Early Retirement Is Impossible Because Of Health Insurance Costs…Not!
After some recent mainstream media attention on this blog and myself there appears to be a few discussion points that naysayers/doubters point to so as to try and discredit the entire notion that one can truly become financially independent at a young age on a middle class income. It seems that healthcare costs are one of these talking points, and perhaps even the most often discussed of all.
Up until the past week I haven’t had health insurance. That has changed now, which I’ll be discussing in this article. Of course I didn’t buy the insurance just to prove the naysayers wrong (“he can’t save 50% or more of his income if he had health insurance!”), but rather a couple of other reasons. However, it is nice to be able to point at an article like this in the future for anyone who doubts that early retirement on a middle class income is impossible because health insurance will somehow magically render one insolvent.
First, it should be noted that I’ve declined purchasing health insurance for many years now due to my age and overall health. The odds of me needing serious healthcare in my late 20’s and early 30’s were relatively low and I felt okay shouldering the burden of the scant odds that I would actually need some type of care. The odds are good that if you’re living a relatively healthy life by avoiding stress and high-risk activities while staying active that you’ll not have to see the inside of a hospital room anytime soon. Of course the scant chance remains that something catastrophic could happen to me, and so I now have insurance against such a catastrophic event.
A catastrophic event (cancer, disease, serious illness) was one of the big reasons I decided to plunk down the cash and pony up for health insurance. I wouldn’t want the Freedom Fund I’ve worked so hard over the past three years building to evaporate overnight because some serious illness that required intensive care and a lengthy hospital stay befell me. Although the odds of this occurring are very acute, the chances are still there. Another reason is my age. I’m turning 31 next month. That means I’m closer to 40 than I am 20 (that sucks to write!), and as I advance in age the necessity to insure oneself against a negative health event increases. But probably the biggest reason of all is the Affordable Care Act which basically forces my hand. If I don’t purchase health insurance I’ll be fined through a tax as part of the Individual Mandate starting in 2014. I’d rather at least get something for my money, so I now have health insurance.
I purchased a plan through Aetna called the Aetna Health Network Option Value 10000 (see all the details here at ehealthinsurance.com). This is a high-deductible health plan (HDHP) with a $10,000 deductible and maximum out-of-pocket annual costs at $12,500, including deductible. Basically I am self-insuring up to $10,000 (due to my aforementioned young age and overall good health). I’m effectively insuring against financial catastrophic loss and will be shouldering the costs of the occasional cough or tick myself.
This plan comes with a monthly cost of $130.
Are my plans for early retirement now bunked? Not really. I’ve already paid my first bill for coverage beginning in mid-May and it amounted to about 2% of my net income for April’s budget. 2-3% of my net income on a regular basis is, while money I’d rather have to save an invest, not going to dramatically affect my plan to retire by 40 years old. But of course some people say “what if you get cancer?”. Well, at that point I’ll be more concerned with staying alive than retiring early and besides that…what’s your point really? Is someone with hundreds of thousands of dollars set aside more or less prepared for a health disaster than someone living paycheck to paycheck?
Now, there are some caveats here. I’m still relatively young. And I don’t really have any pre-existing conditions of any kind. I’m in pretty good health, overall. While some people like to come on here and point and laugh at my diet, I take multivitamins and fiber supplements every morning and I eat a relatively balanced diet that’s fairly low on fats and cholesterol. No, I don’t eat fancy organic foods. Of course, Standford found that organic food is no healthier for you, but that’s another discussion altogether. I eat granola based cereals or oatmeal for breakfast and am currently on a tunafish or other lean meat diet for dinner. I also work out regularly. I’m currently 5’9″ and about 187 pounds (getting closer to my goal of 185 pounds by year-end). Most of that 187 pounds is lean muscle and bones, and I definitely lack a belly of a round shape.
For some people with chronic conditions or serious health issues, early retirement may not be completely realistic. I would agree that luck, to some degree, is at play with not only early retirement but life in general. Some of us are dealt shitty hands. Some of us are born with genius intellect. The key is to make the most of what you’ve got and focus on what you can control. I’ve discussed before that early retirement isn’t for everyone, and neither should it be. It’s something that I believe is right for me and am aggressively pursuing. You may not feel the same and should probably use your energy pursuing things that matter to you.
Furthermore, on the matter of healthcare and costs there are a few things to keep in mind. As mentioned earlier, expensive healthcare costs on a recurring basis are not something you’re likely to face if you lead a healthy lifestyle. Just 1% of patients account for a full 20% of healthcare spending here in the U.S. Typically, most of the spending for healthcare costs are chronic disease treatment and end-of-life terminal hospital stays as one clings to life.
One way you can really increase your overall health and well-being and simultaneously reduce your chances of health issues and associated costs is to reduce stress. Stroke and disease are among the leading causes of death here in the U.S. and you’ll find stress to be one of the common correlating risks that increase your likelihood of facing such health issues. Want to know a great way to reduce stress? Quit your job! Or rather at least figure out who you are and spend more time being that rather than being what an employer wants you to be. Get back more of your time to yourself and cultivate the relationships and ventures that are really important to you. Stress really is a killer. I plan to avoid as much of it as possible by being financially independent at a young age and prioritizing my time and happiness over an employer’s whims. How much stress can possibly be involved in waking up at a leisurely 10 a.m., followed by a light breakfast, then a nice 1-hour workout session and a lukewarm shower? Usually by that time I will have already worked for 5 hours, running around to and fro like a madman trying to make sales, meet quotas, keep customers and management alike happy and try and not go crazy. Hmm, which way is less stressful and more likely to lead to a more fulfilling and healthier life?
