We talked about earlier in the context of someone retiring pre-65 because that's the focus of our show keen on retirement here But this could be someone of any age I mean somebody that doesn't have access to health care through work that's 35 or 25 or 45 or any age not just someone that's bridging the gap to retirement Welcome to keen on retirement I showed dedicated to helping you thrive before and during your retirement years If you are looking to grow and protect your wealth and want to get the second half of your life the best half Then listen in as well the vice or Bill King and his host sort through the key issues that you need to know in a lively and candid way Hello everybody welcome back to key on retirement. I'm your co-host Steve Sandesky and I am looking directly at my other colleagues here Bill Keene and Matt Wilson. Hey guys. Hi Steve.
What do you think of my beard? I think it makes you look even more handsome than you were before the beard. Oh my goodness, please, please Hey, my kids said that it makes me look distinguished. What do you think?
There you go. Well, nice way of saying old Maybe I think the distinguished will come in when we see a little more gray hair in that beer like I've got I've got the gray hair Really? Okay, I don't have yeah, well too much but compared to Matt. He's got that dark black beard He wears it so well.
It's making me jealous So I thought I'd have to let my no shave November think run a couple months here. Yeah, well, yeah, definitely Yeah, I was cleanly shaving as of this morning. So I'm the odd man out here today. You're looking good.
Thank you Thank you. All right guys Well, we got another important episode to talk about here today and one of the things that prompted the topic for today's episode is that we Recently passed the two-year anniversary of something that I know all of us would just like to forget or hope had never happened So Matt why don't you kick us off with what we just passed and we're gonna be digging into today's conversation. Yeah, unfortunately We just got through in January the two-year anniversary of the first confirmed case of COVID-19 in the US and yeah The unfortunate part is we're still dealing with it It does seem from all indications that maybe as these variants current one and future ones continue to come out They become less lethal and maybe the end of the pandemic is closer than we think which is nice So here lips to God's ears, Matt. That's right.
That's right But that actually goes very nicely with today's topic is we have been receiving a lot of questions on on health care and health care costs and In January to the enrollment period for the healthcare exchanges kind of just closed unless you had a qualifying event But you know we've talked about Medicare, you know, that's a big thing We talk about because Medicare is for people that are 65 and older and retired. That's your health insurance I mean, that's what you're gonna pay for but what about those individuals that retire prior to their eligibility for Medicare? You know, what are their options and so we're gonna cover that today because health insurance It's one of the major expenses that someone's gonna have fidelity puts out a report every year on health care costs and a retired couple age 65 in 2021 So this is them and then in the future need approximately three hundred thousand dollars saved on an after-tax basis So, you know, if it's in an IRA it actually needs to be more than that because of the tax consequences to cover your health care expenses in retirement That doesn't mention though prior to 65, you know, that's all Medicare essentially for most people so prior to 65 Like what do you do this gets asked a lot because not everybody wants to wait until 65 to retire these days And we talk about got a reasons people retire and reasons that keep working health insurance coverage is one of the reasons most people keep working It is and it's interesting because a lot of folks could afford to pay full full fare if you will for insurance before 65 But still choose not to retire because they don't want to have to do that. Yeah, it's interesting as I was kind of looking at some data for our podcast today I was curious around you know, health care costs over time.
How has that changed and since 1970 I found some data that said what you paid 1970 on a per person basis your health care cost was about $353 per year per year now Anyone want to guess what it is? So this is through the end of 2019 So you've got a couple years data just because it is takes a little bit time to compile all that what it is per person Now this is over 65 is this correct? This is just everybody in the United States. Okay, and this is an annual number so $353 in 1970 7000 a good guess $11,582 well, I see why we're inflating Health care costs at 6% in our financial plans as opposed to three the rudder market It's a 31 fold increase over the last four decades pretty crazy And then if you look at it from a percentage of our our gross domestic product, which is a nice way to look at it So it's like what our health care expenses relative to everything else we produce here in the United States in 1970 was a just under 7% And now 17% so again just a trend that's not going away Healthcare costs will continue to rise in the future I mean we plan on it like you said bill in our planning to have a significant increase in health care costs But we hope it's not that way be nice if it wasn't that way But again, we have to plan on it but thinking through and looking at your health care options prior to Medicare, especially if you retire You can stay on Cobra a lot of people have heard of Cobra and that is something that the government kind of mandates It was put into law in 1985 and it allows you to continue your current health care coverage for a specific amount of time And that's typically about 18 months It does vary based on maybe some certain bills that pass so like recently with some of the previous bills like CARES Act that we had in 2020 And some of these other ones they've kind of changed that for a very short-term basis But historically it's 18 months and kind of plan on that going forward and Matt I recall they extended that out to something like 29 months if a qualified beneficiary on the plan is eligible for disability extension and then 36 months due to losing a dependent child status under the plan now.
