Early Financial Independence. - Healthcare costs

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LiveSimple
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Early Financial Independence. - Healthcare costs

Post by LiveSimple » Fri Nov 08, 2019 8:31 am

Looking at our portfolio and our expenses, we are almost there or there for Financial Independence.

So thinking should relax at work or take a few years off or call it done and retire early.

However not able to get the head around the heal care insurance costs or the healthcare needs when we lose the employer insurance.

Once we have no salary then the income is just the interests and dividends from the taxable accounts and then the insurance costs is at $240 per month for the couple.

What are your thoughts or what should I think through....

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Re: Early Financial Independence. - Healthcare costs

Post by bottlecap » Fri Nov 08, 2019 8:38 am

Your sentences are missing integral parts, so I may not have deciphered your information or question.

However, if you can get health insurance for $240 per month, I’d say that’s about as good as you can do. The only question is whether you are financially independent such that you can afford $240 per month for health insurance.

JT

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Re: Early Financial Independence. - Healthcare costs

Post by nisiprius » Fri Nov 08, 2019 8:43 am

I have to say that a cost of $240/month for a couple, i.e. two people sounds awfully low. Where did you get that number? Is it an actual quote?

One good thing about the ACA is that it is now possible to get some kind of actual estimate for some range of reasonable policies. You should actually log in and go through all the steps for enrolling and get an actual quote, so you can see the costs and the tradeoff for different levels of coverage.

One random Google hit turned up a chart showing $440/month per individual in 2018, and $1168 per month for a family.

Image

I think you should budget much more than $240/month (total for two people.) Of course, the future is hard to predict and healthcare in particular is in a period of great uncertainty, but I think increases are much more likely than decrease. As a rough ballpark for planning purposes I think that, total for a couple, $1,000/month would be a more appropriate number than $240.

Assuming you are in excellent health, you would be foolish to count on that as a permanent thing in your planning.
Last edited by nisiprius on Fri Nov 08, 2019 8:51 am, edited 3 times in total.
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Re: Early Financial Independence. - Healthcare costs

Post by Watty » Fri Nov 08, 2019 8:49 am

LiveSimple wrote:
Fri Nov 08, 2019 8:31 am
...the insurance costs is at $240 per month for the couple.....
Where did you come up with the $240 figure?

Even when I was on COBRA right after I retired it was more like $600 per person per month and plus all the deductibles and copays.

It may be higher because I am older but now that I have an ACA policy it is over $900 a month for one person before the subsidy that I get and the deductibles and copays are much higher.

My wife is on Medicare now and with the Medicare premium of $144(?), Medicare supplement, Part D premium, and the things that are not covered like some prescription costs that is running around $500 a month for one person.

There are other costs too like dental, vision, hearing aids, etc that can really add up.

Unlike the insurance that was deducted out of your paycheck while you were working these are all paid with post tax dollars so to be able to pay $1,000 a month you might need to have $1,200 a month in taxable income to be able to pay $200 in taxes in addition to the $1,000.

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Re: Early Financial Independence. - Healthcare costs

Post by AHTFY » Fri Nov 08, 2019 9:19 am

As others have said, $240/month sounds very low. I pay about that much for myself (single, age 43) with a grandfathered (pre-Obamacare) plan with the highest deductible I could find at the time ($5,500) in a state (Arizona) that has relatively low healthcare costs and insurance premiums. My brother (age 45) has a more "normal" plan and pays about $500/month for himself alone.

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Re: Early Financial Independence. - Healthcare costs

Post by deltaneutral83 » Fri Nov 08, 2019 9:30 am

Guys it depends on income for ACA. If OP is at 1.2x poverty line for his tax status (2 people) from his div's from his taxable account, he could easily be looking at a premium of $240 for health care and I can see the deductible/oop max not even being that crazy at something like $4k/$8k.

ETA - For 2 people the 1x poverty line is $16,460. So if he, for example, has $20k in divs from his taxable I can see his ACA policy being heavily subsided to the point where he is required to pay $240, maybe even less.

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Re: Early Financial Independence. - Healthcare costs

Post by HoosierJim » Fri Nov 08, 2019 9:38 am

Randomly looking up person with spouse aged 62 years old each, picked Iowa (nothing special about that state) with if a MAGI of $25,000. Here are some ways to reduce MAGI.

Check it for your locations/income

Image

Here's $40K magi

Image

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Re: Early Financial Independence. - Healthcare costs

Post by dm200 » Fri Nov 08, 2019 10:10 am

LiveSimple wrote:
Fri Nov 08, 2019 8:31 am
Looking at our portfolio and our expenses, we are almost there or there for Financial Independence.
So thinking should relax at work or take a few years off or call it done and retire early.
However not able to get the head around the heal care insurance costs or the healthcare needs when we lose the employer insurance.
Once we have no salary then the income is just the interests and dividends from the taxable accounts and then the insurance costs is at $240 per month for the couple.
What are your thoughts or what should I think through....
How long before becoming Medicare eligible?

Now on Medicare, my opinion is that accurately predicting or budgeting for future healthcare costs is one of the most difficult kinds of things to do. Just looking at the past few years - who could have predicted the affects of things like Obamacare implementation, more recent cutting back on parts of Obamacare, Medicaid expansion (in some states, but not others), growth of medicare Advantage plans, new (and expansive) treatments for some conditions, risks of new diseases, and so on.

I have no idea how to find them, but there might be some kinds of employment (perhaps less than full time) that provide healthcare benefits - or the opportunity to have stable and more predictable coverage and costs over time. Maybe (?) there are some non-profits or religious based employers that might have such opportunities.

