Friday, July 20, 2018

A Millionaire Can Get Medicaid

So here’s an interesting development: I just found out I qualify for Medicaid, at least for the moment.

Now before you jump all over me saying I’m a greedy conniving cheat who shouldn’t be leeching services from the government, I will just say that it is very likely that I will never actually cost the government any money for using Medicaid. I’ll explain below. But I do think this is a great example of some of the perversity built into our current healthcare system.

I currently pay over $750 a month for COBRA coverage from my former job but in a few months, it will run out and I’ll have to buy my own insurance. I’ve been researching the plans offered through NY State’s marketplace under the ACA, otherwise known as Obamacare. I was going back and forth about what kind of plan to get and which insurance company to choose, but then realized that I shouldn’t be agonizing over it for just the last month of 2018— I could just pick the cheapest Bronze plan for that month since it was unlikely that I’d use medical care that month other than in an emergency, and then I could wait until the 2019 open enrollment period to decide on a plan for next year.

 I decided to see what the application process was like— I didn’t think I’d finalize and submit it right away, but I wanted to see what info was needed. The process is actually pretty straightforward, though if you aren’t sure what all the lines on your tax return mean, you might want to get some help. You basically have to give identifying information to be sure you qualify, and then income and deduction estimates for the year of coverage to see if you are eligible for any subsidies.

 The system is linked into NY State government data, so it knew I wasn’t earning any wages (via a paycheck with withholding) this year. For my estimated income for 2018, I just used the business income, interest, dividend and capital gains numbers from my 2017 tax return. (The business income is a little trickle from blogging, plus a consulting project I did last year, which is unlikely to be repeated this year.) They then ask about certain deductions that affect your adjusted gross income— again, I pulled this information from my 2017 tax return and extrapolated for what they would be in 2018. One of those deductions is what you pay for health insurance premiums if you are self- (or un-) employed.

 So here’s the thing— my taxable income this year is only likely to be around $20,000. When you subtract from that what I’ll pay in 2018 for my health insurance, which is over $8,000, boom, suddenly I’m at poverty level. Assets are not taken into consideration at all. It is also worth pointing out that the dividends and capital gains produced by my 401k and Roth IRA accounts are not taxable, so while I factor those in as “income” in my planning for the future, they don’t affect my eligibility for Medicaid. While I hadn’t originally planned to finalize my application, I sort of inadvertently did: a screen popped up saying I qualified for Medicaid, and that it would be effective as of July 1! I was very confused by this so I called the helpline and talked the whole thing through with someone to see what it would mean.

 Since I will still be paying for my COBRA coverage through November, any medical costs I have will still be covered by that primary insurance, but apparently Medicaid will become secondary coverage, if the provider I use accepts Medicaid. (That's a big if-- one of my doctors stopped being in-network for any insurance companies, so I’m sure she won’t accept Medicaid.) I’ll probably get a physical and maybe see another doctor or two before my COBRA runs out, but I’m guessing it may not be anything that Medicaid would cover.  There is also a slight possibility that I’ll get some work later this year— in that case I’ll have to go back into the application and update my projected income, and presumably that would put me back in the position of buying a bronze plan, with maybe a small subsidy towards the premium for 2018. And in 2019, without all those COBRA payments, I’ll probably no longer be eligible for Medicaid and will just get a subsidy for purchasing a plan. And depending on my actual income, I may end up paying all or some of the subsidy back when I do my 2019 taxes.

 I really wonder how many people fall into a situation like mine. I didn’t do anything to “game the system.” I just happen to benefit from a quirk in how the laws are currently designed (and yes, they should fix that quirk). If I had more investible assets, my dividends and capital gains would probably be high enough to disqualify me. And if I wasn’t paying for my platinum level COBRA, my adjusted gross income would be too high for me to qualify-- that, to me, is the most bizarre detail. But for the next couple of months at least, I am a millionaire who qualifies for Medicaid.

Wednesday, March 07, 2018

My Early Retirement Calculations

A commenter on the previous post asked if I'd share the calculations that made me feel confident about retiring early. I'll give you a simplified version!

