A first year of ER finances

[Theseus]

In about 4 hours I'll be able to sit back and smile, as it will be one year to the hour when I drove away from, uh - what was that called; oh w*#k, that's what it was!

I've been pretty much anal about tracking expenses, income, & investments. Pretty sure that doesn't make me any any kind of exception around here, but thought I'd share my year one finance results (stated as % of ~$60k budget, YMMV). I went into ER with as much solid history as could be gleaned from Quicken. that was five years worth, so I was pretty confident in my estimate of ER expenses, and the first year results came in at 3.8% over budget. Final wages with vacation pay took a big tax bite, resulting in a 2014 tax return being quite a chunk, attributing to combination of pensions and withdrawls being 6.5% under budget. We didn't need as much income in 2015 with a tax refund like that! Adjusting for lopsided tax withholding/refund things came in quite close to plan.

What was most interesting was the big change in where money goes as a percentage of expenses. Huge tax bite has now become a nibble, but healthcare took over top spot. First year healthcare (dental & medical payments + health insurance premiums) was 24.8% of expenses. Four months of Cobra was about two times what our current premiums are on a monthly basis. Housing is number two expense at 16% in a mortgage free home with property taxes being half of that, the balance of my 'housing' category includes household maintenance and consumables, i.e. TP, cleaning supplies, and some other miscellaneous.

Just one more word on taxes which came in at 12.5% for year one. A glitch that caught me by surprise was that taking withdrawls from DW's 457(b) incurred 20% withholding and no way around it. For a while we stuck between a rock and a hard place needing pre age 59-1/2 income. Enough was enough, as I did not want to further erode ACA subsidy eligibility by having extra income just to pay for an inflated tax witholding rate, so we stopped distributions and rolled the account over to an IRA. DW is now past the IRA withdrawl eligibility age, so no concerns but I'm enjoying the gliding sensation of getting by on pensions alone. Couple thousand $ of known dental and medical bills coming our way yet this year, property taxes in December, and money down on a planned get-away from the cold weather trip planned for February. So I'll need to get distributions from the IRA started before the glide path turns into a nosedive, but for now things are going very smoothly on pretty low monthly income.

In a nutshell, medical/dental expenses became the 'big ticket' items relative to income. No more FICA or medicare payroll taxes, and income taxes have become far less of a budget concern. All that, and I "get to do whatever I want" all day long, every day.

[Senator]

Great report. It helps builds confidence with people like me that are almost there...

[bingybear]

I'm only 5 months in and likely am not tracking as well as you are. But my findings meet with my predictions and your finding that healthcare has become our largest expense. We also have had some non-expected events. But nothing we can't handle.
No pensions here. We do expect to do some roth conversions which will raise our tax bill a bit. Other than roth conversions, I do not expect much in the way of IRA withdraws in the near future.
Actually are spending has been kind of light compared to predictions. We did have some unexpected home maintenance... chimney repair. However, we just bought supplies and rented equipment. This is keeping us well below our expected expense rate. I guess we need to plan a trip somewhere.

[Mulligan]

Thanks for the post. I always to see how others are faring. My net pension income is in your budget range, and it struck me how big a hole insurance and housing minus a mortgage blows through your budget, over 40%. I was thinking, "wow thats incredibly high". But then I started thinking I don't live off my pension just about 60% of it. So adjusting for what I actually budget each year instead of what I actually receive, we are very similar in cost structure in relation to budget.


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[DEC-1982]

Nice post. I read it with great interest. The medical has been a similar experience.

The medical/dental insurance cost was pre-paycheck for me at megacorp and so it never made it into Quicken. We see the cost analysis at annual enrollments but it doesn't sink into the head quite as well as the reality now. Luckily I budgeted Obamacare costs knowing I was a little distance from Medicare.

[Theseus]

Quote:

Originally Posted by DEC-1982 Nice post. I read it with great interest. The medical has been a similar experience. The medical/dental insurance cost was pre-paycheck for me at megacorp and so it never made it into Quicken. We see the cost analysis at annual enrollments but it doesn't sink into the head quite as well as the reality now. Luckily I budgeted Obamacare costs knowing I was a little distance from Medicare.

For the previous three years I paid very close attention to the insurance costs, comparing available plans and attempting to better understanding the ratio of premium cost vs. deductibles & co-pays. That helped immensely in picking our current plan. Of course, as few as 5 years ago I'd have been in the "pay rock bottom premiums and take a gamble" group, but a cancer scare for me and a couple of knee/back surgeries for DW and things are much different now. Total health care costs end up being about 50% premiums and 50% deductibles. Right now I'm tracking to get hosed this year as I'll possibly end up close to the deductible and not get much of any benefit from carrying insurance. DW, OTOH gets a new knee on Monday so that will certainly tip the scales.

Dental insurance I saw no good reason to carry, plans I found were pretty much all premiums of 50% of the max payout, and overly restrictive on what would be paid, even after high deductibles - and coverage of pre-existing conditions - forget about that. So that is all out of pocket now, I budgeted 2x historical OOP and it looks to be about right. Crowns will fall right off your teeth as soon as your employer coverage ends, no doubt about it.