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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Fri Nov 08, 2019 10:50 am

deltaneutral83 wrote:
Fri Nov 08, 2019 9:30 am
Guys it depends on income for ACA. If OP is at 1.2x poverty line for his tax status (2 people) from his div's from his taxable account, he could easily be looking at a premium of $240 for health care and I can see the deductible/oop max not even being that crazy at something like $4k/$8k.

ETA - For 2 people the 1x poverty line is $16,460. So if he, for example, has $20k in divs from his taxable I can see his ACA policy being heavily subsided to the point where he is required to pay $240, maybe even less.
This, when we put the interest and dividend income as $24,000 or so, it came to $240 with a 8 K deductible.
We are healthy and in any year we do need to pay $8000 out of pocket, we can pay well with our portfolio.

Yes this sounds not logical, when we say healthcare premiums are high.

My question is when retired and no income expect interests, dividends and capital gains, and if is around $20 K and portfolio size is say $3 M or $4 M OR even 10 M, are these insurance premiums look only at the interests, dividends and capital gains and not the capital

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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Fri Nov 08, 2019 10:52 am

Dude2 wrote:
Fri Nov 08, 2019 9:37 am
I may end up being wrong, but I think the model is unsustainable in which people are able to retire early and collect government subsidies to pay for their health care. Therefore, do not plan that this is a given and will always be there for you. The political wind can blow and take that away. In my opinion, if you can work, you work. I'm all for people retiring for good reasons, but not for the reason of becoming a bum. Society needs people working.

That is why working here, we will budget for $2 K for health premiums until medicare kicks in, but trying to understand the system.
One more lesson to learn when financially independent early.

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Re: Early Financial Independence. - Healthcare costs

Post by RickBoglehead » Fri Nov 08, 2019 10:55 am

It is correct that the ACA only looks at income, not assets.

It's astonishing that your income on a multi million dollar portfolio is so low. Either your have a lot in retirement accounts, or you have poor investments.

Our assets are 2/3 taxable and 1/3 retirement. Our taxable income from interest, dividends, and capital gains is roughly 3%. Hence we will never qualify for an ACA subsidy, but we plan on taking my wife's employers insurance which is about 2/3 or less of the ACA number pre-medicare, then well below the ACA number when under Medicare. 16.6 months until she qualifies, 19 months until retirement.
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Re: Early Financial Independence. - Healthcare costs

Post by delamer » Fri Nov 08, 2019 10:56 am

LiveSimple wrote:
Fri Nov 08, 2019 10:50 am
deltaneutral83 wrote:
Fri Nov 08, 2019 9:30 am
Guys it depends on income for ACA. If OP is at 1.2x poverty line for his tax status (2 people) from his div's from his taxable account, he could easily be looking at a premium of $240 for health care and I can see the deductible/oop max not even being that crazy at something like $4k/$8k.

ETA - For 2 people the 1x poverty line is $16,460. So if he, for example, has $20k in divs from his taxable I can see his ACA policy being heavily subsided to the point where he is required to pay $240, maybe even less.
This, when we put the interest and dividend income as $24,000 or so, it came to $240 with a 8 K deductible.
We are healthy and in any year we do need to pay $8000 out of pocket, we can pay well with our portfolio.

Yes this sounds not logical, when we say healthcare premiums are high.

My question is when retired and no income expect interests, dividends and capital gains, and if is around $20 K and portfolio size is say $3 M or $4 M OR even 10 M, are these insurance premiums look only at the interests, dividends and capital gains and not the capital
Your eligibility for subsidies is based on MAGI.

Here’s a description of how it’s calculated: https://www.healthcare.gov/glossary/mod ... come-magi/

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Re: Early Financial Independence. - Healthcare costs

Post by AHTFY » Fri Nov 08, 2019 10:57 am

LiveSimple wrote:
Fri Nov 08, 2019 10:50 am
deltaneutral83 wrote:
Fri Nov 08, 2019 9:30 am
Guys it depends on income for ACA. If OP is at 1.2x poverty line for his tax status (2 people) from his div's from his taxable account, he could easily be looking at a premium of $240 for health care and I can see the deductible/oop max not even being that crazy at something like $4k/$8k.

ETA - For 2 people the 1x poverty line is $16,460. So if he, for example, has $20k in divs from his taxable I can see his ACA policy being heavily subsided to the point where he is required to pay $240, maybe even less.
This, when we put the interest and dividend income as $24,000 or so, it came to $240 with a 8 K deductible.
We are healthy and in any year we do need to pay $8000 out of pocket, we can pay well with our portfolio.

Yes this sounds not logical, when we say healthcare premiums are high.

My question is when retired and no income expect interests, dividends and capital gains, and if is around $20 K and portfolio size is say $3 M or $4 M OR even 10 M, are these insurance premiums look only at the interests, dividends and capital gains and not the capital
But how would you have interest, dividends, and capital gains of $20K on a portfolio of $3M to $10M? A $1M portfolio would probably earn you $20k to $25k in interest and dividends alone. Perhaps much (most) of your portfolio is in retirement accounts, but if you are retiring early you won't be able to access those funds (except at a penalty).

Genuinely curious. I'd love to reduce my healthcare insurance premiums.

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Re: Early Financial Independence. - Healthcare costs

Post by delamer » Fri Nov 08, 2019 11:04 am

AHTFY wrote:
Fri Nov 08, 2019 10:57 am
LiveSimple wrote:
Fri Nov 08, 2019 10:50 am
deltaneutral83 wrote:
Fri Nov 08, 2019 9:30 am
Guys it depends on income for ACA. If OP is at 1.2x poverty line for his tax status (2 people) from his div's from his taxable account, he could easily be looking at a premium of $240 for health care and I can see the deductible/oop max not even being that crazy at something like $4k/$8k.

