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Episode #632 - Healthcare Before Medicare: Creating Your Own Action Plan

“Rushing to decisions often leads to expensive mistakes.” - Allison Dunn

Roger: Well hey there. Welcome to the show dedicated to helping you not to survive retirement, but to have the confidence to lean in and create a great life to rock retirement. My name is Roger Whitney. I'm a practicing retirement Planner with over 30 years experience walking this journey. Ah, good to be here with you today on the show.

ROGER INTRODUCES THE FINAL WEEK OF THE HEALTH CARE BEFORE MEDICARE SERIES AND PREVIEWS UPCOMING EPISODES WITH HARRY REESE (CO-AUTHOR OF HOW TO FEEL LOVED) AND RETIREMENT RESEARCHER WADE PFAU.

Roger: Here's the plan. We are going to finish this four week series on health care before Medicare with a protocol to think through the decision in an organized way so you can get to a judgment call. Next we're going to have a chat with a retirement planner, Taylor Schulte from Define Financial, to hear how they approach it just so you can get a different perspective of how professionals do this and hopefully this will empower you to have more confidence in you navigating this decision. Now next week on the show we're going to have, we're going to do two things. We're going to have Harry Reese who wrote a book with Sonja Lyubomirsky that just came out called How to Feel Loved. So we're going to have a focus on the non-financial aspects of how to get what you want in the relationships that you have. In addition, we're going to share a lot of listener comments on wisdom related to navigating healthcare so we can share some of the wisdom that you guys have. Week after that we're going to pivot from the non-financial to having Wade Pfau on to talk about his current thinking on best practices for retirement planning. Wade is a prolific researcher and author so it's going to be fun to have him on. The week after that we're going to have I think an important episode on some caution on how to use retirement planning software to get what you want out of it and how not to misuse it because a lot of us have access to these tools nowadays. And then we'll finish off the week with lots more questions and give you a little insight to the listener survey and who you hang out with here. So that's the plan. So let's get started with talking through a protocol to think through the decision on health care.

PRACTICAL PLANNING SEGMENT

ROGER REVIEWS THE THREE “HEADS” THAT MUST BE MANAGED BEFORE MEDICARE- COST, CONTINUITY OF CARE, AND COMPLEXITY.

Roger: At the beginning of this series we talked about navigating health care before Medicare as a three headed Cerberus, the mythological creature that has three heads. And those three heads were cost. How do we navigate the cost of health care especially before Medicare because that's a big issue. But then that's not the only one that we have to wrestle or tame. We also have to deal with continuity of care. You have doctors and you have, maybe you have relationships with doctors, you have your drugs that you may need, you have healthcare issues that you're managing. How do we tame this head to make sure there's a continuity of care so you don't disrupt everything that's working, hopefully for you up until this point, we gotta make sure we address that one. And then the last head, that's related to the other two is complexity. How do we navigate not making it too complex in managing costs and not making it too complex in the continuity of care. So those are the things that we're trying to tame here.

ROGER TALKS ABOUT AVOIDING UNFORCED ERRORS THAT COULD COST YOU MONEY, DISRUPT CARE, OR CREATE UNNECESSARY STRESS.

Roger: So how do you think through this decision, now that we've explored this topic? Well, first we need to identify what our intent is in making this decision. And that is to avoid unforced errors that could in the financial realm cost literally tens of thousands of dollars if we're not paying attention. And not just in healthcare premiums, but it could be in cost for drugs or unintended consequences because of the plan we chose. How do we avoid some unforced errors in financial terms? And also how do we avoid non-financial unforced errors, not having access to a doctor that's important to you, having a disruption in the drugs that you're using, et cetera. And then lastly, to feel confident you did your best in thinking through this decision intentionally. So that's what the intent is, is to really avoid these unforced errors and not turn ourselves into a pretzel to try to optimize it. It's important to acknowledge up front that you will not get this decision wrong and you will not get this decision right. There is no perfect answer for anyone. There's a lot of trade offs that are judgment calls that you can't just quantify. So give yourself some grace there. Just avoid the unforced errors and think through it in an organized way so you can get some confidence in whatever judgment you come up with. And that judgment could come from a spreadsheet, it could come from your intuition. So give yourself some grace there. And ultimately we just don't want to have anxiety that, oh man, I just sort of winged it. I don't know if I did this right and I didn't. Maybe I missed something. We're always going to have that, but think through it in an organized way.