Are those still in play today? Those I'm not sure if those exact things so you know 18 months is a good just here's how it works Unless there's just some short-term kind of change to it based on some some bills or some laws that get passed Folks get a ugly surprise or maybe they realize how much their employer was paying Toward their insurance when they get the information on what it actually was costing when they're on the hook now for all of it Yes, they can continue it, but they have to pay for all of it plus an additional fee I believe but that's an eye-opener at times, isn't it? It is yeah So you can the law says you can stay on your previous employer's health care coverage, but you have to pay the whole 100% Plus a 2% surcharge so actually it's a hundred two percent. Okay, and that is definitely an option It's not maybe the least expensive option, but it is an option There are some companies that we work with and I'm seeing this as a more common scenario with more businesses, especially larger ones Is that they allow retirees to stay on cobra for an extended length of time You know for example you retire under their rules that some companies have certain years of service and age and everything else Also even being an executive or a certain level of a company as well.
That's right. It could be and Cobra they basically say hey, well let you pay 102% of our health insurance We'll let you stay on it You don't have to go do anything else, but we'll just let you stay on it until you're eligible for a different health care plan So that could be for five or six years or longer You know where I've seen people stay on cobra is when they retire within Five or six months of being 65 or a year or so where it's not worth it to go out Maybe and shop a couple of these other options that you're going to talk about Really short term, but nonetheless, it's an option It is an option especially when you've got a married couple and they're both retired So the other option is if well, let's say you retire but your spouse is still working and they have access to health insurance Well, that's real common for you to jump on to their plan and that's a qualifying event So they can add you to the plan at that time when you retire We see that a lot because that is more than likely the most cost effective When you're just looking at kind of the numbers among these various options If that's not an option, okay now you're saying okay. I've got my spouse isn't working. I can pay cobra I hear about these health care exchanges.
You know the Affordable Care Act that President Obama kind of promoted back in 2010 Which is pretty much still intact From the time that it was put through I don't think it's been amended really much at all has it really the most recent Changes which we'll cover today were kind of around how the subsidies work on that Okay, but yes the Affordable Care Act that's your other option is to go on to the health care exchanges And then evaluate what the costs are there now this is where this gets a little bit more complicated because What they're going to charge you is based on your income it gets a little bit confusing So what they look at and they say if you're over and above a certain income level, well, then you have to pay the full premium If your income is less than a certain amount, well, then you qualify for a subsidy Now matt if your income is too low You would not qualify for a subsidy or the exchanges because you would be on something and a lot of our clients and listeners get confused by this term Medicaid. Yes, which is very different from Medicare. That's right. If your income is too low now.
You'll be on the Medicaid system What's another word or descriptor of Medicaid? I guess that's not part of the welfare program Yes, it's essentially low income health insurance and the rules for that just so you know Medicaid begins for single person about 17,000. That's where they're gonna look at that If you're below 17,000 of income, okay, and then a family of four about 36,000 So the threshold is pretty low now here's the issue with that And especially what we're going to talk about here is like we could have clients that retired and now they're working part-time And yeah, they might be making call it $10,000 a year in income Well, they're not going to be eligible for Medicaid because Medicaid is going to take into consider your whole financial picture And then you say we have enough assets. You don't you're not eligible for Medicaid So Medicaid does do a look at the asset the net worth.
