Hi there, Mrs. 1500 back for the Monday Ask the Reader question. Mr. 1500 has been asking for the last couple of weeks.
A few months ago, I asked you what do you want to know. I had been running out of questions for the readers, and thought maybe you had some questions I hadn’t thought of. And you didn’t disappoint!
Today’s question came from two different people. Mrs. Y from Live Happy Retire Early wanted to know how you are planning for health care with or without young children in early retirement, and Reader Jon wanted to know about your experiences with the Affordable Healthcare Act, also known as Obamacare.
***WARNING*** Please keep your comments about the health care act to personal experiences. Do not use this forum to bash one political party or the other. I do not remove comments very often, but profane and/or irrelevant comments will be deleted. I will let you have your respectful say, but will not tolerate hatred.
But first, before we can even get to today’s question, let’s recap your answers to last week’s question, Should we rent and flip this house? If you will recall, the rental numbers on this ugly boy were pretty dismal, and we figured we would bring in about $100 a month while we were renting it out. But once we were ready, we would be able to flip it and make quite the pretty penny, so the horrid rental figures aren’t as awful as they appear for long term gains.
Right off the bat, Pretired Nick pointed out that a $100-a-month profit on paper is more realistically a $500 monthly loss, taking in to account repairs, vacancies and other hassles. But, you could probably count on appreciation offsetting those costs, so that part would probably be a wash. He also mentioned taxes and real estate commissions taking another large chunk, which would normally be true, but the taxes in this area are astonishingly low, and I am a real estate agent now, so the commission I “earn” representing the buyer (us) will help to offset the commissions we have to pay when we sell it to someone else.
Even Steven would pass, because “…you guys are in a great place financially and no reason to complicate things with a house project…” Good point. We still aren’t finished with our own house right now, and we have a tendency to bite off more than we can comfortably chew.
Charles from Getting a Rich Life had a great point, “Is that a 30 year fixed rate. If you’re going to do a flip why don’t you get a 5 year arm which is a point lower. You can also pay down points which you will break even in three years and get a 2.5 or 3 percent arm loan, it will increase cash flow. Doesn’t matter if rates rise because your holding period is under 5 years.”
This is a great point, and something we didn’t even think of. The 7 year ARM rate (ARM stands for Adjustable Rate Mortgage, and the number in front of ARM refers to the amount of years the initial rate is good for.) is .75 lower than the 30 year fixed, and the 5 year rate is 1.125% lower. We probably wouldn’t have it in 5 years, but we most definitely wouldn’t still have it in 7. A great suggestion!
Gretchen from Retired by 40 Blog had a great point, “…another deal on a house will come along.” In our area of the world, the deals are almost gone. House prices are ridiculous, compared to rents. Many of the homes in our target area are older and in need of flipping, but the market is so tight that anything gets snapped up immediately. If it sits on the market, something is very wrong. This particular home is listed by a friend of mine, and the owner listed it way too high in the beginning to keep out the riff raff. A stupid idea, and most people didn’t see it at all. By the time he lowered the price, he had too much market time on the property and now people are wondering what is wrong with it. He is an abrasive man, and alienated the only other person interested in making an offer, so they walked.
So what did we do? We ended up making a very low offer. He countered slightly lower than asking, and we told him we couldn’t go that high. Since it is listed with my friend, I made sure she knows that we are still interested at our price, and if he changes his mind, to let us know.
Now on to this week’s question: how do you plan for health care in early retirement?
Medicare starts at age 65 unless you meet very specific requirements. Since we will be in our early or mid 40’s when we retire, we will need another option. Currently, our income is too high to get any sort of good deal on Obamacare. Mr. 1500’s company provides pretty crappy insurance options, but we have managed to make them work ok. We aren’t sickly people in general, and most years don’t use up all our benefits. This is a good thing!
Have you been covered through the Affordable Healthcare Act? What are your experiences with the coverage, prices, etc?
Please be respectful when you answer. I am not looking for people who just wish to bash Obama, the democrats or any of the republican party members either. Leave out political comments please or I will delete your response. I truly want to know how you feel about the actual program, and I would love your personal experience stories.
When I talk to my wife about early retirement she always references sick care coverage. It will be interesting to hear responses. From what I read, the Affordable Healthcare Act is a mini-boon for early retirees. Can it support itself? Will it be changed?
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It is one of our biggest concerns as well. While I don’t think Obamacare is the answer, SOMETHING has to be done about the state of healthcare in America today.
I had to switch to my wife’s health insurance because Obamacare made my premium go from $85/month to $175/month for much worse coverage. I am talking $12K deducitble not HSA eligible coverage. I get that I am right smack in the middle of the group that is needed to prop up the high risk patients and I get that, but I would be looking at $15K a year before I get any kind of benefit. I would be better off self insuring and paying the penalty.
I guess you would need to run the numbers for yourself. As an early retired person, you could probably make your income look really low and qualify for a subsidy. You might also want to look into what Holly from Club Thrifty is doing with one of those Christian Healthcare Ministry things…
I have heard this scenario frequently. Your healthcare premiums go up under this plan. We have a fairly crappy policy to begin with, and looked into getting an Obamacare policy. We still have that first crappy policy because we make too much money for the Affordable Care Act to be affordable for us. Like you, I get that we are in the upper income levels, and that is the preferable problem to have, rather than being in the lower income levels, but it still feels like I am being punished for being hardworking…
I’m a fan of Obamacare. I think it will provide downward pressure on costs, and if not reduce average costs, the ACA will at least slow the rate of increases.
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Nice! Glad to hear you made a decision you’re comfortable with. I’ve found that I usually don’t have to talk myself into the good decisions 🙂
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One benefit of the health care act is that you can know you current price on a plan to cover your family so that you have an idea of what it is now. Of course it will be increasing in two ways – rate increases and also they charge you based on your age as one of the factors. So it will definitely be higher than where they are at now.
