Sunday, April 28, 2013
Early Retirement Is Impossible Because Of Health Insurance Costs...Not!
After some recent mainstream media attention on this blog and myself there appears to be a few discussion points that naysayers/doubters point to so as to try and discredit the entire notion that one can truly become financially independent at a young age on a middle class income. It seems that healthcare costs are one of these talking points, and perhaps even the most often discussed of all.
Up until the past week I haven't had health insurance. That has changed now, which I'll be discussing in this article. Of course I didn't buy the insurance just to prove the naysayers wrong ("he can't save 50% or more of his income if he had health insurance!"), but rather a couple of other reasons. However, it is nice to be able to point at an article like this in the future for anyone who doubts that early retirement on a middle class income is impossible because health insurance will somehow magically render one insolvent.
First, it should be noted that I've declined purchasing health insurance for many years now due to my age and overall health. The odds of me needing serious healthcare in my late 20's and early 30's were relatively low and I felt okay shouldering the burden of the scant odds that I would actually need some type of care. The odds are good that if you're living a relatively healthy life by avoiding stress and high-risk activities while staying active that you'll not have to see the inside of a hospital room anytime soon. Of course the scant chance remains that something catastrophic could happen to me, and so I now have insurance against such a catastrophic event.
A catastrophic event (cancer, disease, serious illness) was one of the big reasons I decided to plunk down the cash and pony up for health insurance. I wouldn't want the Freedom Fund I've worked so hard over the past three years building to evaporate overnight because some serious illness that required intensive care and a lengthy hospital stay befell me. Although the odds of this occurring are very acute, the chances are still there. Another reason is my age. I'm turning 31 next month. That means I'm closer to 40 than I am 20 (that sucks to write!), and as I advance in age the necessity to insure oneself against a negative health event increases. But probably the biggest reason of all is the Affordable Care Act which basically forces my hand. If I don't purchase health insurance I'll be fined through a tax as part of the Individual Mandate starting in 2014. I'd rather at least get something for my money, so I now have health insurance.
I purchased a plan through Aetna called the Aetna Health Network Option Value 10000 (see all the details here at ehealthinsurance.com). This is a high-deductible health plan (HDHP) with a $10,000 deductible and maximum out-of-pocket annual costs at $12,500, including deductible. Basically I am self-insuring up to $10,000 (due to my aforementioned young age and overall good health). I'm effectively insuring against financial catastrophic loss and will be shouldering the costs of the occasional cough or tick myself.
This plan comes with a monthly cost of $130.
Are my plans for early retirement now bunked? Not really. I've already paid my first bill for coverage beginning in mid-May and it amounted to about 2% of my net income for April's budget. 2-3% of my net income on a regular basis is, while money I'd rather have to save an invest, not going to dramatically affect my plan to retire by 40 years old. But of course some people say "what if you get cancer?". Well, at that point I'll be more concerned with staying alive than retiring early and besides that...what's your point really? Is someone with hundreds of thousands of dollars set aside more or less prepared for a health disaster than someone living paycheck to paycheck?
Now, there are some caveats here. I'm still relatively young. And I don't really have any pre-existing conditions of any kind. I'm in pretty good health, overall. While some people like to come on here and point and laugh at my diet, I take multivitamins and fiber supplements every morning and I eat a relatively balanced diet that's fairly low on fats and cholesterol. No, I don't eat fancy organic foods. Of course, Standford found that organic food is no healthier for you, but that's another discussion altogether. I eat granola based cereals or oatmeal for breakfast and am currently on a tunafish or other lean meat diet for dinner. I also work out regularly. I'm currently 5'9" and about 187 pounds (getting closer to my goal of 185 pounds by year-end). Most of that 187 pounds is lean muscle and bones, and I definitely lack a belly of a round shape.
For some people with chronic conditions or serious health issues, early retirement may not be completely realistic. I would agree that luck, to some degree, is at play with not only early retirement but life in general. Some of us are dealt shitty hands. Some of us are born with genius intellect. The key is to make the most of what you've got and focus on what you can control. I've discussed before that early retirement isn't for everyone, and neither should it be. It's something that I believe is right for me and am aggressively pursuing. You may not feel the same and should probably use your energy pursuing things that matter to you.
Furthermore, on the matter of healthcare and costs there are a few things to keep in mind. As mentioned earlier, expensive healthcare costs on a recurring basis are not something you're likely to face if you lead a healthy lifestyle. Just 1% of patients account for a full 20% of healthcare spending here in the U.S. Typically, most of the spending for healthcare costs are chronic disease treatment and end-of-life terminal hospital stays as one clings to life.
One way you can really increase your overall health and well-being and simultaneously reduce your chances of health issues and associated costs is to reduce stress. Stroke and disease are among the leading causes of death here in the U.S. and you'll find stress to be one of the common correlating risks that increase your likelihood of facing such health issues. Want to know a great way to reduce stress? Quit your job! Or rather at least figure out who you are and spend more time being that rather than being what an employer wants you to be. Get back more of your time to yourself and cultivate the relationships and ventures that are really important to you. Stress really is a killer. I plan to avoid as much of it as possible by being financially independent at a young age and prioritizing my time and happiness over an employer's whims. How much stress can possibly be involved in waking up at a leisurely 10 a.m., followed by a light breakfast, then a nice 1-hour workout session and a lukewarm shower? Usually by that time I will have already worked for 5 hours, running around to and fro like a madman trying to make sales, meet quotas, keep customers and management alike happy and try and not go crazy. Hmm, which way is less stressful and more likely to lead to a more fulfilling and healthier life?
One other great thing about financial independence is that you're also geographically independent. Most people are tied down to one geographical area because they have a house and a job there. Financial independence means you no longer require a job to pay your bills and therefore can come and go as you please. As such, if healthcare costs are something that you're extremely concerned about, or if you start to develop chronic and expensive issues later in life it might pay to be open minded to moving to a country that has significantly cheaper access to care. The U.S. health care system is the costliest in the world on a per-person basis, despite the overall quality of care being low by some measures. I've discussed before that I'm personally open minded to retiring overseas, at least for part of the year, and cheaper healthcare would definitely be a great motivator for something like that if it were necessary.
In summary, I find it funny that people stay loyal to golden handcuffs keeping them chained to a stressful job just so that they can afford expensive healthcare insurance in an expensive healthcare system, all the while increasing the stress levels that are likely to contribute to health issues of which that expensive and otherwise unnecessary healthcare plan will be needed. It's a catch-22 that feeds into an endless loop of servitude. You need the high paying, stressful job so that you can afford the low-deductible high-premium health plan because you don't have any savings set aside for any alternatives.
This blog is more than just a case study in how to retire/become financially independent at a relatively young age on a middle class income. This is my life. I share it so that other people with similar aspirations can come here and find real-life solutions to real-life problems. Hopefully you find inspiration here as I reach new heights and fight through setbacks like anyone else. I hope that anyone out there with questions on how health care costs can possibly be figured into a plan to retire early found this article useful.
Note: there will now be a healthcare expense line added to my monthly budgets from here on out.
How about you? Did you find this information useful? Are healthcare costs overrated or are they crippling your plan?
Thanks for reading.
Photo Credit: renjith krishnan/FreeDigitalPhotos.net