ETA - For 2 people the 1x poverty line is $16,460. So if he, for example, has $20k in divs from his taxable I can see his ACA policy being heavily subsided to the point where he is required to pay $240, maybe even less.
This, when we put the interest and dividend income as $24,000 or so, it came to $240 with a 8 K deductible.
We are healthy and in any year we do need to pay $8000 out of pocket, we can pay well with our portfolio.

Yes this sounds not logical, when we say healthcare premiums are high.

My question is when retired and no income expect interests, dividends and capital gains, and if is around $20 K and portfolio size is say $3 M or $4 M OR even 10 M, are these insurance premiums look only at the interests, dividends and capital gains and not the capital
But how would you have interest, dividends, and capital gains of $20K on a portfolio of $3M to $10M? A $1M portfolio would probably earn you $20k to $25k in interest and dividends alone. Perhaps much (most) of your portfolio is in retirement accounts, but if you are retiring early you won't be able to access those funds (except at a penalty).

Genuinely curious. I'd love to reduce my healthcare insurance premiums.
Interesting point regarding the income relative to the portfolio size.

If it turns out that a big chunk of the portfolio is in tax-advantaged accounts and not throwing off taxable income, there is a way to withdraw the funds prior to age 59.5 without penalty. That is through the IRS regulation 72(t).

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Re: Early Financial Independence. - Healthcare costs

Post by Tyler9000 » Fri Nov 08, 2019 11:06 am

LiveSimple wrote:
Fri Nov 08, 2019 10:50 am
This, when we put the interest and dividend income as $24,000 or so, it came to $240 with a 8 K deductible.
Be sure to look at the silver plans. They also qualify for reduced deductibles ("cost sharing") depending on your income. At $24k taxable income, your deductible may also be close to zero.

One thing to look out for is to make sure your income is not too low. At some point you won't qualify for ACA subsidies and will instead be kicked onto Medicaid. That threshold varies by state, so be sure to figure that out first. It's easy to manage with realized capital gains as long as you plan ahead.

Like the vast majority of taxation systems in the US, the ACA is structured completely around income and not assets. So yes, an early retiree with very low taxable income can qualify for some significant health insurance subsidies. Just like smart investors jump through a few hoops to legally minimize taxes, smart early retirees can take a few easy steps to legally minimize healthcare expenses. Good for you for learning how it all works.

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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Fri Nov 08, 2019 11:11 am

HoosierJim wrote:
Fri Nov 08, 2019 9:38 am
Randomly looking up person with spouse aged 62 years old each, picked Iowa (nothing special about that state) with if a MAGI of $25,000. Here are some ways to reduce MAGI.

Check it for your locations/income

Image

Here's $40K magi

Image
Any comments on this ?

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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Fri Nov 08, 2019 11:13 am

RickBoglehead wrote:
Fri Nov 08, 2019 10:55 am
It is correct that the ACA only looks at income, not assets.
Rick, this is what I am trying to understand. Do you see my point....?
When we sell taxable investment the capital gains will add to the MAGI.

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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Fri Nov 08, 2019 11:18 am

AHTFY wrote:
Fri Nov 08, 2019 10:57 am
Genuinely curious. I'd love to reduce my healthcare insurance premiums.
If the healthcare insurance premiums are low, one step towards FIRE !!!

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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Fri Nov 08, 2019 11:21 am

Tyler9000 wrote:
Fri Nov 08, 2019 11:06 am
LiveSimple wrote:
Fri Nov 08, 2019 10:50 am
This, when we put the interest and dividend income as $24,000 or so, it came to $240 with a 8 K deductible.
Be sure to look at the silver plans. They also qualify for reduced deductibles ("cost sharing") depending on your income. At $24k taxable income, your deductible may also be close to zero.

One thing to look out for is to make sure your income is not too low. At some point you won't qualify for ACA subsidies and will instead be kicked onto Medicaid. That threshold varies by state, so be sure to figure that out first. It's easy to manage with realized capital gains as long as you plan ahead.

Like the vast majority of taxation systems in the US, the ACA is structured completely around income and not assets. So yes, an early retiree with very low taxable income can qualify for some significant health insurance subsidies. Just like smart investors jump through a few hoops to legally minimize taxes, smart early retirees can take a few easy steps to legally minimize healthcare expenses. Good for you for learning how it all works.
Thanks Tyler, I was thinking on your lines as well. When the income is under $17,000 then medicare kicks in.
When income is at around $24,000, the PPO premium is $240 with 8 K deductible / out of pocket. HMO premium is free but with 8 K deductible / out of pocket.

Learning for "Good for you for learning how it all works."

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Watty
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Re: Early Financial Independence. - Healthcare costs

Post by Watty » Fri Nov 08, 2019 11:44 am

LiveSimple wrote:
Fri Nov 08, 2019 10:50 am
My question is when retired and no income expect interests, dividends and capital gains, and if is around $20 K and portfolio size is say $3 M or $4 M OR even 10 M, are these insurance premiums look only at the interests, dividends and capital gains and not the capital
A couple of complications to keep in mind.

1) Assuming that your income is between the Medicaid cutoff and the subsidy cliff the amount of the subsidy will vary. The calculation is more complex but for us it will vary by 9.8% so that if our income is $10K higher or lower(without hitting the upper or lower limits) that will change our subsidy by $980 dollars. I have a home equity loan that I use to help keep my taxable income lower because of this since the interest is lot less than 9.8%. This takes some juggling and planning since I will need to pay off the loan the next year.

2) Being able to take capital gains at the 0% federal long term capital gain tax bracket can be very valuable but you will giving that up to get the subsidy.

3) Likewise you will not be able to do Roth conversions in a low tax bracket.

4) In addition to your normal budget you will also need to pay for occasional large expenses like a new roof or replacement car.