One other great thing about financial independence is that you’re also geographically independent. Most people are tied down to one geographical area because they have a house and a job there. Financial independence means you no longer require a job to pay your bills and therefore can come and go as you please. As such, if healthcare costs are something that you’re extremely concerned about, or if you start to develop chronic and expensive issues later in life it might pay to be open minded to moving to a country that has significantly cheaper access to care. The U.S. health care system is the costliest in the world on a per-person basis, despite the overall quality of care being low by some measures. I’ve discussed before that I’m personally open minded to retiring overseas, at least for part of the year, and cheaper healthcare would definitely be a great motivator for something like that if it were necessary.
In summary, I find it funny that people stay loyal to golden handcuffs keeping them chained to a stressful job just so that they can afford expensive healthcare insurance in an expensive healthcare system, all the while increasing the stress levels that are likely to contribute to health issues of which that expensive and otherwise unnecessary healthcare plan will be needed. It’s a catch-22 that feeds into an endless loop of servitude. You need the high paying, stressful job so that you can afford the low-deductible high-premium health plan because you don’t have any savings set aside for any alternatives.
This blog is more than just a case study in how to retire/become financially independent at a relatively young age on a middle class income. This is my life. I share it so that other people with similar aspirations can come here and find real-life solutions to real-life problems. Hopefully you find inspiration here as I reach new heights and fight through setbacks like anyone else. I hope that anyone out there with questions on how health care costs can possibly be figured into a plan to retire early found this article useful.
Note: there will now be a healthcare expense line added to my monthly budgets from here on out.
How about you? Did you find this information useful? Are healthcare costs overrated or are they crippling your plan?
Thanks for reading.
Photo Credit: renjith krishnan/FreeDigitalPhotos.net
Good choice to get a health insurance. As German its automatic for everyone. I dont understand why so many americans dont like that 😉 Anyway i wish you good luck and that you will never ever need to make use of it! I always like to say: The best money to waste is the money for important insurances you luckily did you need at!
I come to the healthcare debate from a different perspective.
First, I was always a sickly kid (thankfully, I seem to be a healthy adult) and spent a lot of quality time with doctors. As such, I don’t feel invincible like most 30 somethings do.
Second, I have clinical and academic training in health care (specifics will not be forthcoming as I like my anonymity). I’ve worked in a hospital, I’ve seen patients etc. And I’ve done academic research around several disease states. We’re all just a car accident or a bad roll of the genetic dice away from needing massive health care. We can exercise, eat right, get enough sleep, etc. but we’re only reducing risk, not eliminating it.
Obamacare may reduce health care costs, or it may not. Given that the regulations aren’t even finished being written, I’m not making any calls yet.
When I look at your health insurance numbers, you have a maximum out of pocket expense of $12,500 per year. I’d want dividend income that could cover all of that plus my normal expenses. If I never got sick, that would be great, I’d have over $12,000 a year to reinvest or spend frivolously.
Health care is a huge wildcard for me. I’m not really targeting early retirement, but health care would probably keep me working if I wanted to take the leap to retirement.
Another reason to consider a IRA is for asset protection. You should reconsider your reasoning for not having one. Does your plan allow for a HSA? If so, a HSA can be tied to a Ameritrade acct which allows for up to $2650 and can be treated as a IRA.
Something else to consider with the ACA is if your state offers an exchange. And, if it does not, what the federal exchange will offer. Most insurance companies are saying rates will increase 30-40 percent over the next 2 years. But, the whole idea of the exchanges will be to keep the rates down. It may be possible to find a lower rate on an exchange once 2014 hits, than you have now…time will tell.
I don’t feel the U.S. healthcare system precludes early retirement, but it is a tricky issue. I’m not completely comfortable covering my health insurance with dividend income, at least not in the same way I am with other expenses. First of all, health insurance premiums have historically increased a lot faster than inflation, which is a problem. Second, unlike most other expenses, health insurance is priced by age.
For most expenses, I would like to think the amount I need at age 65 or 55 would roughly be an inflation adjusted version of what I spend now. For health insurance, however, right now I can see that the premiums escalate quite a bit from 45 to 55 to 65. And then there is healthcare inflation that will probably exceed the CPI by quite a margin.
Don’t mean to be overly negative, but I feel this is a difficult issue. Solvable, yes, but still very difficult.
Mantra, I was thinking you are Canadian 🙂 Yes, we have OHIP in Onratio and generally health care is covered by it… yes, it’s most likely not so good like in US, but at least I don’t need to care too much about it when I’m retired. I have also benefit plan from my current work that partially covering paramedics and dental. Actually, dental care is my biggest concern, as it’s not covered by government plan and even with dental coverage from work, it cost huge $$$.
Being Canadian, I always forget just how expensive health care in the US is, and how it’s something people need to budget for, even when they are relatively healthy and in good shape, just to protect against those aforementioned catastrophic situations.
As I have two kids and one with a chronic health condition, I picked up supplemental insurance through work but that costs me less than $2 a month.
Organic foods were never meant to be more nutritious. They are meant to be free from toxins, however. If you don’t like the idea of eating copious amounts of pesticides, then organic is the way to go. Organic food is also GMO-free. And if you are eating any animal products, then the welfare of any animals raised organically tends to be much MUCH better.
The view from Germany to this problem:
When working in Germany as an employee, the health insurance will be immediately deducted from the salary!
Do you no longer have a job and live from your dividends, you must assure you sick at your own cost. That’s the law in Germany! You HAVE to do this!
At the moment you have to pay 14,9% from your income.
If you receive 2.000 EUR from dividends in one month, you have to pay 298 EUR for this month for the health insurance!