There are a few different ways that people tend to look at retirement readiness. One of the simplest is the 4% rule. The idea is that if you can live on spending only 4% of your savings each year, you don't need to add to those savings, as investment gains should generally outpace what you are withdrawing. This is also sometimes expressed as a 25X rule-- multiply your annual spending by 25 to see how it compares to your savings.

My total net worth at the point of deciding to quit my job was somewhere around $1.2 million. (It has since been between $1.3 and $1.4 million due to stock market gains.) 4% of $1.2 million is $48,000. My lifestyle while living in NYC was costing me more than that, but by leaving the city, it was possible to realistically budget for a lifestyle where my half would be less than $48,000. And that doesn't include Sweetie's net worth, which is a little over $2 million (not counting the equity in the house we just bought and paid for in cash, as well as some money set aside for renovations). When taking both of us into account, 4% of $3.2 million is $128,000 and our combined yearly budget is well under that. (My current calculations have it as around $92,000 a year, including a generous travel allowance. We'll see how it plays out in reality as we adjust to our new life in the country!)

This method of calculation doesn't factor in Social Security benefits or other retirement income. My Social Security will end up being less than what they project because they don't take into account that I won't continue to make what I was making last year. (It will be interesting to see if the projections will update in the next year or two when my income goes way down.) Sweetie will get Social Security, as well as a defined benefit pension starting in about 7 years. The pension, which appears to be well-funded and safely on track to be able to pay out in full, will be additional income of about $87,000 a year. That obviously makes a HUGE difference in our projections for the future.

I also used the retirement calculator that is part of the Fidelity website (not sure if it's publicly accessible or if you have to have an account)-- it is a fairly complex tool that allows you to input all sorts of info for yourself and a partner, including life expectancy, assets on hand, sources of income, one-time events, budgeted retirement spending, and other goals like paying for college. It then uses a Monte Carlo simulation to model how things will play out under different market conditions, and projects your savings and spending until your "end of plan," which is their delicate way of saying "when you drop dead." You can see 3 versions of the results-- one assuming a "significantly below average" market, one "below average," and one "average." I plugged all our numbers into this, assuming we'd both live til 95, inflating our expenses (by about 50% over what they currently are budgeted at) to allow for plenty of fun and expensive healthcare, and keeping expectations of any future inflow from earnings or inheritance to an absolute minimum. When really pushing this to the absolute worst case scenario, it says I might run out of money in my early 90s after Sweetie is dead. But even by just changing the parameters to "below average" market instead of "significantly below" brings us back to having over $2 million left over after both of us are dead.

No prediction is 100% confident, and a lot of things could happen that would change these calculations, so of course I still have my moments of worrying about whether it will all work out as planned. But we're also allowing for so much leeway in our budgeting that there will be room for us to cut back if needed. And we'll naturally cut back on some things like travel as we age. The biggest worry is that we'll decide we hate living in the country and want to go back to NYC-- we wouldn't be able to afford to live as we did before, but we could most likely make it work if we really wanted to. I feel incredibly fortunate to have this kind of freedom-- Sweetie and I have worked hard and made good decisions, but I also know that pure luck is a lot of what separates us from the half of all Americans who say they can't come up with $400 in an emergency, let alone retire early.

Friday, February 09, 2018

A Whirlwind of Volatility

I'm not just talking about the stock market these last few days-- I'm talking about the last few months of my life.
You would think I'd have spent more time blogging lately, given that I quit my job and at least in theory have plenty of time on my hands. But the end of 2017 got a little crazy as we had to do a lot of work to put our apartment on the market, and then we sold it so quickly, it was a hustle to get ourselves packed up and moved out by the beginning of January!
I think we had pretty great timing, actually. We hit the market at a point when there weren't a lot of comparable listings in our price range. Within days we had multiple offers and a bidding war, and ended up with an all-cash buyer at above our original asking price. Seeing what's been going on with the tax bill and now the gyrations in the stock market, I'm very glad we weren't trying to sell now or later this spring.
The buyers wanted to close fairly quickly, but luckily we had also managed to find a house in an area that we liked, so we knew we'd have someplace to go-- sort of, anyway. The timing didn't totally work out and we couldn't move in right away, so our stuff (what's left of it after purging and donating and selling a lot) had to go into storage for a little while, but beyond that, the closing on our house went pretty smoothly too, since we were also paying cash. We also had good timing in that during our storage limbo, we decided to get away for a little mini-vacation in January when it got so cold and nasty in the Northeast, and not move into our new house til later in the month when it was better weather. And now we (by which I really mean Sweetie, whose apartment it was) are sitting on a big chunk of cash that we luckily didn't invest right before this stock market correction.

