Q&A: Retiring early doesn’t mean losing affordable health insurance

Dear Liz: I am 55 and have health issues that I don’t talk about at work. I want to retire soon. I know that getting health insurance is going to be hard. I am just at a loss as to how I am going to keep working when I don’t feel well. What are my options?

Answer: In the past, getting health insurance could be difficult or prohibitively expensive if you had even relatively minor health conditions. That changed with the Affordable Care Act, which requires insurers to extend coverage without jacking up the premiums for preexisting conditions. In addition, most people qualify for tax subsidies that reduce the premiums, and those subsidies were expanded this spring when President Biden signed the American Rescue Plan into law. You can start your search for coverage at HealthCare.gov.

Before you quit, however, consider whether your employer could make accommodations that would allow you to continue working. Many people at 55 don’t have enough saved for a comfortable retirement that could last decades. Shifting to part-time work, if your employer allows it, could help you continue to save or at least reduce the amount you need to withdraw from your savings.

Q&A: Refinancing in your golden years

Dear Liz: I just wanted to comment on a recent question about refinancing a mortgage in retirement. The writer wrote: “… at 67 and 72 years old, it’s unlikely that both of us will survive for another 15 years to pay off this loan.” This seems an old way of thinking about age. The obituaries in my paper are full of people who have lived into their 90s and even past 100 years old!

Answer: Good point. People often misjudge life expectancies, which over time have lengthened considerably. At 67, a typical female could expect to live nearly 19 more years, according to Social Security’s life expectancy tables, while a male at 72 has a 13-year life expectancy. People with higher incomes, good health and good habits (nonsmokers, for example) could add many years to those estimates.

Q&A: Here’s a retirement dilemma: Pay off the house first or refinance?

Dear Liz: My husband and I are retired, with enough income from our pensions and Social Security to cover our modest needs, plus additional money in retirement accounts. We have owned our home for 35 years but refinanced several times and still have 15 years to go on a 20-year mortgage.

With rates so low, we were contemplating refinancing to a 15-year mortgage just for the overall savings on interest, but we started thinking about the fact that, at 67 and 72 years old, it’s unlikely that both of us will survive for another 15 years to pay off this loan. Since that’s the case, we’re now thinking about taking out a 30-year mortgage, with monthly payments $700 or $800 less than what we currently pay.

Our house is worth around 10 times what we owe on it, and if we had to move to assisted living we could rent it out at a profit, even with a mortgage. We also each have a life insurance policy sufficient to pay off the balance on the mortgage should one of us predecease the other.

I know that conventional wisdom says that we should pay off our mortgage as quickly as we can. But an extra $700 or $800 a month would come in handy! Am I missing something? Is this a bad idea?

Answer: Answer: Not necessarily.

Most people would be smart to have their homes paid off by the time they retire, especially if they won’t have enough guaranteed income from pensions and Social Security to cover their basic living expenses. Paying debt in retirement could mean drawing down their retirement savings too quickly, putting them at greater risk of ultimately running short of money.

Once people are in retirement, though, they shouldn’t necessarily rush to pay off a mortgage. Doing so could leave them cash poor.

You are in an especially fortunate position. Your guaranteed income covers your expenses, including your current mortgage, and you have a way to pay off the loan when that income drops at the first death. (The survivor will get the larger of the two Social Security checks. What happens with the pension depends on which option you chose — it may drop or disappear or continue as before.) Even with a mortgage, you have a large amount of equity that can be tapped if necessary.

So refinancing to a longer loan could make a lot of sense. To know for sure, though, you should run the idea past a fee-only, fiduciary financial planner who can review your situation and provide comprehensive advice.

Wednesday’s need-to-know money news

Today’s top story: 7 ways to manage Medicare drug costs. Also in the news: Prep for hiring your first employee with these 6 steps, how to have a retirement worth saving for, and how to buy and sell a house at the same time.

7 Ways to Manage Medicare Drug Costs
Medicare beneficiaries with pricey drugs can face high out-of-pocket costs. Here are some ways to lower the tab.

Ready to Hire Your First Employee? Prep With These 6 Steps
To hire successfully, business owners need to understand their finances, find professional support and more.

How to Have a Retirement Worth Saving For
A happy retirement isn’t all about money. Make a plan for health, social connection and day-to-day enjoyment.

How to Buy and Sell a House at the Same Time

Q&A: Different Roths, different rules

Dear Liz: I have a Roth 401(k). Are withdrawals from it the same as from a Roth IRA? And how do I move it to a Roth IRA?

Answer: Roth 401(k)s are a type of workplace retirement plan that, like Roth IRAs, allow tax-free withdrawals. But the rules for Roth 401(k)s are somewhat different from those governing Roth IRAs.

For example, a Roth IRA allows you to withdraw an amount equal to your contributions free of taxes and penalties anytime, regardless of your age. Earnings can be withdrawn from a Roth IRA tax- and penalty-free once you’re 59½ and the account is at least 5 years old. The clock starts on Jan. 1 of the year you make your first contribution.

To withdraw money tax- and penalty-free from a Roth 401(k), you typically must be 59½ or older and the account must be at least 5 years old.

In addition, Roth 401(k)s — like regular 401(k)s and traditional IRAs — are subject to required minimum distribution rules that require you to start taking money out at age 72. Roth IRAs aren’t subject to those rules.

