre- and post-tax vehicles. So, the great debate between Roth and traditional IRA contributions is settled: You need both!

Building a Bridge: Strategies for Early Retirement

The bridge period is the time in retirement when you can’t access the funds in your retirement accounts without penalty (or you have limited access) because of your age. For instance, if you retire at 40, you’re limited to what you can withdraw from certain retirement accounts until you turn 59.5. (There are exceptions I talk about later in this chapter). 

I probably would have reached F.I.R.E. 20 years sooner if I had a nickel for every time someone has asked me, “What do you live on in early retirement if you can’t touch your retirement accounts until you’re 59.5?” The short answer is there are lot of bridging strategies for getting access to your funds without penalty so you can live on them in early retirement. This is one reason I suggest having some nonretirement accounts if you plan to retire early, and it’s what I help clarify in this section. 

Using a liquid savings account

A liquid savings account gives you easy and immediate access to your money to live on in early retirement. Because it’s a bank account, it’s not going to grow like a stock investment, but it’s also not in as much danger of going down either. Examples of credit union or bank accounts that work for this purpose are 

• High-yield savings account 
• Money market account 
• Certificates of deposit (CDs) with a term that matches when you need it for early retirement 

In 2024, you can find interest rates on these accounts near 5 percent, which is the highest they’ve been for more than a decade. Just remember that rates change. The main goal is having money available when you need it. 

You can start building this account years before you plan to retire. I know it might be hard to look at a large pot of money that is not earning anywhere near what it could earn in the stock market, but I can tell you that it will give you peace of mind to know that it’s there and stable.

Your entire nest egg isn’t in this liquid fund. Depending on your other sources of income, a reasonable amount to have in this account is enough to cover your first one or two years of retirement (and more if you prefer). You don’t want anything to get in the way of you and your early retirement. 

Accessing funds in a brokerage account

A brokerage account frees you from age restrictions, and you can invest inside of it (and will typically have a better return than a bank account over long periods of time). Though you can invest the funds, keep in mind the time horizon that you’ll need part the money. For instance, if you need a certain amount of money in the next two years, you probably shouldn’t have that part invested in the stock market because there’s the risk of those investments going down. 

For investments in a brokerage account, you are only taxed on the growth of the investment. You can choose which investments you want to sell and when you sell them. 

If you have held the investment for more than a year, you will get the favorable long-term capital gains tax rate (see Chapter 15). 

Withdrawing Roth IRA contributions

If you have a Roth IRA, direct contributions you made to the account come out first when you make a withdrawal. This is advantageous if you need to access the money during your early retirement because contributions are always tax free and penalty free. In addition, there’s no required holding period for them, and you can make the withdrawal regardless of your age.

Keep in mind that since the withdrawals come out of this tax free, there are also advantages to letting this account grow bigger and longer. That way, you have even more tax-free money. 

Another way to use a Roth IRA before you turn 59.5 is to start a Roth conversion ladder. This is where you take traditional IRA funds and convert them to a Roth IRA. The conversion is subject to tax, but once the converted money is in the Roth, you can withdraw the converted amount after five years to avoid the 10% early withdrawal penalty. 

Each conversion has a separate five-year clock before 59.5. After five years, you can remove the funds you converted (but not the earnings) without penalty. This gives you an opportunity to stagger (or ladder) your conversions and the ability to withdraw funds as each conversion five-year clock expires.

I talk more about Roth IRAs later in this chapter. 

Using income-producing assets like real estate

There are plenty of people who reach F.I.R.E. through real estate and have lots of love for owning property. If you are one of them, you won’t mind the work that goes along with it. Managing property gives you more freedom than a full-time job, but it’s not entirely a passive endeavor, although some property owners run their business like a well-oiled machine and there’s very little work for them to do. 

If you’ve been hard at work building your real estate empire for F.I.R.E., you have set yourself up nicely. Whether you have long-term or short-term rentals, the income you receive each month can serve as your bridge. Every dollar you bring in means that you don’t have to pull from your other accounts. 

If you have an asset that produces income, it likely is appreciating in value as well. 

Taking on projects or part-time work

Once you’ve reached F.I.R.E., you have earned the freedom of time that you can use any way you want. Being in “early retirement” doesn’t necessarily mean you quit working altogether. Sometimes it’s a matter of doing what you love on your own terms. 

