Making Sure You Have 40 Quarters of Work

I might be strange to discuss Medicare stuff as most of us on this early retirement journey are years from Medicare eligibility but as most of us in this community are planners calculating every need that might arise, I figured it was an important topic to cover (plus I have been doing some insurance CE on the topic so I figured I could share my wealth of knowledge).

Most of us don’t know the costs associated with Medicare and might even think that we just automatically get Medicare once we turn 65 for free.  In reality, we have to “earn” this benefit by paying into the system over the years.  For the average person this isn’t an issue because it takes them a few decades to amass enough money to retire but for those of us in FI community we have BIG dreams and those dreams often mean not working the majority of our adult lives.

So let’s go over some of the basics for those of you who are not experts in this arena.  Medicare consists of two parts: Part A which covers hospital costs and Part B that covers doctors visits, testing and other services.  Medicare Part A is generally free if you are age 65, are a US citizen, and have worked at least 40 quarters (there are exceptions but these are the basic rules).  A quarter equals 3 months of employment.  Basically, you need to work for at least 10 years in order to get Part A for free, thereby working for a total 40 quarters.  For the average person this is not an issue at all as they will likely work for at least 30-40 years but for those of us in the FIRE world, this could be a problem as many of us have grandiose dreams of working for a limited number of years. Today I am focusing on Part A but keep in mind that Part B does have a premium payment which is currently $121.80 for new enrollees.  In addition you will likely want to buy a Medigap policy and prescription drug plan to cover the gaps that Part A and B leave so keep these in mind when running your calculations.

Both Mr. SFF and I have our 40 quarters as we are 37 and 40 and have been working for many years already.  But if by chance you dreamed up a FIRE goal at a very young age and hope to retire in your 20’s (or you are a trust fund kid who was handed a wad of money), then it is possible that you might not get 40 quarters of work.  Although this is probably a very small percentage of people, it could have detrimental effects on medical costs down the road so it is certainly something to think about.

Let’s say you are lucky enough to never worked in your teens (I was a checkout girl at Shaw’s supermarket at age 16), didn’t have to work to get yourself through college (yup, I waited tables or did work study through the college), and started in the real world with little to no student loans (yes, I did have loans), then at the age of 22, you might not have any “quarters” in the system yet.  Let’s again say you dream up the FIRE life before you graduate and right out of the gate you are saving up boatloads of money while still living off Ramen noodles.  It is possible that you could have enough saved to never work again in a very short amount of time.  (I am curious if Brandon from Thoughts from Inside the Box might fall in this category in a few years.)  If your limited working years amounts to less than 30 quarters, or 7.5 years of full time work, then your normally free Medicare Part A would now cost $411 per month (2016 rate).  Ouch!  That’s another $4,932 per year that the average person doesn’t pay and would require another $123,3000 of investments based on the 4% withdrawal rate guidelines.  If you worked between 30 and 39 quarters then the monthly premium would be $226 (2016) requiring another $2,712 per year or $67,800 of investments following the same 4% withdrawal rate.  Of course these are 2016 numbers so add inflation in there and you will need even more money.  Since most of us have a budget of some sort, whether it is strict or not, having another expenditure that is a couple hundred dollars per month once we hit age 65 that we weren’t expecting could be a big blow to our financial plans.  Another thing to consider is that if you are always working under the table to avoid paying taxes you are also not paying into the system and could affect the number of quarters you have worked.  Just another thing to consider.

It seems crazy to have even discuss this issue but to those of us in this fringe/extreme world of FIRE, it could actually make a difference.  So before you completely jump ship and leave the working world for the rest of your life, at least make sure that you have your 40 quarters of work under your belt.  If not, make sure you are saving a little more than you had initially planned.

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