Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

The Complete Guide To Optimizing Healthcare Costs Before 65

September 02, 2024 • Ari Taublieb, CFP®, MBA • Episode 195

Share episode

Far too many people don't retire early because of healthcare costs. It can be significant at $2k/month...and it can be minimal at $50/month if you plan well. It's another cost to plan for and if you do it well, it can be the difference of hundreds of thousands of dollars over your retirement.

In this episode, you'll learn how to determine your own healthcare cost (pre-65), how to qualify for federal subsidy, how to determine if you should do Roth Conversions instead, and pro tips from our clients who retired early and kept healthcare cost low.

Create Your Custom Early Retirement Strategy Here

Get access to the same software I use for my clients and join the Early Retirement Academy here

Ari Taublieb, CFP ®, MBA is the Vice President of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.

Speaker 1:

This is the episode I know a lot of you have been waiting for how on earth do I plan for health care? And I will joke and I'll say I'm the meanest financial advisor. Now, I'm not actually okay, but I don't want you to run the risk of running out and I also don't want you mad at me when you're 85 with $5 million going. Hey, what the heck. I told you I didn't want to die with this amount of money, just want to make sure you don't retire too early. And I also want to make sure you don't retire too late and go wow, I have plenty of money, but what good is it now? So a common question I receive is how much is healthcare going to cost me? And I don't let people off the hook, and this is where I'll joke and I'll say I'm mean, because a lot of people go, yeah, but how am I going to pay for healthcare? What is it? $12 million a month? I'm like. No, it is a cost. Yes, it can be significant, but it also can be very low if you're strategic and don't let healthcare be the reason you don't retire early. It's another expense, just like anything. And the beautiful part is you get to be creative based on your income and guys, I have clients. Right now I have one client that spends about $100 a month on monthly premiums and I have another client that spends about $1,500 a month. And sometimes this client the $1,500 a month one is happier and you're like well, how could that be the case? Well, they're doing another tax strategy, whether it be a conversion or harvesting or something else that generates them more than that difference. That makes them go. Well, I'm happy to do that. I'd way rather do this strategy to save me 15 to 20,000 a year. Others go no, I'm retiring at 52. And so conversions and all this stuff sounds good, but I want to prioritize getting this subsidy from the government. So I have an episode on YouTube where I bring on Lindia, who's the healthcare expert I use with my clients. So if you want to listen to it, you can see it here. A lot of people resonated with it, but that's going to be more focused on okay, what healthcare policies exist for me? Should I look at Cobra? Should I go to the exchange Today? Is not that Today's me giving you hard numbers of hey, here's the reality of how much healthcare will cost so that you can plan for it. And then I encourage you to take these numbers, if you haven't already, and use the Academy tool you can see that in the description so you can start understanding when work becomes optional, not because you're going to actually stop working tomorrow, but so that you can look and go. Okay, I've got a good sense as to how this works. I think I know exactly when I might be in a good spot and then, wow, maybe work is optional now and maybe I don't need to keep working and maybe some of you go. I'm going to do this other job that pays way less but I enjoy it more. So today is all going to be about. Here's the healthcare cost, and it is really dependent on your zip code, your healthcare needs, and I'm going to go through this with you Now.

Speaker 1:

I know this is a podcast, so a lot of you are listening right now. Others of you are going hey, are you sharing your screen? Are you going to be doing stuff on video? I do both. I want to make and I explain everything because, guys, I listened to a lot of history podcasts personally and they have a YouTube channel and they also have a podcast. And from Dan Carlin, listening to the podcast I, and sometimes he'll share a visual and he'll. Sometimes he's great, but sometimes we'll forget to mention something and I'm like, look, I need him to explain it better. I kind of need to tell him that so I get where you're coming from, where I'm going to try to make this as clear as humanly possible for you, but I do encourage you, if you want to look at what I'm'm showing, go to YouTube and you'll actually be able to see this. So just search Ari Talblee healthcare episode and it'll be the most recent one. So the point here regarding healthcare, what we're going to be going through today is going to be a lot of fun, because most people actually over project their healthcare expenses, and I'm going to be able to show you guys how we have clients that spend literally $50 a month and clients that spend literally $1,500 to $2,000 a month, and it's totally based on your healthcare needs, what you're looking for and the flexibility of your income, which is a big thing many people don't plan for. Now, before I do that, I'm going to go through a quick review of the week and then we're going to get to the fun. So, if you don't already know, my name is Ari Talbleep. I'm a certified financial planner, I am the host of the Early Retirement Podcast and I'm the vice president at Root. So you can see here's a comment from Mary Lamb, 7897. And here's what she said. She goes Ari. She didn't say Ari, she just commented.

