ACA effect on retirement rates

[bingybear]

More accurately, you have to include as income the entire IRA withdrawal amount.

It does not matter if your IRA has any interest or capital gain that year, or it has a loss.

If you do not withdraw, then there's no income and no tax, whether gain or loss.

A little more accurately... you can/should reduce the taxable amount by the prorated tax basis in the IRA.

 

[NW-Bound]

OK.

I was talking about traditional IRA, and was not thinking about after-tax IRA, nor Roth IRA.

 

[EastWest Gal]

Not very scientific on my part, but the part of ACA that required letting you in on a policy even with pre-existing conditions had a significant effect on my thinking that ER would be possible.

I might have been misinformed, but I probably would have felt that the employer health insurance was too important to give up if I did not think that ACA made it possible to buy my own policy either on or off exchange.

I would still be plodding along working if it weren't for the ACA. The insurance companies can't hang you out to dry if you get sick. There are no pre-existing condition exclusions. Yes, it made it possible for me.

This year, facing a $20K/year premium, I may eventually have to go back to work anyway...

I had an aunt who quit cancer treatment and died early partly because had no insurance and ran out of money in the early 1990s.

 

[jabbahop]

Without pre-existing condition change, I wouldn't have made the jump. I've had a number of people ask me about how we deal with healthcare and they are surprised they have an option prior to medicare.

 

[gauss]

I don't have pre-existing conditions, but I understand the risk to those in the individual market, under the old system.

The outcome of the 2012 presidential election and the likely upholding of the ACA was a key enabler of my actual ER in early 2013. MegaCorp HR was also asking me if I was ready to come back from my leave of absence (dependent care) at this time too so the timing was good.

DW still has employer coverage and retiree coverage awaits, but either of those could change at any time.

I didn't want to take the ER plunge until I was confident that "Medical Bankruptcy" was no longer a potential outcome. The ACA prohibitions on individual medical underwriting of premium rates combined with the must-issue rules facilitated this in our case.

-gauss

 

[sengsational]

I don't understand how people that retire early manage to keep their MAGI so low. I have CDs and interest (very little dividends from stocks) and some rental income that put me close to the cap for subsidies. But I have to include all interest, even IRA interest, correct?

If the retiree has little in the way of non tax advantaged assets (i.e. has it 'all' in IRA, Roth, 401k, etc and doesn't have income generated from non tax advantaged assets), then it's pretty easy, given a source of Roth or even HELOC funds. You pull as much as you can from IRA/401k while controlling income level, and pull the rest of your needs from the Roth or HELOC. This retiree can set the income level anywhere they want. The 'cost' is that, generally speaking and if tax rates stay the same, pulling Roth funds later is better (tax-free compounding). The cost of the HELOC is the interest rate, but rates are very low and the payoff of PTC can be very high.

 

[mrfeh]

Not very scientific on my part, but the part of ACA that required letting you in on a policy even with pre-existing conditions had a significant effect on my thinking that ER would be possible.

I might have been misinformed, but I probably would have felt that the employer health insurance was too important to give up if I did not think that ACA made it possible to buy my own policy either on or off exchange.

+1

Without the ACA, either my wife or I would have to remain employed just for health insurance, as opposed to being able to retire in our early 50s.

 

[NW-Bound]

I still worry about the rising cost of subsidies busting the budget.

... I put in two people (DW and me), $42,000 income, ages 51 and 48. In my ZIP code all we have is BCBSTX and we have no PPO options. But an HSA-eligible Bronze option would cost us $51 per month ($991 before subsidy). So that's $940 a month we'd get in subsidy -- about a quarter of our income for a BRONZE plan! ... But is it something we'll be able to keep affording as a nation? Not sure.

+1

Where I am, a 60-year old couple with a joint MAGI of up to the 400% FPL of $64K will get a subsidy of $1,628/month or $19.5K/year. That's because an HMO Silver plan is $24K/year, and with a $14.1K deductible.

That subsidy money has to come from somewhere. Like from people who are working and already have employer insurance? Like my children?

 

[GTFan]

Yup. And um, thanks.

How The Affordable Care Act Pays For Insurance Subsidies : Shots - Health News : NPR

 

[Big_Hitter]

That subsidy money has to come from somewhere. Like from people who are working and already have employer insurance? Like my children?

Cadillac tax and other ACA funding mechanisms

 

[NW-Bound]

Cadillac tax and other ACA funding mechanisms

Do they balance out?

It is obvious that the ACA subsidy has grown to much larger than it was first envisioned. Do the taxes automatically grow to match?

 

[Big_Hitter]

Do they balance out?

It is obvious that the ACA subsidy has grown to much larger than it was first envisioned. Do the taxes automatically grow to match?

I'll have to do some research. The Cadillac tax was one of the only real funding mechanisms for ACA and has come under fire recently, primarily from unions, as they have some of the most generous health plans. The tax was recently delayed one year.