That amount is a lot! :-0
Be a privateer is not easy in Germany! :-X
Best regards!
Onassis
When I was a child, I believe the norm was to have major medical insurance. When my mom took me to the doctor, it was paid with cash or a check. Typically insurance didn’t kick in until you ended up in the hospital.
In the early 80’s, preventative care was heavily pushed and ended up being covered. Fast forward to today and you find the masses appalled if everything is not covered and even more appalled that it’s not cheap. Ordering the entire menu comes with a price.
I opt for the high deductible plan at work coupled with an HSA account. Even though I have an annual “free” doctor visit, I usually make use of that every 2 or 3 years. My wife does about the same. I could do without the “free” for a lower “fee”.
When retirement is upon me, I will do much the same as you DM. Shop for good catastrophic care insurance and self-insure the maintenance stuff. Much like most do for auto and home insurance. Go figure.
I think the reason some people have concerns about your future healthcare costs is we all know perfectly healthy people that suddenly get sick. It could be something major, or lots of expensive repetitive issues.
I won’t link to it but AARP Public Policy Institute and Georgetown University did a study that showed people spend over $8k per year on healthcare related costs in retirement.
That could eat away at the freedom fund in a hurry.
I totally agree with everything you said. I work for a large healthcare company currently, so all I hear about is how costly insurance can be. This very well may be the case, but the high-deductible plans can be great (and very cheap) for someone who has an emergency fund built up. Even though I’m only 25 (and relatively healthy), I still like having the peace of mind of having coverage in case anything big happens.
About 6 yrs ago I was involved in a car accident which put me in the hospital for 2 weeks, with numerous x rays, specialists, surgery etc. Being a Canadian, there was no bill when discharged. In talking to one of my best friends who lives in Cincinnati, he told me if that happened to him, he would have lost his house. I realize it is not free healthcare here because we pay for it in our taxes, but my message to you would be consider healthcare coverage right up there with food & shelter as ” must have”, not ” I want.”
Onassis, did they change anything lately? When we left Germany two years ago we had a plan with AXA and it was a set monthly amount and not a percentage of my salary! Whenever you’re not covered with a mandatory government plan through being employed or on your spouse’s plan, i.e. being self employed or living off your capital income, then you ought to go through the private health insurance system. I volunteered for that although being employed and saved a ton of money through that way with accelerated access to doctor’s and premier treatment at the hospital.
“Now, there are some caveats here. I’m still relatively young. And I don’t really have any pre-existing conditions of any kind. I’m in pretty good health”
You left out “I’m single and have no children.” Try buying a family policy on one income, not to mention all the other expenses associated with domestic life.
You have to admit that one of your keys to the ultra high savings rate is that your income only has to support you.
Mantra,
I think that you are on the right track purchasing insurance on a plan incorporating your age & health history. I currently work for a large medical company in which like many large companies provides buffet of insurance options which was invaluable while raising 4 kids. As I move closer to retirement I also am considering how to gap into Medicare coverage as I don’t plan to work at this job into that late in life.
I shifted my investments into DGI about the same time as you began your journey so it has been a lot of fun watching you reach for your goals.
Keep up the good work with this blog and don’t let the naysayers that commented on your interview color you plan…. You will be the one sitting on the beach during the week while they still living paycheck to paycheck and wondering how you got there!
DF
Neu Grufti,
Canadian’s healthcare system is definitely a lot different than ours. I do wonder if an early retirement plan would be significantly easier up there due to the access to free/cheap care.
$2/mo. for supplemental insurance is crazy!! That’s fantastic.
Best wishes!
Rico,
That’s a great axiom there. Although insurance companies are in business to make money (and employ an army of actuaries to make sure of that), I still think in certain cases it makes sense to protect oneself. And this is one of those cases.
We here in the U.S. are joining you in the “automatic” sense of healthcare due to the Individual Mandate. The government is making it economically illogical to opt out.
Thanks for the well wishes! Best of luck to you as well!
Take care.
MFIJ,
Thanks for stopping by. I appreciate the perspective of an “insider”.
I would agree that we’re all one bad accident or incident away from needing intense healthcare. Like I said above, luck plays a role in many aspects of life.
However, I don’t necessarily think I need dividend income to cover my deductible on a yearly basis, plus normal expenses. That means I’d have to save up an additional $360,000 ($12,500/0.035 portfolio yield) just for health care deductibles at my current rate. That’s over 28 years of deductibles. I hope I never need healthcare like that (seriously, 28 years?), and if I do I’ll already be old and gray with many hundreds of thousands of dollars saved up to draw off of to pay deductibles on a yearly basis. By that time, if I’m in that poor of health, I’ll likely not have 28 years left.
I don’t mean to trivialize all of this, but I think that sometimes the worries are a bit overblown. Like I said above, living a healthy life and avoiding risk factors minimizes your chances of serious health care. It doesn’t eliminate it, no. But such is the spice of life. In the end we’re all dying one day at a time. Life is a mortal venture. I’d rather worry about living than worry about dying.
Best regards!
Anonymous,
Great comment there.
I’ve historically been averse to retirement accounts since I began my journey, but you listed a great reason for opening an IRA. It’s something I’ll have to think about. I do of course hope to never be in a situation where I have to protect my assets, but better protected than not.
I haven’t planned for a HSA yet, but that’s something I’ll probably set up.
Thanks for stopping by!
Best wishes.
Anonymous,
We’ll have to see what happens with the exchanges. There’s a lot of rumors right now, with few facts. A lot of people are saying HDHP’s are going the way of the dinosaur, but I’ll believe it when I see it. I’m not sure about rates going up. The big reason for the Mandate is so that young, healthy people (like me) buy into insurance (precisely what I’m doing) so that it increases the overall pool of insured people, specifically the younger, healthier demographic. This is so that the insurance companies can lower rates across the board. Of course then you have other issues with the ACA like having to accept pre-existing conditions and all that. We’ll see what happens.
