That's where clients can run into trouble. Cooper says that in most of the cases he's seen, clients are seeing their monthly health insurance premiums jump from five to ten times if they leave an employee-sponsored plan and get an individual plan. A worker might pay $150 per month from his or her paycheck to a company plan, but could face monthly payments of $1,000 to $2,000 in an individual plan. Sometimes the costs can be worked down, Cooper says, but the client is left with a stripped-down plan that might not provide coverage for prescription drugs and outpatient procedures or might require a high deductible.
Cooper has one client, a 61-year-old forklift operator, who has come to his office with his wife repeatedly over the past two years trying to figure out a way to retire. His lone obstacle: health care costs.
"He keeps trying to think up schemes to get around health insurance," Cooper says. "Things like, 'We just won't go to the doctor,' or 'We'll go to free clinics,' or 'We'll go to the emergency room and declare ourselves indigent.' None of that works, of course, because they pick up your Social Security number and [put a] lien on the house and bank accounts."
Limited groups of clients-those who are retiring from businesses they own-are finding a way to wend their way around the problem, says Neil Brown, a fee-only advisor and owner of Advanced Financial Planning in Columbia, S.C. Many of these clients, he says, are retiring early while maintaining limited employment status with their companies to retain health benefits.
"They will do some consulting work or whatever else is required to stay on the payroll," Brown says.
For any client with less than $1 million in assets and who wants to retire before age 65, the cost of health care "really is a hindrance, just from the standpoint that you can only spend so much money without taking substantial risk of depleting your assets early," Brown says.
Hammel tells of a married couple, a husband who will turn 65 at the end of this year and a wife who is a year younger, who decided to absorb the increased cost of health care when they retired seven years ago. What they didn't envision, however, was the drastic increase in health care costs they've had to absorb since. Since their retirement, the increases in their premiums have been as high as 50%, Hammel says. The couple is currently paying about $1,100 per month for health care insurance, which Hammel says represents nearly one-third of their entire income. "It's like having an extra house payment," Hammel notes.
The payment is having a cancerous effect on their overall retirement plan. The couple was forced to start accepting Social Security payments early, when they each turned 62. Also, they are drawing off their $500,000 in assets at the rate of 8% to 9% annually, much higher than the 4% to 5% normally favored by advisors. Their situation may grow more difficult. While the husband is set to start receiving Medicare at the end of the year, his wife had another year to go before eligibility. But she suffers from diabetes and other health problems and it's expected that any individual policy they find to cover her for a year will be more expensive than the one they have now, says Melissa Hammel, Richard Hammel's daughter and partner.
The couple has already cut back on their travel plans and is selling a boat and a motor home to deal with the added costs, Melissa Hammel says.
"Her having her own policy is going to be unbelievably expensive," she says.