ACA and Retirement

The biggest worry for me in (early) retirement is health care costs. I tried putting in some fictitious numbers and was flabbergasted at the premiums for a 57-yr old (I’m currently 49). But then I put in a fictitious $30K income and all of the sudden I wasn’t paying for my health insurance anymore! (Actually I wasn’t completely flabbergasted because our employer makes a point of telling us what they spend on our health care each year and it ain’t cheap)

I’m several years away from retirement, but I’d like to make sure my current-day knowledge of health care subsidies is correct. My current AGI is a 6-digit number, but for the purposes of retiring early and paying for healthcare, it is advantageous to lower that AGI to a specific number.

“That’s good news across the board for early retirees who need to purchase medical insurance through Marketplace exchanges to bridge the gap from employer-provided coverage to Medicare.”

According to the article above, if my AGI is under 150% of the federal poverty level (FPL) then i should be expected to contribute 0% of my income towards health care. Assuming a 2-person household, the threshold would be 17,420 x 1.5 = $26,130. The income contribution requirements would be:

AGI / Contribution / Contribution $
150% => 0% @ $26,130 = $0
200% => 2% @ $34,840 = $697
250% => 4% @ $43,550 = $1,742
300% => 6% @ $52,260 = $3,136
400% => 8.5% @ $69,680 = $5,923

So if in my last year of work I arrange to work part-time in 2027 and file an AGI of $43,550 for the year, I should only be expected to pay $1,742 for my healthcare the following April 2018 when I quit? And in future years the amount I pay would be influenced by the mix of Roth and non-Roth amounts I withdraw?

Of course, the big question is will it stay like that? Just wondering, do I have my facts reasonably straight? $1,742/yr vs $1,742/mo could definitely move up my retirement date.

The thing to be aware of is that the 8.5% provision for subsidies in ARPA is temporary, and it will take another bill to make it permanent. If it is not made permanent, you will have to be keenly aware of how close you are to the subsidy cliff because you can go from paying $7k in premiums to :skull_and_crossbones::skull_and_crossbones::skull_and_crossbones:.

Also, premiums are just that… premiums. You also need to account for out of pocket costs, copays, coinsurance, etc.

I haven’t actually calculated out the numbers, since I have a while to go and who knows what it will look like when I get there, but yes, your approach matches my understanding of ACA subsidies.

To expand on the non-Roth part, if you have taxable accounts you could also sell shares during this time and only the capital gains would hit your MAGI. So, it’s not just a matter of pre-tax vs Roth. You have a lot of options (pre-tax, Roth, taxable accounts, savings, etc.) to get your income to the right level to qualify for subsidies.

Are the ACA subsidies based on your current year estimated income, or your prior year’s income?

I thought they were based on current year (and you trued up your estimate vs actual at tax season), but I could be wrong.

Ah, yes, you’re correct. I missed the key sentence below.

If you’re talking about premiums in 2028, you only care about your income in 2028. You would estimate what your 2028 income will be when you sign up for the ACA and then everything is trued up at the end of the year as BruteForce said.

My mother has had triple bypass and angioplasty twice, and still smokes a pack of cigarettes like they’re a harmonica. My sister has a variety of ongoing health issues that have required surgery. And my BIL just had multiple surgeries to correct bone issues from a car accident when he was younger. thank gawd I don’t have to choose between my financial lifestyle, and providing healthcare for my family members. They go into retirement with gov’t benefits sufficient to minimally eat and house themselves, with full healthcare, and free drug benefits.

Americans need to get with the program. Yes, I know tangential to the discussion, but you folks really need to be repeatedly poked about this until you get it.

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I’m pretty much planning to work until normal retirement age, or until I die. I will probably die before I have been retired very long. But Mr aj will live until 100+ & I need him to have enough $.

That’s very helpful, thanks. In the back of my mind, I thought it might be based on what you thought you would make in the year you were getting the insurance subsidy. I should have figured there would be a form to lay it all out - Form 8962.

So it isn’t necessary to work part-time for a year, although I might do that anyway. In 2028 I can tell them my projected taxable income for the year will be $40K, accept the subsidy implied by that number and get health insurance for next to nothing, and to the extent I miss the $40K mark one way or the other will sort itself out come tax time.

I remember back when I worked on ACA plans (2014-2016ish), there was an incentive to underestimate your income. You’ll have to pay back the APTC you received that you shouldn’t have (premium subsidy), but if you estimate low enough you’ll receive enhanced cost sharing (much lower deductible/copays/OOP Max), and you don’t have to pay back anything for that.

Good point; accounting for that would make for a tax form that is quite a bit busier than it already is.

Yup. So if you aren’t concerned with ethics, just low ball your income so you get the highest subsidy amount, and pay back the premium subsidy come tax season. You’ll get a sweet plan (94% AV?).

Oh, and don’t pay your December premium while you’re at it. They can’t stop you from re-enrolling come January. Maybe this has changed though?