Only Rice and Beans Response from friend on Spending Goal

How to explain ERE, arranging family matters
UrbanHomesteader
Posts: 14
Joined: Fri Apr 29, 2011 9:02 pm

Re: Only Rice and Beans Response from friend on Spending Goal

Post by UrbanHomesteader »

@Scott2, I agree that I left it pretty unclear in terms of what the spending covers. I wasn’t so much thinking in terms of a case study as help coping with friend’s reaction. I still appreciate the input everyone has provided. In response to your points;

1. The paid off house is a big boost. Property taxes were $550 last year, for the whole year. No HOA. DIY for maintenance brings down that cost. I have additional reinforcement income scheduled for later in life when I am too old to safely get on the roof. The reinforcements are a rental property in a medium cost area that the tenants will have fully paid the mortgage on when I’m 58, and SS which I use a conservative estimate for.
2. Health insurance is a biggie, and I don’t know the outcome. We are shown the employer rates for the health insurance at work, and I think it’s more like $500 a month, but that could go up over the years. I am hoping for ACA or something similar to keep health insurance affordable. Under current rules, I would get either Medicaid or a Marketplace plan, depending on the amount I convert from pre-tax accounts to Roth accounts each year (Roth conversion ladder ala MadFientist). Depending on what the political landscape looks like over the next few years, I may make significant decisions based on health insurance alone. I have been in good health but that could change.
3. Taxes are not included in the monthly spend, but they are considered in the draw-down plan. I.e. the draw down amount will be grossed up for taxes and the larger amount is considered in the safe withdrawal rate.

@ZAFCorrection, you’re right, the friend wasn’t aware that I had paid off the house, until later in the conversation. Even after that was cleared up, the next response was something about “you have to think about quality of life”, which I agree with. It’s just that at some point the quality of life boost of walking away from the full time job is more valuable than more money.

The other thing is that this friend wants to keep working for as long as possible and isn’t really working for early retirement. We are just coming from very different perspectives.

What a great bunch of responses. I love the ERE crowd!

ertyu
Posts: 1287
Joined: Sun Nov 13, 2016 2:31 am

Re: Only Rice and Beans Response from friend on Spending Goal

Post by ertyu »

UrbanHomesteader wrote:
Fri Sep 25, 2020 11:25 pm
I wasn’t so much thinking in terms of a case study as help coping with friend’s reaction.
When people say things like that, they're not saying them about you, they're saying them about themselves. Your friend doesn't want someone to make them live on 1200 a month. They don't want to feel like they're not frugal enough for not spending this much, and they don't want to feel guilty, like the fact that you can would mean that they should. Give your friend a response that gets them off the hook: something that recognizes what you're doing is extreme, or say you're just doing it as an experiment and of course you would return to "normal," or "well, yeah, it works for me but of course it wouldn't work if you have [two small kids still in school, house to pay off]". "Well, yeah, it works for me but it's totally legit to pripritize feeling good while you're alive and living a little - after all, who knows what the future would bring, any of us could drop dead tomorrow." Etcetera.

Your friend is off the hook for now. But they still know what you are doing. If they ever arrive at the place where they want to cut their spending even further, they themselves can bring it up.

Note: this method also recommended for handling fat friends when you're dieting.

User avatar
Sclass
Posts: 2031
Joined: Tue Jul 10, 2012 5:15 pm
Location: Orange County, CA

Re: Only Rice and Beans Response from friend on Spending Goal

Post by Sclass »

ertyu wrote:
Sat Sep 26, 2020 1:05 am
When people say things like that, they're not saying them about you, they're saying them about themselves. Your friend doesn't want someone to make them live on 1200 a month. They don't want to feel like they're not frugal enough for not spending this much, and they don't want to feel guilty, like the fact that you can would mean that they should.
Hey thanks for this insight. It reminded me of how my friends have reacted to my lifestyle leading up to and following my retirement. Helps me understand their response.

I’ll add in my case there was an element of competition and jealousy sprinkled in. When they said I couldn’t or they couldn’t do this, it meant they were upset with the implication that if I succeeded I’d be in a financially better place than our peers.

Most of my old friends that I left behind physically and financially, knew better and felt guilty that they were sacrificing tomorrow so they could enjoy today. Lashing out was a coping mechanism.

Scott 2
Posts: 1598
Joined: Sun Feb 12, 2012 10:34 pm

Re: Only Rice and Beans Response from friend on Spending Goal

Post by Scott 2 »

Edit - it seems I am wrong about asset testing for Medicaid when under 65, below. The ACA eliminated this, then court cases made it state specific.


Comparing like to like is one of the hardest parts of these conversations.

