My savings rate and expenses – May update

Health expenses are really easy to underestimate and I think that’s one of the biggest worries I’ll have whenever I actually make the decision to quit the work force.

It’s not just the insurance premiums that will be a bother but also the deductibles you have to meet before coverage kicks in. Both are sure to rise quite a bit by the time I’m ready to retire and losing those employer contributions towards my premiums will certainly send my healthcare related expenses soaring.

The problem with healthcare expenses is that they’re so difficult to predict. I can tell what my premiums will be for this year and I can tell what my maximum out of pocket expenses will be for the year but predicting actual costs which will likely fall between that premium only and premium + out of pocket max level is a total crap shoot.

I can’t even began to think about where to start figuring out what sort of premiums I’ll be looking at by the time I’m 40+ and whether or not I’ll even be able to get insurance at that point.

The timing of the payments is another question mark as well making it difficult to accurately budget for them on a month to month basis. I had some health care bills in May for doctor visits that happened months ago and my fiancee has some bills still coming in for an accident that happened ages ago.

I’m not sure exactly what I’m trying to say here besides healthcare kinda sucks and is the biggest question mark in early retirement for me.

My main annoyance with healthcare when you have a high deductible plan is that it’s really hard to gauge the actual costs of something when you visit a doctor or have some tests done especially since you often get billed multiple times for one visit. I’ve had situations where I’ve had a test done and gotten three bills for it, the test, the doctor who administered the test and then the reading of the test. I work in insurance and I’m still confused or annoyed by half the stuff that I see on my insurance bill.

I’m lucky enough to have the extra cash to cover my deductibles whenever I need to have something done or when I want to visit a doctor but I feel for those who are struggling to get by and can’t even afford to use their benefits because they have a massive deductible they have to hit.

I guess one positive thing from my perspective about having SOME expenses any given year is that it gives a more realistic picture of what my budget will actually be when I retire. I can easily see a 10k bump in yearly expenses after retirement for a single person if one doesn’t properly account for the premium and deductibles and has some new medical problems. Even now with my medical premiums being partially covered by my employer, I can still be dealing with a 5k bill for premiums and deductibles once the year is done.

The best I can do at this point is max out my HSA, take care of myself and get as prepared as I can be for whatever comes around when I’m ready to quit work. Hopefully my fiancee(wife at that point) will still want to work and I can jump on her insurance plan! It’s always better to get some form of subsidization than pay full boat.

If anything this year made me realize that I probably need to up my expected costs for healthcare quite a bit in my retirement plan.

If you read my last update, you know that April for me was a mediocre savings month as I had some travel costs for my awesome trip to Nasvhille and May is no different but it’s healthcare costs that are the culprit this month! It’s not a surprise as I knew they were coming having visited some doctors in the past few months but the surprise was the actual cost of the trips.

I hadn’t planned on all these medical expenses when I set my goals for the year so I’ll probably be lagging a bit in those areas but it is a good wake up call to have early in the retirement planning years versus realizing it much later when it’s harder to adjust for it.

Let’s take a look at the gross income breakdown for May. Continue reading “My savings rate and expenses – May update”

The story behind Health Savings Accounts

We’re back with another round of yearly open enrollments, benefit choices and premium increases and I thought it’d be a good time to talk about Health Savings Accounts(HSAs), an underutilized tool when it comes to saving for you retirement(early or otherwise).

An HSA is the most tax-advantaged account available to most investors and has many benefits that make it very attractive to most individuals. However, it is not one that’s commonly discussed in the same areas as IRAs or 401k and that’s a shame because HSAs are probably the best of breed when it comes to retirement savings accounts.

The Basics
HSAs came into being with the 2003 medicare reform bill and were one of the first steps in propagating the spread of healthcare plans based around healthcare consumerism; the idea that a person should have more influence when it came to where their healthcare dollars are spent.
The goal was to give the same preferential tax treatment given to your employer for offering comprehensive healthcare coverage to the tax payers who choose to set aside money to pay for a larger share of their own healthcare.
The American healthcare system is essentially based on one large subsidy system and explains why most people in the United States have coverage through their employer. Employer-paid contributions towards your healthcare are exempt from both federal income and payroll taxes as are any employee contributions.

The goal of an HSA was to shift at least part of that subsidy from the employer to the employee. The employer would get less of a subsidy in the form of tax exemptions due to the lower premiums that are inherent with a consumer based plan that is needed for an HSA. The employee would now get to benefit from this change in two ways – a reduction in employee paid premiums and the ability to reduce taxable income via contributions to the HSA.

In essence, the idea with the HSA was to transfer some of the tax exemption subsidy historically given to the employer to the employee.

The idea behind this concept is driven by the type of plan design that can be paired with an HSA and how it compares to what we historically consider an insurance plan.

Continue reading “The story behind Health Savings Accounts”