Best wishes.
The Executioner,
Thanks for stopping by!
I’m only offering a bit of a tongue-in-cheek comment there about organic food because of some people saying I’m going to die at a young age of heart disease or diabetes because I don’t eat organic food. I’m not against organic food, but rather against people who believe that if you don’t eat it you’re somehow an unhealthy person.
There’s definitely benefits and drawbacks to organic food, just like anything else in life. With any choice, especially financial ones, I always weigh the benefits and drawbacks and choose what I feel is most appropriate and sensible at the time. Right now, my diet works fantastically both from a budget standpoint as well as from a taste/enjoyment standpoint.
Best regards!
S.B.
Healthcare is tricky, no doubt about it.
As far as premiums going up significantly by age, both Jacob over at ERE and Pete over at MMM have done comparisons.
You can check out the MMM version here:
http://www.mrmoneymustache.com/2011/09/21/i-can-never-retire-because-of-health-insurance-waaah-waaah/
Basically, it does go up with age. I plan to counteract that by my dividend income hopefully outpacing inflation enough to have a sort of built-in protection against this one particular expense increasing at a rate faster than inflation. We’ll see how it goes. This blog will serve as a real-life case study on it.
I don’t think you’re being overly negative. It’s important and perfectly understandable to be concerned about healthcare costs. But in the end all we can do is be reasonably prepared for a catastrophic event and go from there. Like I said in the post many aspects of early retirement lend itself well to preparedness for this: the large sum of capital one will likely have, less stress, lower premiums to save money on a regular basis. And like I said in a comment above I’d rather worry about living than worry about dying.
Best wishes!
gibor,
That’s great that the stress of healthcare costs is not something you have to worry about up there. That’s a really nice benefit of living in Canada. Our system is changing here, so we’ll see what ACA actually does in the end. For right now I view the $130/mo as a relatively minor expense for the supposed giant fire-breathing budget-destroying dragon that is healthcare insurance. I do hope that I have at least 30 more years before I really have to worry about care on a regular basis, but we’ll see.
Dental care isn’t covered as part of this plan and I will pay as I go. Just this past month I visited a dentist office across the road from my apartment complex and it was $78 to get an X-ray, check out and cleaning. Not bad! Of course I do have 1 cavity I have to take care of and 3 others to monitor.
Best regards.
Onassis,
Yikes! 14.9% of your income? I wasn’t aware of that. That’s a significant amount of money. My premium amounts to about 2-3% of my income. Definitely a little easier on the budget!
This post was definitely written from the perspective of an American, since I am one. I can see how this information doesn’t really translate well to other cultures.
Keep up the good fight, even with the deck stacked against you! 🙂
Best wishes.
Craig,
Ordering the entire menu does come with a price.
People think that healthcare insurance automatically means that covers every thing that could possibly go wrong with very little minimal out-of-pocket costs above and beyond the premium. This basically incentives people to use up that insurance because they’re paying such a hefty fee out every month as part of the premium and the deductibles and co-pays are small. They wouldn’t want it any other way because most people don’t have $10k laying around.
It’s the same with car insurance. If car insurance covered maintenance, repairs, theft, accidents (regardless of fault), windshields, scratches, and wear and tear issues with very little out-of-pocket costs it would be extremely expensive. I’d rather pay the little up-front premiums and deal with a large deductible if the time came. The less I’m paying in premiums, the more I can save and invest – and then be ready if/when a deductible is actually needed (which is unlikely anyway).
Just my $0.02.
Take care!
Dividend Ladder,
“I won’t link to it but AARP Public Policy Institute and Georgetown University did a study that showed people spend over $8k per year on healthcare related costs in retirement.”
Something to note here. “Retirement” as used in that study (this is the AARP) is most likely the traditional retirement. Traditional retirees are typically much, much older. If they’re doing studies on 62-82 year old people then that’s going to skew things quite a bit. I’m going to be retiring much earlier, and have much longer to compound my money for which to safeguard myself against catastrophic issues. I doubt I’ll be spending $8k year from my 40’s all the way up until death. And if I were, I’d move. Like far, far away from here. 🙂
Best regards.
Jake Erickson,
I’m with you. Having the peace of mind knowing that the majority of my assets are protected in case a major medical issue befalls me is just good old sleep well at night comfort. I like that.
Luckily, I haven’t needed any up until now. It was a calculated risk, as so many things in life are.
Take care!
Anonymous,
Glad to hear you made it out of that accident okay. That sounds horrible. A co-worker was just involved in a series of serious car accidents and is now out for good. Unfortunate. That’s the risk in living – something unfortunate can happen. Of course, I don’t know how covered I might be if something like that were to happen to me. I don’t have a car, but do ride a scooter. I’d have to fight the driver’s insurance company or pony up for insurance on my scooter for such an event. Of course being hit on a scooter would leave one wondering how likely it is that I’d still be alive?
I consider healthcare insurance important. I don’t mean to trivialize it. I was probably pressed into getting it a little earlier than I otherwise would have on my own due to ACA, but that’s okay. I’ve gotten to an asset level now where it makes sense to have insurance against catastrophic loss.
Best wishes!
Scott Pettigrew,
Well, being single with no children is just one aspect of my journey. If I were married then this journey would be a journey of two most likely, and at that point there would be two incomes supporting the journey. And kids don’t preclude early retirement. Just look at Mr. Money Mustache. He retired at 30. While being married. And he has a child.
