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The Truth, Ruth!


Razors Edge

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From today's WSJ and near and dear to my heart.  I wonder what @Prophet Zacharia and a deep numbers gal like @Kirby think:

 

Retiring before 65, whether by design or dictated by circumstance, is a reality for many Americans. And health insurance for these early retirees is often more costly than they think—and a reality check. 

For a couple, premiums for coverage can run from $1,700 to $2,200 a month depending on where they live, their age and the source of the insurance. And besides premiums, there are deductibles, copays and prescriptions and coinsurance costs—potentially adding thousands of dollars more in extra costs. 

The upshot: Leaving work just four years before starting Medicare at age 65 can easily drain $100,000 or more from retirement savings. 

What’s more, some insurance options have a limited local network and might not include preferred doctors or allow participants to see a specialist without a referral. And many don’t cover expenses incurred out of state unless it is an emergency, a potential deal breaker for a retiree who wants to spend winters in a warmer climate. 

“It’s a real shock for people,” says Milwaukee financial planner Ben Smith. “They naively think their health insurance will be identical to what they had at work.”

For those who can’t return to work, Smith adds, “the reality of a huge new expense leads to some very challenging conversations” about running short of money or cutting out retirement luxuries like travel and entertainment.

Here are some options for early retirees to get the level of care they desire and to minimize health-insurance costs early in retirement before Medicare kicks in. 

 

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...and this was one of the few comments that wasn't the normal trolling nonsense (I ain't moving to Wisconsin!):

 

We did it. It works. 53 for me; my Wife 51. Married 36 years.

How we did it:

  • Debt free. Own house free and clear. Saved, saved and saved for a couple decades straight. Paid cash for everything, cars and house included. No 4 year degree for either of us. Just saved.
  • Three buckets: Taxable/bank account. Roth. Rollover/traditional IRA from our 401k's.
  • Live off of taxable account. Surprising how little costs you have when you don't have any debts.
  • Do Roth conversions each year to "simulate income" for ACA insurance requirements.
  • Keep conversions and interest/divs under amount needed to pay zero dollars for ACA. For us, that's around $42k/year "income".
  • Use a HDHP for ACA insurance so we can use our Livelyme.com HSA for contributing more money into the HSA. This reduces our taxable income even lower.
  • Lively is tied into our Schwab HSA account so we can invest tax-free. We do not use our HSA for paying any medical bills. We save all our medical receipts and let your portfolio grow. We will claim all those receipts a decade from now, or whenever, for tax-free income.
  • Combine all that with a Standard Deduction of $29,200 and we pay zero in taxes.

Live in Wisconsin during the Summer. Spend our Winters in Gulf Shores, Alabama.

In conclusion: We pay ZERO for our health care, ZERO taxes, and have plenty of money to retire early and travel. Always planned to do this. Would have bought a catastrophic health plan, but then ACA came along.

 

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40 minutes ago, Razors Edge said:

...and this was one of the few comments that wasn't the normal trolling nonsense (I ain't moving to Wisconsin!):

We did it. It works. 53 for me; my Wife 51. Married 36 years.

How we did it:

  • Debt free. Own house free and clear. Saved, saved and saved for a couple decades straight. Paid cash for everything, cars and house included. No 4 year degree for either of us. Just saved.
  • Three buckets: Taxable/bank account. Roth. Rollover/traditional IRA from our 401k's.
  • Live off of taxable account. Surprising how little costs you have when you don't have any debts.
  • Do Roth conversions each year to "simulate income" for ACA insurance requirements.
  • Keep conversions and interest/divs under amount needed to pay zero dollars for ACA. For us, that's around $42k/year "income".
  • Use a HDHP for ACA insurance so we can use our Livelyme.com HSA for contributing more money into the HSA. This reduces our taxable income even lower.
  • Lively is tied into our Schwab HSA account so we can invest tax-free. We do not use our HSA for paying any medical bills. We save all our medical receipts and let your portfolio grow. We will claim all those receipts a decade from now, or whenever, for tax-free income.
  • Combine all that with a Standard Deduction of $29,200 and we pay zero in taxes.

Live in Wisconsin during the Summer. Spend our Winters in Gulf Shores, Alabama.