You have passions that you may want to continue pursuing, and some of those skills or types of expertise may be very valuable to others — valuable because you can earn money by doing projects or consulting, doing part-time work, or running a small business. 

If you’ve reached F.I.R.E., you’ve earned the time and freedom to choose. 

One of the greatest assets that gets grossly underestimated is the human capital of an early retiree. If you retire in your 30s, 40s, or 50s, you have the currency of youth and much more potential to earn income than someone in their 70s. 

Any income you earn serves as a bridge in your early retirement years and reduces the amount you need to withdraw from your accounts, so funds left in the accounts can continue growing. Also, bringing in earned income means that you are eligible to contribute to retirement accounts such as an IRA (as long as you meet the other guidelines for contributing).

Some part-time jobs (such as at Amazon or Disney) may even offer health insurance, giving you another perk that could save you a chunk of money. 

Taking Early Distributions from Tax-Advantaged Accounts without Penalty

Finding ways to get money out of tax-advantaged accounts without early withdrawal penalties seems like a genius hack or loophole of some kind. The IRS carves out lots of exceptions to the dreaded 10 percent penalty, so you have to look for one that can work for you.

In this section, I cover some of the most important techniques for F.I.R.E. seekers. Money from these methods can serve as bridge funds, as I discuss in the preceding section. 

When I was preparing for my big CFP exam, my favorite area related to the rules around getting money out of retirement accounts early. It came easy for me because I had spent a lot of time digging into this subject while planning to F.I.R.E. 

HSA distributions

Health savings accounts (HSAs) technically aren’t retirement plans, but they are tax advantaged, and you can use them like a retirement account. Because HSAs don’t have an age minimum like retirement accounts do, you’re in the clear no matter how early you retire. 

The benefit HSAs have over both Roth and traditional accounts is that there is never a 10 percent early withdrawal penalty as long as the funds are used for qualified health expenses. 

Qualified health expenses include dental, vision, hearing, and many other areas of healthcare that are not usually covered under a health insurance plan (see IRS pub #502). 

If you have accumulated receipts from health expenses over the years, you can make distributions to reimburse yourself any time. Keeping receipts digitally is the best way to maintain them for a long period of time.

As an early adapter, my HSA became one of my superpowers for F.I.R.E. When my employer first started offering them in 2008, I barely understood what the account was. However, as soon as I realized the tax investing benefits and how valuable it could be to me in early retirement, I went full speed ahead. By the time I retired in 2019, my HSA had grown to more than $150,000! 

Roth IRA withdrawals

As I talk about in Chapter 15, direct contributions you’ve made to a Roth IRA are always tax and penalty free. By the time you’re ready to F.I.R.E., you may have decades of Roth contributions that you can access. 

Here’s an example: 

• From age 16 to age 35 (20 years) you contributed $5,000/year. 
• $5,000/year × 20 years = $100,000. 

That’s $100,000 you can withdraw without a 10 percent penalty and without taxes. 

Even if you have a workplace retirement plan — like a 401(k) — with Roth funds, you can roll that over to a Roth IRA, and the contribution portion will be tax and penalty free. 

Here’s what that looks like: 

• From age 22 to 35 (14 years) you contributed $12,000/year to the Roth portion of your 401(k). 
• $12,000/year × 14 years = $168,000 in Roth contributions. 
• After you retire, you roll over your 401(k) to a Roth IRA ($168,000 in contributions plus the growth). You can withdraw that $168,000 in contributions in early retirement without a 10% penalty and without taxes. 

If I could give anyone a personal finance tip to use very early in their career, it would be to start contributing to a Roth IRA as soon as possible. Even if your income is from a part-time job at a fast food restaurant. At the time you’re reading this, you may be well beyond that point, but perhaps your kids, nieces, nephews, or other young people in your life can benefit from that tip. 

Remember that the growth and conversion portion is handled differently than contributions and may be subject to tax and/or penalty.

Even if you have most of your money in a traditional IRA, you can still do a series of conversions to a Roth IRA using the Roth conversion ladder method I explain in the “Withdrawing Roth IRA contributions” section earlier in this chapter. 