Speaker 1:

I can tell you I'm at work because I want to be Primarily excuse me because I love the people on my team and we have a close-knit group that works well together and truly supports each other. Plus, I'm quite good at what I do and I enjoy helping others succeed. However, our leadership sucks. They spelled sucks S-U-X, okay, and the second, another bad decision comes down to us in the masses. It's really freeing to know we can say thanks, but no thanks. It's been fun, but not anymore.

Speaker 1:

My outlook's definitely changed. I no longer sweat the annoying things. I do them if I feel they make sense and if I understand the need. If I don't, I honestly don't care about the consequences, because in my mind there are none now. Obviously, I work for a big company where I'm simply a number to them, but my smaller team means a lot to me and we've managed to make the most of often bleak situations liberating to know we can walk away if it gets too bleak. I reached out to Mary Lam. She might be coming on the show in the future kind of preview there.

Speaker 1:

But what is really special about this comment is this is the power of financial planning that this person knows. Financially, they're in a great spot and they're working because they want to, not because they have to. So a lot of you are probably similar to this, where you're like yep, love my team, I'm at a big company and it's just some of the stuff like imagine if Mary Lamb thought she had to work there every day, it would just suck so much more. I can just tell her that and I can tell and I've worked at a company where I was there for a paycheck and it sucked. So, even though I'm not at her stage in life, I can resonate in that fashion. But I mainly hear it from my clients all the time. So that's where I want to start Now.

Speaker 1:

Healthcare, once again, today is not Cobra, and should I look at the marketplace? And what about short-term insurance plans? It's a piece of that, but it's mainly the financial side. That's what I'm going to be going through. So before I go into the fun, I tell everyone they still use this phrase at my previous company.

Speaker 1:

So about 10 years ago I worked at a company I interned I think 10 years, maybe nine, called Northwestern Mutual. Now a lot of you have heard of this. In Northwestern Mutual, it's not me bagging on them. They actually make good life insurance. That's what they do. But when I was there I'm the type of guy just for all of you to know, if you don't know already I'm very transparent. I'm not exactly loved in the advisor world Now clients like me because I just shoot straight from the hip and I try to give it like like it is.

Speaker 1:

But when I was at Northwestern Mutual, I was in an office and you know, everyone's got the suits and all that. And I look around and I'm like, okay, I don't know if anyone else is going to ask this question and I'm just curious. So I just ask. That's what I do. So I said, hey, I'm sure it's a dumb policy. I get paid more. Shouldn't it just be like whatever they need, like what am I missing here? And at the time my manager says don't worry, wait till you see your bonus. I said, don't worry, I quit because that doesn't make any sense. It should just be whatever people need.

Speaker 1:

So what I'm showing you in a second is I don't care if we use State Farm or Northwestern or any. I care that any health insurance agent that you talk to is independent. I don't want them to get paid more or less based on whatever compensates them. I just want you to get the best policy. So I partner with independent people, just like I'm independent. For example, I don't care for my clients if we use Fidelity or Vanguard or Schwab or Empower. I don't get paid by any of those companies. I can use whoever I want. My job is just to make you the most amount of money, and the reason I am that advisor is my parents were burned by Fidelity.

Speaker 1:

Now, fidelity is nice. I actually like Fidelity. They make good products but my mom's like Ari. My mom's the sweetest person you'll ever meet, but my mom was like Ari. This person sold me this product and I'm sure it's great because they're a nice guy. I go, I'm sure they're nice. Did you ask them, though, what the commission is on what they just sold you? They're like no, they wouldn't do that. I could tell you that I go, I'm sure they wouldn't. But when I looked into what was sold, it was good. It wasn't the best product, but it had a higheric. So that's who I am.