5) When you retire will likely be able to use COBRA for 18 months(36 in a few states). Even though you would not get the subsidy your COBRA would likely have lower deductibles and a better network of doctors. There would also be a lot less uncertainty. I retired in the middle of the year so that COBRA would cover us for the rest of the year and all of the next year so we did not need to worry about the ACA being around until the year after that. This also allowed my wife to go directly from COBRA to Medicare without having to switch doctors because of the

6) If you are eligible for COBRA there are special rules about when you can get the ACA subsidy. I don't really remember those rules but be sure to research them since in some situation you may not be able to get the subsidy because of COBRA.

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Re: Early Financial Independence. - Healthcare costs

Post by Tyler9000 » Fri Nov 08, 2019 12:23 pm

Watty wrote:
Fri Nov 08, 2019 11:44 am
2) Being able to take capital gains at the 0% federal long term capital gain tax bracket can be very valuable but you will giving that up to get the subsidy.

3) Likewise you will not be able to do Roth conversions in a low tax bracket.
Nothing prevents someone from paying no capital gains taxes and also qualifying for health subsidies. It all depends on income.

For reference, the subsidy cliff for a married couple with no kids is at about $65k income (it goes up with more dependents). And the threshold for 0% LTCG for the same couple is $78k in 2019. So if your expenses are low enough (pretty easy if your house is paid off) there's a lot of room to work with even for an annual Roth conversion.

Watty wrote:
Fri Nov 08, 2019 11:44 am
6) If you are eligible for COBRA there are special rules about when you can get the ACA subsidy. I don't really remember those rules but be sure to research them since in some situation you may not be able to get the subsidy because of COBRA.
COBRA is a choice but has zero bearing on ACA eligibility. https://www.healthcare.gov/unemployed/cobra-coverage/


For context, several years ago my wife and I quit our jobs to follow the early retirement path and switched to ACA coverage. It was just the two of us with no kids, our house was paid off, and we're naturally frugal people. So our expenses were very low and easily covered by our portfolio income. I managed our MAGI using smart tax management to stay pretty near that $24k mark. We lived well, paid zero taxes on our investment income (0% LTCG rate, and the dividends and interest were covered by the standard deduction and tax loss harvesting), and our total health insurance costs for a Silver plan in Texas were about $100/month in premiums with less than a $1k deductible. So my perspective is from real experience and is not just theoretical, and if you're interested in retiring early I can testify that it's well worth your time to learn how the system works!
Last edited by Tyler9000 on Fri Nov 08, 2019 12:43 pm, edited 6 times in total.

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Re: Early Financial Independence. - Healthcare costs

Post by alerya » Fri Nov 08, 2019 12:24 pm

Tyler9000 wrote:
Fri Nov 08, 2019 11:06 am
LiveSimple wrote:
Fri Nov 08, 2019 10:50 am
This, when we put the interest and dividend income as $24,000 or so, it came to $240 with a 8 K deductible.
Be sure to look at the silver plans. They also qualify for reduced deductibles ("cost sharing") depending on your income. At $24k taxable income, your deductible may also be close to zero.

One thing to look out for is to make sure your income is not too low. At some point you won't qualify for ACA subsidies and will instead be kicked onto Medicaid. That threshold varies by state, so be sure to figure that out first. It's easy to manage with realized capital gains as long as you plan ahead.

Like the vast majority of taxation systems in the US, the ACA is structured completely around income and not assets. So yes, an early retiree with very low taxable income can qualify for some significant health insurance subsidies. Just like smart investors jump through a few hoops to legally minimize taxes, smart early retirees can take a few easy steps to legally minimize healthcare expenses. Good for you for learning how it all works.

I don't know much about this. Can you elaborate on why one would not want to qualify for Medicaid?

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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Fri Nov 08, 2019 12:26 pm

Watty wrote:
Fri Nov 08, 2019 11:44 am

3) Likewise you will not be able to do Roth conversions in a low tax bracket.
Prefer to understand better on this ROTH conversions at low tax bracket.

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Re: Early Financial Independence. - Healthcare costs

Post by Tyler9000 » Fri Nov 08, 2019 12:31 pm

alerya wrote:
Fri Nov 08, 2019 12:24 pm
I don't know much about this. Can you elaborate on why one would not want to qualify for Medicaid?
Mainly flexibility and choice. Choosing your own plan makes it easier to find a doctor you like. And Medicaid adds an additional level of bureaucratic red tape that you may not care for.

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Re: Early Financial Independence. - Healthcare costs

Post by EddyB » Fri Nov 08, 2019 12:43 pm

Dude2 wrote:
Fri Nov 08, 2019 9:37 am
Society needs people working.
Well, that's society's problem, to incentivize lots of different types of people.

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Re: Early Financial Independence. - Healthcare costs

Post by Katietsu » Fri Nov 08, 2019 12:54 pm

Tyler9000 wrote:
Fri Nov 08, 2019 12:31 pm
alerya wrote:
Fri Nov 08, 2019 12:24 pm
I don't know much about this. Can you elaborate on why one would not want to qualify for Medicaid?
Mainly flexibility and choice. Choosing your own plan makes it easier to find a doctor you like. And Medicaid adds an additional level of bureaucratic red tape that you may not care for.
It is dependent on where you live. I know a few people for whom Medicaid has been amazing with completely free coverage, widely accepted and staff that makes any paperwork a breeze. There are other locations where Medicaid would be severely limiting and a lot more hassle.

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Re: Early Financial Independence. - Healthcare costs

Post by InvestingGeek » Fri Nov 08, 2019 1:00 pm

Dude2 wrote:
Fri Nov 08, 2019 9:37 am
I may end up being wrong, but I think the model is unsustainable in which people are able to retire early and collect government subsidies to pay for their health care. Therefore, do not plan that this is a given and will always be there for you. The political wind can blow and take that away. In my opinion, if you can work, you work. I'm all for people retiring for good reasons, but not for the reason of becoming a bum. Society needs people working.
Who's to say these early retirees might end up inventing something in their copious free time. The mind is an idea factory. If not occupied at work, it's bound to come up with something else. So I'm all for people doing what they want in their pursuit of happiness.