ROGER INTRODUCES THE OODA LOOP—OBSERVE, ORIENT, DECIDE, ACT—AS A PRACTICAL WAY TO THINK STEP BY STEP ABOUT HEALTH COVERAGE CHOICES.

Roger: To do this we're going to use a framework that we've used before called the OODA Loop, and that is observe, orient, decide, and act. Now in our practice we use a protocol very similar to this. It's just not as overt as I'm going to explain it to you because we pay attention and we take notes and we're walking through life with clients. So we end up understanding a lot of this context. But I want to give you some things to think about step by step. Okay?

OBSERVE: BUILD A 5-YEAR RETIREMENT INCOME AND SPENDING PLAN, ESTIMATE TAXES AND MAGI, IDENTIFY WHERE YOU FALL RELATIVE TO THE ACA SUBSIDY CLIFF, AND REVIEW WITHDRAWAL SOURCES (TAXABLE, PRE-TAX, ROTH) ALONG WITH FUTURE RMD IMPLICATIONS.

Roger: The first is to observe, first category. And the first thing you want to observe is know your income and your spending plan in retirement. Have a plan of record with version one of what that plan is. And my suggestion would be to build out a five year cash flow estimate that shows your expected income sources from Social Security, from part time work, from pension, annuity payments, etc. Over the first five years, year by year. And then below that show the expenses, the cost of your base great life, and any discretionary wants that you have that you want to fund over year one, year two, year three, year four, and then have a base tax estimate on the income that you're going to receive. Just a real rough and dirty one.

Roger: Next, I want you to map out your version one of how you're going to fund that life. Because presumably if you're in retirement, you're not going to have enough income to cover your expenses. That's sort of what retirement is. Your income goes away. So you map out version one of how you're going to fund it by looking at all of your financial assets, your after tax money, your pre tax money and your tax free money. And then map out what account you're going to pull the money from year by year. Because that's going to help you identify if you're going to have IRA withdrawals to cover your life in year one, that's going to help identify more income that year because you did an IRA withdrawal. So just map this out in version one. Then do a modified adjusted gross income estimate looking at your income sources from income, pension, Social Security, IRA withdrawals. If you have after tax investments, look at your past tax returns and look at the dividends that you receive from those investments, the interest, the capital gains that happen with those investments. Because you're going to want to have a modified adjusted gross income estimate at least for the first year or two. Because that is what the ACA subsidy cliff is based off of and what premiums are based off of. So observe those things by putting this together.

Roger: Now if you've already built a plan of record and gone through the hierarchy we use, then it should mostly be there. Next thing you want to observe is what the federal poverty level is in the year that you're going to retire. And you may just have to look at what this year is. And you can find that usually at healthcare.gov because 400% of that is where the cliff is for Affordable Care Act subsidies, assuming that you're going to use subsidies as an option or the ACA as an option. So it's important to observe where that cliff is. So now at this point you have a first estimate of your modified adjusted gross income and you have an understanding of where the cliff is to see how close you are to that cliff if you were to use ACA subsidies.

Roger: All right, next thing you want to observe, go back and observe your after tax assets, your Pre tax assets, IRAs, traditional 401 s, traditional et cetera, and your tax free assets. And as part of that, observe what your future required minimum distributions might be. Because that's information that's important. It could be important down the line because if you choose to not take money out of IRAs and drain your after tax assets because you're trying to optimize, that could exacerbate what your required minimum distributions are. And it might, you might save a dollar to miss out on saving lots of money later on because of these forced distributions. And then lastly, build a version one of that current spending plan. So we just want to observe all of these things. Now what's the second category of things that you want to observe? And this is going to be your health care and the healthcare options you have. So observe your health status. Are you unhealthy and generally will need more medical care year by year, or are you very healthy and rarely use healthcare and rarely hit a deductible, rarely go to the doctor, et cetera? Make an observation and judgment on that. Do you have chronic or ongoing issues that you're having to go to doctors for? Do you have ongoing prescriptions? Are they low cost prescriptions? Are they biologic and high cost prescriptions? Just take a notebook and write these things out. Oh yeah, I'm not very healthy and I have this issue. So I go to the doctor, I have to go to the doctor every quarter. I'm usually hitting my out of pocket deductible, all those types of things, because that's going to help inform you. But it's good to have this all written out rather than just bouncing around in your head. And then maybe you put a rating on yourself of healthcare usage. Are you a low healthcare user, mid medium, or are you a high healthcare user? Some of us are naturally, even outside of the issues we're dealing with, we just don't mind going to the doctor. We never go to the doctor. Where are you at on that?

