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Retirement

Early Retirement: The health insurance hurdle

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In a comment on yesterday’s grouse about the GOP’s stubborn resistance to a viable national healthcare program, Bucksome Boomer remarks that the main thing blocking her way to early retirement is the difficulty of obtaining health insurance.

There are a few ways around this.

One is to go back to college.

Yes. Tuition at most state and community colleges is far lower than private health insurance, and many colleges provide group policies for students. Arizona’s Maricopa County Community College District, for example, offers quite a nice policy for anyone who is enrolled in even one credit! Pre-existing conditions are covered if your prior policy covered you for 12 months without a break before you enroll (rules vary somewhat by state). Californians have access to student health insurance through the Community College League of California. In Texas, Houston Community College is among many that offer health insurance for students—here, you have to be signed up for three credits, but it can be an online course. A list of Texas universities that offer student health plans appears here.

If you’re yearning for early retirement and you live in a state where the colleges do not provide decent student health insurance, it might be worth considering a move to a state where such programs are offered. Google community college student health insurance to bring up a list of leads. Be sure the program does not exempt pre-existing conditions or, if it does, whether having been covered for 12 months by your current employer’s plan will trump that rule.

Another option is to join a trade group that offers group health insurance. These are not so easy to find; you pretty much have to figure out what groups you might, by any stretch of the imagination, be eligible to join and then find out if they have health plans. This list from California might be a good jumping-off point. Here’s a list of writer’s groups with various plans. Different writer’s groups have different requirements for membership—some expect a serious publishing track record; others will admit wannabes. As a blogger, you are a writer, especially if you’re earning any money at all from your site. Look at all groups associated in any way with your trade, business, or outside interests. The American Library Association and the Modern Language Association, for example, offer group health insurance for members—and anyone can join these organizations.

A third possibility is a high-deductible HSA. In these schemes, you take out a high-deductible policy and combine it with a medical savings account. The savings account functions like a hybrid between an IRA and a flexible spending account. The money set aside is used to cover your health-care costs during your deductible period and any other expenses. If you’re within a few years of Medicare age and you don’t have an expensive chronic condition, this strategy could carry you over until you can get less risky coverage. Any amount that’s left in the HSA rolls over to you when you reach Medicare age, at which time you can use the money any way you please. Shop around for these. At one point I had an HSA that covered 100 percent of my costs at any doctor and any medical facility, once the $1500 deductible was exhausted.

And finally, you might take a 50% FTE job with a public college or government agency—if you can find one in the current economy. Half-time jobs are usually considered benefits-eligible. This means you can get the health insurance without having to hang around the salt mine all day long. It’s not as good as being fully free from the day job, of course, but it’s a lot better than a 40- or 60-hour work week. Some government employers offer health insurance that is significantly cheaper than Medicare; when I go on Medicare, for example, I will pay about 10 times as much as I was paying for the State of Arizona’s EPO plan, and more than I’m now paying for COBRA.

None of these strategies is perfect. But then, no health insurance plan is perfect, at least not any I’ve ever heard of.

This post is part of a series on achieving financial freedom.
Our story so far:

• An Overview
• Education
• Work
• Debt
• The health insurance hurdle
The roof over your head

January outgo

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So, in the first month of unemployment, how did the budget fare?

Net income was $550.32.

Net outgo (including $325 to the self-escrow account for homeowner’s insurance, auto insurance, and property taxes, and $200 to monthly savings) was $1,636. Since that $200 to savings didn’t actually go away, we could say net outgo was really $1,436.

January’s cash flow: –$886

{sigh}

Well, it’s not as dire as it looks. First, I have a $10,000 cushion, so I’m not bouncing any checks yet. Second, I started with $$4,500, the amount accrued by December 31 from my last paycheck and vacation pay. So in terms of dollars that were actually in the account, we have $4500 + 550 – 1436, allowing us to argue with some plausibility that the actual cash flow was a positive $2,514.

The problem with that argument, of course, is that we now have used up almost half the original bankroll, and we still don’t know whether enough cash will come in to cover expenses.

I have yet to see a Social Security check. Because I have no accurate way of knowing what the tax gouge will be, I can only estimate that it will be around $1,000. But in every other case so far, the estimated tax bite of 20% has been a bit on the optimistic side.

And I still have no idea what a full paycheck from the community colleges will look like. January’s munificent net of $161 (!!) was for only two sections, since one started “late”—a week after the first day of classes. And it was, I think, for only one or two days of each section. I had hoped that the fare for three sections would be around $800 to $900. Two of those a month would keep the wolf from the door, and if I actually manage to keep my expenses around $1,400 to $1,600, during the few months when the college is disbursing two full  paychecks, it would cover almost all my expenses. The Social Security money, then, could go into savings to cover the high-cost summer months and the six-week winter break.

