Subject: Best healthcare strategy for FIRE at 63+

[horfield]

Can I ask for opinions and insight into my FIRE strategy as it pertains to my own and my wife’s healthcare in 2023? Excuse me if the question is very basic as I have not had to think about this before.

My situation. I turned 63 this October and my job has just been eliminated due to downsizing. I am fine with it! Ready to move on to the next phase in life. Excluding property, I have $2M in retirement investments, (as of the current down market) I received a generous severance and have enough free cash to cover me for 2023, I don't need to (or want to) start drawing from investments at the moment, and Fircalc says I am in a good place.

My final working day was December 5th so I and my wife are covered by my company PPO until the end of this month/year. What to do next is the question.

I could go on COBRA but, I have looked at some options where I am in Arizona on Healthcare.gov and it seems I can get a silver PPO plan that does not look too bad for considerably cheaper with a premium subsidy.

Given my cash situation and the short time I need to bridge until I go on medicare, this has got me thinking about what I should declare as income for 2023. I could consider part-time consulting or other smaller jobs that might bring in say $20K to $30K next year and am inclined to do so. Otherwise, if I rely on my own cash reserves for 2023 it seems I could declare a very low (or even zero?) income on Healthcare.gov to qualify for the most favorable subsidy.

COBRA does not seem to make sense given my circumstances. For those of you who live and breathe all this, does this strategy make sense, and am I missing anything? (It still feels odd to go from a high salary in 2022 to declaring a very minimal income in 2023 and rely on cash instead)

Thanks!

 

[PaunchyPirate]

First and foremost, you probably do not want your 2023 income to be so low that it triggers you to be covered by Medicaid instead of an ACA plan. I’ll let someone else chime in with the numbers, but this is the primary concern based on what you say above.

I am now entering my 5th year of retirement and ACA coverage with significant subsidies from the health insurance exchanges. My state of PA now has its own exchange. I have enough income each year from dividends and capital gains to keep me off Medicaid. If sell something now and then to generate additional cash to meet my expenses. I don’t generate too much income because that decreases the subsidy. It’s a balance. Roth conversions can be a useful way to generate income if you need.

Your thinking is solid. You just need to finalize the details.

Also, double check that the Silver PPO covers your preferred doctors and hospitals. They sometimes have a restricted network. Also, note what your coverage will be if you are traveling around the country and need non-emergency care. It might not be as robust as your COBRA plan was/is.

 

[JDARNELL]

First and foremost, you do not want your 2023 income to be so low that it triggers you to be covered by Medicaid instead of an ACA plan. I’ll let someone else chime in with the numbers, but this is the primary concern based on what you say above.

.

Can you expand in this idea? I’m covered by TRICARE as a military retiree so I have never had any exposure to this topic. Thx

 

[PaunchyPirate]

Can you expand in this idea? I’m covered by TRICARE as a military retiree so I have never had any exposure to this topic. Thx

Most, but not all, people consider Medicaid coverage to be inferior to other healthcare insurance. Some doctors won’t accept Medicaid patients, for example. Some say they can’t get appointments if they reveal they are on Medicaid.

In my state, if you’re a family of 2 and only have an income of $24,000, that qualifies you for Medicaid. So, and this is a detail I am not fully up to speed with, if you try to get ACA coverage with that income level, it will boot you out and place you on the list for Medicaid.

Many comments in financial forums seem to suggest it is better to find some more income, maybe just $5,000 more to ensure you will not be forced on to Medicaid. Instead, you will get an ACA plan with substantial subsidies.

Having said this, I have also read posts from people who have been quite happy with Medicaid coverage.

 

[aaronc879]

You can't have zero income and still use ACA subsides. Zero income would require you to go on Medicaid or pay full price for health insurance. For a family of two you need to make at least $25,267.80 for 2023 to qualify for ACA subsidies. That is 138% of the federal poverty level. Since you have a good cash buffer I would suggest doing a ROTH conversion to generate the needed income.

 

[Trailwalker]

I played with the numbers, and we settled on 36k which still offered a large subsidy and covered likely capital gains and dividends. The application questioned our estimate with a popup that indicated the estimate seemed low in light of previous annual income. One of the reasons suggested is "retirement or loss of job" as a reason for lower estimate. We chose that reason as an explanation, and the application/subsidy was accepted.

 

[horfield]

Awesome! Thanks for all the useful help as I get my head around all this.

I do not want to go on Medicaid. However, I just went onto the Arizona healthcare marketplace website and there is a calculator where I typed in household income ranges for 2 people in my zip code. At $25,000/year, there is no subsidy with the plans being hugely expensive. At $26,000/year, the deduction appears at $2,917/month. So the threshold seems indeed $25,267.80. I think I am getting the hang of this now.