Roger: Next thing I want you to map out is your current providers. Who is your primary care physician? What specialties, specialty physicians do you use? Maybe you go to a dermatologist that you really love. Maybe you have a primary care that you're okay with. Look at those doctors and ask yourself, how important is this doctor to me? Do they know so much about me that I would hate to lose that doctor? Or do I have such a good relationship, working relationship with that doctor that I don't want to lose them? Or do you not really care? That makes a difference, because if you really like your doctors, then one thing you could look at observing is ask your doctor's office that you like what plans are on your system from the Affordable Care Act. So who, who do you contract with? Are you with, you know, you know, Blue Cross, Blue Shield or whatever? Because that could influence, if you were to go the ACA route, the insurance you choose in order to have that continuity of care. Best place to go is to the doctors and which ones they work with and like to work with. Next thing you want to observe, get the facts around what is offered to you through cobra, which is the extended care after you leave work for a period of time. This might be the bridge for continuing your employer coverage for at least 18 months or longer, depending on your state. And we talked about that, I think in episode two of this series. But get information on COBRA so you understand what the premium would be if you did that and have the information.

Roger: Next, get information on the Affordable Care act. Log into healthcare.gov, go through the process. You can even put in your doctors if you have doctor information. And get a sense for what a bronze plan looks like, what a silver and gold plan looks like. You don't have to go down the rabbit hole yet, but get a sense for what those premiums are and the coverage is relative to cobra. If you're considering part time work, explore that option. You know, if you are a Home Depot dudette and you're, a handy person and you're thinking of working at Home Depot and you can work 20 hours to get health care, go explore it, and all this stuff should be on the Internet somewhere. Get a sense you don't have to go down the rabbit hole, but get a sense as to whether that's a viable option or not. And then also look at your employer Options just to see if, you know, maybe they have some retiree health care coverage that you're not aware of. The point in this framework, and those are the only things I'm going to cover under observe for now. But I want you to gather this data and put it in spreadsheet, put it in a notebook or in a document so you have it all there. And this will take some time if you're starting from ground zero. And what will this will help with is we're not just doing this asynchronously where we're grabbing one thing one day and a week later we grab another thing. But we're not, not really organizing it in any way. We want to have this organized so we have a lot of the facts in front of us.

ORIENT: CLARIFY WHAT MATTERS MOST TO HELP YOU MAKE A DECISION.