That's right And that's right, you know, right for that program I mean it is designed for individuals and families that are kind of struggling to get by the kind of health care exchanges You know what they do is they basically say, okay, here's the premiums you go on health care dot gov Kind of plug in where you live and a little information about yourself and you will get a quote for and a four different plans And there are categories with descriptors that use metal The bronze plan the silver plan the gold plan and the platinum plan. Well, I would want the platinum plan Yes, I don't really know what it means yet until you tell me but it's just here's how it works So the bronze plan the insurance company pays 60 percent you pay 40 percent up to your deductible Silver 70 30 gold 80 20 platinum 90 10 and so yes Well, you might want the platinum plan that maybe cost prohibitive because you're gonna have the highest monthly premium But you're gonna have the lowest kind of out of pocket once you receive care You know, that's typically reserved for people or at least when we look at it and help people think through that that no They're gonna need a lot of care and they are okay paying a high monthly cost knowing that essentially They'll be maybe come out ahead on that relative to one of the other plans that has a lower monthly premium So the bronze has the lowest monthly premium, but you're gonna pay the most when you actually need care the silver plans are Really what is I think a focus of today is because When you look at the health care exchanges, it also asks you how much income do you expect to make for 2022? Either earned income or it's your passive income, but just shows up on your tax return Social security could be pension income dividends capital gains all that does apply it is It's your modified adjusted gross income. So here's what that means So adjusted gross income is everything if you look at your 1040 on page one And it totals all your income prior to any deductions.
So it's your gross income Modified adds back in untaxed for an income not a real common thing that people see non-taxable social security benefits So that's important. They add that back add that back So if your income is low enough, you know, we talk about this in our social security presentations and our social security podcast We've done your income is low enough. You may have no tax on your social security But they're gonna add it back in for this subsidy calculator and then also any tax exempt interest So that is interest you might receive from a government disability when you own those types of bonds You typically receive a federal and a local if it's in your local area with those bonds But a federal tax exemption on that but you know they add that back in they're like well if you hold that you probably have a lot of assets You're trying to avoid some tax so we're gonna add that back in for this calculation And this calculation that you're talking about is to receive a subsidy to really essentially reduce your premiums On these healthcare exchange insurance programs. That's right when you plug it in It'll say here's what you'll pay and you don't maybe realize that there's a subsidy I mean if you read through it all it says that they just add in they just show you your costs based on what what information you plug into the calculator You know when you're signing up for it.
Yes And I think it's important to discern between what we just talked about with medicaid where they look at your net worth To qualify in this scenario. They are not looking at your total assets where your net worth They are only looking at your taxable income as matt just walked us through yeah only at income which is interesting So here's how this works. So the the american rescue plan. So this was passed in 2021 This is what I was polluting to earlier.
This actually did change how the subsidies work and it only changed it for 2021 and 2022 So we will give you an update once we have more information on how it's gonna work in 2023 But for 2022, this is how it works. So here's what it did it removed the federal poverty level income cap So prior to the american rescue plan if your income was under a certain threshold So that was 400 percent of the federal poverty level If you were under that you qualified for subsidy now you had to have a certain amount to begin with as we mentioned Because if your income was too low they would say hey, you don't need a subsidy You need to get on medicaid. So there was a minimum income But no more than the 400 percent of the federal poverty level and wherever you fell in that range Was your subsidy so the closer you were to the minimum the highest subsidy you would receive The closer you were to the 400 percent the lowest subsidy would see once you it glipsed it and it was a cliff You know $1 over no subsidy Are you able to tell us what that poverty level number was in 2021? So this was prior to the passing the law for a married couple for just two people It was $68,960.
So that's four times the poverty level That's the top end. Okay, that's the top end. That's the old rule And that was again your modified adjusted gross income. That was the number they're looking at So now here's what they said they said we're gonna take that cap away And we're gonna look at the silver plan So the silver plan is they're benchmarking that against this and it will cost no more than eight and a half percent of your annual household income So they've given us a cap.