For example, at $26,000/year, there is a silver Blue Cross/Shield PPO with an annual deductible of $4,100 at only $396/month which would normally be $2,580/month.

From my current understanding, it seems my options are to...

(i) Take consulting or part-time jobs that generate a minimum of $25,267.80 in 2023. That would be kinda semi-retirement until I hit 65 but I could easily do so.

(ii) Draw down that amount as income from my investments. (Again, I could do so if I need to. I just did not want to lock in losses in the current down market)

(iii) I had not even thought of converting one of my IRAs into a Roth or whether that is the best option. I will research.

Thanks again!

 

[aaronc879]

(ii) Draw down that amount as income from my investments. (Again, I could do so if I need to. I just did not want to lock in losses in the current down market)

This is the second time you mentioned a "down market". While the market is technically down from it's peak it is still quite high. With the exception of a little over a one year span starting from approx. March '21 thru now the S&P 500 is the highest it has ever been. It is not low by any means.

 

[sengsational]

You need to get on Healthcare.gov in the next 9 days and lock in a plan. Don't worry too much about the income estimate, just get that done!

If I were you, I'd put in $43K, which is 230% FPL. If you happen to make more or less, it doesn't matter, it all gets reconciled on your Federal taxes (that you'll be doing 15 months from now). Say you get $30K on a 1099 for consulting. Then you pull $13K out of your 401K for a total of $43K. Or you can convert tIRA money to Roth in the amount of $13K instead. The point is, you can "make" whatever money you want, and you should be filling up those low federal income tax brackets every year.

As to the health plan, it depends on how you use healthcare. You might consider a high deductible plan with HSA. You can put up to $9700 in a his and hers HSA and that reduces your income. Thus, $9700 more you can pull out of your tIRA or 401K. What I discovered with health insurance is I was "buying the max out of pocket". This is true if you are low spender insuring against a random bad thing, or high spender, where you know you'll blow through the max out of pocket for sure. If you're in the middle, the silver might be the best bet, but the lower premium on the bronze can save a lot of money.

 

[sengsational]

This is the second time you mentioned a "down market". While the market is technically down from it's peak it is still quite high. With the exception of a little over a one year span starting from approx. March '21 thru now the S&P 500 is the highest it has ever been. It is not low by any means.

Yes, but IMO, the level of the market is not relevant if you "sell to yourself". In a Roth conversion, it's even simpler, there's no sale at all...you can say "take X shares from tIRA and move them to a Roth". Nothing sold. But even if you need to bail from a 401K, say, S&P 500 Index, once the money is out, just re-buy the S&P 500 index. You might miss a few days, and hopefully the market won't shoot up while you're out, but basically you don't care if the market is up or down if you re-buy what you had to sell in order to engineer your income.

 

[RetiredAndLovingIt]

To stay off Medicaid you have to be above 138% of FPL, I usually use 150% just to be safe.

Silver 94 for 2 people 100-150% of FPL is $27,465 Cheapest premiums
Silver 87 $36.620 is 150- 200% FPL
Silver 73 is $39,001 200-250% of FPL

If you go above your estimated income you settle up at the end of the year on your taxes and pay but there is a limit to what you have to pay back depending again on income. I can't find the 2023 number but here is the 2022 payback limits

https://www.coveredca.com/learning-center/tax-forms-and-filing/financial-help-repayment-limits/

 

[RetiredAndLovingIt]

There is a chart at this link about what income to include or deduct in calculating your MAGI

https://laborcenter.berkeley.edu/modified-adjusted-gross-income-under-the-affordable-care-act/

 

[EastWest Gal]

Yes! Lock something in! Pay a premium by 12/31.

We were automatically enrolled in the same plan from last year. I called our state exchange (pennie.com) because their calculator set our portion of the premium too low.

I was walked through how to choose our monthly premium. I can change it any time. Depending on our circumstances.

Tell them your income is above 138% the FPL then make it happen by withdrawing a little from taxable or pre-tax accounts.

You’re less than two years a away from Medicare. I was on Cobra as the premiums were cheaper with the ACA cliff jn 2019-20 but now our premiums are cheaper and coverage is better. We only use our coverage for screenings.

 

[RetiredAt49]

We did the same thing… went on an ACA plan and like others said you want to “generate” enough income to be above the Medicaid limit… we accomplished that with a Roth conversion.

 

[Fermion]

To stay off Medicaid you have to be above 138% of FPL, I usually use 150% just to be safe.[/url]

I skate a bit closer.....I shoot for 140% of FPL lol. Otherwise I feel like I am leaving free condiments on the table.

 

[aaronc879]

I skate a bit closer.....I shoot for 140% of FPL lol. Otherwise I feel like I am leaving free condiments on the table.