Roger: All right, now that you've done that, now it's time to do the other O in uda, which is to orient. Orient. Now that we have facts, let's orient what's important to us in our decision making. Now on the non financial, start asking yourself, well, how important is continuity of care to me? How important is this doctor or that doctor? What type of time do I have right now for this project? If you're getting ready to retire in a few months and you're a little late to the game on this, maybe you don't have the time because you have a worldwide trip planned or you're dealing with a parent that you're helping out or a child that you're about to have a grandbaby. Maybe life is too busy. That's important to know because you can always go to COBRA as a bridge for a period of time and up to 18 or 18 months or more so you can address this when you have more time to actually go down this rabbit hole so you don't feel the pressure. So from a non financial perspective, rate how much complexity are you interested in? How important is this in the grand scheme of things to you and how important is continuity of care on the financial side? evaluate where are you at relative to the Affordable Care act cliff of 400% of the federal poverty level? If you're way over it? Well, that simplifies it in that you don't really have an opportunity to adjust your income to get under it because it's. If you're $1 over that, that cliff, it's really a non starter. So it's not something you have. This makes it a lot easier if you're close to it. Now you got some decisions maybe you need to make and how will you know this? Well, you already looked at your income for the first few years of retirement and you did an estimate of your modified adjusted gross income and you looked at where the cliff was. So you can very easily tell whether there's an opportunity to do something here or whether you're so far away from it that it's not even worth thinking about. That saves you a lot of time or whether you're just well below it and now it's making sure that you don't go above it. So you already know that you're going to get some premiums. If you're close to it, then you can say, well, what flexibility do you have to get under it? If you wanted to try to get some ACA subsidies, you could do Roth, you know, Roth distributions. You could do HSA distributions assuming you have medical bills that you can submit because you can't take a distribution for the premium. you could do after tax funding because you have cash reserves. Do you have those options to keep your income low or get them below the federal poverty late so you can get subsidies? You may not. I was just dealing with someone the other day. All of their money was pretty much in pre tax accounts. They were going to have to pull for that to fund their life, which would totally kick them out of any possibility of getting ACA subsidies. Pretty clear. Not the best, you know, you know, financially they're going to pay a lot. But you know what, it makes decisions easy because you don't have any other options. Evaluate your flexibility. Evaluate some potential funding plans because you have version one of this is how I'm going to fund, you know, first, second, third year or five years. You already had version one because you did that in Observe, remember. Now you can play with, well, what if I do take from Roth IRA and not my traditional IRA? Now you can go back and estimate the modified adjusted gross income there and estimate the savings that you're going to have premium wise. And healthcare.gov is a great tool for this. The Kaiser foundation is a great tool for this. We'll have links to those in the noodle email that we send out every Saturday. Now you can experiment with different spending plans. Well, what if I took out of my Roth, what if I spent down all my after tax assets? Play with those options to see which one seems reasonable to you within the context of everything. And then lastly, and this is an important one, evaluate is the juice worth the squeeze. Meaning that we can really create an optimization strategy that requires us to take money from these different accounts. It means that we have to manage it differently and make these adjustments and then we have to pay attention and do better tax planning at the end of the year, et cetera, and then go through all that rigamarole and realize, wow, it's only really gonna save me $3,000 over three years. Is it even worth the effort to add all this complexity to my life? So look at the years between now and Medicare and the potential savings from this experimentation. Do an estimate. You're not going to get it right. So just do a SWAG based on your ability and attention to detail and make a judgment call. Is it worth doing these things that are going to alter my current plan in order to save roughly X amount of dollars and make a judgment call? Because, everybody is going to be different on that. You know, it's no different than am I willing to drive two miles out of my way to save 10 cents a gallon in gas? Some people, yes, all day long. Other people, I don't even want to think about that. You decide for you. So that's how you can start to orient your decision so you can get to your decision.

DECIDE & ACT: CHOOSE A DIRECTION, DOCUMENT YOUR REASONING, UPDATE YOUR PLAN OF RECORD, AND IMPLEMENT THE DISTRIBUTION STRATEGY THAT SUPPORTS YOUR CHOICE.

Roger: And your decision is, I'm going to go to COBRA as a bridge. I'm going to look at private insurance through a broker. I'm going to do cobra. I'm going to do aca. And then if you decide aca, are you going to look at bronze, silver, gold? Do I? And then potentially hire an ACA navigator? We shared a link to that in last week's email. Make a decision. I'm going cobra. I'll think about this in the fall and learn more. Or I'm going to do ACA and I'm going to hire a navigator. I'm going to choose, a level that seems to make sense given my healthcare coverage and have it done. And I'm going for ACA subsidies at this level and this is how I'm going to take my distribution so I at least get it in the first two years or whatever it is. Make a decision, then you act, document your decision. I think it's always good to document it. Why did I do this? So that way your future self can go back and say, okay, Roger looked at it in a reasonable way. He obviously made a mistake here, but he did his best. You understand why current day Roger, and in my case, future Roger, can understand what the heck current Roger was doing. Update your plan of record with your funding strategy, implement the financial adjustments and you're good to go. That would be an OODA loop way of approaching this now, I didn't catch every little thing you could observe or orient to that would be way too long of an episode. But doing it in this organized way and fleshing it out for yourself is going to get you to a place where you feel much more confident about what judgment you made. And you know, you didn't wing it and you gave it your best shot. And that way you can move on because we only have so much time and we got to get on living and rocking retirement. So there are my suggestions. Now we're going to go listen to Taylor and I'm going to ask him questions about how they approach it. And next week we're going to have a wrap up and share lots of discussions around, wisdom on ideas, cautionary tales and things to think about to bring in some wisdom from people that have walked this just like you are.

CONVERSATION WITH TAYLOR SCHULTE FROM DEFINE FINANCIAL

Roger: All right, to get a perspective from a retirement planning expert, we have Taylor Schulte from Define Financial. How you doing, Taylor?

Taylor: I'm doing well, Roger. Thanks so much for having me.

Roger: Thanks for coming on to talk about navigating healthcare before Medicare. this is the topic that you've talked about a little bit. Where, where should we start as you're with your thinking on this?