Understanding the rule of 55 for workplace retirement accounts 

The rule of 55 does not refer to the highway speed limit. Instead, it’s something that may help you get to your retirement sooner than you thought you would. News headlines may have led you to believe that F.I.R.E. is mainly for the millennials in their 20s or 30s. I’m here to tell you that’s not the only group who can F.I.R.E. 

Retiring in your 40s or 50s is still much sooner than the traditional retirement age of 60-plus. This means that getting access to some of your retirement accounts without a penalty before 59.5 may be a concern. 

One provision that you should consider in your planning is the Rule of 55 which allows for penalty-free withdrawals if you’re 55 or older in the year you separated from your employer. This rule applies to these workplace retirement plans: 

• 401(k) 
• 403(b) 
• Thrift Savings Plan (TSP) 

You must defer to the rules of the employer plan, which are usually outlined in the summary plan description. Even though the IRS rules allow withdrawals before the age of 55, not all employers may allow this provision. 

This rule applies in the calendar year in which you turn 55. So, if you are 54 at the time you separate from your employer, you may still qualify if you turn 55 by December 31 of that year. 

For example: 

• You are 54 in 2025. 
• You will turn 55 on December 5. 

Since you will turn 55 by the end of 2025, you will qualify for the rule of 55 any time during the year if it’s available through your employer.

Your reason for separation from the company does not matter. 

Here are a few other important points you want to keep in mind when using the rule of 55: 

• It applies only to your employer at the time you leave your job. If you have old employer plans that you left behind, they won’t be eligible unless you roll them over to your current employer. The downside is that many employer plans don’t allow the “rule of 55” distributions from the incoming rollover portion, 
• To get the rule of 55 benefit, the funds must stay in the workplace retirement account and not be rolled over to an IRA. 
• The IRS requires your employer to withhold 20 percent in federal taxes from your distributions. 
• You can keep withdrawing from your rule of 55 retirement plan even if you get another job later. 

If you retire before you turn 55 (say at age 40) and return to work, you can roll over your old workplace retirement into your new workplace retirement plan (if allowed by the provider). If you leave that job after you turn 55, all the funds in that account would fall under the rule of 55. As mentioned earlier, some employer plans don’t allow “rule of 55” distributions from the incoming rollover portions. 

PUBLIC SAFETY WORKERS GET A FIVE-YEAR BONUS 

Public safety employees can use this rule five years earlier, at age 50. That’s a nice bonus for our public safety workers, which include 

• Police officers and some other law enforcement members 
• Firefighters 
• Emergency Medical Technicians (EMTs) 
• Air traffic controllers 

Again, just make sure your employer’s plan allows this provision and check the details.

Taking advantage of 457(b) workplace retirement 

457(b) plans have F.I.R.E. written all over them. It’s the only employer-sponsored retirement account that lets you take distributions when you separate from service without a penalty and regardless of age. So, what’s the catch? The IRS doesn’t allow just any employer to offer these types of plans. You’re in luck if you work for any of these types of organizations: 

• State government 
• Local government (like a county or city) 
• Tax-exempt 501(c) organization (like a nonprofit hospital) 

457(b) plans work nearly the same as other employer-sponsored retirement plans like 401(k)s or 403(b)s except there is no 10 percent early withdrawal penalty after you leave the organization. That makes this type of plan ideal to use in early retirement. 

Another unique provision on 457(b) plans is that you can have one in addition to having other employer sponsored plans. For instance, you can contribute to both a 457(b) and 403(b) at the same time, which means in 2024, you can contribute a max of $46,000: 

• 403(b): $23,000 
• 457(b): $23,000 

Total: $46,000 

You can essentially double what you can contribute to workplace retirement plans. If you contributed $46,000 across both accounts for 13 years, you’d get to more than $1 million (see Table 17-1)! 

Growth of 403(b) and 457(b)

These plans are usually available to law enforcement, teachers, and medical personnel at nonprofit hospitals (including doctors), but remember it is the employer and not the position or profession that qualifies you to participate in a 457(b) plan. For instance, if you’re a civil engineer who works for a state government that offers a 457(b) plan to its employees, you are allowed to participate in that plan. 