Speaker 1:

So what I'm going to now show you on my screen here, this is where, hopping right into the sample, and I'm going to explain it for those of you that are on audio. This is a healthcare estimation tool that you're going to have access to. Look in the description for more details if you want to see what I'm talking about, but this is a sample, so let's call this me hypothetical. You can see me here. Let's assume this was my zip code 47714. And I just I picked the zip code because I was doing this for a client just recently. So you're in Ohio. Okay, let's assume it's a couple. Okay, I'm 52, my partner's 54, we have no kids, we have two people in our household and $50,000, that's our income. That's coming in the door.

Speaker 1:

Now some of you are like, wait a second, we need more than $50,000 a year. Wait a second, we need more. We're going to talk about that. Just an example. What this is going to say you can see right here on my screen makes it really easy for you. This is the estimation tool that I would encourage you to use. It says here likely eligible for financial help. This is an estimate of how much of the monthly premium will be paid by the government. So this is pretty cool. What this is saying is $1,050 that you think you have to pay. You don't have to pay, the government will pay this. And you have to pay $0 for a bronze plan, $144 for a silver plan and $772 for a gold plan. So these are your costs before Medicare before 65. So these are your costs before medicare before 65.

Speaker 1:

So what I want you to do is now let's assume your income is a hundred thousand dollars, just a hypothetical. Okay, don't freak out. So now I all I did was switch it to a hundred thousand. Some of you are like where's the income going to come from? Well, let's get creative here. Let's assume you don't have a brokerage account. I call that a superhero account that lets your money grow and you can touch it before 59 and a half because you have flexibility. So let's assume you don't have any of that.

Speaker 1:

Okay, you just have an IRA and you're 60 and you're wondering how much is healthcare going to cost me? And you go I want to be able to spend a hundred thousand a year. Well, if all hundred thousand exactly comes from your IRA. What that means is you're eligible for probably 500 bucks a month in financial help. You are going to have a silver plan of $694 a month, so 700 bucks a month. Some of you are like, oh my God, that's so much. Yeah, it's significant, and you plan for it like any other cost. And you can see your bronze plan 520 with a gold plan of 1400 bucks a month. So if you're listening to this right now, going, okay, what generally could it cost? $200 to $1,500 a month. It's a wide range here. But now let's go to the next level. Okay, this is me just showing you a sample. Let's assume now that and you could, of course, do this for whatever zip code yours is I'm just giving you a hypothetical.

Speaker 1:

Let's assume you go Ari, I have an IRA. It has a million dollars. I have a Roth there with $500,000 and I have a brokerage account with $250,000 brokerage account Once again, I called that the superhero. Now, ari, I don't know what I should do. Do I pull from my IRA, my Roth? I don't know. In one episode you said let the Roth grow like crazy, so don't touch it. But I don't know what I should do. I said, okay, your brokerage account. Let's talk about it. What do you have in there? And they said I've got Apple and Microsoft and a few different ETFs. I go great. Any gains in there? Yep, I've got gains because it's gone up in value. I go great.

Speaker 1:

Let's assume you sell. You want to have a hundred thousand dollars, okay. So you bought Apple stock. No-transcript, that's what they want to be able to spend and live and do everything they want to do. Just hypothetical Okay.

Speaker 1:

Now let's assume they bought Apple stock for $10,000, okay, and now it's worth 100,000. They have a $90,000 gain. Just hypothetical okay. $90,000 gain. Well, they're gonna have to pay taxes on that gain. Okay. Now let's assume they're in the capital gains bracket of 15%. They have to pay 15% taxes on that $90,000. So what that means is they have Apple stock, they sell it. They get to walk away with $100,000. Okay, they get to do that, but they pay taxes of $13,500. So what does that mean? What that means is they're paying taxes on $13,500. That's their tax bill. Okay, now they're generating $90,000 of gains.

Speaker 1:

But you have to recognize here that, yes, they just sold this stock. Yes, they pay taxes, but they just sold this stock, meaning there's a gain of ninety thousand dollars, you don't pay on the original. It's just what's the? How much income is being created? Well, if there's a ninety thousand dollar gain, you're only paying taxes of just thirteen thousand, five hundred dollars.