In the fall, one of my classes is an eight-week session. This means that for half the semester, I will be paid for only two sections; in the other half, I’ll be paid for three sections, with one at an accelerated schedule. Net pay over 16 weeks will be the same, but for half the 16 weeks, I’ll be just barely scraping by.

Clearly, the strategy of cobbling together a living from several piddly sources is not something that can be done without a substantial base to use as a cash cushion. If no major expenses happen, at the end of the year I’ll probably come out about even, maybe as much as a thousand dollars ahead. But it’s going to be close. Very close.

And the car, house, and pool had better keep running without a hitch…

Running around COBRA’s barn again

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Just realized I didn’t write a post this morning and then, whilst frolicking with bureaucrats, didn’t get to it this afternoon, either.

Another fine exercise in jumping through hoops and tearing around the Maypole today.

Not having heard anything more from the COBRA administrators over the past 15 days, despite having been told that a notice and a statement would be sent out, I called again to inquire.

Today’s bureaucrat harked back to the original claim that I needed to have sent them money a month BEFORE I was laid off my job. I explained that Arizona State University’s Human Resources people said that I was not supposed to send money while I was still employed there. She said well, then I wasn’t covered.

So I’ve now spent the last month without any health coverage at all, if you believe this one’s version.

She wants me to present myself in person on Monday—when I’ll be teaching until 2:00 in the afternoon about 25 miles from their office—with a check for $334 in hand. This, she says, will cover me through February.

Of course, that doesn’t make any sense, because the one who told me I’d been approved for the ARRAS discount said my premiums would be $185. Two times $185 is $370. So… who knows what this is about.

Entertaining, isn’t it?

First ASU’s HR people told me I would be not qualified for the ARRAS discount because my last day of work was December 31. Then the Arizona Department of Administration, which administers COBRA, told me I would be qualified for the ARRAS discount because my last day of work was December 31. I sent an application and was told I was approved.

Next, ADOA said I should send a chunk of money to the state no later than the first week in December. Then ASU’s HR department told me this demand was incomprehensible, that I most certainly did not need to send money for COBRA while I was still employed by ASU, and that COBRA would send me a statement after I was terminated, saying how much and when to pay.

In mid-January, ADOA informed me that I was not terminated and as far as they could tell I was still employed by ASU. Then ASU told me I most certainly was terminated and ADOA did not know what they were talking about. Then ADOA told me I was not terminated and was still a state employee.

After I spoke with my ex-husband’s former law partner, who is now Arizona State University’s general counsel, I was told the mess was cleaned up. At that point, I was informed that I had actually been canned not on December 31 but on January 10, but nevertheless because the Obama Administration had extended the ARRAS discount into February, I still would be able to get  coverage I could sort of pay for.

On January 14, I spoke to one Connie at ADOA, who said I did not have to send a check but that I would receive a letter telling me of my eligibility and letting me know where and when to send a premium payment. And by the way, no, I did not need to make a COBRA payment a month before my job ended. That was 15 days ago. No such communication has appeared.

Now I am told I need to pony up $334.04, which is supposed to cover me “through February.” Three hundred and thirty-four dollars is slightly more than twice the earned income I have received this month.

So, this afternoon I called the Feds.

There I learned that while COBRA is indeed a federal law, the federal government’s regulatory oversight is limited to private employers. If you work for a state university or government office, you’re on your own! I asked the woman who shared this gem with me if she thought I should call a lawyer. She said not yet…it’ll be another week or so before they’re actually in violation of the law. She recommended going back to HR (hah! words from a lady who’s never had to deal with ASU’s HR department!) and nagging some more.

I am nagged out. On Monday I will trudge down to ADOA in person, hand over $334, and demand a receipt that states exactly what the money is for, and not only that, ask that they produce a policy or a contract describing what I get and when. After that, I give up. If I get in a car wreck or have a heart attack before Medicare kicks in, I guess I’ll just have to drain my savings to pay the bills and then declare bankruptcy.

Ain’t workin’ for the State of Arizona grand?

State of Arizona Employ: Goodbye, so long, adios!

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Arizona’s bumbling state legislators, faced with a budget deficit that would challenge far better men and women, approved a 5 percent cut in pay for state employees.

This will more than negate the 6.2 percent increase they generously ladled out a couple of years ago. You have to understand, every raise for state employees is accompanied by what we call a “retroraise.” A retroraise happens when you get a raise but then your employer jacks up the cost of benefits so that your take-home pay actually drops. Often a state of Arizona pay increase is in actuality a retroraise.

For GDU employees, that 6.2 percent increase was quickly erased by GDU’s decision to inflict a $770 per year parking fee and by the switch from bimonthly to biweekly pay, which effectively meant a pay cut in 10 out of every 12 months. For me the change to biweekly meant a $480/month drop in gross pay.

