Filling the Healthcare Gap in Retirement
Do you want to absolutely rock your retirement years?
One way for you to do that is to control the healthcare coverage that derails your ability to manage health care costs!
You might not know it yet, but this is a loaded topic. A really difficult topic to talk about.
Start thinking critically about your financial opportunities and risks early in the game.
There are a lot of decisions that you can make now that will benefit you over time. Healthcare coverage is a tricky topic that involves both opportunities and risks!
I’ve talked to so many people who are mentioning the FIRE (Financial Independence Retire Early) movement. As you’ve probably read before on my blog, I’m not a big fan of the FIRE movement. I just don’t like the “retire early” part of this scenario–or really the term. I know this is going to inflame some of the FIRE bloggers, and I will get roasted over my opinion!
Why don’t I like the retire early part?
The word retirement conjures up the image of sitting in a rocking chair with nothing to do. The way I see retire early is …not exactly retirement as we understand the word.
The happiest individuals have a sense of purpose.
It means that you have the financial freedom to choose how much you work or which projects you spend time on.
You have work that you love.
You get to control your most precious asset: time.
That is why I emphasize the financial independence part of FIRE.
The problem is that most people forget to consider the cost of healthcare coverage when they are planning for….ahem “retirement” (we’ll use that word for lack of a better description). They don’t include the cost of it in their nest egg projections. They may not even project the rising cost of healthcare.
The question becomes: How do you start planning for the healthcare coverage that you’ll need during your ahem… “retirement” years?
These words play into the important question of healthcare coverage. That is especially true for people over the age of 50. They are in the healthcare coverage gap gray zone. It’s after their formal insurance coverage but prior to Medicare.
If you are a FIRE (Financial Independence Retire Early) person, you’ll have to buy private insurance, until you are eligible for Medicare. I think everyone knows that private insurance is extremely expensive.
Eventually, you’ll be eligible for Medicare, but let’s clear something up. Medicare still costs you money.
That is especially true if you have a good income or a lot of assets.
Does it cost less than private insurance?
Sure, it does. But it’s still money coming out of your pocket.
That is why you need to plan for your healthcare coverage!
What Does Private Healthcare Coverage Cost?
You might want to sit down.
The cost of private healthcare coverage for a family of four costs approximately $1,500-$2,500 per month. You are looking in the ballpark of $30k per year (this isn’t for a premium policy).
If you are making a decent living (which you are as a high income earning physician), you won’t qualify for the Affordable Care Act subsidies, and another problem is the deductibles are really high.
If you want to get estimates through the Affordable Care Act, you can use the calculator at healthcare.gov.
You can put in your salary and see if you qualify for any subsidies.
Christian Healthcare Plans
Did you know that there are Christian organizations that offer healthcare coverage?
As with everything…you’ll need to consider the pros and cons.
Christian HealthCare ministries are not held legally to the same responsibilities as other insurance carriers.
They are not considered insurance. They don’t use even use the same verbiage as an insurance carrier. They don’t use the words “premium” or “deductibles”.
I know what you are thinking. How does this work?
You make a payment (which is not a premium). Which means you self-insure up to a certain amount. After that point, the health share program community will chip in to help cover your health care costs.
Legally, they have no obligation. That means your ability to get coverage will depend on the success of the program. Their success will depend on the health of the organization which depends on how many people are pitching in to keep the program afloat.
Compared to Affordable Care costs, they are significantly less expensive. You’d pay approximately $600 per month for a family of four (through a non-insurance product).
You’d pay a share amount first ($7,000) and then the organization would pay 100%.
Warning: While a Healthshare program is an option, there are risks to them. If you are young and healthy they can be a good option. However, if you are diagnosed with a serious health condition that needs ongoing medication it might not be covered without prescription coverage.
The cost of expensive medication can soon overtake the amount you are saving.
What are your options if you RE (retire early) and don’t work again?
- Affordable Care Act (private insurance)
- Medical Share Ministries
You’ll have to look at the pros and cons. You’ll also have to do some math to see which one will suit your needs from the financial side.
Another thing to keep in mind is we don’t really know what will happen to the Affordable Care Act in the future. That is another reason it’s a good idea to know what options are available.
What are your options if you RE (retire early) and still plan to do some organized work?
When you look at retirement from the perspective of freedom to work on your own terms you have even more options.
- Look for companies that offer insurance for part-time workers (Starbucks/Trader Joe’s)
When looking at your future potential medical needs you need to factor in the cost of healthcare coverage.
You can look at your prior personal healthcare history and your family’s medical history to consider what your future risks might be.