Speaker 1:

Well, what we want to understand is wait a second. That's why I'm going to go through this example with you, because, stick with me, what if just a hypothetical? Just humor me for a second, because you can see the numbers here on the screen, whether it be $400 a month, $600 a month, $1,200 a month, what is going to click for you is what I'm going to tell you right now. Let's assume you have $100,000. You go yeah, I don't know what I should do. I could put it into this brokerage account, I could put it into a CD, I could do whatever I want. Well, let's assume you have $100,000 just sitting in cash. Okay, you can do whatever you want. That money's already been taxed, okay, so theoretically, your income is zero. You can live off that $100,000. Stick with me here. So now watch what happens.

Speaker 1:

What does this say right here? What this says is you're likely eligible for financial help If you want a silver plan based on your information. You have no income in your zip code, you would pay $0 a month. Some of you are like wait, wait, wait, wait, wait. Are you telling me that if I don't have any income because I'm living off of cash, that I could maybe pay nothing for healthcare? Oh, yep, that's exactly what I'm saying. And they're like that's incredible. I go, you don't want to do that. That's level one. Level two Now, in reality, you probably have dividends and interest and you don't want your income so low.

Speaker 1:

People make this mistake that now they're in the Medicaid category. Okay, so don't make that error, which a lot of people do. But let's assume $20,000 is coming in through dividends and interest or whatever it is. Or maybe there's part-time income between you and your spouse Just hypothetical here. What if you bring in $40,000 a year? That's what's coming in the door. You're paying $50 a month, guys, for healthcare. I mean, this is so low.

Speaker 1:

Now, let's assume you don't have a lot of say and you're like you know what? I just retired, but I've got this huge pension and Social Security and okay, then, yeah, you're probably looking at north of $1,000 to maybe $2,000 a month. But a lot of you guys are coming to me in this age. You're like, yep, that's me between 52 to 54. I don't want to pay a ton for health care, but I want to do a Roth conversion.

Speaker 1:

Now, last week was all about Roth conversions. If you haven't heard that episode, go hear it. But if you want to do Roth conversions, well, let's increase this because we're doing a Roth conversion. So I'm going to enlighten you now. Let's assume you have $50,000 of income that's coming in through dividends and interest, maybe some part-time work. Well, if you had $50,000 coming in the door hypothetical here okay, $50,000 coming in the door, that's $144 a month that you and your spouse could each pay for healthcare. Let's just call it $300. $300 a month total, that's $3,600 a year.

Speaker 1:

I could say, guys, you only have to spend $3,600 a year on healthcare. And you might be like that's pretty cool, ari, and I go yeah, but I want you to do a Roth conversion instead. And you're like well, ari, that's a big difference. That's 2000 a month each. You told me before it was 3,600. Now you're recommending that it's 24,000. What the heck's going on? Excuse me, even my chest freaked out right there. The Jewish digestive system has acid reflux. Okay, guys, just bear with me there. Sorry about that.

Speaker 1:

So what I want to show you now and this is the power of good planning is whenever we're looking at okay, let's get strategic here. What should we do? Should we do these conversions? What about these subsidies? I'm going into the weeds here, so I recognize it. But what you should be asking yourself right now in your head is okay, should I be prioritizing, keeping keeping my income low maybe $50,000, to take advantage of a potential $300 total for my spouse and I? Maybe, let's call it $3,600 a year for healthcare pretty cool or should we be going? Yes, I get that, it sounds cool. I like this idea. But maybe should I be considering doing Roth conversions, because if I'm strategic here, maybe that will put more money into my pocket, and that's the question that you guys should be asking yourself right now. Now I want to make sure you're crystal clear on this, guys.

Speaker 1:

So, really, what I just said is I'm telling my client and I did this in real life I say hey, client, I know you want to do this. You know why. I know that Because you're a human, you're not a robot. You like the idea of spending $300 a month instead of $2,000 a month. I get it. Now I'm going to ask you to do a Roth conversion for $100,000, which means now I'm shooting your income up like crazy and now you're spending a thousand fifty. Let's call it just for simplicity two thousand a month total between you and your spouse. Twenty four thousand a year.