Taylor: Yeah, well, we talk about it a lot. It's a, it's a really popular and important topic and I think there's a lot of misconceptions maybe, or maybe wrong assumptions.

WHY HEALTH CARE BEFORE MEDICARE SHOULDN’T AUTOMATICALLY DELAY RETIREMENT AND HOW ASSUMPTIONS OFTEN GO UNTESTED.

Taylor: I think people jump to some quick conclusions when it comes to this topic. Most recently, I was sharing with you that I'd published a video on claiming Social Security early and some reasons why you might want to consider that. There's been some new academic research on the topics. And so I shared all that and I was flooded in the comments by people talking about healthcare before Medicare saying like, this sounds great, taking Social Security early. I understand the reasons, but I can't retire and do that because I'm not going to have health care coverage. I need to wait until age 65. So I guess I was just surprised to see so many, you know, educated viewers jumping to this conclusion that they, they can't do this, they can't retire early, they can't take Social Security early because they have to wait until age 65 to, to get on Medicare. I realize that it can be more costly than when you were employed, but, you're not out of options. There are options. There are a lot of options out there and some of them are staring you right in the face and you're just not Realizing it. So, it's a very real problem. It's a very real challenge. And I think the starting point for anybody in this situation who's considering retiring early or retiring, retiring before Medicare, is to just have the open conversation, take inventory of your current situation, start to talk about what the options look like, and then kind of go through the process from there and we can talk through what some of those potential solutions might look like.

Roger: And we'll have a link to this video in our noodle email so you can check out Taylor's channel. It's one of the smoothest YouTube channels. He has the voice and face for AI for sure. He's a beautiful man. And I think you hit on a really good point, is it's an intimidating subject of health care before Medicare, and a lot of times it's an unknown unknown. And we read these articles about the, significant cost to it, and we just don't even go down the rabbit hole or even observe what it might actually be. So it.

Taylor: Right.

Roger: Some of it is just creating, making it a known unknown and starting to understand the costs involved rather than just say, I have to wait without even examining it. Right.

Taylor: Or you hear that, you know, a friend or a colleague says, I'm spending $30,000 a year on healthcare, like, you don't want to do that. And so they assume that that's what's going to cost them. But if they haven't gone through the exercise and explored all the options again, there might be a really great solution staring them right in the face that they're not even realizing, isn't it?

Roger: Another factor of that is, let's assume it's 25,000 a year, as in, let's say you do the math and you figure out, oh, it's going to be $25,000 a year, and I'm 60 years old, so I need to wait till 65. Yeah, well, yeah, that's a challenge. But if that is feasible, how much is five years of your life worth from 60 to 65, if it still is feasible within the context of your plan, is five years of your life during early retirement worth the cost? Is something you might want to examine rather than just edit out quickly.

Taylor: Right. I think more than anything, and you know this, that no matter how much money somebody has, nobody likes to be caught off guard or surprised by an expense or surprised by a tax bill. So again, I think just understanding what it costs, what it means to you and your plan, allowing you to make that educated and informed decision, is really important. because you don't, you don't know what you're saying no to necessarily. you're making some blind assumptions. So again, I just want to acknowledge it is a real challenge. there are a lot of nuances in this conversation, especially most recently in 2026, with some big changes to the ACA subsidies that's caused it to be even more challenging for people. But I just want to acknowledge that there are solutions out there, that it's possible that you can work this into your plan.

Roger: You make a good point about getting over the shock. It's like with taxes and things like this, nobody wants a negative surprise. So maybe part of that process is getting shocked and then getting over it. Right. So it's not so shocking and unexpected.

EVALUATING ALTERNATIVES BEYOND ACA, INCLUDING COBRA AS A SHORT-TERM BRIDGE AND PRIVATE PLANS.

Roger: We talked this series about where a lot of people go, the Affordable Care act in navigating the marketplace. But there are other options and we, hit on them a little bit. What are some of the options that you're seeing people explore other than just simply going to the Affordable Care Act?

Taylor: Yeah, there are some conventional options and we'll talk through those because they might apply and maybe somebody's not realizing that they exist or some of the nuances. There are some unconventional options too. One I just want to make sure we mention is some companies offer health insurance as a retirement benefit. So, you know, you may talk to your current employer and you may have some benefit in there. Maybe they don't cover the full premium for you, but they do help. So, it's increasingly rare these days, but it does still exist. your spouse's employer plan. If your spouse still works, you might be able to get covered by them. Again, easy, simple solution.