They've given us a cap on the health care costs. That's correct Okay, just a simple example your income modified adjusted gross income is a hundred thousand dollars You will not be required to pay more than eighty five hundred dollars for your health insurance Are we talking about people that are on subsidized plans? So I thought what was the 68,000 and change number that you said here a moment ago Where that's like 400 percent of the federal poverty level for a couple of two But then if my income's a hundred thousand that's more than the 68,000 So Am I still have to pay a maximum of eight and a half percent of my income? Yes, so for 2022 they eliminated that 68,000 960 cap and just said eight and a half percent no matter how much income you Okay, I missed that part.
Yeah, so if you make a million dollars They would say your health care costs are capped at eighty five thousand dollars Now there is no plan that costs eighty five thousand dollars, so you don't get a subsidy But that's just how they've calculated it and was that for Everybody or was that just for people that were on one of these public plans on these health care change plans? This is only applies to that. That's right and I think it's important to mention too We talked about earlier in the context of someone retiring pre-65 because that's not the focus of our show keen on retirement here But this could be somewhat of any age. I mean somebody that doesn't have access to health care through work It's 35 or 25 or 45 or any age not just someone that's bridging the gap to retirement Yeah, I know there's small businesses that just don't offer health insurance because of the cost and so their employees and even their owners might be on a health care Change plan because of that so so mad is the 68,000 that you talked about relevant for us to chat about because things are going to go back to that arrangement in 2023 they don't change anything that you know if they don't pass anything to say otherwise that's what happens correct Okay, I know a lot of times we talk about things that are being predicted to happen or things going through Congress and you don't necessarily like doing that on our shows Because you've resisted before because you say hey, this hasn't been passed yet and we're talking about something that's just been suggested or going through that may or may not get passed So especially talking about something historical that's no longer in play again because it will most likely come back into play I think it was good that you went over that the context too is because it's still this It's all still that federal property level is kind of where it's all based on the other thing that they did So they removed this income cap so the 400 percent really doesn't matter for what your health care costs are but but it kind of does So it increased the amount of subsidies for those that earn less than 400 percent of the federal poverty level So it still does apply they still look at it in the sense that your subsidy for some can be higher if you're under the 400 Percent threshold if you're over it you still can be eligible for subsidy It's going to be less but there's still subsidy eligibility.
So man if I could let's try and frame this from a financial planning strategy So let's say I'm 62 years old. I'm retiring Maybe I retired on my own or maybe I got laid off at age 62 I'm not eligible for Medicare until age 65 So maybe cobra is an option, but let's just put cobra aside for a moment. Let's talk about these Public exchange programs. What are the planning opportunities?
How do you as a financial planning firm work with the client and describe to them the planning options that they may have? Maybe they've got a million two million in assets, but now they've got a low income Are there planning opportunities as it relates to your health care options here? Yes, and I've got an example of a client that we went through so here I'll give you all the details and we kind of walk through this You know what I think's happening here, Matt Steve self-reported last episode or two that he is 60 years old I'm not disclosing anything on Steve. He's a self-reported and so he might be considering retiring before 65 Oh, that's just came to mind.
Do you want to comment on that Steve? I'm not retiring unless bill and matt you guys decide that you're done with me as a co-host of the show That's pressure as long as you'll have me. I'm still working Okay, well, there's no tryouts anytime soon Okay So here's the details. We have a married couple they're both age 62 and the working spouse actually was recently let go So no health insurance cobra estimated costs with premium and deductible $22,800 that was an option and they had they actually worked at employer that offered an extended cobra So they could carry that every year until age 65 when they're eligible for Medicare and to clarify that's for both spouses That's the combined cost correct financial info So they have a million five in an individual retirement accounts.
That's pre-text money They have 150,000 in a Roth IRA So money they've already paid taxes on in the Roth IRA And then they have an after-tax account so a brokerage account with $300,000 in it and they need $84,000 a year to live on well if we go through and this is one of our calculations that we look at is you know How can we send you money on a monthly basis? What's the most tax efficient way to do it? But also because you have this health care costs what Subsidies could we get you to qualify for that? $84,000 of income that you're suggesting that they need to live on is after taxes so they need 7,000 a month after taxes Correct, okay, correct and you know so here's if they take money out of an IRA 100% out of an IRA They would need about $98,000 before federal and state taxes to clear 84,000 So that would be their modified adjusted gross income essentially 98,000 In that scenario, you know, they have cobra 22,800 if they went on the exchange and they plugged in that income their health care dot gov premium would be 20,500 Okay, you know, that's nearly 25% of their after-tax income which Is a lot if you think about it like 84,000 almost 21,000 of it's going to health insurance like how do you play around that?