Well, goodbye to all that! Just imagine: if I continued with GDU past the end of this month, the 5 percent pay cut would have worked out to a $3,275 drop in gross annual income.

If I didn’t have enough reasons to be happy they threw me in the layoff brier patch, there’s another one! If they keep that up, before long my salary would be the same as my cobbled-together postretirement income.

Surviving in penury

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Wow, did I get these figures wrong! My take-home salary is far more than what appeared in the original of this post…I don’t know where I came up with a figure of $32,900. I was even sober when I wrote this! Corrected figures appear in boldface next to my original wrong calculations.

Well, it’ll be interesting to see what happens next. In 2010, my gross income will be significantly less than half of what I earn today. Assuming state and federal taxes total no more than 20 percent (a big assumption!), the combined net of Social Security and teaching will be $9,700 ($17,710) less than I net from my salary today. That doesn’t count what I make freelancing, because next year I will not be allowed to earn freelance income. Since Social Security’s rules will limit me from earning a living wage, 2010 will be a year of real penury. It remains to be seen whether I can survive under those circumstances.

By “survive” I mean “stay in my home, eat, keep my dog, and live through a 118-degree summer.”

There are a couple of extenuating circumstances.

I’ll get a chunk of vacation pay that should net out to about $3,965 (assuming GDU doesn’t pull another of its numbers on me, another Big Assumption).

About $1,900 remains in the S-Corporation, after paying for the MacBook. If I can finish the page proofs I’m reading before Christmas, I could in theory push the 2009 drawdown to about $2,200. It probably would be better, though, to delay that job to 2010, so as to leave its payment in the corporate account to cover things like printer ink and computer repairs with nontaxable money. So, let’s say I net about $1,500 from what remains of freelance income.

This will give me a grand total of $28,985 (net, if taxes are not too extortionate) to live on next year. Compare that to my present net of $32,900 ($41,210).

Two strategies may enhance things a bit:

Even though I hope to avoid drawing anything from retirement savings in 2010 (so as to wait and see if investments continue to recover from the crash of the Bush economy), to have the state consider me “retired” so that it will disgorge the $19,000 it owes me for unused vacation time, I will have to draw a few bucks from my 403(b) until such time as the bureaucrat in charge of that program approves me. So the plan now is to draw down $500 a month until we know the sick-leave payment has been approved. That process can take as long as three months, and so I’ll probably have to pull out about $1,500, adding (optimistically speaking) another $1,200 net to the 28 grand.

Now we’re approaching a net of $29,200 ($30,185), which is $3,700 ($11,025) less than I bring home today.

My share of the mortgage on the Luke house will be paid with $10,000 worth of tax-free dividends from an antique whole life policy, giving me a year’s reprieve on having to draw those payments down from savings.

Still…where is that $3,700 ($11,025) shortfall gunna come from?

Well, I put $573 a month into savings right now. That adds up to $6,800 a year. Of that, only $3,900 is nonnegotiable: I have to self-escrow that much to cover the property tax, homeowner’s insurance, and car insurance. So if that’s the only money I set aside, in 2010 I can devote $2,900 to living expenses that I used to put into savings.

So, now I’m only $800 ($8,125) short of the amount I actually spend on living expenses. That, I’m sure, can be managed through frugality and tight budgeting. (Yeah, right! Only if I sell my home and take up residence under the Seventh Avenue Underpass!)

This scenario applies only to 2010. If I have to continue refraining from drawing down savings in 2011, then things will look different. I can earn about $10,000 a year freelancing—in a good year. So the net of teaching three-and-three will come to $11,520 (in the unlikely event that taxes don’t rise  much); the net of Social Security is about $12,000. Add net freelance income of around $8,000, and you get $31,250 ($31,520) as the base net income, not counting savings drawdown, in 2011.

On the surface, that’s not too bad—pretty close to what I’m earning now. (Holy Hell, it’s over ten grand less than what I take home now!) But it doesn’t count the cost of Medicare, eleven times what I’m paying for health insurance today; and it doesn’t count the cost of the mortgage, which on its own represents about 1 percent of my total savings. (I am screwed, screwed, ge-screwed!)

And we have to remember that taxes and insurance will not stay the same. On the federal level, sooner than later we’ll have to pay the cost of repairing the damage done by the past decades of ill-advised leadership. Locally, the state is still a phenomenal $1.4 billion short, even after the Draconian budget just passed by the legislature. If the most basic services are to stay in place—firefighting, police protection (forget services to the sick and elderly poor)—then our dim-bulb legislators must face the fact that they will have to raise taxes. Homeowner’s insurance, too, never goes down; and when I reach the point where I’m forced to replace my 10-year-old car with a newer model, taxes and insurance on that will increase, too.

