ACA effect on retirement rates

[Neill]

Hi,
I assumed that the ACA might have a large effect on retirement. I seem to remember news on that and talk about job lock keeping people working etc.

I just saw this paper and it suggests that the increases will be small in comparison to the total (1/2 a percent).

https://deepblue.lib.umich.edu/bitstream/handle/2027.42/134388/wp343.pdf

Seems to fly in the face of stuff I read here but then again I don't qualify for subsidies so I have ignored it for the most part.

 

[joesxm3]

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.

 

[broadway]

If it wasn't for ACA, I would not have jumped.
I left my job at a small mega-corp in September 2013 without having another job lined up.
That job was stressing me out big time.
I do not have a single regret about jumping.
It was scary though. There was no unemployment as a cushion as there was when I was laid off.

I did not RE, but I needed a break.

 

[candrew]

If it wasn't for ACA, I would not have jumped.

+1

The ACA helped to create a RE opportunity for me and my departure from Mega-corp has created a promo opportunity for another.

 

[MichaelB]

A short summary of the paper. In this case the authors find that the ACA is not leading to more people retiring sooner than otherwise planned.

We find no evidence that ACA increases the propensity to retire or changes the retirement expectations of those who, before ACA, had coverage when working, but not when retired.

An analysis based on a structural retirement model suggests that eventually ACA will increase the probability of retirement by those who initially had health insurance on the job but did not have employer-provided retiree health insurance. But the retirement increase is quite small, only about half a percentage point at each year of age. The model also suggests that much of the effect of ACA on retirement will be realized within a few years of the change in the law.

 

[Mo Money]

Like those posters above,it the ACA was not enacted, I probably would not have ER'ed. I have a pre-existing condition, and it was way too scary to jump from the slave ship known as w*rk without the ACA.

 

[ziggy29]

At one point I thought the ACA might be a game-changer when it came to being able to retire without Megacorp health insurance. But as premiums skyrocket year after year, insurers pull out of markets and almost no PPO plans are around in a lot of places, perhaps the long term impact of the law on aiding early retirement was exaggerated.

 

[frank]

At one point I thought the ACA might be a game-changer when it came to being able to retire without Megacorp health insurance. But as premiums skyrocket year after year, insurers pull out of markets and almost no PPO plans are around in a lot of places, perhaps the long term impact of the law on aiding early retirement was exaggerated.

__________________+1

 

[Running_Man]

ACA will provide health insurance with out of pocket max of $2,000 if you hold income below $32,000. Tax laws with deductibles and exemptions make that $32,000 nearly tax free especially if a portion of the income is coming from Social Security taken early. To think that has no impact on people retiring seems incredible to me. Actually ACA seems designed to get people to retire early and not work due to the incredible tax rates that take effect with the ACA subsidies.

 

[misshathaway]

ACA will provide health insurance with out of pocket max of $2,000 if you hold income below $32,000. Tax laws with deductibles and exemptions make that $32,000 nearly tax free especially if a portion of the income is coming from Social Security taken early. To think that has no impact on people retiring seems incredible to me. Actually ACA seems designed to get people to retire early and not work due to the incredible tax rates that take effect with the ACA subsidies.

Do you think the general population is that aware of it as an option after retirement? I have an acquaintance who works in finance, admittedly with multi-millionaires so why would they care, who did not know about ACA, and who said she would not retire b/c of healthcare costs. A few people have asked me about health insurance since I retired and not a one knew that ACA was available if you quit your job, and that qualification is not asset-based. I sure didn't know.

 

[MichaelB]

Health care is so very expensive, the average cost of (group rate / employer paid) insurance is more than 1/3 the median household income. The only people that can retire and afford individual insurance rates are at the extremes of the income scale. Either low incomes and eligible for assistance, or high incomes and can afford to pay. People at the lower ends of the income scale have very low savings rates, so probably can't afford to retire even with low cost health care.

So, not a surprise that ACA isn't leading to a rash of early retirement.

 

[GTFan]

If it wasn't for ACA, I would not have jumped.

Same here, but sadly I think the ACA days may be numbered as the exchanges start falling apart. We'll see a year from now I guess.

Oh well, at least I have full-price retiree coverage from Megacorp as a fall back. A damn expensive one.

 

[scrabbler1]

When I ERed on October 31, 2008, it was 4 days before the presidential election. There was no ACA yet but it was a small leap of faith on my part that Obama would bring forth a major health insurance reform which would make that already large part of my monthly and annual budget more affordable.