So Here's the other kind of scenario that we showed them we said let's pull the $84,000 from your brokerage account the $300,000 that you've already paid taxes on We can pull that money out of that account and there's no tax liability because they've already paid taxes on it Yes subject to capital gains if they have some in this case this couple it was most it was on CDs there was no capital gains In addition to that because we did talk about this we have to generate some income Because if the income is too low you don't get a subsidy and they tell you you need to get on Medicaid Well, they have too much assets to qualify for that. So we're going to pull $30,000 from their traditional IRA And we're going to convert it to their Roth IRA. That's a taxable event. So there's now $30,000 has modified adjusted gross income That's what they now plug into the subsidy.
They're living on they're spending 84,000 a year But for their tax return and what that's all they care about here when these health care subsidies when they're looking at it It's going to say 30,000 so we're distributing 7,000 a month from the after-tax account They're living on that but you're triggering a $30,000 tax via this Roth so that you're getting them up over the Medicare line and into maximum subsidy territory Exactly, you know, and there's you can play with it a little bit Okay, how much you willing to spend on the subsidies or okay with on the price to maybe put more into a Roth IRA I mean we show you the numbers there. So here's their new health care choices under the scenario. Okay again cobra 2,800 health care dot gov now with the subsidies $267 it's worth taking a look at yeah Significance savings, so let me just stop you right there And let me just make a public service announcement here and that is that this is good planning I mean this is just smart planning and this is why someone listening to this would raise their hand and say I think I should go talk to a good financial advisor a fiduciary advisor that knows their stuff that understands all the tax laws that Understands the health care rules and plays within the rules absolutely 100% and find ways for you to Pull money from the right accounts whether it's taxable accounts Whether it's qualified accounts and do it in such a way that you are Minimizing the taxes that you need to pay that you are minimizing the premiums that you need to pay for health care And doing it all within 100% of what the rules allow you to do so to me that's good financial planning That's why people pay a good financial planner to do this kind of work because very few Do it yourself folks are going to be able to understand what you just described here with this example That's a great point Stephen, you know at this couple I mean they were blown away because they again like you just said they didn't know these options existed and Not only do we have a reduced health care cost. I mean we're talking almost free They just put $30,000 into the Roth IRA, which yeah, we think it's a great strategy as well So it's best of both worlds.
That's right when it comes down to engaging with a fiduciary advisor It's not just about the asset allocation or the investments The investments are very important and we talk about the investments being the engine to the financial plan They are important. They they need to work They can't not work when you're at retirement age or anytime actually we prefer them to work and work as planned and maybe better than planned But the the financial planning aspect the health care planning the tax planning that goes into what a good fiduciary advisor is doing Really adds to the bottom line for folks that are engaged Yeah, and one other thing that I would add to that is It's one thing to know the strategy that you to just describe here It's another thing to actually do it and what I've experienced what I know you too have experienced as well is that when you do work with a fiduciary advisor There's more accountability and your ability to actually follow through and do the things that you just described goes up toward 100 percent Because you guys are on top of this you're following up you're making sure that things are getting done accounts are getting open money's getting pulled Those sorts of things to make this stuff happen. So again, that's another benefit of working with an advisor is They're gonna help ensure that you follow through and these things happen so that you can benefit from the strategy that you just described Yeah, well, even when clients are working with the CPA I mean we'll even run these by them to make sure we're not missing anything I mean we always ask for the tax return and review the tax return But you know we loop in any tax professionals just to make sure we're all on board that okay This is the income this is what we're looking at that you have anything from an income standpoint that we're missing and get everybody on board with it Because even then like you said Steve We could be explaining this to a client or an individual could just be reading about this online and then trying to talk to a tax professional about this and not really understand All these the language and the nuances around how all this works. So we're happy to loop all of them in Yeah, so you guys are just a great quarterback just like that guy that is quarterback of your chiefs That is right.
