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Retiring Early? How A High Deductible Health Plan Can Help

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For many Americans who have the dream of retiring early, health insurance is one of the biggest obstacles standing in their way. If insurance coverage is keeping you tied to your 9-5 lifestyle, a high deductible health plan could be a good solution. How might this type of health insurance help you stay on track for retirement? And how can you avoid common pitfalls? Here's what you need to know.

What Is a High Deductible Health Plan?

A high deductible health plan is an insurance plan that meets certain criteria established by the IRS. The primary requirement is that the plan comes with a deductible not lower than $1,400 per year for an individual ($2,800 for a family) in 2022. In most other ways, high deductible plans operate the same as other plans with lower deductibles or co-pays only. 

Anyone shopping for a high deductible plan should verify that theirs fit the requirements to be labeled as such by the IRS. The advantage to this is that they have access to complementary tools that help save money, especially for young retirees.

Why Choose a High Deductible Plan?

Why would you voluntarily take on more financial risk in your health insurance? The biggest benefit is savings each month through a lower premium. In return for footing more of the bill, you get a discount from the insurance carrier. 

If you get a qualifying high deductible plan, you can open a Health Savings Account (HSA) at your financial institution. These accounts allow you to contribute money tax-free, reducing current taxable income and growing without tax consequences. When you do have health expenses, withdrawals to pay for these are also tax-free. And you don't have to use contributions each year, so you can let the account grow.

Who Should Consider a High Deductible Plan?

Early retirees can benefit tremendously from a high deductible plan. They are usually healthy, so they need less coverage than older retirees. They can also begin setting aside money in advance, including by maxing out an HSA every year, to make sure this coverage stays affordable.

The additional deductible costs are the biggest risk of this plan, so the best candidate is someone who has a liquid cash buffer for emergencies. Because early retirees work hard to build up such financial buffers, they may already be in a good position. 

Where Can You Learn More?

Could a high deductible health insurance plan be right for you? Start by learning more about how they work as well as their pros and cons. Meet with a health insurance agent in your state today to begin. You may just find that this one tool puts early retirement back in your reach.