So we are just now settling down to the next phase of this new life, but still feeling a little at sea. Our expenses are going to be so much lower, it's kind of blowing my mind. Our HOA fee is a fraction of the maintenance on the apartment. The car insurance is cheaper, and parking is free. Even joining the local gym, which we did today, is going to be about half what we used to pay in NYC. The local grocery stores tend to have somewhat lower prices than in the city. Our utility bills may end up higher since we have electric baseboard heating. And at some point we may need to get a second car, depending on what we end up doing with ourselves in terms of jobs or other activities. So far, our main activities have been unpacking, exploring the area, and marveling at how beautiful and quiet it is here.
We'll see how it goes. I do miss the urban vibe of being in Brooklyn and going into Manhattan almost daily-- we drove back into the city for the first time the other day and ended up in a neighborhood I didn't know well and I kept thinking how nice it seemed and wondering what it would be like to live there if we someday decide we want and can afford a pied a terre. I kind of miss just watching people on the subway. It's weird to have to drive everywhere. But life also feels very peaceful now, and all the stresses of our former apartment, former jobs, and former expenses have just-- poof! -- gone away.

Monday, November 13, 2017

Another Down-to-Earth Heiress

Consider this a sequel to my last post, in which a woman's family money seemed to be funding some luxuries for an otherwise frugal couple.

This time, the story is about a childhood friend of mine. I hadn't really kept in touch with him for years, but some years ago I was at a party in my home town and met his wife. She was a lovely person who taught in a local nursery school, just really sweet and friendly and exactly the sort of person you'd want your child's teacher to be. My old friend worked in what sounded like a mid-level corporate marketing job. They had a child and another on the way at that point. They were renting a house and hoping to find one to buy. It all sounded totally typical for a young married couple of my general world, which I'll again describe as mostly people who have had a stable, middle-class to upper-middle class upbringing, college grads-- people with many advantages in life but who would not be seen as particularly rich. People who probably aren't living paycheck-to-paycheck, but who have worries about the bigger financial goals in life such as helping kids pay for college, and retirement. People who can't take money for granted.

As in my last story, an offhand remark by the wife made my head spin-- I was telling a story about my own job, with an example of a regular task I had at that time, and I referred to a company name. The wife said "oh! That's my family's business! [Things associated with this company, one of which I had just cited,] are named after my sisters and cousins and me!" This company is not a household name but it's one of those things that is actually pretty major in a behind-the-scenes way, which you notice everywhere once you know where to look. I didn't pry into all the family tree, but from doing a little research afterwards, it appeared that the wife's grandfather was at that time the richest man in the country where this company was founded.

Being the richest man in that country is not like being the richest man in the US-- our billionaires are way richer. But still... he's a billionaire! I guess there is no law that says grandparents have to provide money to their grandchildren, and maybe this woman doesn't get a thing, but even if she is one of lots and lots of grandchildren, she would surely inherit something someday. And at that level of wealth, I'd be surprised if there wasn't some sort of trust fund distributing some money already.

At some point after that party, I asked a mutual friend if he knew about the wife's background. He was aware that she came from money, as apparently a group of this guy's friends always joked about how he must have sold his soul to the devil because he'd gone from being kind of a nerd in high school to marrying this beautiful and wealthy woman! But they didn't even realize exactly how wealthy her family was.