That's a pretty good job. I was saying he's doing it. Yeah, all right Well, hey guys as we get ready to wrap up here any final thoughts from either one of you here I know we started off the show talking about various options for folks that are pre 65 pre medicare And how we might bridge a gap for an early retiree and we even mentioned two folks that aren't just out toward retirement But folks any age 20 30s 40s that need health care It's a mystery to folks how this all works We also talked about what things were like in prior years prior to 2021 And 2022 because we believe that things will be going back to that some of the details and nuances of how folks will qualify for these subsidies come 2023 But I think a real important point in both of you hit on working with fiduciary advisors and some of the value that fiduciary advisors bring to the table in addition to just the investment management But I think a key to that is that the job is never done This is something that's an evolution that happens each and every year if you're engaged with a fiduciary advisor whose job legally is to Make sure that your plan is in your best interest at all times Not just when they first meet you and you know convince you to invest with them But that things stay in your best interest and that requires a competent professional team looking out for law changes Rule changes just exactly like matt talked about today Looking at taxable income from various sources looking at all these things and how they affect one another making sure that this Doesn't just happen in one year for a client but that each and every year going forward into the future that they're maximizing their resources and minimizing their costs We get asked from time to time about folks having their assets spread All over at various advisors and different custodians and many different accounts And what we see is as folks get up toward retirement They start realizing that a lot of this planning and specifically what we talked about today is a great example is nearly impossible to do If assets are spread all over the place and one advisor doesn't know what the other advisor is doing and one advisor is a fiduciary But the other four advisors are not they're not paying attention to the tax planning and insurance planning and other types of planning so security planning And so forth so the right hand doesn't know what the left hand is doing and it makes it nearly impossible to come up with these Precise calculations that can really truly save folks real money So in most cases as we're working with folks on serious net worth Like what we call irreplaceable capital for folks that are at retirement They can't afford to make a mistake that want to optimize their situation They are typically working with a majority if not all of their net worth with one fiduciary advisor And it makes things like this We didn't talk today about tax loss harvesting or other strategies that that happen duplication of investments that can occur when assets are spread All over the place and then just keeping things simple just reducing complexity and simplifying life as folks enter their retired gears But I think that's an important point to make and reiterating the fact that the job is never done That a good quality pop-a-tent fiduciary advisor will be running these calculations each and every year for folks making sure that their plan is optimized All right to a great wrap up bill and I think we'll close it there and for all of you listening You can get all the details by going to our website at keen wealthadvisors.com We'll have the show notes for this episode as well as all the other episodes that we've done as well as all the blog posts that we have So it is a masterclass in everything that you might want to know about investing in financial planning and retirement So all right guys wrap it there. Thank you and we'll look forward to catching up here on the next episode of keen on retirement Thanks, Steve.
Thank you, Matt. Well done. Thank you Steve Sandusky and belay advisor are not affiliated with keen wealth advisors opinions expressed by Steve part his own and not necessarily the opinions of keen wealth advisors Keen wealth advisors is an sec registered investment advisor Advisory services are only offered to clients or prospective clients where keen wealth advisors and its representatives are properly licensed or exempt from licensure No advice may be rendered by keen wealth advisors unless a client service agreement is in place This program is intended for informational purposes only and should not be construed as advice on or a recommendation of any particular investment Strategy or as tax or legal advice for your specific situation Keen wealth advisors is not a tax or legal advisor to determine which investments may be appropriate for you consult your licensed professional prior to investing Information in this program was compiled from sources believed to be reliable due to the constant state of data changing We do not guarantee the timeliness or the accuracy of the information provided our view or opinions at the time you are listening to the podcast Maybe different than they were when the podcast was recorded past performance is no guarantee of future results Any indices referenced for comparison are unmanaged and cannot be invested into directly Any prices that are referenced for market forecasts are as of the date stated and are not necessarily our opinions moving forward as always Please remember investing involves risk and possible loss of principal capital This podcast is not allowed to be copied distributed published or reproduced without permission from keen wealth advisors