Is there an actual issue with ObamaCare when retiring early? If you can manage your AGI, it seems like it’s practically free of charge. For Medicaid expansion states, you can even manage your AGI to get onto Medicaid.
Both seem like reasonable gateways until one is eligible for Medicare.
I’ve been on Obamacare for years, so I’m very familiar with it.
The insurance product is quite good. I have a choice of a few reputable insurance companies, and the plans are reasonable.
The thing is that the premium is extremely dependent on income. To give an example: For a family of three, a $30,000 annual income would mean essentially free insurance. At $60,000 the premium is over $500 a month. Since I’m retired and my income is extremely variable (largely from investment income, which is unpredictable) my premiums go way up and down over the years.
(Every year on the IRS tax return the reconciliation is made between how much you paid in premiums and how much you should have paid, based on your income. Then you either have to pay the difference, or get it refunded to you.)
This is exactly what bites most consumers. They sign up and give their income range as last year’s income. If you change jobs, get a sizeable raise, or your spouse finds a job, suddenly your income has drastically increased and you will be paying a relatively large tax penalty next February.
Not sure what you mean by ‘manage your AGI’. If you can subsist on a relatively small income for a year, you can get insurance for relatively low premiums. Is that what you mean?
Thank you for that observation. Many times seniors are staying in their large homes for valid reasons.
Our retirement plans included downsizing and moving well outside the DFW area. But rural hospitals began to close in (to us) unpredictable ways. And the recent pandemic/inflation upheavals seem to have closed the price gap of exurban homes. Before, 100 miles outside the city was a substantial price reduction, but now the prices are nearly the same as inside the city.
It’s easier and cheaper for us to stay in our “too large” 4 BR 3 bath home and remain within a comfortable distance of good medical care. Also, now that we’re retired, rush hour traffic isn’t a problem any more. Our journeys are either a mile, or a thousand miles. Local traffic has little effect on either.
When I retired 4 years ago, my wife was worried about the loss of income. Her idea for a perfect retirement for us was for me to work till I was 70 so we could collect the maximum in Social Security. The only other upside to working was the company paid portion of my 401K, but that would only last till I hit my SS age of 66 years and 4 months. One of the benefits of retiring at 64 was I got to start collecting my pension at that time. The amount of my pension was not going to increase, that amount was set by a union contract that went into effect in 2016. Boeing valued my pension when I retired at about $800,000 (figured to age 84) and offed $214,000 to cash out. The tax hit alone made that an easy choice. My SS to the same age will be about $750,000. When I added in my 401K and equity in our house, that added another million. 4 years later we are living very comfortably. The only plan we have shelved for the time being was moving to a smaller town and a lower cost of living. Like a lot of folks now days, we are stuck in the “golden jail”, we have a very low interest rate currently but moving doesn’t make sense due to the higher interest rates today.
Yes, Location, location, location. 1400/month in my area would get you a shared one bedroom. Maybe you could sleep on the couch and get your food out of dumpsters.
Quick question. At what point during your 48 year career did you start to consider saving for retirement (regardless of if you actually started saving)?
Was the $100K savings intentional saved for retirement, or just money that you happened to have saved in general?
I’m not Balthisar, but I managed my AGI after I retired. I had enough post tax savings so that I could control how much to take out of my IRA and thus control how much income I reported, which reduced the tax rate on the withdrawal. I wasn’t taking Social Security yet. I suppose if you had investments, you could control what you sold and what capital gains you got from it. You need a different mindset from when you are working and making a steady income.
I looked at Obamacare, but my income was high enough that none of the plans looked very good, with high deductibles and relatively expensive. I was close enough to be able to use COBRA, which was expensive but kept the good insurance I had for work. Plus, my wife could go on it until she was old enough for Medicare.
True. And looking at things when you’re say… 50, and trying to extrapolate to when you’re 65, you often aren’t necessarily going to factor in things like possibly having paid off your mortgage, etc. And your kids may still be in school, or something like that. So what you need at 50 may not necessarily be what you’ll need when you retire.
I would suspect that with those two things (mortgages and kids out of the financial way), our expenses will go down as we get older by a fair amount.
That’s the catch with the 401k retirement scheme. To be most effective, it basically requires younger workers who are generally paid the least to sock away a significant amount of money, so that it’ll earn compound interest for the longest amount of time. The problem is that a lot of younger people either are unwilling to save a significant amount like that because they don’t feel that they have that cash to spare, or they’re cynical about their retirement prospects, and don’t feel like saving now will be worth it in the long haul.
