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for those retiring prior to 65 Healthcare may be one of your biggest concerns it's easy to see why when it's not out of the question to see a retired couple spend more than two thousand dollars per month on Health Care alone well in this video today I'm going to talk about three Healthcare options you have prior to 65 prior to Medicare and talk about how choosing the right plan can translate to massive Health Care savings let's get into it now the simplest option that retirees have is Cobra insurance but keep in mind even though it's the simplest option that doesn't mean it's the most affordable option now Cobra is continuation Insurance what this means is that you can keep the same plan you just had while you were working and you can carry that into retirement for a specific period of time now legally speaking if your company is of a certain size they legally have to offer COBRA insurance for up to 18 months they can extend this however Beyond 18 months and typically this is going to be unsubsidized insurance by your employer so while you're working your employer probably subsidized your insurance to an extent well now it's on unsubsidized here in retirement and because of that it can be quite expensive and so this type of insurance is ideal for those that just really want a simple option or are bridging a very small Gap again it can be quite expensive but if you only have let's say four months until you're 65 this can be a fine option and will allow you to keep the same coverage you just previously had now the second option we're going to talk about is one that you might not be familiar with and this is something called Health sharing now Health sharing if you find the right program can have some massive benefits but keep in mind it can also have some pretty big drawbacks as well now all Health sharing is it's a pooled reimbursement system what this means is that you in a pool of other retirees essentially are in a health program together you contribute things like premiums to this pooled system and then when you have a health issue you go into your doctor whatever cost you incur you pay out of pocket and then you go back to that pooled system and you are reimbursed for those given costs because you are paying those costs out of pocket and not out of insurance you generally get a discount this and terms of the entire pooled system helps keep costs lower and thus pass those savings on to the health sharing recipients now generally you need to be relatively healthy to qualify for these Health sharing programs if you have a pre-existing condition that will disqualify you in most cases but the big benefit here with health sharing programs is twofold first income doesn't affect your premiums whether you show fifty thousand dollars worth of income or five hundred thousand dollars worth of income in retirement you pay the exact same premiums and these premiums tend to be quite low all things considered they typically range anywhere from 100 per month to five hundred dollars per month but understand there are some downsides Health sharing in general isn't quite as regulated as the normal insurance industry and because of that that carries certain risks I have heard stories of retirees going with the wrong organization then when they incur a health care cost that wasn't a planned health care cost such as cancer or something like that they get kicked from the pool that being said understand that that type of situation is out of the norm there are a lot of great upstanding Health sharing programs and so again the important thing here is do your research work with a trusted Health agent you find if Health sharing is a potential option for your retirement the last option we'll talk about is Affordable Care Act insurance and we'll spend the most time talking about this option because we tend to see it's the most popular option for those pre-65 but it also tends to be the most complex and the reason for this is the cost that you pay on Affordable Care Act Insurance are directly tied to the income that you show and so right off the bat we can see that you can control the cost that you pay by controlling the income that you show now the key here now the key here is we want to artificially show a lower income to the government but we want to allow you to take the income you actually want so you're able to spend how you choose in retirement and not have to live like a pop or early in retirement Now understand that with Affordable Care Act Insurance there are four levels of health care plans everything from bronze to platinum and really the type of plan simply describes the amount that the insurance company will pay if you incur health care costs and then how much you will so basically a bronze plan will have the biggest cost sharing between you and the insurance company but we'll have the lowest starting premiums on the flip side a platinum plan will be that so-called Cadillac plan where the insurance company will pay the majority of costs but you will have a higher monthly Health Care premium as a trade-off now the income number that ACA focuses on is different than any other within the tax code for this reason I'll just simply classify this as reported income but the reason this is different than any other number within the tax code is because it adds back in your untaxable security benefits so whether it's taxed or untaxed every dollar of Social Security benefits you will receive will be counted dollar for dollar against you outside of this most other income that you have will be counted in the same way it would in any other tax number so any wages or IRA distributions that you have will count against you pension and annuity income will count against you capital gains and so on now the massive benefit with ACA insurance is that if you show a low enough income you can pay zero dollars per month month as a monthly premium because you earn such a large subsidy now you can have the same exact plan as someone who's paying two thousand dollars per month for that health insurance now not to complicate things further but understand that there are two ACA regimes that we need to be thinking about depending on when you need this health care insurance and when you're retired for from 2023 to 2025 we're under what's called a subsidy Cliff this is a much more forgiving system that was put into law first by the American Rescue plan and then extended by the inflation reduction act and what this does is that it extends out a subsidy where you can show a lot higher income and still earn a subsidy now 2025 and Beyond we are going back to the subsidy Cliff now this is quite a bit different because it ends up turning into a tax Cliff similar to how medicare's Irma is set up meaning that if you show a few dollars more than the subsidy Cliff threshold you will completely lose a subsidy and that might translate to 500 per month subsidy gone just like that now each of the break points for when that subsidy phase is out as well as the subsidy