In conclusion: We pay ZERO for our health care, ZERO taxes, and have plenty of money to retire early and travel. Always planned to do this. Would have bought a catastrophic health plan, but then ACA came along.

Razor, would many Americans have this level of sensible sophistication to plan their portfolio in this way?  (unless they got financial planner advice)

I myself, don't know the American investment vehicles ... so just askin' in general.

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Some people are very careful about income in order to get ACA subsidies, but that may not be the optimal arrangement for other retirement purposes. In some respects, it can be letting the ACA tail wag the dog.

But I do agree that pre-Medicare medical can be expensive and potentially limited.  I've looked at the NY exchange and all the options are HMO's, no PPO's.  I haven't checked how extensive their networks are, so it may not be an issue if they're broad, but that is a drawback to me.  I was lucky that my company still provides retiree medical including PPO plans for pre-Medicare.  But it's expensive since it's no longer subsidized and some of the cheaper options aren't "creditable" and have a pretty low limit on prescriptions  While that limit is enough for routine stuff , all it would take is one major illness to cause an issue.  Not worth the risk.

Luckily the company also provides some credits that can be used pre or post Medicare eligibility, which can be used to the cost.  But even with that, it's still more expensive than working.  But I researched the cost and options in advance and included that in my planning.  But when I retired, a number of other people asked me about my plans, and I was surprised at the number of people close to retirement age who had no idea what the options were.

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I'm so lucky I had 75% employer-paid, near-Cadillac, BCBS insurance with my pension when I retired at 56 that became Medicare Supplemental at 65 and includes Prescription, Dental, and Vision insurance at a low price because I worked for a very-large employer: the 35th largest school system in the USA because Maryland efficiently does countywide school systems.

All that is because working teachers take a hit in pay during union negotiations to provide that for retirees.  It will never go away because teachers know they'll get it when they retire and it's worth it.

That's effectively how it's done in other high income countries: you pay for all or most of your retirement and out-of-work health insurance through your payroll taxes while you're working and everyone gets the mimimum at least.

We need basic Medicare for all in the USA that you get whether you're working or not and expands in retirement.  That's what happens in almost all high-income countries and some not so high-income countries.

When Taiwan decided to institute universal healthcare for its citizens it sent teams to study the US system.  They were so shocked by the corruption, inefficiency, and basically holding health hostage so doctors and clinics could earn 10x what they earned in other countries, that they quit studying the USA

Companies offering Medicare Advantage cried to Congress and got 9% more per patient than Medicare spends because Private Insurance is LESS efficient than Medicare.

With Medicare insuring everyone, medical costs go down, it's paid for through payroll taxes and covers you for life.  If you want more than basic coverage, you get Medicare Supplemental, like the Mutuels the French buy in the worlds #1 healthcare system.

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13 hours ago, Kirby said:

Luckily the company also provides some credits that can be used pre or post Medicare eligibility, which can be used to the cost.  But even with that, it's still more expensive than working.  But I researched the cost and options in advance and included that in my planning.  But when I retired, a number of other people asked me about my plans, and I was surprised at the number of people close to retirement age who had no idea what the options were.

I'm trying to get an angle on this as I won't have the benefit of an employer sponsored or provided plan to use.  I'm lucky that neither my wife nor me have any recurring medical expenses beyond annual check-ups, but that could change in a heartbeat with a cancer or other awful diagnosis.

I do like what that fellow I quoted was "theoretically" talking about, but it will definitely require me to understand it in greater detail.

From his list, I'll have the top three covered, but then he gets into the song and dance, and that's where I gotta dig (or direct my financial guy to explain & assist).  Baby steps, but my hoped for window of 55-60 is opening soon.  I have no desire to be working by the time 60 rolls around, so time is ticking!

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There are a number of FIRE blogs/podcasts etc that talk a lot about keeping income under the ACA thresholds, and if you're on the margin it can make sense.  Things like converting to ROTH or investing in tax free investments can help you control income in a given year.  But the subsidies may be outweighed by the benefit of having more savings overall even if in taxable brokerage accounts and it may turn out that tax free bonds aren't the right choice overall for your portfolio.   A lot depends on your personal situation.