I was just looking up this couple to see what they are up to lately, as I haven't seen them in a while and don't know much more about them other than what their kids are doing in photos posted on Facebook. The wife is no longer a teacher, and has what sounds like a management job at a tech company. My friend seems to still have more or less the same job. When the wife was a teacher, I thought "ok, that is the sort of job that is emotionally rewarding if not remunerative, so it makes sense that she would do that." Obviously I don't know any details about her current job, but it sounds more like the kind of thing people do when they need to make money-- she may find it satisfying in other ways, but I guess it is my own bias showing that I think anyone who has some family money would want to be an entrepreneur, or work for a non-profit, or teach-- in general, do things that are too risky or low-paying to do if you really need a steady income. I wish I could ask her a lot of questions....

Wednesday, November 08, 2017

Enough About Me...

It's been a while since I wrote about other people's money! I've been jotting down some notes over the last year or more about various situations I've encountered with friends or family whose finances fascinate me. The first one I'll tell you about is someone in my extended family. He and his wife are pretty down to earth people-- no fancy cars, no fancy clothes, and no expensive hobbies that I'd ever heard of until recently. They did do some nice travel with the wife's family, but nothing that seemed out of the ordinary for upper-middle-class people that wanted to treat their kids to a special experience. All in all, I'd describe them as people who certainly had lots of advantages in life and lived comfortably, but not someone that most people would look at and say "whoa, they are super-wealthy and have way more money than me."

But then one day, the wife casually slipped something into a conversation that did make me say "whoa." Without revealing too many identifying details, I'll just say that someone in an earlier generation of her family invented something pretty major-- major enough that unless there was some sort of unfair buy-out or other business dealing, the entire family would surely have a TON of money for generations to come. I could be wrong about that, as it's hard to know how family wealth will trickle down over generations, whether it's been invested well, etc. But I'm pretty sure I'm right, especially since the husband in this couple recently bought a plane.

Now the plane he bought is not a Gulfstream jet or anything like that-- it's a small plane that probably cost him less than some luxury cars, from what I could tell by googling the model. But still-- how many people just run out and buy planes?! In my circles, basically no one. I know one person who flies a plane because he works for a small local charter airline. And I think one of my uncles might have taken some flying lessons a while back. I myself gave Sweetie a one-hour trial flying lesson as a 50th birthday present-- I think it was about $85, and it was a really fun experience that I'd like to repeat with myself at the controls someday! But other than that, flying seems like a pretty rarified hobby. And to commit yourself to getting and maintaining a pilot's license, as well as fuel, maintenance and hangar parking for a plane that you own? That has to be a huge money pit. If you  do certain kinds of travel on a regular basis, I suppose you can avoid paying a lot of commercial air fares, but I would imagine it's extremely rare for owning a plane to work out to be cheaper.

So it was very interesting for me to go from thinking my relative was someone "like me" in terms of finances, in a very broad sense, to suddenly seeing him as being on another planet! I admire him and his wife for their lifestyle in general-- they are both smart and hard-working, certainly not anyone you'd scoff at as the "idle rich." And if the plane is the one crazy thing they want to blow some money on, it's fine with me, though I hope they are extremely cautious flying it!

Have you ever had to reassess your perception of someone's finances like this?

Tuesday, October 10, 2017

New Life So Far

 I’ve got a few weeks of retirement/vacation/unemployment under my belt now… and I’m still not sure what to call it! But I have already made a few discoveries about myself. Firstly, that I am lazy! I had very good intentions to blog every day and go to the gym every day and be very creative and productive and healthy, but I’m not doing a very good job of that just yet.

 In my first few days off, I bounced around the apartment doing a lot of little chores like washing windows, organizing my sock drawer, and repairing a lamp. But having knocked those off the list, I felt a bit at sea. I did go to the gym most days, but that only took up a couple of hours, leaving me a lot of time to spend A) wondering if I’ve done the right thing in quitting my job, and B) staring at my phone. I have an amazing capacity to just loll around and check Facebook, Instagram, Pinterest and Twitter all day!

Then I got sick, and even my gym routine went out the window. It took a few doctor visits and blood tests to figure out what was wrong with me, and luckily, just some antibiotics to fix it, but not before my brain went off into some anxious (and literally feverish) spins about how much COBRA payments were costing me and what would be happening with Obamacare, and pre-existing conditions, and deductibles and premiums and co-payments, oh my.