I had to endure two years of huge increases in my individual HI plan totaling 50%, nearly busting my budget. After the ACA was passed but before the exchanges went into effect, I switched to a bare-bones hospital-only plan in early 2011, planning to stay with it until the end of 2013 so I could return to broader coverage in 2014. All I needed to do was remain healthy in those 2.5 years.


I did, barely, as I became sick last year and was very glad I had the broad coverage of an ACA policy, one which would have cost me at least twice as much (assuming moderate increases in 2012-2015) or, had I stayed with the hospital-only plan have cost me a bundle in the non-hospital costs, or have left me without adequate health care.


I hope the ACA gets fixed where it needs fixing but I sure as heck don't want it disappearing.

 

[Running_Man]

Health care is so very expensive, the average cost of (group rate / employer paid) insurance is more than 1/3 the median household income. The only people that can retire and afford individual insurance rates are at the extremes of the income scale. Either low incomes and eligible for assistance, or high incomes and can afford to pay. People at the lower ends of the income scale have very low savings rates, so probably can't afford to retire even with low cost health care.

So, not a surprise that ACA isn't leading to a rash of early retirement.

I disagree and think it makes retirement surprisingly affordable. For a couple approaching retirement —— one age 62 and the other 60 previously insurance would require continuing to work, now that can be purchased. If you are at the US median household income that was $51,839 for last reported in 2014. At that income for a couple using standard deductions you would pay $3,562 in Federal Tax $1,646 in state tax (using 3.3% rate) and $3,870 for FICA taxes leaving $42,761 in aftertax income.

Just $65,000 in after tax savings will carry a couple the 5 years to hold income to $32,000 while living on the US median household income. If $10,000 of that income comes from Social Security of the 62 year old you will also pay no income taxes. Per the Kaiser website will give you either a silver plan for $175 per month or you can get at no charge a bronze plan with $15,293 in assistance. Those are the US averages.

I do not see how providing that much assistance over 5 years (76K) would not result in more early retirement. The more money you have the easier it is to adjust to these numbers.

This would mean to retire at a level of after tax spending for this couple pulling $110,000 from pretax savings accounts or pension perhaps (32K need -10K SS), and having 650K of savings for a 26K annual withdrawal and 25-26 K in SS for when both are over age 65 to give median household income for a retired couple.

 

[poorcarver]

ACA made it possible for my wife to jump at 60. She has a pre-existing and could not buy insurance outside of employer managed at any price. The fact of coverage despite her pre-existing put her over the top. If we lose the ability to buy before she is medicare age, we will sojourn in Italy/France until her 65th.

 

[ziggy29]

Health care is so very expensive, the average cost of (group rate / employer paid) insurance is more than 1/3 the median household income. The only people that can retire and afford individual insurance rates are at the extremes of the income scale. Either low incomes and eligible for assistance, or high incomes and can afford to pay. People at the lower ends of the income scale have very low savings rates, so probably can't afford to retire even with low cost health care.

So, not a surprise that ACA isn't leading to a rash of early retirement.

If you can keep your MAGI down to levels providing subsidy, it's very doable. The problems are that the subsidies get larger and larger as premiums see 20-50% annual increases, making them less fiscally tenable, and that more and more households have no choice (or very little) in terms of the insurer (and thus the network and other things). In many markets, especially rural ones, there is only one insurer in the game.

These are bigger problems than income under the ACA as currently implemented. A debt-free couple living modestly in a paid-off home could easily live on less than 4x the federal poverty line (FPL), and perhaps 2.5-3x over FPL if they live simply and frugally. That will keep the cost below about 6-8% of their income, which seems relatively affordable to me.

 

[sengsational]

Back in September of 2013, I made a (poor) prediction that the "jobs report" would show people jumping ship (http://www.early-retirement.org/for...th-plan-into-exchanges-68251.html#post1355502).

I think if the report had more detail, it would show that like me, and many on this board, ACA was instrumental in the FIRE decision. Immersed in the folks on this board, it's easy to think that there are more people in the same mindset and same financial situation as us, but in reality, as said, we don't make-up a very large part of the whole, so don't have a big effect on the totality of the jobs report.

 

[GTFan]

These are bigger problems than income under the ACA as currently implemented. A debt-free couple living modestly in a paid-off home could easily live on less than 4x the federal poverty line (FPL), and perhaps 2.5-3x over FPL if they live simply and frugally. That will keep the cost below about 6-8% of their income, which seems relatively affordable to me.