I guess I am curious why you do not think you will qualify for a subsidy? If you make the transition at the end of a calender year, you can start your new year with just your retirement income. As long as you are below 400% of the poverty level you could qualify for something. The below 133% level is for medicaid, which in my opinion you would want to avoid. In fact I will be trying hard to realize enough income to keep myself ABOVE the 133% level if need be (you can manage your income by doing more ROTH conversions if needed 🙂 )
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Ooh, Kipp. It sounds like you have done some research on this. I really haven’t had the time to look into it. Mr. 1500 still has a job that pays way too much for us to qualify for any sort of deal on the healthcare front, which is a good problem to have. But it is a concern for the future. Do you have any posts about this? Please link to them…
I haven’t posted yet on this subject, but I probably should. But I would suggest making the transition at the end of the calender year, that way his employment income won’t affect your costs at all for the your first year in financial independence.
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I live in Canada and am very glad to have “free” quality healthcare.
While you may occasionally hear Canadians bitching about healthcare issues like long waiting periods for things like MRIs or the fact some people may have difficulty finding a family doctor accepting new patients, I have nothing but praise and thanks for our system.
I have a great family doctor who listens and has time for me. We have a new walk-in clinic 3 minutes from home where we can go anytime with no appointment and rarely wait more than 10 minutes to see a doctor. My mother just had free eye surgery to replace a lens in the same week my dad had melanoma removed from his back (he sees a dermatologist every six months so they feel they caught this early). I myself had an accident this spring and had surgery on my arm and had wonderful care during and after my hospital stay.
So yes we pay higher taxes here in Canada for the most part and I am sure a good chunk of it goes to the “free” healthcare but I am one Canadian who truly appreciates it.
I think that is great. Down here in the States, we still have a difficult time finding primary care doctors who are accepting new patients if you have an HMO plan. There can still be long wait times at places like the urgent care and ER.
I’ve heard that the ACA is a good idea for early retires, but we’re still firmly in the middle of employer provided insurance. We ended up keeping Dad’s health plan after looking at the details and the numbers. We’re still looking at having a relatively high income in retirement – but it will come down to what is “earned income” and what is dividends, etc that dictates whether ACA can help us. We’re still up in the air with what we’ll do for healthcare when we retire….
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I am hoping this all gets worked out by the time we need to use it. This was one of our biggest issues for early retirement.
Currently, we have decent employer coverage – but in ~5 years when we retire in our 40s we will have to depend ACA. With two young kids and an injury-prone husband, the subject of healthcare is one of the biggest issues in our pre-retirement. As our budget looks now, it will be the biggest line-item we have in retirement. Right now, since we are a few years out – I am planning for the worst, and we are trying to save enough for a silver plan. But, we have thrown around the idea of working part-time for a company that provides insurance to its part-time workers. Or, if our kids remain healthy and not as clutzy as their father, we may be able to get by with one of the lesser plans. We just are trying to finding the right balance between protecting our kids and the managing the budget. FIRE would be easier without the kids and making sure they have a great childhood – but without the kids, I probably wouldn’t be as interested in FIRE!
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I’m a case study on this. Last year my employment ended and I purchased a PPO plan from Blue Cross. Expensive, yes, but I was happy with the plan. Then I get a letter…
The letter informed me that the plan I had was being terminated bc it didn’t have certain elements required by the ACA. Great. I was bummed to say the least but I went out to the Covered California site to see what options were available.
I ended up taking a Kaiser plan that is quite affordable. After switching Dr.s once, I’m really happy with my decision. HOWEVER, I’m very concerned about how this whole thing works and what unexpected costs I’ll end up with after this year closes.
For example, your premium is based on your income. Okay, that’s fine but what about those of us with a variable monthly income? You’re supposed to report any income changes within a certain tolerance, which in turn will adjust your monthly premium.
I have earned far less in the later months than the beginning of the year but I haven’t changed the income amount on the site because I’m afraid of letting the premium go too low and then getting a penalty of some sort.
I came to this conclusion because they can’t get the autopay feature figured out and I have to keep calling them to tell them their reporting is inaccurate (they show me as not owing when I do owe a payment). It’s been messed up from the beginning.
I can see how this change in healthcare can be a boon to early retirees but until the kinks get worked out, be on the safe side and keep a “healthcare emergency fund” because you may need to dip into it!
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I retired at the end of may. I had decent health insurance with my company so while employed, I got all the doctor and dentist visits I could think of done, and any prescriptions refilled with 90-day mail order amounts. I also maxed my 401k for the whole year in that time. This allowed me to do 2 things. First, it meant I wouldn’t have many health expenses for the rest of the year. Just a dental cleaning and maybe a prescription. Second, it meant my income would be very low as the making out of the 401k offsets 5 months of income. Had my accountant rough estimate my ACA relevant income. Then the month before I retired I enrolled in a bronze HSA plan that would be effective the day after my retirement. $5000 deductible, for $141 per month with the reduced premium. Now if my 2014 tax return shows more income (for instance due to choosing to do IRA to roth IRA conversions), I will not get a penalty but will have a tax bill equal to the premium reductions, ie I will pay back the reduced premium amount (about $1300 total).
II was able to get my kids catastrophic coverage for $85 per month per kid but had to get that outside the ACA exchange (but with the exact same insurance company) – they took care of all the plans and coverage all at the same time. No hassles! I am very pleased with how it all worked out, and was able to start an HSA to boot (shout out to mad fiendish for the article on the ultimate retirement account).
DDuring open enrollment this year I will have to decide whether to do HSA bronze again or switch to silver ($50 more per month) as some back problems have cropped up that *might* require surgery.