Non-governmental 457(b) plans (such as those offered by a nonprofit organization) have a few more restrictions than governmental plans. Be sure to review your employer’s plan provisions. 

If you work for an employer that offers a 457(b) plan, you have a powerful tool that can supercharge your F.I.R.E. journey. A teacher who blogs at Millionaire Educator (millionaireeducator.com) shares how he and his wife maximized their retirement savings by using a 457(b) plan along with their other accounts to reach F.I.R.E. 

Making early withdrawals from an IRA

IRS Rule 72(t) is a brilliant yet little-known provision that I had no idea about until I started poking around at the start of my F.I.R.E. journey. This is a rule that allows you to avoid the 10 percent early withdrawal penalty by setting up regular distributions from your IRA using Substantially Equal Periodic Payments (SEPP). That name is a mouthful, but it’s not quite as complex as it sounds. 

There is no age requirement to set up periodic payments using Rule 72(t) for your IRA, but you must continue the longer of: 

• Five years 
• Until you reach 59.5 

This sounds like you may have to lock up your IRA for a long time if you’re starting young (say in your 40s), but you do not have to include all of your IRAs. You’re allowed to isolate just the IRA dollars you want to include as part of the periodic payments (using a separate account). This gives you flexibility that might look something like this: 

• You have $400,000 across all your IRAs. 
• You can choose to have only a portion of that (say $150,000) for the 72(t) period payments. 
• You establish a separate IRA for the $150,000 and follow the IRS rules to set up the 72(t) periodic payments from that account (or use a tax or financial pro to set it up for you).
• The rest of your IRAs ($250,000) are not impacted by the 72(t) period payments because they remain in a separate account. 

There are three different methods you can use to calculate your payments, which depend on your life expectancy: 

• Fixed annuitization method 
• Fixed amortization method 
• Required minimum distribution (RMD) method 

The maximum percent of the balance you can use to set up the 72(t) is 5 percent, unless 120 percent of the Federal Mid-Term exceeds that amount. For 2024, 120 percent of the Federal Mid-Term rate was 5.25 percent. The IRS provides instructions on how to figure this, but you also can do it with a 72(t) calculator, such as the one at dinktown.net. Here’s an example using a $150,000 IRA owned by a 45-year-old: 

Setting up the 72(t) periodic payments is almost like creating your own annuity without the worry of big fees. You also get to manage the investments yourself. 

Although 72(t) can solve the problem of early withdrawal penalties, there are a few things to be careful about: 

• You can’t add additional funds to the 72(t) SEPP IRA. 
• If you don’t follow the payment schedule that has been set up, you will have to pay the 10 percent penalty for the current year and all previous years you made distributions under the 72(t) plan.
• If you don’t follow the payment schedule that has been set up, the 72(t) SEPP is treated as no longer in effect.

 These are some harsh penalties, so it’s important to ensure that you are following the rule on this one. You should plan for the tax implications of the withdrawals from the account. 

72(t) SEPP is a good strategy in the right situation, but there are a lot of moving parts. Make sure you do your homework thoroughly or consult a professional who is familiar with the stipulations. 

Here are a couple of great resources that can help you out: 

• FI Tax Guy article on 72(t) payments: fitaxguy.com/retire-on-72t-payments/ 
• 72t.net website (72t.net) 
• IRS website section on SEPP (irs.gov/retirement-plans/substantially- equal-periodic-payments) 

Getting Health Insurance for Early Retirement

One of the main reasons people say they delay retiring early is health insurance. That’s because in the U.S., people are used to acquiring health insurance through their employers. Most other countries don’t have this issue, and health insurance may not be as much of a concern. 

I can say from experience that thinking about getting health insurance on my own was terrifying. I used it as a crutch to delay retirement. Once I finally convinced myself to do independent research (rather than listening to the conflicting information I was getting from others), I was pleasantly surprised at all my options. 

The only way to help alleviate your health insurance concerns in early retirement is to start doing a little digging, and I help you with that in this section. There is a sea of confusion, but you’ll quickly realize (just as I did) there are lots of options to consider, and one of them will likely be right for you.

The F.I.R.E. community isn’t the only group of people that face the dilemma of getting health insurance that isn’t tied to an employer. Small business owners and self-employed people have dealt with this for a very long time, and they have found plenty of solutions that you can take notes from. Talking to other people who’ve been down this road can help you find answers. 