Roger: So keep your spouse working is what I. Yeah, yeah, exactly.

Taylor: I'm going to retire. You keep working. One of the more underrated options or maybe overlooked options, because as you and I both know, not everybody wants to just like, retire and do nothing. Most people want to do something. They want to contribute to this world somehow. They want to stay busy, they want to have community around them. So one kind of overlooked option I see is part time work. There are, some phenomenal companies out there that we all know by name that, provide health insurance, options for part time workers. I know Costco is one of them.

Roger: I was just having this conversation today with Costco. She's going to work at Costco for her health care.

Taylor: Yeah. and, they all have, you know, different, levels of scenarios. Yeah, there's different coverage options and you know, Work a certain number of hours. But Costco, I know Starbucks, Ikea is another big one. Lowe's, the hardware store. So there's a bunch of them. But part time work to keep you busy, have community around you people and get healthcare coverage at the same time could be a potential solution. Now I don't want someone to retire and feel like they have to go back to work to work part time just to pay for healthcare. So again, kind of the stars need to align here and match up with your needs and goals as well. So those are some of the more like just unconventional or maybe potentially easy, more cost efficient solutions. If those don't apply, the one we'll jump to next is cobra. And everybody knows that. Co I think most people know that COBRA exists. Although COBRA can be fairly expensive because your employer is not going to be helping you out anymore, you're going to pay the full premium. We have to remind ourselves that retirement is a major life transition. And so there is some benefit to just like keeping some continuity in your health care plan. You, you're already making a major life decision. Let's not like disrupt this other really important part of your financial plan. So maybe you can be okay with for 6 months or 12 months paying a more expensive premium as you go through this transition so that you don't disrupt this really important piece of your

Roger: life because you don't want to change doctors and pharmacies and continuity of care and. Yeah, good point.

Taylor: Yeah. You know, we talk about surprises and you can go through this due diligence process and pick a private plan or ACA and think you're covered, but all of a sudden get surprised by it because like, you know, it doesn't cover what you thought it covered. so at least you know, with your existing plan using cobra, there's that continuity. and so I find some value in that and I think that should be factored in the decision even if it is a little bit more expensive. So that can be kind of just like an initial bridge as you go through this process. Of course, ACA is another option if COBRA isn't or it's too expensive. And I'm not sure how much you've gone into this yet in the series about, you know, some of the changes in 2026. So we can dissect some of those, but the subsidies aren't the same anymore. and so some things to navigate around there with aca.

Roger: Well, and they're basically went back to what they were, were originally. They, they just did away with The COVID extra that put into.

Taylor: Yeah, and I think what exactly, and I think what makes this challenging is, you know, we talk about all the great tax planning that you can do in your gap years before RMDs kick in. And this kind of throws a wrench in some of that because if you start doing Roth conversions In your early 60s, you know it's going to push you above this cliff. And if you're just $1 over the cliff, you're out. So you, could lose out on, you know, five figures of ACA subsidies if you're just $1 over. So it's this kind of battle between I want to do some aggressive tax planning in my gap years, but, but I also want to manage my modified adjusted gross income so that I can get these subsidies for aca. So again, it's like this cost benefit analysis to determine what, what is better for me and my plan.

Roger: It's really complicated. I mean, even it's, I mean, I know it is for you and for us it's, it's, it's more complicated than you think it would be to try to get you, you know, best you can do is get directionally. Right. But let me ask you this question.

THE TENSION BETWEEN ROTH CONVERSIONS AND ACA SUBSIDIES, AND HOW SOCIAL SECURITY TIMING AFFECTS MAGI.

Roger: When you're thinking about ACA subsidies and you're looking at the client's retirement trajectory and what they have in pre tax assets and what their required minimum distributions might be, and you're looking at Roth conversions, how do you navigate which one is worth the Most? ACA subsidies vs doing Roth conversions to lower RMDs? How do you figure out which one is it? The burden? The hand? The subsidies versus what might be a burden? The hand later in life.

