Paying for medical expenses is an important consideration in early retirement. .
There's been no shortage of back and forth when it comes to the successes -- and failures -- of the Affordable Care Act, better known as Obamacare. I'm not here to offer my opinions on the program, just to point out that the program has a huge unintended consequence: it can make your prospects for early retirement much rosier.
The odd math of early retirees
In order to retire early -- say in your 30s, 40s, or 50s -- you must break the typical American mold of saving just 5% or 6% of your salary. In its place, many early retirees find their level of "enough," and refuse to adjust their spending habits just because they get a raise or new high-paying job. The result of this approach is twofold: lower living expenses and much higher savings rates.
This article will focus on lower living expenses. The average American household with adults between the age of 35 and 44 spends about $59,000 per year. Of course, there will be huge cost of living differences based on your location -- but suspend that idea for a minute to get the gist of what we're talking about.
Because we know that early retirees spend less than "average," let's say annual expenses come in at $40,000 per year. That might be tight if you have yet to pay off your mortgage. But for those who have, living on as little as $25,000 could be just fine -- as one famous early retiree has shown.
Where Obamacare comes in
The law was formulated to help ensure all Americans have access to healthcare. A huge part of that is through government subsidies that offset healthcare costs for those with low income and no healthcare plans offered through their work.
If you are considering early retirement, you need to purchase your healthcare through the government marketplace. This is where those government subsidies come in. Using an unofficial calculator provided by the Kaiser Family Foundation, you can see that purchasing a Bronze-level plan wouldn't be prohibitive. In fact, sometimes it's free!
You can run your own personal scenarios on the organization's website, but the list below shows what the average American family's Bronze Plan would cost. For this, I'm assuming there are no smokers, that parents are both 45 years old, and that they are are withdrawing $40,000 per year for living expenses in early retirement.
|
Household Composition |
Bronze Plan, Monthly, Before Subsidy |
Bronze Plan, Monthly, After Subsidy |
|---|---|---|
|
Two Adults |
$482 |
$132 |
|
One Adult |
$241 |
$241 |
|
Two Adults, One Child |
$587 |
$40 |
|
Two Adults, Two Children |
$737 |
$0 |
|
Two Adults, Three or More Children |
$914 |
$0 |
|
One Adult, One Child |
$347 |
$172 |
|
One Adult, Two Children |
$452 |
$80 |
|
One Adult, Three or More Children |
$562 |
$0 |
Source: Kaiser Family Foundation.
The discounts are astounding, particularly once children are introduced into the equation.
Many opponents of Obamacare would say this is proof of a broken system. The discounts are intended for families who are trying desperately to make ends meet, and early retirees are simply taking advantage of the situation by getting their healthcare covered.
Proponents might counter that these families should be rewarded for their frugality, as they are likely producing far less waste as a result of their habits. These families also likely paid a disproportionate amount of taxes in their working years, which enabled them to retire early in the first place.
In the end, I'm not advocating either stance on the healthcare law. I'm simply pointing out that Obamacare has made it far easier for families to enjoy an early retirement than was possible just a few years ago. For those considering such a path, that's food for thought.