Health Insurance Marketplace

The Health Insurance Marketplace (www.healthcare.gov) that resulted from the Affordable Care Act (ACA) is the most common health insurance option for early retirees. It’s certainly worth consideration for anyone seeking F.I.R.E. 

To avoid any confusion, this type of insurance is also referred to as 

• Obamacare 
• The Healthcare Exchange 
• Marketplace Health Insurance 

Regardless of what you call it, it’s the Federal program that offers health insurance plans that you can buy on your own. 

The insurance plans and providers vary widely by state and, to an extent, by county, but you can easily search your location without even signing up for an account. Just go to www.healthcare.gov and enter your zip code. Aside from your location, these other factors affect the cost of your insurance: 

• Age 
• Income 
• Family size 
• Tobacco use 

Marketplace plans use four main health categories: 

• Bronze 
• Silver (this is the category that gives you extra savings on things like deductibles, copays, coinsurance) 
• Gold 
• Platinum

If you are planning for F.I.R.E., the premium tax credits (also referred to as ACA subsidies) are a big deal. A subsidy could save you thousands of dollars each year if you’re able to control your taxes as I discuss in Chapter 15. Keeping your income low can qualify you for big health insurance subsidies. With tax credits, your monthly premiums can go as low as $0. An advantage is that the qualifications for ACA premium tax credits only look at income, not assets. 

If you have assets of $500,000, you could still qualify for tax subsidies as long as your income meets the requirements. 

If your estimated income is lower than a certain amount (138 percent below poverty level for most states), you may be pushed to Medicaid, which is a very different program than the ACA. The primary difference is that the ACA does not have an asset test and is only based on your income (not assets). 

The following example uses the Health Insurance Marketplace Calculator at KFF (also known as the Kaiser Family Foundation (www.kff.org/interactive/ subsidy-calculator). I used these criteria: 

• 40 years old 
• Single person, no kids 
• $30,000 income 
• Not a tobacco user 
• Resides in Georgia 

An income of $30,000 may seem low, but remember that if you have reached F.I.R.E. and live on investments or other income where part of it may be tax free, it is possible. Try running scenarios for yourself with a calculator like the one I used.

Even if you do not qualify for subsidies, you can still buy your health insurance off of the exchange if you don’t have affordable health insurance available through an employer. 

Using your own measuring stick is very important here. I used to get so scared when people would say “Oh, I pay $1,500 a month for my health insurance; the cost is outrageous.” Turns out, this person has a spouse and five kids and lives in New York City. I was one person living in Ohio, so my cost was significantly different. 

Health insurance broker

A health insurance broker is very similar to a mortgage broker. They represent multiple providers and work on your behalf to find an appropriate plan. They are typically paid a commission by the insurance carriers, not by you. They may also include the options available on the Health Insurance Marketplace. 

A broker is a good option if you don’t want to do all the research on your own. It is possible that the health insurance broker will know of providers you may not have thought of. 

Health insurance varies by location, so be sure to choose one that knows your area. 

COBRA

COBRA (Consolidated Omnibus Budget Reconciliation Act, whatever that means) is one option that most people think of as being an expensive way to get health insurance. 

COBRA gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time. 

It’s likely you can find coverage that’s cheaper than COBRA using one or more of the options in this section, but you may have reasons for wanting to use COBRA, such as 

• To continue with your health providers in a certain network 
• Because you like your plan benefits 
• Because you’ve already paid your deductible or out-of-pocket maximum and expect additional medical care in that year
• Because you’re close to the end of the year and only need COBRA for a short period 

When you leave your employer, you get a quote to continue coverage without your employer’s subsidy under COBRA, that can be shocking. The jump in cost to you is usually because under COBRA, you pay the entire premium yourself (no more employer subsidy). You also may be required to pay a 2 percent administrative fee. 

Table 17-2 shows an example of a $700/month premium before and after COBRA. 

COBRA Premium Example 

COBRA is temporary, so it is not a solution you can use for years (or decades) during early retirement. You commonly can use it for up to 18 months after you separate from service, but there are other reasons you or your dependents may qualify for coverage for up to 36 months (see Table 17-3). 