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Re: Early Financial Independence. - Healthcare costs

Post by Tyler9000 » Fri Nov 08, 2019 1:06 pm

Katietsu wrote:
Fri Nov 08, 2019 12:54 pm
It is dependent on where you live. I know a few people for whom Medicaid has been amazing with completely free coverage, widely accepted and staff that makes any paperwork a breeze. There are other locations where Medicaid would be severely limiting and a lot more hassle.
Fair enough. I have no doubt that the coverage and quality may vary by state. YMMV

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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Fri Nov 08, 2019 1:08 pm

InvestingGeek wrote:
Fri Nov 08, 2019 1:00 pm
Who's to say these early retirees might end up inventing something in their copious free time. The mind is an idea factory. If not occupied at work, it's bound to come up with something else. So I'm all for people doing what they want in their pursuit of happiness.
Exactly, once away from a daily run, can think something better.
Also people who are FI will do something better as well....

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Re: Early Financial Independence. - Healthcare costs

Post by Katietsu » Fri Nov 08, 2019 1:49 pm

There are many discussions on BH focused on early retirement and health insurance. There are many who have decided to continue working predominantly because of health insurance, not concern for the premium cost as much as a concern of the availability of coverage at all.

The more time until Medicare eligibility, the bigger the risk. Some states have stepped in and passed laws that will step in to guarantee coverage should the federal law change. So geographic arbitrage is a possibility.

Before the ACA kicked in, there were rules that allowed one to convert a work policy to an individual policy after COBRA ran out. My DH had a decent but not great plan. But the premium for a single pre Medicare individual was almost $30 k a year. Basically, they did not really want you Since the only people who opted for the coverage was those who could not get insurance on the open market due to pre existing conditions. I bring this up just to point out that there is a very wide range of possibilities as to where the actual healthcare costs could end up.

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Re: Early Financial Independence. - Healthcare costs

Post by StandingRock » Fri Nov 08, 2019 2:08 pm

Dude2 wrote:
Fri Nov 08, 2019 9:37 am
I may end up being wrong, but I think the model is unsustainable in which people are able to retire early and collect government subsidies to pay for their health care. Therefore, do not plan that this is a given and will always be there for you. The political wind can blow and take that away. In my opinion, if you can work, you work. I'm all for people retiring for good reasons, but not for the reason of becoming a bum. Society needs people working.
I don't really know what you can do other than reinstate slavery. There are plenty of people who don't work, I wouldn't say that they have retired per se because they never worked to begin with.

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JAZZISCOOL
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Re: Early Financial Independence. - Healthcare costs

Post by JAZZISCOOL » Fri Nov 08, 2019 2:11 pm

LiveSimple wrote:
Fri Nov 08, 2019 11:21 am
Tyler9000 wrote:
Fri Nov 08, 2019 11:06 am
LiveSimple wrote:
Fri Nov 08, 2019 10:50 am
This, when we put the interest and dividend income as $24,000 or so, it came to $240 with a 8 K deductible.
Be sure to look at the silver plans. They also qualify for reduced deductibles ("cost sharing") depending on your income. At $24k taxable income, your deductible may also be close to zero.

One thing to look out for is to make sure your income is not too low. At some point you won't qualify for ACA subsidies and will instead be kicked onto Medicaid. That threshold varies by state, so be sure to figure that out first. It's easy to manage with realized capital gains as long as you plan ahead.

Like the vast majority of taxation systems in the US, the ACA is structured completely around income and not assets. So yes, an early retiree with very low taxable income can qualify for some significant health insurance subsidies. Just like smart investors jump through a few hoops to legally minimize taxes, smart early retirees can take a few easy steps to legally minimize healthcare expenses. Good for you for learning how it all works.
Thanks Tyler, I was thinking on your lines as well. When the income is under $17,000 then medicare kicks in.
When income is at around $24,000, the PPO premium is $240 with 8 K deductible / out of pocket. HMO premium is free but with 8 K deductible / out of pocket.

Learning for "Good for you for learning how it all works."
I believe you mean Medicaid and not Medicare.

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Re: Early Financial Independence. - Healthcare costs

Post by deltaneutral83 » Fri Nov 08, 2019 2:13 pm

Just thinking out loud:
-Selling off four years and moving to cash gets you no subsidy for one year but max subsidies for three years, with the caveat you need to remain well over 1x the poverty rate in years 2/3/4 based off your tax status. You'd be taking some chips off the table to avoid high premiums but with the market at a high and all... If your expenses are say 40k and your divs throw off 25k, you could take the extra 15 you need for years 1-4 all in year 1, or something like that.
-BRK.B from here on out in your taxable for your domestic equities to control divs if you needed.

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LiveSimple
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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Fri Nov 08, 2019 2:53 pm

Great discussions thanks

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Watty
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Re: Early Financial Independence. - Healthcare costs

Post by Watty » Fri Nov 08, 2019 5:01 pm

LiveSimple wrote:
Fri Nov 08, 2019 12:26 pm
Watty wrote:
Fri Nov 08, 2019 11:44 am

3) Likewise you will not be able to do Roth conversions in a low tax bracket.
Prefer to understand better on this ROTH conversions at low tax bracket.
The amount of my subsidy is reduced by 9.8% for any additional income, assuming I stay below the subsidy cliff. As I recall this percentage may vary based on your details. I am also in the 12% federal tax bracket.

If I did a Roth conversion Of $1,000 then I would need to pay $120 in federal taxes and my ACA subsidy would be reduced by $98 for a total of $218. Effectively I am in a 21.8% tax bracket which makes a Roth conversion undesirable since I will likely be in a lower tax bracket later in retirement. You would also need to factor in state taxes.