My best friend actually had a child a couple years ago. He’s married. They are a dual income family. The child has a few days of daycare a week and they try to share time with him and also have the family chip in for help. Just because one is married with children doesn’t mean that there is only one income supporting the entire venture. And if that is the case then obviously you chose what was important to you – raising a family rather than early retirement. And there is nothing wrong with that. As I pointed out above, early retirement isn’t for everyone.
And I don’t necessarily think my ultra high savings rate is due to my income only supporting me. I actually take my girlfriend out to dinner at least once a month. Also, like pointed out above if I were to ever get married then I would choose someone who was equally financially savvy and was able to also save a large amount of their income. At that point certain expenses (housing, food, entertainment) are scaled out and could actually help, rather than hinder, the early retirement journey. There’s a lot of ifs and buts there, but such is life. Life is individualistic and I’ve simply chosen a way to live my life that works for me. It doesn’t work for everyone, and neither should it. But to say that what I’m doing is possible only because I’m unmarried and without children (I actually live with my girlfriend and her child), is not only false but is proven so by other bloggers who have actually done it much better than I.
Best regards.
Dividend farmer,
Thanks for the support! I certainly hope you’re right about the mid-week visits to the beach. Sounds great to me! 🙂
Healthcare coverage is something that must be tailored to your own situation. I think I found what was most appropriate to me, and I’m simply making my journey public to inspire/inform others. What I’m doing is perfectly reasonable for others also who are so inclined, and the health insurance plan that I bought is available 24/7 on ehealthinsurance.com. That’s the beauty in sharing information like this: it makes us all better off for it.
Thanks for stopping by!
Take care!
Mantra good move to buy the healthcare insurance. And to be perfectly honest, your premium isn’t really that far-off from what it is here in Canada – it’s just that the employer covers mine.
To those who think health insurance is a waste of money, because they are young etc. And that doesn’t even include dental costs:
“…because health insurance will somehow magically render one insolvent.”
Maybe not in Canada, but in the U.S. definitely! The onset of Cancer or a major Trauma would cost you tens of thousands of dollars for treatment. I don’t think there is any debate there. A nest-egg that has taken years to build would be whittled away in no time.
“The odds of me needing serious healthcare in my late 20’s and early 30’s were relatively low and I felt okay shouldering the burden of the scant odds that I would actually need some type of care.”
Unfortunately this is false thinking, and gambling against the odds – no matter how slim you think those odds are. As someone who has worked in healthcare for over 13 years, I can tell you that age and health has nothing to do with being involved in a traumatic accident, stroke, or especially the onset of cancer. Don’t think fit or young people get strokes or cancer? Don’t think young people end up in car accidents? Think again.
“I wouldn’t want the Freedom Fund I’ve worked so hard over the past three years building to evaporate overnight because some serious illness that required intensive care and a lengthy hospital stay befell me…”
Now that is smart thinking, even if you have to pay for it now. $130 per month is not a lot considering the what ifs… 🙂
Cheers
The Dividend Ninja
DM,
I am in total agreement with your decision. It’s a cost effective hedge against the unknown risk of health issues. I have a high deductible plan for my family of 5 at a cost of $355 per month, so it can certainly be done without breaking the bank on a single income like us.
In addition, I am trying to deposit the maximum Health Savings Account contribution (highly recommended, completely tax deductible) until we have saved the maximum potential out of pocket expense. That currently pushes the monthly cost quite high, but the vast majority of it is a growing savings account that we keep and get to watch grow.
Hi Jason,
it´s really not easy to understand the system in Germany.
The complete percentage is 16,95% (14,9% + 2,05%).
The minimum amount is 152,27 EUR monthly – the maximum is 667,41 monthly.
Example 1:
Dividend income: 500 EUR -> 16,95% = 84,75.
Because of the MINIMUM amount, you have to pay 152,27 EUR.
Balance to life: (500 – 152,27) = 347,73
Example 2:
Dividend income: 1.000 EUR -> 16,95% = 169,50 EUR (higher than mimimun amount)
Balance to life: (1.000 – 169,50) = 830,50
Example 3:
Dividend income: 5.000 EUR -> 16,95% = 847,50 EUR
Because of the MAXIMUM amount, you have to pay only 667,41 EUR.
Balance to life: (5.000 – 667,41) = 4332,59
————–
Anyway:
For the next 10 years I put money in my portfolio – as much as I can!
In 2023 I think about the costs! 😉
Best regards from Germany!
Onassis
Hey D. Mantra,
Wow! I don’t post that often and since I’ve last posted there’s been even more excitement and national media attention surrounding you. What’s next? The View? Dancing w/ the Stars? 😀
More seriously, though, I did see the stories and read the comments. I was taken aback by the vitriol in some of them. I think you’re to be commended for pursuing your goal of early retirement. You are LBYM more than most people (admittedly myself included) would want, but you’ve been clear that your path is not necessarily for everyone. And I think you’re example can encourage people to save more and be better prepared for their retirements (at whatever age they choose.
However, among the criticisms of your approach, I did think the issue of healthcare was one that had some validity. It is definitely a consideration. I know you acknowledged it previously, but I did think it was one where you might need to better develop and implement a plan. Bottom line is I thought it was NOT a good idea to NOT have any health insurance. As MJFI mentions we’re ALL just a bad accident or genetic role of the dice away from a major health incident costing big bucks. And those chances will only increase w/ age. Sure, they’re relatively small w/ a reasonably healthy lifestyle but the risk is HUGE if it does happen.