COBRA Coverage

You have 60 days after your employer’s health insurance ends to enroll in COBRA. Even if your enrollment is delayed, you will be covered by COBRA starting the day your prior coverage ended (it’s retroactive). Of course, you still have to pay the premiums for those months. 

Part-time job

Some people say that if you’re working a part-time job, you aren’t really retired. I say otherwise. 

You define your own retirement, which can mean that at some point, you take on a part-time job. For many, the reason for that may have something to do with getting low-cost health insurance. 

Many F.I.R.E. people have taken part-time jobs, and it can make sense for you. As I describe in the previous section, you can have huge savings on your health insurance premiums through an employer. Health insurance may not be the only reason to get a part-time job; there are other benefits: 

• Pay 
• Discounted company stock (for larger companies) 
• Company product and service discounts 

Here is a small list of companies that extend their health insurance benefits to part-time workers: 

• Amazon 
• Chipotle 
• Costco 
• Disney 
• Starbucks 

There are many more. Many companies put health insurance information on the benefits section of their websites. There may also be small businesses in your community that offer health insurance to part-time employees. 

If you serve in the National Guard or military reserves, you may also be eligible for some level of Tricare health insurance (insurance for military personnel). You can find more information about TRICARE at https://tricare.mil

College, military service, or other organization

Your affiliations with certain organizations can earn you the possibility of qualifying for health insurance. In this section, I share some of those possibilities. 

College

If attending college is part of your F.I.R.E. plans, you may qualify to have health insurance through the college or university you’re attending. 

The premiums are usually very low for students because of the low-risk pool. Most students are young and healthy with very low healthcare costs. 

Many schools even have health services on campus where you can get wellness or minor care services. Every school has their own guidelines for eligibility, so be sure to check the school’s website under student health insurance. Also, there may be different rates for international students. 

Vets

If you’re a service member retiring early from the military, you’re in a great spot when it comes to health insurance if you qualify for some type of retiree TRICARE. Visit https://tricare.mil for more details. 

If you are considering the military as a career choice, the benefits are unmatched (including the health insurance). It’s a great path to reaching F.I.R.E. while serving our country at the same time. 

Other organizations and options

Your membership with professional organizations or a group like a chamber of commerce may give you access to health insurance. In addition, some professions such as doctors, dentists, financial planners, and accountants in small businesses may have organizations that support these professionals within their community and have self-employed or small business health insurance plans available at group rates. 

Remember, you pay fees to be a part of some of these organizations so you may as well take advantage of the benefits. Even if you are no longer practicing full time after you reach F.I.R.E., you may still want to maintain your membership. 

A few nontraditional options for healthcare worth mentioning are used by some in the F.I.R.E. community. You can look into these:

• Healthcare sharing programs: These are private healthcare programs that may be used in lieu of or along with insurance. They are often religion based. 
• Direct Primary Care (DPC): DPC is not insurance but direct care from physicians who provide primary wellness that may be used in lieu of or along with insurance. 
• Local Farm Bureau: This organization provides health care programs that vary by state in their rules and offerings. Be sure to check your state. 

Relocation: Moving to another country

Healthcare in the U.S. is notoriously expensive compared to many other countries, which is why health insurance is a must-have. Many in the F.I.R.E. community love travel, so the option of relocating to another country comes up often. A little geo arbitrage (taking advantage of lower costs of living in an area other than where you currently live) can go a long way. Health insurance is not usually the sole reason to move to an international destination, but the healthcare component can be a factor. 

The caution here is that the healthcare system in the U.S. versus other countries is not apples to apples, so you should do some research on the location you are considering. I discovered this after spending time with some of my Canadian F.I.R.E. friends at a Camp Mustache in Toronto in 2023. After comparing notes with them about health insurance, it became more of a list of pros and cons rather than one country’s system being better than the other. 

If you are looking for one more reason for saving in an HSA account, here it is. You are allowed to use your HSA dollars for healthcare outside the U.S. So, if you pay out of pocket for services in another country, you can reimburse yourself through your HSA funds (see IRS pub # 502 for more information). 

Most U.S.-based health insurance does not allow for care in other countries or greatly limits it.