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Re: Early Financial Independence. - Healthcare costs

Post by Watty » Fri Nov 08, 2019 5:26 pm

Tyler9000 wrote:
Fri Nov 08, 2019 12:23 pm
Watty wrote:
Fri Nov 08, 2019 11:44 am
2) Being able to take capital gains at the 0% federal long term capital gain tax bracket can be very valuable but you will giving that up to get the subsidy.

3) Likewise you will not be able to do Roth conversions in a low tax bracket.
Nothing prevents someone from paying no capital gains taxes and also qualifying for health subsidies. It all depends on income.

For reference, the subsidy cliff for a married couple with no kids is at about $65k income (it goes up with more dependents). And the threshold for 0% LTCG for the same couple is $78k in 2019. So if your expenses are low enough (pretty easy if your house is paid off) there's a lot of room to work with even for an annual Roth conversion.

Very true, in would have been better if I had said something like impact or limit your ability to do this.

My understanding is that for me even though the capital gain might have a 0% federal long term capital gain tax rate, the additional income would still reduce the subsidy by 9.8% of the capital gain amount.

Watty wrote:
Fri Nov 08, 2019 11:44 am
6) If you are eligible for COBRA there are special rules about when you can get the ACA subsidy. I don't really remember those rules but be sure to research them since in some situation you may not be able to get the subsidy because of COBRA.
COBRA is a choice but has zero bearing on ACA eligibility. https://www.healthcare.gov/unemployed/cobra-coverage/


For context, several years ago my wife and I quit our jobs to follow the early retirement path and switched to ACA coverage. It was just the two of us with no kids, our house was paid off, and we're naturally frugal people. So our expenses were very low and easily covered by our portfolio income. I managed our MAGI using smart tax management to stay pretty near that $24k mark. We lived well, paid zero taxes on our investment income (0% LTCG rate, and the dividends and interest were covered by the standard deduction and tax loss harvesting), and our total health insurance costs for a Silver plan in Texas were about $100/month in premiums with less than a $1k deductible. So my perspective is from real experience and is not just theoretical, and if you're interested in retiring early I can testify that it's well worth your time to learn how the system works!

I am glad that it worked out for you but there are pitfalls to watch out with getting the subsidy if you start COBRA and then switch to an ACA plan before your COBRA eligibility runs out.


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Re: Early Financial Independence. - Healthcare costs

Post by Watty » Fri Nov 08, 2019 5:29 pm

Katietsu wrote:
Fri Nov 08, 2019 12:54 pm
Tyler9000 wrote:
Fri Nov 08, 2019 12:31 pm
alerya wrote:
Fri Nov 08, 2019 12:24 pm
I don't know much about this. Can you elaborate on why one would not want to qualify for Medicaid?
Mainly flexibility and choice. Choosing your own plan makes it easier to find a doctor you like. And Medicaid adds an additional level of bureaucratic red tape that you may not care for.
It is dependent on where you live. I know a few people for whom Medicaid has been amazing with completely free coverage, widely accepted and staff that makes any paperwork a breeze. There are other locations where Medicaid would be severely limiting and a lot more hassle.
In states that have not expanded Medicaid there is also a catch-22 situation where you may lose the subsidy because your income is too low and it is assumed that you would be in Medicaid. The problem is that if your state has not expanded Medicaid then you may not be able to actually get on Medicaid.

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Re: Early Financial Independence. - Healthcare costs

Post by dm200 » Fri Nov 08, 2019 5:53 pm

Watty wrote:
Fri Nov 08, 2019 5:29 pm
Katietsu wrote:
Fri Nov 08, 2019 12:54 pm
Tyler9000 wrote:
Fri Nov 08, 2019 12:31 pm
alerya wrote:
Fri Nov 08, 2019 12:24 pm
I don't know much about this. Can you elaborate on why one would not want to qualify for Medicaid?
Mainly flexibility and choice. Choosing your own plan makes it easier to find a doctor you like. And Medicaid adds an additional level of bureaucratic red tape that you may not care for.
It is dependent on where you live. I know a few people for whom Medicaid has been amazing with completely free coverage, widely accepted and staff that makes any paperwork a breeze. There are other locations where Medicaid would be severely limiting and a lot more hassle.
In states that have not expanded Medicaid there is also a catch-22 situation where you may lose the subsidy because your income is too low and it is assumed that you would be in Medicaid. The problem is that if your state has not expanded Medicaid then you may not be able to actually get on Medicaid.
Yes - that was the case in Virginia for several years because the Legislature would not expand Medicaid. Finally, after several year - Virginia finally expanded Medicaid.

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Re: Early Financial Independence. - Healthcare costs

Post by MP123 » Fri Nov 08, 2019 7:29 pm

dm200 wrote:
Fri Nov 08, 2019 5:53 pm
Watty wrote:
Fri Nov 08, 2019 5:29 pm
Katietsu wrote:
Fri Nov 08, 2019 12:54 pm
Tyler9000 wrote:
Fri Nov 08, 2019 12:31 pm
alerya wrote:
Fri Nov 08, 2019 12:24 pm
I don't know much about this. Can you elaborate on why one would not want to qualify for Medicaid?
Mainly flexibility and choice. Choosing your own plan makes it easier to find a doctor you like. And Medicaid adds an additional level of bureaucratic red tape that you may not care for.
It is dependent on where you live. I know a few people for whom Medicaid has been amazing with completely free coverage, widely accepted and staff that makes any paperwork a breeze. There are other locations where Medicaid would be severely limiting and a lot more hassle.
In states that have not expanded Medicaid there is also a catch-22 situation where you may lose the subsidy because your income is too low and it is assumed that you would be in Medicaid. The problem is that if your state has not expanded Medicaid then you may not be able to actually get on Medicaid.
Yes - that was the case in Virginia for several years because the Legislature would not expand Medicaid. Finally, after several year - Virginia finally expanded Medicaid.
Correct.