Taylor: It's a really good question and we're making a lot of assumptions and these are long term projections. So, you know, we're going to end up making just our best educated and informed decision. And on top of all that, like there's personal preference that goes 100% as well. there could be a very, very clear opportunity for Roth conversions, but someone might just say, I just don't want to do that. I just don't want to front load my tax bill. So I guess the short answer to your question is, you know, running a deep dive analysis. And for us, especially from the tax planning point of view, it would be starting with that, calculating, their long term or lifetime expected tax bill. So if we just like do nothing at all. No proactive tax planning. You know, you jump on aca, claim your Social Security at full retirement age. Accept your RMDs for what they are. Like, what does that total retirement tax bill actually look like at end of life? And I think that's a good starting point because then you can back into, okay, now what if we do some proactive tax planning? What sort of dent does that make in my tax bill? if I do that, what does that mean for ACA subsidies? Well, I'm not going to qualify for those anymore, so I'm going to pay more in health care premium. So what does that cost? And let's compare the two. One thing I want to point out here because, this always comes up when we talk about tax planning and retirement. Like, you pull one lever over here and it ripples through the rest of the plan and affects other things over here. So with ACA subsidies, they're looking at your modified adjusted gross income, so your maggie. And one of the things that's included in your MAGGIE is your Social Security income. So if you claim Social Security income early, that's going to be added to your maggie, and that's going to affect your ACA subsidies. So that has to all be factored in. So I don't want to overwhelm people here, but there are a number of moving parts that have to be factored in. You can do a deep dive analysis and make this incredibly informed decision. Or again, there can be some personal preference here. what you choose probably isn't going to make or break your plan. You could skip Roth conversions and your plan probably isn't going to break down. Right? you know, you can pay for Cobra for 18 months and then jump on ACA. Your plan is probably not going to break down just because you paid Cobra for 18 months. So I think sometimes we put too much pressure on ourselves to choose, like, the absolute best answer. But for a lot of our clients, they want to go through that exercise, see the numbers and make that informed decision.

AVOIDING THE “OPTIMIZATION TRAP”: SOMETIMES PAYING MORE FOR SIMPLICITY STILL RESULTS IN A RESILIENT RETIREMENT PLAN.

Roger: That's a really good point too, in that, you know, from my vernacular, it's, this is an optimization question. And ideally, you know, optimization, like if we use clothing as an example, if you got your shoes and socks and pants on and shirt on, you're resilient to go, you know, feasible and resilient to go outside. Optimization is how, you know, picking what watch to wear or what earrings to put on. It's important, but you're still going to be fine without it. Yeah, that's, that way we can lower the stakes of feeling like we quote, unquote, get it wrong, because we won't really know whether it's wrong or right.

Taylor: Really Right?

Roger: Right.

Taylor: Well, yeah, because, you could win this one game. You see people that are trying to just optimize and manage their Maggie to stay below that, that ACA subsidy cliff, and there's like, focus on just like controlling their Maggie to stay below it and then not realizing, again, well, they're sacrificing potential, great tax planning that they could do that could save them a million dollars in lifetime taxes. And so you just kind of get stuck looking at things in isolation and getting obsessed over these numbers, and it just becomes like a big, giant puzzle. So, you know, that is one of the questions too, that we'll often ask clients in these situations. Like, how far down the rabbit hole do you really want to go? Like, do you want to optimize every single part of this plan, you know, or do we want to have a higher level conversation? Just choose what feels right to you. Because again, maybe paying a little bit more to just keep it simple. Get on cobra, take your time. Sure, again, you might be spending some good money. but maybe that's just like the path of least resistance. So.

Roger: So you've had so many of these conversations, like I have on a whole. Where does it usually end up for you?

Taylor: where does it usually end up? We are strong advocates of, I don't say pushing people, giving people the confidence, giving our clients the confidence to transition into retirement maybe earlier than they planned, earlier than they thought they could. And so that is a large part of the conversations. I don't want to. The cost of health care, even if they can afford it, I don't want the cost of healthcare to discourage them from hanging it up early and enjoying these early active years.

THE KEY TAKEAWAY IS THAT THERE’S NO PERFECT ANSWER—RETIREES SHOULD EXPLORE OPTIONS, MAKE INFORMED DECISIONS WITHOUT FEAR, AND USE HEALTHCARE PLANNING AS A TOOL RATHER THAN A BARRIER OR EXCUSE TO DELAY RETIREMENT.