But it is good to check the healthcare marketplace to see what options are available and the cost (with and without a subsidy).   If you won't qualify for a subsidy, you can also look at general public options that aren't on the marketplace.   In a worst case scenario, you just figure that cost as part of your expenses and plan for it, but it adds up quickly if you're planning to cover it on your own for 10-15 years.  So if you can structure your finances so that you can stay below the ACA thresholds you can save a bunch.

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16 hours ago, Razors Edge said:

...and this was one of the few comments that wasn't the normal trolling nonsense (I ain't moving to Wisconsin!):

We did it. It works. 53 for me; my Wife 51. Married 36 years.

 

So he married his bride when she was 15? Yikes

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22 minutes ago, Scrapr said:

So he married his bride when she was 15? Yikes

Unless he was vaguely embellishing parts of his personal experience.  That does sound rare.... but it wasn't long ago, when I went to elementary school in Ontario, some of my friends, their mothers married at 16, 18 yrs. old.  I thought my mother was unusual to marry my father at 23 yrs. and my father was 30 at the time.  How times have changed....for the better.

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I’m fortunate in that WOChrisL is 4 years younger than I and we are on her medical now.   She’ll likely work until I’m in my early 70’s so hopefully medical won’t be an issue for the first few years of retirement.  

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23 hours ago, Razors Edge said:

...and this was one of the few comments that wasn't the normal trolling nonsense (I ain't moving to Wisconsin!):

We did it. It works. 53 for me; my Wife 51. Married 36 years.

How we did it:

  • Debt free. Own house free and clear. Saved, saved and saved for a couple decades straight. Paid cash for everything, cars and house included. No 4 year degree for either of us. Just saved.
  • Three buckets: Taxable/bank account. Roth. Rollover/traditional IRA from our 401k's.
  • Live off of taxable account. Surprising how little costs you have when you don't have any debts.
  • Do Roth conversions each year to "simulate income" for ACA insurance requirements.
  • Keep conversions and interest/divs under amount needed to pay zero dollars for ACA. For us, that's around $42k/year "income".
  • Use a HDHP for ACA insurance so we can use our Livelyme.com HSA for contributing more money into the HSA. This reduces our taxable income even lower.
  • Lively is tied into our Schwab HSA account so we can invest tax-free. We do not use our HSA for paying any medical bills. We save all our medical receipts and let your portfolio grow. We will claim all those receipts a decade from now, or whenever, for tax-free income.
  • Combine all that with a Standard Deduction of $29,200 and we pay zero in taxes.

Live in Wisconsin during the Summer. Spend our Winters in Gulf Shores, Alabama.

In conclusion: We pay ZERO for our health care, ZERO taxes, and have plenty of money to retire early and travel. Always planned to do this. Would have bought a catastrophic health plan, but then ACA came along.

I'd never heard of lively. Looks good.

The Roth conversion tip looks interesting too.

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On 2/3/2024 at 9:00 PM, Razors Edge said:

“They naively think their health insurance will be identical to what they had at work.”

I am in the opposite end of the naivety spectrum. I automatically fear the ACA plan would be significantly inadequate compared to my current health insurance plan. I’ve always considered an early retirement plan would require either my wife or being offered a retirement package with family health benefits included. Her employer does this periodically for employees 59 1/2. I’d have to wait until 62. Fortunately, she’s a few years older than me, so I still hope to be done (well?) before I hit 62.

I’ve traveled more over the last 10 years after accepting I’d likely be working longer for health benefits than I’d otherwise need to financially. I think that’s what FIRE plans are at risk of missing out on. Life experiences skipped in favor of saving for later. I think more balance is needed. I don’t carry debt other than my mortgage, but I don’t feel saving every dime necessary, either.

I haven’t figured out how to liquidate my retirement savings in the most tax-friendly manner, yet. But I have a few years before that is needed, and too much to do in the meantime! 

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7 hours ago, Prophet Zacharia said:

I haven’t figured out how to liquidate my retirement savings in the most tax-friendly manner, yet. But I have a few years before that is needed, and too much to do in the meantime! 

Yep.  All part of the process! Get crackin' and start reporting back to us.

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