And it also requires your employees to be smart enough to either be able to invest on their own effectively, or to know to pay the fee for the 401k administration company to do it for them. Many people I’ve worked with seem to do neither; they are convinced that fooling with their investment mix based on economic conditions is a good thing to do, and I’m pretty sure they underperform as a result.
Just to note: They made a BIG change in the Obamacare law in 2021, which allowed people with much higher incomes to get subsidies than previously. If you figured the benefit before then, it might be worthwhile to figure it again.
It is one of the provisions of the American Rescue Plan Act of 2021.
That was accumulated over years from 1974 to 2022 in NJ which taxes and wages are above average but for the working Joe & Jane non business owner does go to far as long term saving ….I thank god for SS or I’d be working to me funeral!
According to my mom, the single biggest change is that you are no longer saving for retirement. And she’s right: if you spend your last 20 wprking years diverting a big chink of your income into retirement savinga (plus payroll taxes, or in my case, state pension payments), stopping those is like a raise.
This is basically my question to @Balthisar. If he wants to have no or low premium health insurance through the marketplace, he needs to have a relatively low income, and probably the only way to do that is to rely on savings for a couple of years. Tough to do.
There were too many people to reply too, but by “manage your AGI,” yes, what I mean is by living on savings. You’re always going to have dividends and distributions, and with the right tax lots you can limit capital gains, and with Roth, you can be paper poor.
Interesting. I probably was still making too much, since I worked most of the year before I went on Medicare. Which I’m on now, and which is even better than my good work insurance.
And when you are old enough to take money out of an IRA without penalty, you can control that also. I never worried about ACA, but I controlled it for tax purposes, and managed to get a low tax rate. Until I took Social Security at 70, which ramped up my income a lot. Not that I’m complaining.
Your mom is right. Before I retired we analyzed our spending, which came out much lower than our income. Where did the money go, besides taxes? We were squirreling it away into savings. We still spend a bit less, but not that much less than we did before I retired.
Which is a big part of why, when considering retirement income, you need to look at some combination of NET pay and GROSS pay. e.g. if your salary is 10,000 a month (which I recognize is well above the national average but makes for simple numbers). By the “replace 70% of your pre-retirement income” formula, that means you need to bring in 7,000 a month as a retiree.
If, out of that 10,000 a month, you are netting 6,000: you are saving 15% of your income, and the other 2,500 is for taxes and health insurance. So you are actually living on 6,000 a month, not 7,000.
If your Social Security + retirement income from 401(k), pensions etc add up to that target of 7,000 a month, the formula says you’re looking okay - but of course you’re likely to be paying some income taxes, which brings the net retirement income down a bit. Likely close to that 6,000 figure.
Your health insurance costs will change - since you’ll be replacing monthly costs for insurance, for premiums for Medicare and Medigap. Let’s call those a wash, just because the figures can vary so widely. If you’re currently on a high-deductible plan, your Medicare premiums may go UP (I think ours will be a wash) but you won’t be contributing to an HSA any more (I think a Medigap policy for both of us would be less than our HSA contributions, but could be wrong).
Let’s say your monthly premium for Medicare and medigap comes to 500 dollars. Factor that in when deciding whether your monthly income is enough after retirement - it comes out of that 7,000 (or whatever). Your 7,000 is now down to 6,500, and assuming taxes add up to 10% of your income, you’re now netting 5,800 a month.
I’ve got a spreadsheet that shows our gross and net income, and our expected income in retirement from all the sources (several annuities, SS, and 401(k) withdrawals). As well as some assumptions regarding withholding for Medicare and Medigap and taxes (20% plus 300 dollars). All this with the assumption that we retire roughly a year from now, and that the stock market doesn’t tank too badly.
It seems as good an estimate as any (and makes things look much less frightening - though the concept of withdrawing money from those accounts is so opposite to our mindset from the last 40 years).
I can only dream what it like to gross 10,000 a month…maybe 30 hours a week OT I’d be close? But most of the employers I worked for felt OT was evil! In the 80s and 90s forget about it!
Well, the concept works at any income figure, with the understanding that if your income is lower, your taxes will be lower as well (so for example my (300 dollars + 20%) might be more like (300 + 10%).
And overtime? We don’t need no steenkin’ overtime! I’m “exempt” and have been for most of my career, which means in theory that I work as many hours as needed to get the job done, even if it’s less than 40 a week, but in practice means “work more, more, more hours so we can bill the clients more, but if you take a day off, that counts as vacation”.