Cliff are all set around something called the federal poverty level and it's essentially a percentage of the federal poverty level so the subsidy Cliff historically has been set at 400 percent of the federal poverty level now for a single retiree what this means is once you show over around fifty four thousand dollars over reported income you will pass through that subsidy Cliff but let's set aside the subsidy Cliff for just one second here because after all right now we're planning underneath the subsidy slope and so if you're looking for health care options right now this is the system you need to plan and optimize under well essentially what happens under the subsidy slope is as you start to show a higher amount of income your subsidy phases out linearly now let's quick go through a few scenarios just show what the landscape looks like right now now the case study we're going to be using is a couple based out of Florida now both retirees within this couple are 62 years old and I'm first going to show someone that is comfortable with using a bronze plan with ACA insurance and I'm going to show two different income numbers and how this affects their cost at least on a bronze plan and first what we'll see and again keep in mind we're underneath the subsidy slope right now if this couple shows a reported income of forty thousand dollars it might be difficult to see on the screen but they're going to be eligible for a subsidy about twenty eight hundred dollars now because the bronze plan that we're looking at has a cost about twenty four hundred dollars per month obviously that subsidy being over that given cost they will have a zero dollar per month monthly premium but interestingly enough because of how the subsidy slope plays out and how that subsidy phases out if they showed seventy thousand dollars worth of income they'd actually see they'd have the exact same cost for this specific bronze plan the difference here however is now rather than having about a twenty eight hundred dollar subsidy they have about a twenty four hundred dollar subsidy now because this bronze Plans cost is just underneath twenty four hundred dollars they would still have a full subsidy and thus have zero dollar per month health care costs even if they showed a little bit higher income and so this is an important point to drive home depending on the plan that you end up going on it will control how much income you can show because of that subsidy and the cost of the plan even after phasing out some of that subsidy if it's still more than the plan cost well then obviously you might want to show a little bit more income in the form of things like Roth conversions because again we're still talking at fairly low tax brackets and you'll see other benefits within your tax situation by showing that higher income now let's use the exact same example but now let's show a gold plan rather than a bronze plan now with this couple reporting a lower income of forty thousand dollars what you'll see right now is this gold plan is completely cost free once again this is because the subsidy this couple is earning is more than the cost of the plan so again if this couple was only going to show forty thousand dollars worth of income they probably want to go on a gold plan rather than a bronze plan because they'd have that extra Health sharing if they did incur any costs let's flip over to showing this couple at a higher amount of income seventy thousand dollars per year well at this point they would start to see that subsidy start to fade out and now that gold plan would cost 341 dollars per month and so this can be translated and should be translated into a tax cost this couple shows an extra thirty thousand dollars of reported income but they haven't added four thousand dollars in health insurance premiums for showing that higher income so translate that to a tax rate and assess whether it makes sense to show that extra income now when we talk about building a forward-looking tax plan for retirees optimizing your situation around ACA Insurance can be one of the most important things a pre-65 year old retiree should be doing and the reason being as you can see is because the cost associated with Health Care can be so large and therefore these savings to your plan by showing a lower income level can be quite large as well now on the screen I have a tax graph for what it looks like for somebody that is on ACA insurance now this tax graph is shown with this person having twenty thousand dollars of taxable pension but as you can see from here in the blue we have the normal ordinary tax brackets the 10 12 22 and 24 tax bracket but now as we overlay the cost of phasing out that given ACA subsidy we can see that your tax liability ends up spiking and all we're doing here is We're translating the loss of a subsidy into a given tax rate and trying to assess whether it makes sense to show more income or whether it makes sense to artificially report a lower income the important point for for you is figuring out what that break-even point is for how much income you actually want to show now a common question I often receive is how can I show a high income maybe above six figures early in retirement but artificially show a lower reported income and thus earn a larger ACA subsidy what you want to do is you want to take a minimum level of Ira withdrawals let's say we're trying to show a reported income of forty thousand dollars for example well you might want to take the first thirty thousand dollars from your IRAs this will fill up the standard deduction making those Ira withdrawals tax-free and then you'll only see the last part of those Ira withdrawals taxed at 10 percent we'd be very comfortable paying those rates in most situations from there you'd want to lean on your taxable account because these are only counted fractionally only the amount of capital gains that you incur by taking income from that account will be counted against you so let's say that we have a hundred thousand dollar taxable account and 75 percent of that account is cost basis well we can take ten thousand dollars in capital gains but that will really allow us to take about forty thousand dollars in overall income from that account because only the portion of that income that is counted as capital gains will be counted against you from there you'd want to take as much from Roth assets as you need to fill up the rest of your income Roth assets aren't counted at all against you in terms of that reported income so this is a perfect example why a retirement plan built with the right strategies is so important we can take one of the largest concerns that a pre-65 retiree has and largely eliminate that concern completely now if you're looking for more ways to unlock hidden value within your retirement plan click on this video right here where we talk through a simple framework to show what is the first account you generally want to pull from in retirement thanks for watching and always remember you don't need more money you need a better plan