All you can do is try to reduce your future financial and medical risks.
Health Savings Account (HSA)
Let’s say you are still working.
You are a physician who is earning a high income.
You have a high deductible plan and you have a health savings account.
How can you save for your health savings account and use it during your retirement?
The first thing you do is to max out your HSA and allow the amount to build up. This is great to use for future health care costs (it can be used under the current rules).
Your HSA account holds $10,000.
You rack up expenses of $5,000.
You can use your HSA to pay the $5,000 or you can put tuck a receipt away for the future and pull the money out then.
The best thing is to use your budget (aka cash flow) to pay the expense. Then save the receipts and invest in the long-term. You can pull your savings out later and pay yourself back.
At this point in time, there is no limit for when you must be reimbursed. You can hang on to the receipts indefinitely.
If you are putting money in an HSA that is growing over time, you have a treasure of tax-free money for healthcare-related expenses.
Using an HSA in this way can be better than a Roth! After all, it is tax-free going in, it grows over the years, and then comes out tax-free.
The Rule Of 300
Where do you start figuring out the numbers that you need for retirement?
There are a lot of people who are just trying to figure out how much they will need for their retirement costs. They may not have the benefit of working with a fee-only financial advisor yet, so they start with the rule of 300, which gives them a rough estimate.
The rule of 300 comes from the “Trinity Study”, which is all about retirement spending.
We’ll use a withdrawal rate of 4% in our example, which is 25 times what you are spending. They take this and then go monthly.
This mathematical equation was away to show you that some of your monthly costs will kill you over the long-term in retirement.
We could use Netflix as an example:
Netflix is nine dollars a month.
Multiply (withdrawal rate of 4%) $9×25=$225
Then multiply that by your annual amount: $225×12=$2,700
That doesn’t seem like a make or break amount, does it?
No, but the larger the monthly spending amount over time, such as healthcare coverage can become a make or break amount. That’s why preparation is key to successful retirement!
But what kind of preparation?
How much preparation?
To a certain extent, we are navigating new and uncharted waters in retirement today.
What do I mean by that?
Some companies are only offering a low pension, most are no longer offering a pension at all.
Some people have a lot of financial assets–but they have to manage them over a much longer period of time.
We are dealing with inflation.
People are taking care of themselves better. They are active and healthy. That means a longer lifespan. Longer life means spending more during the retirement years. Our world is changing so rapidly.
So we begin with a starting point that we understand (formulas and math) and some of those things that have worked in the past.
You have to take into account your goals (write them down) and what is important to you. If you had all the resources in the world, what would you do?
Many of you don’t know.
With your life direction and finances, you have to take a stab at it. Start somewhere. Get in the general direction of where you want to go.
You are going to change. Your goals are going to change your finances will change…but you must start somewhere.
If Not Numbers…Then What?
Are you someone who doesn’t trust a numerical rule? Are you just starting out and young?
I look at the “finger in the wind” concepts as a good place to start. That includes the mathematical formulas.
You may be someone who doesn’t trust the numbers, but one very good place for either camp (numbers or not) is to start a conversation with your spouse so that you are on the same page with your financial goals.
Then start with some sort of framework planning for your financial future.
That will give you the confidence to cut down your hours, change your career direction or explore a new passion.
I’ve mentioned the balancing act in my blogs before. Which is living for today and planning for the future. Here are some questions to help you with your vision:
- Where are we right now?
- Where do we see ourselves in 5-10 years
- Then focus on a smaller bite of time (a stepping stone): Where do we want to be in three years?
Then we revisit the “B” word. It always goes back to looking at your budget, which includes your income, cash flow (incoming and outgoing), and trying to pay off your crushing student debt.
The average new attending physician, fresh out of medical school has approximately $293,000 in student debt. Hold on to your hat…this is considered an investment. Yes, you want to pay it off, and with the right plan in place, you will! That is when the cash starts flowing in (as long as you’ve controlled spending creep).
Most financial plans focus on delayed gratification, which is something a doctor knows all about. After all, they have survived all those years of medical school!
In the beginning, physicians are typically income statement rich and balance sheet poor. A new attending physician is earning a great income, but saving it isn’t your priority.
Consider your opportunities. If you are young, that might mean your ability to earn an income and invest.
Wherever you are in life start thinking about creating wealth. You can do that by increasing your income and cutting down your spending.
You can take your excess cash and reinvest it for the future, and have some fun. Enjoyment is for today, too!
How are you planning for retirement? Are you interested in FIRE or a traditional retirement? Find the Physician Finance group (a community of 4700+ physicians and their spouses) on FB and let us know your answers.