 The healthcare costs are my main spending these days— immediately upon starting my semi-retirement (I’m just going to call it that for now), I found myself with a hankering for peanut butter sandwiches. That plus some salad greens, cheese and crackers, and a baggie full of nuts and raisins, has been my primary diet on these lazy days, and I get really annoyed with myself if I forget to bring my own water bottle from home and have to buy one. Sweetie and I have occasionally gone out for lunch at pizza places, middle-Eastern restaurants, and Chipotle, but on the whole, I’ve been really good about cutting my spending on food. I also haven’t spent much on any other miscellaneous items or clothes, other than finding my favorite jeans on sale and snapping up a couple pairs since I’ll be wearing them a lot more!

 Our basic costs of living— housing, insurance, etc— are a big drain right now, but so far, my net worth has pretty much stayed steady, even increasing a little— stock market fluctuations will have a much bigger effect at this point than any day to day spending, at least in the short term. But it is painful to see all this negative cash flow.

 Right now, I’m just giving myself some time to settle into this new life and figure out a new rhythm— it’s more of a challenge than I thought it would be. Although I did not think of myself as wrapped up in my old career as a big part of my identity, I am uncertain about what my identity is now. What I mean is that I didn’t base my self-worth on making a lot of money and being at a certain professional level— I was proud of it, but my career was less about prestige than it was about an inner feeling of competence. I liked knowing what I was good at my job (most of it, anyway) and I felt satisfaction in getting things done. Now that source of satisfaction is missing and I need to replace it with something. I need to feel like I’m good at something, and productive. It’s scary to not have a clear idea what that will be, and to contemplate doing something new where I am clueless and might be frustrated at first because I don’t know what I’m doing and make mistakes. The part of my life that gave me confidence and security has been replaced by doubt and uncertainty.

 But this is temporary. I know things will settle down— we’ve got a house to buy, an apartment to sell, and a new life to build, none of which will happen overnight, so I need to be patient with myself. And we have money in the bank to get us through the next steps. I still feel incredibly lucky to have these choices and decisions to make.

Friday, September 08, 2017

It's Done

In my last few posts, I was working my way towards a big life change... and now I've taken the next big step. I quit my job! It was both a big step and strangely anti-climactic, since I hadn't been at that job for very long and had never really settled into it in some ways. Now I just wish I'd done it sooner so I could have had more time off during the summer, but it's actually kind of nice to go into vacation mode just as everyone else is going back to school/work.

This is going to be weird, though. I haven't been unemployed since I was 21! What am I going to do with myself? More blogging, I hope! And I do intend to find other work, but at the moment we're working on moving out of NYC, which seems like a job unto itself. The main thing I'm going to have to adjust to is seeing negative numbers in my income/expense tracking. I will not be saving money in the short term. I will have to be very strict about sticking to a budget, but spending some of my savings is all part of the master plan. It is going to be painful over the next few months as we'll have higher household expenses while we deal with relocating. But afterwards, our ongoing expenses will be lower. And Sweetie will have a lot more liquid cash after the NY apartment is sold. We are pretty sure that if we play our cards right, we don't really ever have to have jobs again, though we do want to find other work, preferably part-time.

Meanwhile, I keep hearing of more and more people who are also leaving NYC-- some are moving to totally new cities for new jobs, some are moving back to their home towns to be closer to parents, some are doing reverse commutes to jobs outside NYC and planning to fully move later. Others are also leaping into the void of uncertainty: one guy quit his job, sold all his stuff, and moved to Berlin! There is a sense that the city has changed so much from when we ourselves were the young new arrivals, but maybe every new generation feels that NYC is becoming just an over-developed playground for the wealthy and their children and just isn't as fun anymore...

But for me, what I'm doing now feels exciting, inspiring, and a little scary. It's rejuvenating, perhaps, to throw off my very stable routines and enter a phase of disruption and reinvention-- though I suppose some people wouldn't think that a middle-aged couple moving to the suburbs is that adventurous! We shall see...