[DEC-1982]

Quote:

Originally Posted by Theseus For the previous three years I paid very close attention to the insurance costs, comparing available plans and attempting to better understanding the ratio of premium cost vs. deductibles & co-pays. Dental insurance I saw no good reason to carry, plans I found were pretty much all premiums of 50% of the max payout, and overly restrictive on what would be paid, even after high deductibles - and coverage of pre-existing conditions - forget about that. So that is all out of pocket now, I budgeted 2x historical OOP and it looks to be about right. Crowns will fall right off your teeth as soon as your employer coverage ends, no doubt about it.

Good feedback. I'll watch my dental costs and see whether it makes sense to continue with the insurance. Right now it's COBRA and that's OK but after COBRA the dental insurance costs will jump significantly.

[Al18]

One good thing about dental insurance that I've found is insurance companies have negotiated aggressive discounts on many procedures. So even after you've used up your maximum benefit for the year, you'll still only have to pay the negotiated price.

[Danmar]

Interesting post. Thanks. Wouldn't it be easier and more useful if you tracked all your income net of tax eg after tax? After all, tax is a direct result of income or other actions that increase cash flow. I treat it this way and thus taxes aren't much of an issue in my budget.

[Marc]

Quote:

Originally Posted by Al18 One good thing about dental insurance that I've found is insurance companies have negotiated aggressive discounts on many procedures. So even after you've used up your maximum benefit for the year, you'll still only have to pay the negotiated price.

+1

Dental insurance, given low annual maximums, is not really necessary to reduce risk; however, the negotiated rates (as long as you find a good dentist that lives with those rates) is well worth the expense of carrying the insurance.

Marc

[Theseus]

Quote:

Originally Posted by Danmar Interesting post. Thanks. Wouldn't it be easier and more useful if you tracked all your income net of tax eg after tax? After all, tax is a direct result of income or other actions that increase cash flow. I treat it this way and thus taxes aren't much of an issue in my budget.

Yeah, kind of a hybrid method that was born out of needing to curtail the cat chasing it's tail impact of needing yet more income to cover taxes on income. I started using that going into 2015 with the ACA subsidy cliff as my target max, and since withholding was integral to income on distributions from DW's 457(b) it was necessary to account for that. Life would be much simpler if it were not for all these technicalities.

[dallas27]

God of scientific wrestling, nice choice.


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[Hermit]

Quote:

Originally Posted by Marc +1 Dental insurance, given low annual maximums, is not really necessary to reduce risk; however, the negotiated rates (as long as you find a good dentist that lives with those rates) is well worth the expense of carrying the insurance. Marc

As a Medicare recipient, I have a Humana HMO. A nice perk is the dental insurance. It covers one cleaning and one cavity a year. But what is really nice is I pay negotiated rates which appear to be 50% or greater off the cash rates.

[athena53]

DH and I were also pretty stunned at the cost of medical/dental insurance when I decided to retire and, a week later, walked out of the office for the last time. We got COBRA, of course, then began the mad scramble to get something else. He qualified for Medicare but then there was the issue of supplements and fighting the IRMAA premium adjustment based on my pre-retirement earnings. I got a private plan. Our monthly insurance premiums are bigger than our mortgage and property taxes combined.

[Teacher Terry]

Our health insurance is also our biggest expense at $900/month for the 2 of us. Luckily our property taxes are really low & no state income tax.

[Hermit]

Quote:

Originally Posted by athena53 DH and I were also pretty stunned at the cost of medical/dental insurance when I decided to retire and, a week later, walked out of the office for the last time. We got COBRA, of course, then began the mad scramble to get something else. He qualified for Medicare but then there was the issue of supplements and fighting the IRMAA premium adjustment based on my pre-retirement earnings. I got a private plan. Our monthly insurance premiums are bigger than our mortgage and property taxes combined.

I too had to do the IRMAA shuffle. I retired in July of 2013 and turned 65 in Feb of 2015. The latest tax records they had were of 2013 and I made something like $400 too much. I submitted a letter explaining that I retired in 2013 with documentation of my retirement and pension. In a couple of months they updated everything and reimbursed me for the extra money withheld from SS. My health insurance premiums are $27 per month. For that, all but one of my prescriptions are free. I paid way too much into Medicare to not take advantage.

[Danmar]

Quote:

Originally Posted by Theseus Yeah, kind of a hybrid method that was born out of needing to curtail the cat chasing it's tail impact of needing yet more income to cover taxes on income. I started using that going into 2015 with the ACA subsidy cliff as my target max, and since withholding was integral to income on distributions from DW's 457(b) it was necessary to account for that. Life would be much simpler if it were not for all these technicalities.

In my case, when I first retired I had a lot of deferred compensation cash outs. Most of these were tax withheld. I would use the net amounts received as increases to my portfolio. It just didn't make any sense to treat income tax as an expense. It would have been multiples of other expenses. When people say, income tax is my biggest expense, I think, of course it is, but it is largely out of your control? Seems much more important to track expenses you can control?