So, I think you made the right move to get health insurance (admittedly your hand was forced a bit but I don’t necessarily think that was a bad thing.) For your situation and goals it seems that the HDHP was the best way to go. Seems you’re relatively young and healthy so your premium is reasonable and you’re unlikely to have to pay much of the $12500 out of pocket. Just remember that as you get older, your premiums may go up and you may have to pay more out of pocket. And, despite your best efforts, fate can befall you on the wrong side. Sad fact of U.S. health insurance is that it is brutal to those NOT young, healthy and male. I guess that’s one of the things the ACA is supposed to address but, like others have said, the jury is still out.
Bouncing off what MJFI said (really like his website by the way), I agree with you that you don’t have to necessarily cover the full cost of possible out of pocket medical expenses annually (i.e. have to earn an extra $12500 annually on top of what you’re planning – that would be alot) BUT maybe you could include a full years worth of possible out of pocket medical expenses in your emergency fund. So, add $12500 to your emergency fund. I know if you don’t use it the dead capital can be frustrating but at least there’s some safety net there if your medical condition requires it.
My plan for early retirement includes maintaining part time employment with my current employer. Luckily, part time employees can get the same coverage as the full-time for a very reasonable premium (about $1700 a year). Full timers pay NO premium but must pay for dependents. Basically, my plan is to have my divvy income to cover “necessities” (housing, transport, communications, groceries, utilities, etc.) while my part time income will get and pay for “cheap” health insurance and also pay for discretionary items like eating out, entertainment, gifts, etc. I guess that’ll make me PFI (part financially independent)-I think you had a good post on that awhile back. I’ll still need the part time job for hlth insurance and “play” money. But hey, I’ll take a 20 hr per week straight 9-5 job over what I got now.
Best wishes. See ya.
-Rock the Casbah
Ninja,
Thanks for stopping by! Always appreciate your insight.
As far as that first quote goes the key part was the word “insurance”. Health insurance will not somehow magically render one insolvent. Mine costs $130 per month. There were a lot of questions being raised from the mainstream media attention about my plan to retire by 40 and what would happen if I had health insurance costs factored in (because everyone needs to have that Cadillac $800/mo plan that covers every bruise, cough and sore ankle with $0 co-pay). This post was to show how easy it was to factor in these costs on a forward basis.
Now, that’s not to say that a major medical emergency wouldn’t cause financial hardship. Rather, for me it would be $12,500 on an annual basis plus some treatments that would possibly not be covered. But, I could cover these costs for over 8 years right now on capital alone. And I’m only 30. And the odds of needing 8 years of medical care with max-out deductibles and co-pays are unlikely. But as I age the odds of me needing medical care increase, but so does my ability to pay for them (at an exponential rate, likely). Again, becoming magically insolvent in this scenario is unlikely, unless I need 8 years of major medical care (which is unheard of unless I develop a major disease that requires constant attention).
As far as being young and not having health insurance, the odds worked out in my favor. Will they work out for everyone? Absolutely not. The odds were in my favor, and so I felt okay making that gamble. Many things in life are a gamble. Starting your own business is a gamble than can cause major financial disaster if things don’t work out. Moving to Florida like I did back in 2009 was a big gamble. Could have worked out terribly. Again, like is about risks sometimes. I’m certainly not recommending people go without health insurance, but rather saying that I personally felt okay about not having it for many years (choosing to self-insure). It was a calculated risk that I took advantage of and I’m better off for it.
As far as the premium goes, I didn’t know you had one in Canada? I thought it was collected via taxes and then you got supplemental insurance if you so chose to cover extras like dental, prescriptions and things like that? I guess I was wrong.
Thanks again for stopping by! I do enjoy the discussion.
Best regards!
Danny,
Absolutely. It’s a relatively cheap hedge. And I’m getting older. No doubt about that.
Sounds like you have a pretty solid deal there at $355 per month for a family of 5. Averaging that out, you did way better than me at $130/mo for 1! 🙂
Great job also in maxing out the HSA. That’s something I need to look into a bit more.
Best wishes!
Rock,
Dancing with the Stars? Trust me. You don’t want to see me doing that! 🙂
Actually I was contacted by TLC to do “Extreme Cheapskates”. I passed on that. Not the message or image I’m trying to convey at all here. And I’m not an extreme cheapskate anyway. I think there is a difference between being cheap and being frugal. I definitely fall in the latter camp.
You’re right on about risk. Risk has to be looked at and calculated. What is the worst-case scenario? The best-case scenario? Certainly, for me personally, looking forward the worst-case scenario (losing everything) was looking more and more horrifying as time went on and as my asset base grew. The time had come to hedge a significant portion of that risk for a relatively low monthly sum, and so that’s what I did. Looking back on it I don’t regret not having insurance for a while, but certainly there was risk there. Was the risk worth it? I’m not sure I can say yes, but it did work out for the best for me. Looking forward, I feel good about a significant part of that risk being reduced to a tolerable level.
Your plan sounds good to me. I certainly don’t have anything negative to anyone who wants to work a more palatable schedule in exchange for something that’s worth the value of your time (in your case the cheap insurance and higher quality of life). I’m not totally opposed to exchanging my time in a similar format on a similarly limited basis once I’m financially independent and will most likely have that kind of arrangement via this blog. It pays a very modest income and it’s something I enjoy. I’d also have the time to take up projects as they come. Certainly once someone decides to say good-bye to a career that they had been dedicated to for many years doesn’t mean they automatically give up any future opportunities for the rest of their life. That would be ridiculous. Good luck as you approach that type of flexibility! 🙂
Thanks for stopping by! Hope all is well.
Best regards.
Right on DM! Great article! The whole insurance thing really is a chicken and the egg scenrio. I live in Japan where health care costs are taken right from my paycheck before I even have a chance to invest it. But that’s just something you deal with. Like you said it isn’t going to stop us from becoming free. For others, here is your cublcle.