 

[scrabbler1]

+1

That subsidy money has to come from somewhere. Like from people who are working and already have employer insurance? Like my children?

Wouldn't some of the money come from the tax penalties paid by those who forgo buying health insurance? Those are the potential free riders who cost the overall health care system without paying into it otherwise. If they tend to be the younger, healthier people, then their failure to buy health insurance puts upward pressure on insurance rates for everyone else, and that drives up the subsidies. So it makes sense to have their tax penalties go back into the system to offset the costs they are putting onto everyone else.

 

[daylatedollarshort]

I don't understand how people that retire early manage to keep their MAGI so low. I have CDs and interest (very little dividends from stocks) and some rental income that put me close to the cap for subsidies. But I have to include all interest, even IRA interest, correct?

Besides the answers in the previous posts (Roth withdrawals, HSA, HELOC, tax deferred retirement account income, business expenses), for some households with expenses at or near the cliff, it might be more beneficial to focus more on optimizing / lowering expenses and getting the ACA tax credits instead of part-time work for extra income. The extra income is usually taxable (federal income tax, social security and maybe state income tax), often adds in job and commute expenses, too, and might mean a loss of $10K - $20K in ACA tax credits.

For example, if you are near the cliff and have a house cleaning service, if the money you need to withdraw from retirement accounts or sell stocks in an after tax account to pay the house cleaners puts your MAGI over the ACA cliff, it might be cheaper to clean your house yourself.

 

[Teacher Terry]

Part of the problem I see is that the deductibles can be so high that people will have insurance and then can't afford to use it. We pay 10k /year for retiree coverage but at least it is affordable to use.

 

[Big_Hitter]

Part of the problem I see is that the deductibles can be so high that people will have insurance and then can't afford to use it. We pay 10k /year for retiree coverage but at least it is affordable to use.

insurance isn't meant to make the cost of healthcare inexpensive, it's to help indemnify the insured from unexpected losses

 

[MichaelB]

insurance isn't meant to make the cost of healthcare inexpensive, it's to help indemnify the insured from unexpected losses

Not really. That would be the case for homeowners or life insurance. Health insurance is a product that comes in-between and intermediates both the provider and the consumer, taking from both. By creating preferential prices for insurers and unaffordable, exorbitant prices for consumers, health care providers and insurers combine to make insurance too risky to not have. Financial risk minimization is no longer the primary purpose.

 

[daylatedollarshort]

Part of the problem I see is that the deductibles can be so high that people will have insurance and then can't afford to use it. We pay 10k /year for retiree coverage but at least it is affordable to use.

I think it depends how much you normally use healthcare. In 2016, out-of-pocket maximum could be no more than $6,850 for an individual plan and $13,700 for a family plan before marketplace subsidies. We helped out our kids last year, but medical expenses for the two of us other than premiums were $0.

 

[NW-Bound]

Besides the answers in the previous posts (Roth withdrawals, HSA, HELOC, tax deferred retirement account income, business expenses), for some households with expenses at or near the cliff, it might be more beneficial to focus more on optimizing / lowering expenses and getting the ACA tax credits instead of part-time work for extra income. The extra income is usually taxable (federal income tax, social security and maybe state income tax), often adds in job and commute expenses, too, and might mean a loss of $10K - $20K in ACA tax credits...

The common unintended effect of public assistance programs is that they encourage people to not work. When working costs people money, well, they just stop.

 

[Teacher Terry]

I have some chronic health conditions and take 4 meds. I also have had a bunch of tests this year for neurological issues, etc. My DH is in remission for cancer so sees docs regularly. So yes we use our insurance. 12 years ago it would not have mattered and we used it only for preventive care. Things can change on a dime.

 

[MichaelB]

The common unintended effect of public assistance programs is that they encourage people to not work. When working costs people money, well, they just stop.

Much more tax money is spent subsidizing employer sponsored health care than ACA individual premiums. So it looks like it does both - discourage and encourage work.

 

[Big_Hitter]

I hear you - my xarelto without insurance would be about 300 a month

one reason DW won't let me FIRE is due to the health insurance - we have it pretty good - $10 copay for meds and dr visits...

if we were on the exchange I'm guessing we would spend thousands a month, instead of hundreds

 

[NW-Bound]

Much more tax money is spent subsidizing employer sponsored health care than ACA individual premiums. So it looks like it does both - discourage and encourage work.

That may be true, but not everyone works for employers who offer health insurance, or has income less than 400% FPL. Small business owners are hung out to dry.

 

[GTFan]

if we were on the exchange I'm guessing we would spend thousands a month, instead of hundreds

Totally depends on your household size and reported MAGI.

 

[Running_Man]

Much more tax money is spent subsidizing employer sponsored health care than ACA individual premiums. So it looks like it does both - discourage and encourage work.

How is this?? Are you saying because business deducts as a tax expense it is a subsidy? Or is there some program where business can get the government to pay for health care?