My state didn't expand Medicaid so I shoot for 105-110% FPL. I have difficulty making that much in MAGI without taking an early distribution from my IRA.

 

[Rianne]

As to the health plan, it depends on how you use healthcare. You might consider a high deductible plan with HSA. You can put up to $9700 in a his and hers HSA and that reduces your income. Thus, $9700 more you can pull out of your tIRA or 401K. What I discovered with health insurance is I was "buying the max out of pocket". This is true if you are low spender insuring against a random bad thing, or high spender, where you know you'll blow through the max out of pocket for sure. If you're in the middle, the silver might be the best bet, but the lower premium on the bronze can save a lot of money.

100% agree with this ^^
You can contribute to you tIRA if you make your income a bit higher, contribute to HSA, have a lower monthly premium payment. We figured this out as we're pretty healthy. Even with a $6000 deductible per person (DH and me), so $12000 deductible as a family, the HC discounts per Dr appt., blood work, etc still saved us thousands!

Granted it is based on your state. In Illinois, our Bronze premiums were $8.95 per month as a family! We spent less than $3000/year in medical costs.

 

[Fermion]

My state didn't expand Medicaid so I shoot for 105-110% FPL. I have difficulty making that much in MAGI without taking an early distribution from my IRA.

Yes, we set up a early distribution just to make the MAGI numbers a bit easier to hit year to year. I had a few biotech losses (after paying taxes on some wins in years past) and capital gains were not going to be enough after using these losses. I have also converted a lot to Roth...could convert more but I am ok with the $25k in early distribution too, since we pay 0 tax on it with the standard deduction for a married couple. Its like a no tax in, no tax out Roth!

 

[Gumby]

Yes, but IMO, the level of the market is not relevant if you "sell to yourself". In a Roth conversion, it's even simpler, there's no sale at all...you can say "take X shares from tIRA and move them to a Roth". Nothing sold. But even if you need to bail from a 401K, say, S&P 500 Index, once the money is out, just re-buy the S&P 500 index. You might miss a few days, and hopefully the market won't shoot up while you're out, but basically you don't care if the market is up or down if you re-buy what you had to sell in order to engineer your income.

This. 100 times over. Even better if you pay the tax separately from your after tax account rather than having it deducted from the conversion.

 

[Aerides]

You need to get on Healthcare.gov in the next 9 days and lock in a plan. Don't worry too much about the income estimate, just get that done!

Yes, but given his work status change, I think he has a bit longer? If work ended on 12/5, I think he has a "change of life" status claim that might buy him some time.

As far as Cobra v the ACA, one factor I missed - is OP a big consumer of HC today? Do you have favorite docs/specialists you want to stay with? Cobra may offer more options there, as you literally continue your workplace plan in most cases. Staying on Cobra for up to 18 months would make for an easy slide into Medicare with just a few months to cover on the ACA, costs aside.

you also received a severance? If that was lump sum, fine, of not, if it's serial, that would be 2023 income. But I'm guessing lump given the rest of the details.

 

[COcheesehead]

I made the mistake of taking Cobra our first year into retirement. I didn’t want deal with HC while we were building a house, moving, etc. I should have spent more time on it in retrospect. The ACA plan was far less expensive, gave us great coverage and an HSA with its triple tax advantages. At least I finally figured it out.

 

[aaronc879]

Yes, we set up a early distribution just to make the MAGI numbers a bit easier to hit year to year. I had a few biotech losses (after paying taxes on some wins in years past) and capital gains were not going to be enough after using these losses. I have also converted a lot to Roth...could convert more but I am ok with the $25k in early distribution too, since we pay 0 tax on it with the standard deduction for a married couple. Its like a no tax in, no tax out Roth!

The 10% penalty hurts though and my state charges a penalty of 33% of the federal penalty so 13.333% penalty overall. I hope to not have to do that very often.

 

[orchid55]

I would also recommend checking the network on the ACA policies. In our state all of the policies are narrow network HMOs with no out of state coverage. If you are planning any travel outside of your state or local area, you might feel more comfortable with the coverage COBRA provides despite the higher premiums.

 

[COcheesehead]

I would also recommend checking the network on the ACA policies. In our state all of the policies are narrow network HMOs with no out of state coverage. If you are planning any travel outside of your state or local area, you might feel more comfortable with the coverage COBRA provides despite the higher premiums.

Emergency care out of state is usually covered. Just plan your regular doctor visits when in state. If you travel internationally, you’ll need a secondary plan.

 

[aaronc879]

Emergency care out of state is usually covered. Just plan your regular doctor visits when in state. If you travel internationally, you’ll need a secondary plan.

^^^^This