You might want to simply move to Canada upon your early retirement 🙂 hehehe!
I admit I would be concerned about healthcare cost if I wasn’t Canadian.
I’ve read your blog for some time now but never said thank you for it. You are a true inspiration for all dividend investing guys!
Dividend Mantra,
I would just like to add my own experience to this. I have my own individual healthcare plan in PA and it only costs me $52/month and has a $5000 deductible (I am 27). I changed the age when I was getting quotes and the premium only rose to $160 for a 59 year old. I always have to shake my head when I read uninformed comments from people that say an individual healthcare plan will cost several hundred dollars per month because they clearly have never even priced it out.
DM, I think you basically hit all the key points. I’m on my wife’s insurance while she saves up her pretirement fund. When she’s ready to leave corporate work, we’ll have to make some choices similar to yours. On the table: high deductible plans, moving to Canada, choosing a different U.S. state, or combining the high deductible plan with a concierge service such as Qliance.
But the bottom line is the U.S. system is not an accidental clusterfuck. It’s an intentional mechanism to keep us in serfdom indefinitely.
Typical complainypants response. I just priced out a HDHP for a family and it costs $180/month with a $10k deductible (in PA). And I am not sure how being single allows someone to save more?
Of course, there are exceptions. But, I’d be shocked if a single guy like me doesn’t, on average, save more money than a guy with a family who earns a similar salary. Obviously, the dude providing for his family has a lot more expenses than me.
Jason, good job getting insurance. I’m probably going to sign up for Obamacare.
Anonymous,
Complainypants is right. Too funny! Gotta love MMM. 🙂
Great price on that family HDHP. That’s fantastic!
Best regards.
Justin J. Poppiti,
I think it has a lot to do with lifestyle and choices, as does everything else. Single or not, if you want early retirement you have to work for it. The major difference in my opinion, between being single and being married, is not so much the costs (which can be negated by scaling out large expenses like I mentioned above) but rather getting a significant other on board. If your SO is not also keen on personal finance and financial freedom then you’re going to have a tough go of it no matter how high your savings rate is. I think that people who look at single vs. married dynamic are focusing way too much on the expense side of it, which can vary tremendously.
Best wishes.
The Kechi One,
Yeah, I don’t understand people’s assumption that healthcare insurance is the big, bad boogeyman and he’s going to flip you upside down and shake all the money from your pockets. It’s all about being educated, knowing your choices and being rational. Just like anything else. Obviously where you’re at you get no choice in the matter. That’s a benefit or a drawback depending on how you look at it, but probably a benefit in the overall scheme of things (as long as the tax isn’t outrageous).
I’m glad that you’re not choosing the cubicle either!
Best wishes!
Chrimastistikos,
Thanks for stopping by! I’m glad you enjoy the blog. I write for you, the reader. Your enjoyment and readership is all the thanks I need.
Please stay in touch!
Best regards.
Mike,
You know, I wouldn’t mind living in Canada as long as I could escape the winters for a few months. But isn’t it terribly difficult to get residency there? You have to pass a points system based on education level and skills that are currently attractive based on certain sectors. At least that’s how it was when I looked into it.
Also, while Canada has many attractive qualities it’s very expensive to live there otherwise. Here in my area you can buy a decent condo for about $125k and a nice 3 bedroom house for about $185k and up. Vancouver or Toronto would be high on my list for Canadian cities, but they’re both prohibitively expensive (unfortunately).
Keep a spot open for me though. You never know! 🙂
Best wishes!
Anonymous,
Very nice plan you have there! $52 is simply fantastic. That was right about what the “sticker” price was on the HDHP I have, but that’s just to get you in the door – before they know your age, medical background, etc. And that was for the $10k deductible. Obviously Pennsylvania has some attractive healthcare options. Very cool!
I think healthcare/insurance costs are one of those things that the naysayers point to because it’s easy to point to people that have gotten sick and become bankrupt, even though we don’t know the whole story. What did they get sick with? How did they go bankrupt? How much were the medical bills? Most people in this country live paycheck to paycheck and also have medical insurance through their employer…so if you’re all of the sudden saddled with some bills after being out of work for a while you’re pretty far upside down. Obviously us that are pursuing financial independence aren’t in such a predicament (independent insurance and a very healthy capital reserve), so the normal rules/setbacks don’t necessarily apply.
Best regards!
Pretired Nick,
I like that last quote. I think there’s a lot of truth to that, and it’s not just the healthcare system but our entire system in general. It’s a capitalistic machine, and while I’m not opposed to it or think it’s bad or wrong…I just hope people know that they can opt out if they choose to. It’s not something you’re stuck with or anything, and this blog tries to prove that.
Moving to Canada is on your plate? How is that? I thought to gain residency there it’s pretty difficult. You have to pass a “test” of sorts where it’s point based based on your education level, skills you have to offer the country and other criteria. I had heard it was fairly difficult (like Australia), but it’s not a subject I have particular expertise on.
Best wishes!
Hey Jason
Just another data point for you. I had some bronchitis like symptoms while down here in Mexico, and went to the Doctor to get a prescription for some antibiotics. The Doctor bill was 30 pesos, about $2.50. Two Dollars and Fifty Cents! The bill for a 2 week supply of Amoxicillin was $13. All of this was without insurance of any kind involved
Our HDHP costs $233 a month for 2 people in their 30’s. It definitely doesn’t break the bank, and when I first started looking for a post work health plan for us, when I saw the quoted price I said out loud, “Holy Crap that is cheap!”
Keep putting out the good word.