Many people roll their Roth 401(k)s into Roth IRAs to avoid the required minimum distribution rules or to have more investment choices. Such a rollover resets the five-year clock that determines whether a withdrawal incurs taxes and penalties, however. If you wait until you retire to roll over your Roth 401(k) and need access to the money, that waiting period could be problematic.

You can roll over your Roth 401(k) after leaving the employer that offers the plan. But you also could ask if your plan allows “in service” rollovers — in other words, rollovers while you’re still working for the employer. Some Roth 401(k)s allow these, although they may be restricted to people 59½ and older.

Tuesday’s need-to-know money news

Today’s top story: A Roth IRA could help you avoid taxes like the ultrawealthy. Also in the news: How one DUI can nearly double your car insurance, the Child Tax Credit scam, and flying first class for cheap(er) right now.

A Roth IRA Could Help You Avoid Taxes Like the Ultrawealthy
You, too, could lower your tax burden with the right investment account.

One DUI Can Nearly Double Your Car Insurance — Here’s How to Save
On average, auto insurance rates skyrocket 96% after a DUI, our 2021 rate analysis found.

Scam Alert: Child Tax Credit Is Automatic; No Need to Apply
The IRS won’t call, text or email you so beware of unsolicited communications.

You Can Fly First Class for Cheap(er) Right Now
Luxury travel is a bit more accessible.

Q&A: What to consider before taking a lump sum

Dear Liz: I had a pension from a previous employer that was going to pay me $759 per month at 65. They offered me a lump-sum buyout about five years ago of around $65,000. I ran the numbers and decided that was definitely not enough money and declined.

Then last year they upped the offer and the new lump sum amount was $125,000. I ran the numbers again and this time decided to grab the money and roll it into an IRA. I’m 63 and plan to retire at 70. I can hopefully grow that $125,000 to $250,000 by that time, which would give me that much more to live on, plus it gives me more discretion on using that money than just getting the monthly payment the pension would have paid me.

After reading one of your latest columns, I am now questioning whether I made the right decision to take the lump sum.

Answer: There are a number of good reasons for opting for a lump sum versus an annuity. For example, people with large pensions may not be fully protected by the Pension Benefit Guaranty Corp. if their pension fund fails. Others may need more flexibility than an annuity offers.
But a pension is typically money that’s guaranteed for life, in good markets and bad. If you’re choosing the lump sum just because you think you can earn better returns, you need to consider how you’ll protect yourself and your spouse from fraud, bad decisions and bad markets.

Bull markets can lull people into thinking they’re good investors, but markets can go down and stay down for extended periods. That poses a special risk to retirees, who are at increased risk of running out of money when they draw from a shrinking pool of investments. Even a short bear market can cause problems, while an extended one can be disastrous.

You’ll also want to consider how you’ll manage when your cognitive abilities begin to decline. Our financial decision-making abilities peak in our 50s, but our confidence in our abilities tends to remain high even as our cognition slips. That can lead to bad investment decisions and increased vulnerability to fraud.

Finally, consider your spouse. If you die first, will your spouse be comfortable managing these investments? If not, is there someone in place who can help?

A fee-only financial planner could discuss these issues with you and help you create a plan to deal with them.

Thursday’s need-to-know money news

Today’s top story: How the pandemic has shaken up retirement. Also in the news: 6 steps for financial spring cleaning, what to know if you’re listing your home in 2021, and how to avoid having to pay back the $3600 child tax credit.

How the Pandemic Has Shaken Up Retirement
When to retire isn’t always in our control, but too early an exit can bring financial instability.

6 Steps for Financial Spring Cleaning, Pandemic-Style
This year, spring cleaning includes reevaluating your budget, updating insurance and setting new goals.

Listing Your Home in 2021? Here’s What to Know
Roughly 1 in 6 (17%) homeowners plan on selling their home in the next 18 months.

How To Avoid Having to Pay Back the $3,600 Child Tax Credit
Find out how the credit works.

How the pandemic has shaken up retirement

Pandemic-related job losses forced many older Americans out of the workplace i n the past year, perhaps permanently. But the COVID-19 crisis also seems to have delayed some retirements.

Remote work eliminated commutes and often allowed more flexible schedules with fewer interruptions. At the same time, the pandemic restricted many traditional retirement activities, including travel and visits with family. While some employed older workers look forward to retiring when restrictions ease, others say teleworking has made staying on the job more tenable.

in my latest for the Associated Press, a look at how the pandemic has shaken up retirement in both good and bad ways for Americans.

Thursday’s need-to-know money news

Today’s top story: Will you really run out of money in retirement? Also in the news: What to do if your mortgage forbearance is ending, 5 home remodeling trends to watch for 2021, and how to pay your medical bills without crowdfunding.

Will You Really Run Out of Money in Retirement?
Most people adjust spending to stretch their resources, but you can proactively get help now to ease your worries.

The Property Line: Mortgage Forbearance Ending? Here Are Your Options
When your mortgage forbearance ends, options will include extension, repayment or deferment, and will vary by loan type.

5 Home Remodeling Trends to Watch for in 2021
Say goodbye to neutrals and open floor plans and hello to mood-lifting color and a place for everyone.

How to Pay Your Medical Bills Without Crowdfunding
The limits of crowdfunding.