Heh, this frugal couple with everything paid off lives on less than 150% FPL (reported MAGI) which makes the ACA a killer deal. We're in a low-cost area and have ways to make stuff like food and travel cheap too, so it's no biggie.

But I can see why a lot of ERs with way more investments and costs than I would be in a high bracket, insurance-wise. And the ACA is getting a lot more costly for those folks.

 

[ziggy29]

Heh, this frugal couple with everything paid off lives on less than 150% FPL (reported MAGI) which makes the ACA a killer deal. We're in a low-cost area and have ways to make stuff like food and travel cheap too, so it's no biggie.

But I can see why a lot of ERs with way more investments and costs than I would be in a high bracket, insurance-wise. And the ACA is getting a lot more costly for those folks.

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

For example: I have good cheap employer coverage now, particularly rare for a part time job working 15-20 hours a week. But I thought I'd see, for grins, what I'd find if I quit (which I'm not planning at the moment). 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! How long can we keep affording that? That is enough for me to rule out counting on ACA to secure our financial future for health care in retirement. Yes, we could easily afford that despite $13K family deductible and OOP max (half that per person, though in reality if we kept MAGI below 300% of FPL I'd have no cost sharing or dedudtibles). And it is HSA eligible (at least my wife's half of the policies) which helps manage the MAGI. But is it something we'll be able to keep affording as a nation? Not sure.

ACA was a fine stopgap for me between my Megacorp layoff and my new coverage through part time work in 2014 and part of 2015. But the unsubsidized cost of these HMO plans has almost doubled over the unsubsidized cost of my PPO plan since 2014.

 

[MichaelB]

I disagree and think it makes retirement surprisingly affordable. For a couple approaching retirement —— one age 62 and the other 60 previously insurance would require continuing to work, now that can be purchased. If you are at the US median household income that was $51,839 for last reported in 2014. At that income for a couple using standard deductions you would pay $3,562 in Federal Tax $1,646 in state tax (using 3.3% rate) and $3,870 for FICA taxes leaving $42,761 in aftertax income.

Just $65,000 in after tax savings will carry a couple the 5 years to hold income to $32,000 while living on the US median household income. If $10,000 of that income comes from Social Security of the 62 year old you will also pay no income taxes. Per the Kaiser website will give you either a silver plan for $175 per month or you can get at no charge a bronze plan with $15,293 in assistance. Those are the US averages.

I do not see how providing that much assistance over 5 years (76K) would not result in more early retirement. The more money you have the easier it is to adjust to these numbers.

This would mean to retire at a level of after tax spending for this couple pulling $110,000 from pretax savings accounts or pension perhaps (32K need -10K SS), and having 650K of savings for a 26K annual withdrawal and 25-26 K in SS for when both are over age 65 to give median household income for a retired couple.

I agree with your example and the math. I wonder, though, just how many households at that income level have enough savings available to fund leaving work at age 60 / 62. From all the threads and studies on inadequate savings in the US, my impression is very few have the cash.

Still, it would not be a surprise to find a fair number of households have that capability and are unaware.

 

[Senator]

My DGF was able to retire at 44. She would definitely still be working if not for the ACA.

The ACA was a precursor to MinnesotaCare being adopted in its present form. She get a plan with $0 premium, $0 deductible. It covers healthcare, dental, vision, pharmacy, etc.

Why work if you do not have to?

 

[daylatedollarshort]

Heh, this frugal couple with everything paid off lives on less than 150% FPL (reported MAGI) which makes the ACA a killer deal. We're in a low-cost area and have ways to make stuff like food and travel cheap too, so it's no biggie.

But I can see why a lot of ERs with way more investments and costs than I would be in a high bracket, insurance-wise. And the ACA is getting a lot more costly for those folks.

We're in a high cost of living area but also in the killer deal camp. Our premiums are well under $200 a month for a nice selection of plans with good hospitals and large provider networks to pick from. Our premiums will be about $20 lower a month next year. And because we have a couple of small businesses we've scaled down but kept going the health insurance premiums we do pay are a tax deductible business expense.

We use a HSA and have some business expenses besides the health insurance like a home office that give us a little more headroom on the 400% of FPL. Then if it looks like we need more cash in a given year we have a HELOC we use for extra cash to keep our MAGI under the cliff. The interest on the HELOC is less than the subsidy amounts so it works out.

 

[Debinnov a]

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?

Sent from my KFTHWA using Tapatalk HD

 

[Running_Man]

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?

Sent from my KFTHWA using Tapatalk HD

You do not include interest from an IRA unless you withdraw it.

 

[NW-Bound]

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.