As I've gotten close to puling the trigger, I also think your friend may have a valid point. I'm not an expert, but to the best of my understanding:


Your unknowns around health insurance raise flags for me. I'm assuming that $500 per month through the employer plan is for an individual. Once self-paying, it has potential to eat half of your $1200/month bucket. Rates go up with age. I think an individual near 65 retails around $1000 per month, pre ACA subsidies.

Expanded Medicaid is a problem for ERE, because it is means tested and raises the income floor to qualify for ACA subsidies. A person with significant assets cannot get Medicaid. For an individual, that means you need to manufacture around $18,000 of income per year (1.4x federal poverty limit). Often an ERE aspirant lacks sufficient assets to generate that income until 65 (via capital gains and roth ira conversions, typically).

Note too - Medicare is not free health care at 65. Most people will end up paying to round out the coverage. If living in multiple locations each year, you need a medigap plan and part d plan, which could easily be $3-5k per year. A Medicare advantage plan might work if location is fixed, but zero premium options often come with a high deductible or constrained benefits. Getting sick becomes a very big financial risk, under that scenario.

Back to under 65. Assuming the income bar is met, between ACA subsidies and cost sharing reductions, making health care affordable within the $1200/month budget becomes feasible. I'm unclear on the exact annual cost at this point - maybe a few hundred to few thousand? It is a fragile balance, especially if significant medical events occur. One out of network doctor or not-covered specialty medication could quickly wipe out a year of expenses. The pending supreme court case challenging ACA, coupled with the recent death of Ruth Ginburg, adds to the uncertainty.


The friend could also argue someone low income is relying on other tax payers to cover ACA subsidies, and therefore not really living on $1200/month. There is the counter: "I was forced into a universal risk pool, premiums don't reflect the true risk to insure me."


The healthcare situation in the US really sucks. I didn't understand how much, until I started considering the mechanics of not working. It is my biggest pain point in working out a potential FIRE.
Last edited by Scott 2 on Sat Sep 26, 2020 6:37 pm, edited 1 time in total.

classical_Liberal
Posts: 1990
Joined: Sun Mar 20, 2016 6:05 am

Re: Only Rice and Beans Response from friend on Spending Goal

Post by classical_Liberal »

Scott 2 wrote:
Sat Sep 26, 2020 12:34 pm
The healthcare situation in the US really sucks. I didn't understand how much, until I started considering the mechanics of not working. It is my biggest pain point in working out a potential FIRE.
Yes it does!

Ok, I wanted to respond to this because I also want to make the point that this
Scott 2 wrote:
Sat Sep 26, 2020 12:34 pm
Comparing like to like is one of the hardest parts of these conversations.
is very important with health care as well.

Someone in the US who has a chronic medical condition or a family member who is under their insurance umbrella who does, is in a completely different situation than someone who doesn't. Emotions can run high on this topic, so I want to add I'm not saying this is fair or just. It just is right now. In this situation someone who wants to stay in the US must figure out a way to work within the system to hold expanded medicaid (asset restrictions/recapture are different in each state, so relocation can totally change options) or ACA. This requires some up front planning and is subject to the whims of our legislatures. But it is very doable if someone is spending anywhere near ERE levels. I do think, if things change, they will mostly change towards the better in this arena. It just sesems to be the direction we're going.

For those of lucky enough to not be sick, I'm fervently opposed to someone not quitting their job simply because of healthcare. I've written ad nauseam before about all the options available here.

Scott 2
Posts: 1598
Joined: Sun Feb 12, 2012 10:34 pm

Re: Only Rice and Beans Response from friend on Spending Goal

Post by Scott 2 »

Thanks for the correction. Part of my reason to post was review by people who know more.

I edited my reply to note that I am wrong about Medicaid asset testing under 65. The income requirements also vary by state. I did not realize this. If Medicaid coverage is sufficient for you, it looks better than I understood.

I've worked in insurance related business for almost 20 years. I still struggle to keep this all straight.

IlliniDave
Posts: 3053
Joined: Wed Apr 02, 2014 7:46 pm

Re: Only Rice and Beans Response from friend on Spending Goal

Post by IlliniDave »

A few months is a pretty good indicator, but I would suggest sticking firmly to the $1,200/mo for the next three years. That should tell you whether $1,200/mo is a viable expense level for you.