If my investment advisers are right that my savings will return to something resembling their former glory after a year or so, then I should be able to get by on a 4 percent drawdown…as long as I can dodder into a classroom. (Dream on!) That, of course, will not be forever.

But the day after tomorrow will have to take care of itself. (By then I’ll have starved to death, so someone else can figure out what to do with the day after tomorrow.)

I must have figuredmy income on a 24-period basis rather than the actual 26 pay periods created by PeopleSoft’s hideous biweekly pay scheme, since I bank the so-called “extra” paychecks in savings. Even that is wrong, though: the annual total would be $38,040. What hat the $32,900 figure came out of, I can’t imagine!

Image: Men being served at a soup kitchen. Franklin D. Roosevelt Presidential Library and Museum.

Median income, median savings?

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Chug on over to Free Money Finance, where you’ll find an interesting article and discussion about some figures FMF has found, suggesting few Americans are ready for retirement. FMF is spinning off an article that dispenses advice on using your home equity to help finance retirement, but his attention is caught by some figures the authors refer to in passing. The passage he cites says this:

What’s more, the report noted the median value of financial assets is less than 1.5 times median income—$75,000— for the majority of middle-class households and that the median value of financial assets is just three times median income—$132,000—for the vast majority of affluent households. Read that report at this Web site.

The report indeed does suggest that most people have around 70 percent of their assets tied up in their homes.

Figures like these can’t tell us much until they’re correlated with age groups. It would help if we could know the median value of financial assets for people in their 20s, their 30s, their 40s, their 50s, and their 60s. Then we could have a reliable feeling for how many 80-year-olds will be competing with how many 20-somethings to find jobs greeting shoppers at the local Walmart.

Since we can expect young workers to have little or no savings, and since many workers of all ages live in right-to-work states where wages are low, a combined disproportion of young earners and lower-income older workers would work to push the median down, unless there were an equal number of very high income workers. And nationwide, I’ll bet there’s not, despite the widely publicized conspicuous consumption.

Also, take a look at the wording in this thing. It’s hard to tell what is being said:

The median value of financial assets is less than 1.5 times median income—$75,000—for the majority of middle-class households and that the median value of financial assets is just three times median income—$132,000—for the vast majority of affluent households.

Is the median income $75,000, or is that the median value of financial assets? Is $132,000 the median value of financial assets, or the median income for most affluent households? Probably, one would assume, it’s the median income…but how does $132,000 qualify as “affluent” for a household income? That would amount to two $66,000 incomes. Now, $66,000 is a helluva lot better than the $28,000 gross I’ll be living on post-layoff, but it isn’t a lot. In the large scheme of things it’s really just an average income—I get by on that amount now only because my house is paid off, I have no other debt, and I live frugally.

When you get into the PDF at the Society of Actuaries website, you see that the researchers do break their data down by age group, gender, marital status, and  alleged socioeconomic class. But the subjects’ ages range from 45 to 74; “retirement” is defined as the point at which “a household’s primary focus switches from accumulating assets to using those assets to supplement its income so as to maintain a desired standard of living.”  In other words, if you kept working full-time and simply stopped contributing to your 401(k) or other savings instruments, you could be considered “retired.” This category applies only to those in the 55- to 74-year-old range. Median incomes shown in these figures are surprisingly low: for single women in the 55- to 65-year-old bracket, it’s $28,000 (men do better at $41,000), and for women between 65 and 74 it’s $18,000 (men’s median income drops to $28,000). In the “middle-class” range, net worth for younger marrieds, single women, and single men (respectively) is $348,000, $111,000, and $125,000; for the older set, net worth figures drop to $285,000 for married couples but rise to $130,000 for both single men and single women (7). The report finds that a large part of these Americans’ net worth is invested in “nonfinancial assets,” which include not just real estate equity but also equity in small businesses, vehicles, collectibles, and art (15).

Well. A small business can return a nice bit of income, and depending on how the corporation is structured, it may or may not show up on your income taxes as earned income. Much of the income from my S-corporation, for example, will be realized as dividends. And owning your house free and clear is worth more than the face value of the dollars involved.

The value of my home represents 57% of my net worth. Because the house is paid for, I would say that its real value to me is significantly higher: every dollar that I don’t have to pay to keep a roof over my head is a dollar I can use to buy groceries. My son’s monthly payment on a house of similar value is $1,420: almost an entire paycheck (net) of my soon-to-be-former $65,500 salary. If I had to pay a mortgage on my home, I could not survive on Social Security and part-time work.

While my savings eventually will supplement those two pittances enough to keep me more firmly in the middle class, as a practical matter I’m having to delay draw-downs for a year, in hopes that the economy will recover enough to allow my devastated investments to come back to normal. If I didn’t have a paid-off place to live, I couldn’t afford to do that.

Life’s a little more complicated than these figures seem to suggest at first glance.