In most of the non-expansion states a healthy adult will not qualify for Medicaid, it's for disabled and children only. And if their income is too low they won't qualify for ACA subsidies either.

So pick your state wisely if you plan to FIRE.

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Re: Early Financial Independence. - Healthcare costs

Post by Dude2 » Fri Nov 08, 2019 8:59 pm

StandingRock wrote:
Fri Nov 08, 2019 2:08 pm
Dude2 wrote:
Fri Nov 08, 2019 9:37 am
I may end up being wrong, but I think the model is unsustainable in which people are able to retire early and collect government subsidies to pay for their health care. Therefore, do not plan that this is a given and will always be there for you. The political wind can blow and take that away. In my opinion, if you can work, you work. I'm all for people retiring for good reasons, but not for the reason of becoming a bum. Society needs people working.
I don't really know what you can do other than reinstate slavery. There are plenty of people who don't work, I wouldn't say that they have retired per se because they never worked to begin with.
I've decided to go live on the moon. Things will be better there.

This loophole could be closed in the future. There is motivation by society to close it. The FIRE movement seems to price it as a given. As many have said, health care costs are a very complex variable. Typically freebies are handed out to those that need them; otherwise, you are going to hand out all the freebies, and those really needing them are going to go without. Unsustainable model. Please, by all means, pursue happiness, but pay as you go.

Retired2013
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Re: Early Financial Independence. - Healthcare costs

Post by Retired2013 » Sat Nov 09, 2019 10:57 am

LiveSimple wrote:
Fri Nov 08, 2019 11:21 am
Tyler9000 wrote:
Fri Nov 08, 2019 11:06 am
LiveSimple wrote:
Fri Nov 08, 2019 10:50 am
This, when we put the interest and dividend income as $24,000 or so, it came to $240 with a 8 K deductible.
Be sure to look at the silver plans. They also qualify for reduced deductibles ("cost sharing") depending on your income. At $24k taxable income, your deductible may also be close to zero.

One thing to look out for is to make sure your income is not too low. At some point you won't qualify for ACA subsidies and will instead be kicked onto Medicaid. That threshold varies by state, so be sure to figure that out first. It's easy to manage with realized capital gains as long as you plan ahead.

Like the vast majority of taxation systems in the US, the ACA is structured completely around income and not assets. So yes, an early retiree with very low taxable income can qualify for some significant health insurance subsidies. Just like smart investors jump through a few hoops to legally minimize taxes, smart early retirees can take a few easy steps to legally minimize healthcare expenses. Good for you for learning how it all works.
Thanks Tyler, I was thinking on your lines as well. When the income is under $17,000 then medicare kicks in.
When income is at around $24,000, the PPO premium is $240 with 8 K deductible / out of pocket. HMO premium is free but with 8 K deductible / out of pocket.

Learning for "Good for you for learning how it all works."
I have not read all of the posts but you might be missing that if you withdraw funds from your deferred retirement account, that will add to your MAGI. What needs to be done is keep your book income separate from your tax income.

I keep my MAGI between 138% & 150% of FPL for 2, or around $24,000. This gets us free healthcare with no deductible in NY (not Medicaid). Also since the standard deduction for 2 is $24,000, no Federal tax or State taxes are due. Yes, I can't do any Roth convention until we are 65 or our effective tax rate would jump very high. I treat medical cost as a tax.

For my book income, most assets are in tax deferred or Roth accounts.

I guarantee you that we spend more than $24k tax income. What ever we need over the $24k, just comes from our taxable savings account or if I deplete that, then I'll draw from the Roth accounts before I touch the tIRA or 401(k).

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Re: Early Financial Independence. - Healthcare costs

Post by Flyer24 » Sat Nov 09, 2019 11:42 am

Ideas to make health care system better is getting into the political realm and not allowed on this board.
Moderator

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Re: Early Financial Independence. - Healthcare costs

Post by willthrill81 » Sat Nov 09, 2019 11:57 am

RickBoglehead wrote:
Fri Nov 08, 2019 10:55 am
It's astonishing that your income on a multi million dollar portfolio is so low. Either your have a lot in retirement accounts, or you have poor investments.
Not necessarily. The dividend rate on many growth funds is around 1.5% right now, so a $3 million portfolio could easily throw off no more than $45k of annual income.

I think that a very plausible, at least mathematically, approach for retirees between age 59.5 and 65 is to take just enough income from tax-deferred accounts to stay below the ACA thresholds for zero/low premiums and to supplement one's spending needs with Roth funds.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

shess
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Re: Early Financial Independence. - Healthcare costs

Post by shess » Sat Nov 09, 2019 12:49 pm

LiveSimple wrote:
Fri Nov 08, 2019 8:31 am
Looking at our portfolio and our expenses, we are almost there or there for Financial Independence.

So thinking should relax at work or take a few years off or call it done and retire early.

However not able to get the head around the heal care insurance costs or the healthcare needs when we lose the employer insurance.

Once we have no salary then the income is just the interests and dividends from the taxable accounts and then the insurance costs is at $240 per month for the couple.

What are your thoughts or what should I think through....
I retired early, and the biggest issue we've had with healthcare isn't the cost (which is a big issue), it's the lack of backing. I worked at a large company with a good program that was self-insurance, and when the insurance company was giving us the run-around, we could call the appropriate group at work and usually the problem would be resolved. Now it's an endless stream of "This isn't coded right", "The documentation is the wrong format", etc. It's almost making me wonder about going back part-time.