I get the beans&rice joke (good-natured) when talking about the $2,500/mo spending level I was contemplating for a long time. Wound up learning I could live on that, but it was constraining enough that I am now planning with a higher number.

chicago81
Posts: 291
Joined: Sat Feb 04, 2012 3:24 pm
Location: Chicago, IL

Re: Only Rice and Beans Response from friend on Spending Goal

Post by chicago81 »

Scott 2 wrote:
Sat Sep 26, 2020 12:34 pm
The healthcare situation in the US really sucks. I didn't understand how much, until I started considering the mechanics of not working. It is my biggest pain point in working out a potential FIRE.
Yes, yes, yes!

For all practical purposes, nearly all health care providers charge exorbitant "rip-off-rates" to anyone who needs care who doesn't have an "insurance" company to "negotiate" a group/discount rate for care. So, even if one did want to attempt to "self insure" -- it's not really possible, since "routine care" would cost crazy amounts of money due not being "discounted/negotiated."

Without the ACA, you generally either need to be lucky enough to be healthy to buy an "insurance plan", or else be "privileged" enough to be enslaved in a W-2 job at a large enough company to have a "group policy."

Even with the ACA, most of the plans on it (at least in my neck-of-the-woods), have a laughably small number of doctors you can choose from, in a hyper-local geographical area.

The other "option" is to make sure your income is low enough to qualify for Medicaid (and choose to live in a State that "expanded" Medicaid.) ... Although, I admittedly don't know much about Medicaid -- in terms of if they restrict what doctors you can see.

Yes, the system here sucks. And even with the ACA, the system is set-up to coerce you into working until age 65.

Scott 2
Posts: 1598
Joined: Sun Feb 12, 2012 10:34 pm

Re: Only Rice and Beans Response from friend on Spending Goal

Post by Scott 2 »

This thread got me to re-review Medicaid as an option.

I saw some concerns about doctor access. I don't know how real they are.

I am unsure how I feel using a program designed for not me. "Hey, I quit my job and got Medicaid! Hooray big government!" I might not like saying that.

Today, I learned about the Medicaid recovery requirements. Expenses incurred after age 55 are recovered from your estate on death. Yikes. How aggressive this is varies by state, but it seems like affording an ACA plan is my better option.

IlliniDave
Posts: 3053
Joined: Wed Apr 02, 2014 7:46 pm

Re: Only Rice and Beans Response from friend on Spending Goal

Post by IlliniDave »

From what I have gleaned, you've basically got to spend your assets down to nothing (can keep your home, a car, and I think about $20K in cash) to get on Medicaid. I base that on what one of my coworkers went through transitioning his parents to medicaid.

Scott 2
Posts: 1598
Joined: Sun Feb 12, 2012 10:34 pm

Re: Only Rice and Beans Response from friend on Spending Goal

Post by Scott 2 »

I had the same misunderstanding, which classical_liberal corrected. The ACA changed Medicaid qualification rules for individuals under 65. That age band is now evaluated using only income - MAGI

The 55-65 age band is where the wealthy Medicaid recipient puts their estate at risk for recovery. Most likely, at 65 they will qualify for and transition to Medicare.

For individuals 65 and up, Medicaid does still look at assets. For most here, that probably becomes an option only for the long term care consideration.

classical_Liberal
Posts: 1990
Joined: Sun Mar 20, 2016 6:05 am

Re: Only Rice and Beans Response from friend on Spending Goal

Post by classical_Liberal »

Yeah @Scott2 nailed it with his last post, what @idave talks about about is LTC at end of life. States are pretty up front about recovery too, if you read into their specific policies.

A resourceful person may look at this and think they could get medicaid until 55, and save roth conversions (if they don't have much deferred monies) for ACA 55-64, or move to a more favorable state for recovery policies. Still, this is all up to the whim of legislators and future tax rates could come into play as well for conversions. Remember too, the wealth needed for ERE spending can look like middle/upper middle class retirement dollars to the elected rulers. So they don't really want to alienate the "responsible" retirement savers on track to get that 10 years of consumer spending by 65. I also grok @scott2's hesitancy to use medicaid. My point is if it's only healthcare holding someone back, if they are near ERE or even MMM (the man not the forum) spending, then they probably aren't utilizing the health insurance system well.

The whole thing is such a jumble that I've basically opted out with a healthshare. Of course, I can really only do that for as long as I don't have any chronic conditions.

IlliniDave
Posts: 3053
Joined: Wed Apr 02, 2014 7:46 pm

Re: Only Rice and Beans Response from friend on Spending Goal

Post by IlliniDave »

Thanks for the clarifications Scott 2 and cL. Already being in the 55+ cohort maybe what I absorbed was biased by that. I'll have too much retirement income for ACA subsidies, much less medicaid, and medicaid would only be an end-of-the-line option. For some reason I'd missed that medicaid isn't (or is no longer) means tested for younger people.

Post Reply