Speaker 1:

You're like all right, I think you might be the worst financial advisor in history, because you told me before I could spend thirty six hundred and now you're telling me you want me to spend twenty thousand more dollars than I need to. I go yep, you're exactly right. They like why are you doing this? I go well, look at this right here. Here's the couple, okay, that we're talking about. They're 54. If they retire and their income gets really low and we do conversions and fancy stuff which we'll talk about later it could and there's a lot of planning that goes into this, so don't read into the numbers too much it could yield them 1.4 million more dollars over the course of their lifetime. So they're like okay, are you telling me that if I forego this benefit here and I'm not saying it all the time makes sense to do so Once again? Sometimes it does not make sense, but they're saying are you telling me I should intentionally give up a $20,000 federal benefit from the government for the next 13 years, until Medicare kits, where I would have saved $265,000 to do a Roth conversion to save me $1.3 million. Yep, that's exactly what I'm saying. And they're like.

Speaker 1:

And then I shared this with the client and they were like okay, I totally get it. They were educated well, they're on board. Another client came to me and they're like Ari, I'm just not a big spender. To me, roth conversions I just I don't know. I kind of heard you talk about it but I got a little confused because there's just a lot to it and I just I don't know if it's gonna be really applicable to me. What should I do? And in their case, I recommended that they did not do Roth conversions because it would have actually defeated the purpose. Meaning Roth conversions would have, over the course of their lifetime, saved them maybe $150,000, but doing this would save them $250,000.

Speaker 1:

And that's all you're asking yourself right now. You're going, hey, what's going to save me the most amount of money? I don't care if it's a conversion or a subsidy or whatever it is, I just need to make sure I don't pay more than I need to for healthcare. So what I encourage you to do and I know you guys have access to this tool in my academy. If you don't already know, you can see it right here. Play around with all the healthcare, all the tax, all the stuff I'm doing with you guys right now is you get to go into your plan this is just a sample person and go into their plan and add in healthcare costs and add in all of these things, so you get to add expenses in here for home improvements and monthly spending and healthcare costs. You can see here we just template pre-retirement healthcare at 6,000 a year. I just put that for a sample here. I said what if each spouse is spending six thousand? So twelve thousand total? Well, what you can see here.

Speaker 1:

Let me reset this because I was doing some stuff for them earlier and I know a lot of you guys are like look, you're losing me here. I'm on the podcast app. What's going on here for this episode? Yes, I encourage you to go to youtube. You don't need to, but what I'm showing is right now here's a couple 52 and, like I showed you, they've got about a million dollars. They're on track for $26 million. Now, not really okay, because 26 million is not gonna be worth 26 million. So, like, let's get our heads straight here. One million is gonna be worth 10 million, and they're on track. Okay, they thought about stopping work at 65, but what if they stop working at 60? So, just hypothetical here. Well, if that was the case, they're going to have way less money, okay. So look at this, are they okay? Yeah, they're okay. There's $2 million of $10 million, but they're still okay.

Speaker 1:

Healthcare is the big one, though. So what if we brought down healthcare costs from 6,000 a year each to 2000 a year each? What does that do to the plan? And this is what you guys get to play around with, and I encourage you to do so, because watch this, oh my God, it's the equivalent of saving $2 million. Now they have 4.6 million, they optimize their healthcare, and they retired five years earlier than you thought. This is the power of financial planning, guys. This is why this stuff is so awesome, where, if you're strategic with all your planning, you're not working longer than you think, you're saving hundreds of thousands, literally millions of dollars. This is the quality of why I love this stuff.

Speaker 1:

So today's episode, I know a little bit more deep into the nuance of this, this tool. Everything I'm showing go into the description, you can get access to all of this stuff. I hope this is super helpful for you guys and you get to start optimizing. That's all I got for you guys, if this was helpful. Once again, two ways to work with us. I've got our academy tool no one-on-one guidance, but if you want to run all the projections, do everything we just kind of saw me go through you can do it in here. If you're like, no, I just need someone to help me with all this stuff, it's too much, I don't want to screw it now. But number two is that's why we exist and I encourage you to apply and work with us. And if this was helpful, my only ask is you drop a comment, or you like this video or you share it with someone that you resonate with well, so that they can retire early with you and it's more fun. So that's all I got for you guys.

Speaker 1:

Thank you for listening to another episode of the early retirement show. If you have a question that you want answered in a future episode, you can always go to my website, earlyretirementpodcastcom. That's earlyretirementpodcastcom and you can go ahead and submit a question that I'll look to answer in a future episode. Thank you all for listening. Please do rate it, review it and share it with someone who you think would benefit from this information. If there's anyone out there that you know, I certainly appreciate it and I will see you all each week. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. No-transcript.