{ObDisclosure: A lot of our issues are around mental-healthcare, which is a sticking point for insurance. Personally, I'd rather pay for modest ongoing doctor fees versus substantial periodic hospitalization fees, and that's even before I consider the disruption to people's lives, but apparently I'm not an insurance-company executive.}

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LiveSimple
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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Sat Nov 09, 2019 1:28 pm

shess wrote:
Sat Nov 09, 2019 12:49 pm

I retired early, and the biggest issue we've had with healthcare isn't the cost (which is a big issue), it's the lack of backing. I worked at a large company with a good program that was self-insurance, and when the insurance company was giving us the run-around, we could call the appropriate group at work and usually the problem would be resolved. Now it's an endless stream of "This isn't coded right", "The documentation is the wrong format", etc. It's almost making me wonder about going back part-time.
Appreciate your real input on the situation.

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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Sat Nov 09, 2019 1:33 pm

Retired2013 wrote:
Sat Nov 09, 2019 10:57 am

I have not read all of the posts but you might be missing that if you withdraw funds from your deferred retirement account, that will add to your MAGI. What needs to be done is keep your book income separate from your tax income.

I keep my MAGI between 138% & 150% of FPL for 2, or around $24,000. This gets us free healthcare with no deductible in NY (not Medicaid). Also since the standard deduction for 2 is $24,000, no Federal tax or State taxes are due. Yes, I can't do any Roth convention until we are 65 or our effective tax rate would jump very high. I treat medical cost as a tax.

For my book income, most assets are in tax deferred or Roth accounts.

I guarantee you that we spend more than $24k tax income. What ever we need over the $24k, just comes from our taxable savings account or if I deplete that, then I'll draw from the Roth accounts before I touch the tIRA or 401(k).
Retired2013, thanks a lot very practical information.

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Re: Early Financial Independence. - Healthcare costs

Post by StandingRock » Sat Nov 09, 2019 2:34 pm

Dude2 wrote:
Fri Nov 08, 2019 8:59 pm
StandingRock wrote:
Fri Nov 08, 2019 2:08 pm
Dude2 wrote:
Fri Nov 08, 2019 9:37 am
I may end up being wrong, but I think the model is unsustainable in which people are able to retire early and collect government subsidies to pay for their health care. Therefore, do not plan that this is a given and will always be there for you. The political wind can blow and take that away. In my opinion, if you can work, you work. I'm all for people retiring for good reasons, but not for the reason of becoming a bum. Society needs people working.
I don't really know what you can do other than reinstate slavery. There are plenty of people who don't work, I wouldn't say that they have retired per se because they never worked to begin with.
I've decided to go live on the moon. Things will be better there.

This loophole could be closed in the future. There is motivation by society to close it. The FIRE movement seems to price it as a given. As many have said, health care costs are a very complex variable. Typically freebies are handed out to those that need them; otherwise, you are going to hand out all the freebies, and those really needing them are going to go without. Unsustainable model. Please, by all means, pursue happiness, but pay as you go.
I don't know what the FIRE movement is, I'm just saying that you can't force people to work unless you reinstate slavery.

Random Poster
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Re: Early Financial Independence. - Healthcare costs

Post by Random Poster » Sat Nov 09, 2019 5:51 pm

Retired2013 wrote:
Sat Nov 09, 2019 10:57 am

I have not read all of the posts but you might be missing that if you withdraw funds from your deferred retirement account, that will add to your MAGI. What needs to be done is keep your book income separate from your tax income.

I keep my MAGI between 138% & 150% of FPL for 2, or around $24,000. This gets us free healthcare with no deductible in NY (not Medicaid). Also since the standard deduction for 2 is $24,000, no Federal tax or State taxes are due. Yes, I can't do any Roth convention until we are 65 or our effective tax rate would jump very high. I treat medical cost as a tax.

For my book income, most assets are in tax deferred or Roth accounts.

I guarantee you that we spend more than $24k tax income. What ever we need over the $24k, just comes from our taxable savings account or if I deplete that, then I'll draw from the Roth accounts before I touch the tIRA or 401(k).
Does your taxable account not throw off any dividends or interest? I’m perplexed how someone can have a taxable savings account that presumably has a balance large enough, or provides enough income, to live off of for several years, but which doesn’t throw off at least $24,000 a year in dividends and interest.

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Re: Early Financial Independence. - Healthcare costs

Post by bhsince87 » Sat Nov 09, 2019 6:04 pm

Random Poster wrote:
Sat Nov 09, 2019 5:51 pm


Does your taxable account not throw off any dividends or interest? I’m perplexed how someone can have a taxable savings account that presumably has a balance large enough, or provides enough income, to live off of for several years, but which doesn’t throw off at least $24,000 a year in dividends and interest.
We're not on ACA yet, but are prepared for it in a year or two. I have a bunch of money in a taxable account currently in a muni fund and short term treasuries. That will be moved to zero to very low interest paying bank accounts when the time comes.

It seems crazy (and maybe it is) but our ACA subsidy would be around $25k per year. So that offsets a lot of "lost" interest.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

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LiveSimple
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Re: Early Financial Independence. - Healthcare costs

Post by LiveSimple » Sat Nov 09, 2019 8:10 pm

[quote="Random Poster" post_id=4832081 time=1573339860 user_id=171
Does your taxable account not throw off any dividends or interest? I’m perplexed how someone can have a taxable savings account that presumably has a balance large enough, or provides enough income, to live off of for several years, but which doesn’t throw off at least $24,000 a year in dividends and interest.
[/quote]

Total Stock Market Index will throw around 2% hence a $1 M will have $20,000 in dividends.
BRKB -> Berkshire Is a possibility, if you like to have. a lower dividend
MGK -> Mega Cap Growth throws about 0.7% if you like this fund as well.
Other options is a diversified stocks...

But be careful what you do, understand better before any change...

So there are options to reduce the dividends if you want to use ACA benefits.

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