Jeremy
Jeremy,
Thanks for stopping by! I appreciate the info on foreign healthcare as you are literally “on the ground” there. That’s awesome. Can’t beat a $2.50 doctor bill. Fantastic!
I do wonder why you choose to have a HDHP for $233 a month when that adds up to almost $2,800 per year? That’s a lot of developing world healthcare. Is it just to protect you against full catastrophic loss? I almost wonder if the economics might work out for you to self-insure when healthcare is that cheap?
Thanks again for sharing your experience!
Best wishes.
DM,
I’m very glad to see you have finally put this issue to rest. I think you do a great job at minimizing your risks by exercising and being reasonable with what you eat. I think this post will definitely become part of the community’s ammunition against the naysayers.
My wife and I participate in a company sponsored HDHP plan with an HSA, which are currently maxing out. We’re maxing out our contributions to the HSA because 1) it lowers our substantial tax liabilities, 2) I will turn it into a mini dividend portfolio that I will use to fund future health expenses, 3) it will help me sleep better at night knowing that in the event of a catastrophe I can have the out-of-pocket maximum already stashed away.
Under some circumstances you can also use the HSA money to pay for the HDHP premiums. I think if you are using COBRA the first few months after you retire you can use HSA money to pay for the premiums. Oh, and if you need to pay for health expenses while abroad, you can definitely use HSA money to pay for those expenses.
It’ll be interesting to see what happens to HDHPs when Obamacare is in full force, but I’m sure that we can all manage somehow.
Spoonman,
Thanks for stopping by. Appreciate the support!
It sounds like you have a great situation there with the HDHP and the HSA. Fantastic stuff. I’ll have to set up a HSA. Sounds like a win-win.
I’m not sure what’s going to happen with Obamacare and HDHP’s either. I don’t think anyone knows exactly what’s going to happen. I’ll just focus on what I can control and react in the most logical way possible if/when changes occur. Hopefully my premiums remain relatively static through the transition to ACA.
Keep up the great work!
Best regards!
Great question
We have an HDHP for only one reason, and that is to guarantee the option of re-entering the US medical system without exclusion of any so-called “pre-existing conditions” that one of us may theoretically develop while traveling
For all other purposes, it is basically worthless. I think of it as a tax that exists while the US politicians and lobbyists play their big game to see what happens with ACA
$2,800 a year sounds like a lot (it requires ~$70k in investments to sustain that forever), but as a percentage of our total portfolio it is more or less negligible. It’s one of the luxuries of having “enough”.
If I was single, I would likely just self-insure
Jeremy,
Thanks for the response. Makes total sense to me.
Sounds like you have everything figured out. You’ve got a great situation set up for yourself there. Enjoy the fruits of your labor! 🙂
Best regards.
Glad to see you finally get health insurance! I was actually worried for you. It would really suck to have some bozo bum into you on your scooter or something and require some 50,000 surgery.
I am actually surprised that your premium is that high, especially with such a large deductible. I have a similar self-employed type plan through Assurant health for $93 a month. But my deductible is either 2,500 or 5,000 I don’t remember off the top of my head.
Monk,
That would definitely suck! Most of the risks of medical bankruptcy have now been mitigated. Anything can certainly happen, but I’m taking steps to limit the damage.
I’m not quite sure why my premium is so high. I see all kinds of rates online, but obviously age, location, prior medical history and habits have a lot to do with it. I don’t smoke or drink so I was surprised to see a fairly high premium. In the end, it’s manageable and I’m okay self-insuring up to $12,500.
You have a great plan there. I’d love to have a premium under $100/mo and a deductible that’s half of what I have. Sweet!!
Best wishes.
To see for myself, I went out and found the plans and rates for ACHA for my state and area. The conclusion if forced into this, I would have to take lowest plan, and never ever seek medical attention again! So when I read about healthcare for retirees, and read the confused mess here too, I now understand the dependence on a system like Medicare! Almost no one can afford healthcare without some form of subsidy, whether it be an employer paid portion, Medicare, Medicaid, group discounts, or tax deductions. Why are we fooling ourselves about this? We can’t afford the system that is in place!
Thomas,
Hmm, I’m not sure why you ran into such trouble. I quoted my same plan at much older ages and it wasn’t crazy expensive. Furthermore, once I’m old enough I’ll take advantage of Medicare. And our Medicare is as much a subsidy as healthcare is in Canada, because I’m paying for it in every paycheck. I would never want to pay taxes all my life on something and then not get to take advantage of it when the time comes. The same goes for Social Security.
Best regards.
Wow, only $130/month?! When my wife and I were looking at plans on the exchange last year the cheapest one we could even find was over $450/month for us which is crazy considering I’m 32 and she’s 29, and we’re in good health and neither of us smoke. That’s roughly $5500/year for a plan with super high deductibles so for now we self insure. Even my wife’s plan through her employer would be $600+ for both of us. Crazy!
Ken,
I’m surprised to hear it’s that high for you? I remember MMM looked up a HDHP for his whole family it was only like $250/month. Of course, I think that was a couple of years ago. But I just got another HDHP because my old plan didn’t work up here in Michigan, and it’s $174/month after taxes. But the deductible is much lower ($6,250 off the top of my head).
It must be where you’re located? Really surprised you can’t find a HDHP cheaper.
Cheers!
Yes, it really soured us on the whole national healthcare program. Plus being told you’re required to buy healthcare or pay a penalty because they need the funds to subsidize other peoples’ healthcare really bugged me. We’re in Denver and MMM lives a few hours north of us, but I don’t know if he is/was receiving a subsidy, but I know we certainly weren’t. I’ll checkout the exchanges again soon to see if anything has changed.