Taylor: And so I think where it typically ends up, unless somebody just wants to work forever, is finding the solution, the healthcare solution that works best for them, that allows them to pull the plug and enjoy those early years. And it does typically end up with COBRA in the beginning, at least for a short period of time. For the reasons I mentioned earlier, maintaining that continuity. ACA, historically, before 2026, was way more popular for this, this new cliff change. So we'll see what happens in our planning this year with clients. And then, you know, private plans are the option that we haven't m talked about either. and that's something that a lot of our clients do end up exploring as well. You want to, you know, get a little bit more creative with your plan structure. You know, you have really specific desires, private plans. I don't say it's extremely common, but there's a healthy percentage of our clients end up, really, we'll use, ah, an independent broker to shop those plans and find the private plan that really works best.

Roger: You must have really healthy clients because a lot of times you, you get excluded from pre existing conditions, etc. Well, you're in San Diego, everybody's beautiful there. So they're all healthy and perfect.

Taylor: Yeah. Well, again, I don't want to say, I don't want to say it's common, but I'm thinking of certainly more than, you know, clients on one hand that have opted for, for private. there's more and more clients now opting for concierge coverage as well. And so, you know, you can make this as comprehensive and as customized as you want or need. One popular option that comes up a lot in conversations that very, very few people ever end up opting into are health share plans. I don't know if you've dissected this a bit or talked about in this

Roger: series, just touched on it briefly, so

Taylor: I'd be curious to hear kind of where you've ended up with it or if you've had clients that have opted in. But like, it's a hot topic. Like, tell me about these, these health share ministries. You know, they sound so appealing. And then we, you know, yeah, we, we unpeel the onion and, and share more and most people don't end up opting into it. So it is an interesting option.

Roger: But yeah, we've had clients that have done it successfully and had disease, you know, disease and life circumstance hit them and it's worked, which is good to hear. And my, you know, Sean and I were on one for a while early when, when we had to get our own insurance and where you, you can have hiccups around like Shauna's on a biologic, which is like a, you know, humira type of thing. And that's very expensive and there are a lot of exclusions when it comes to drugs and it's attractive and I know a lot of success stories, but generally I don't see that as an option.

Taylor: Right.

Roger: Because we're planners, we're trying to, you know, avoid unforced errors. And a lot of times, you know, spending for the right thing helps you avoid unforced errors.

Taylor: Yeah, absolutely.

Roger: And one thing that you hit on that I thought was important is having the confidence that we can afford this cost and still have a great retirement, which is very different than mathematical. It's just like knowing that, okay, I've absorbed the surprise. It's not an unknown, it's a known now and it sucks, but it's still okay. And feeling confident that you can manage it.

Taylor: Yeah, I think that clarity is really important and again, just challenging assumptions that you might have heard from other people. And again, knowing what the impact is to your financial plan. And I kind of think about it, I guess in terms of kind of shocking your plan. It could be a large amount of money that you're going to end up paying for healthcare premiums for a period of time and that can be a shock to your plan. So we shock the plan with this. Let's assume worst case scenario and you're spending 50 grand a year for healthcare coverage for you and your spouse for, you know, five years. what does that do to your plan? What does it actually mean to your plan? And I think just sometimes like seeing that on paper we do the same for long term care events. Let's like shock the plan with a really major catastrophic long term care event. What happens to the plan? What are we going to do in response? And like, how does that feel to you? And sometimes when you just go through that exercise and see it on paper, it does end up giving you that clarity and confidence to make that decision and move forward. But initially if I'm like, hey Roger, by the way, healthcare is going to cost you $50,000 per year for the next five years, you're like, what?

Roger: I'm not doing that.

Taylor: Right before we go through that planning exercise of like, here's what it looks like, here's what ends up happening to your plan and you know, you know, here's what we're going to do in response to it. You're like, oh, it seems reasonable and I really value my early active years and I want to go travel and enjoy myself and I want to make sure that I'm properly covered. And you end up feeling more confident. So, you know, this ends up just being, I hate to like keep going in circles here. Just ends up being a longer conversation, just weighing those different options and kind of that cost benefit analysis. Because again, do we want to optimize for taxes and lowering that lifetime tax bill and taking advantage of these gap years, do we want to optimize for the lowest possible healthcare premiums we can? Is it a mix of both? And if it is, how are we going to attack that? Social Security comes into play. We're also managing Irma as well. It's going to creep in. You Know, in your later 60s. I think it's a really fun puzzle, but again, like, more than anything,

Roger: well, that's what you want to delegate the complexity to people like us if you don't want to deal with it. Right. That's the whole idea.

Taylor: or just make, you know, make your best decision and move on.

Roger: Because the key is you're not going to be right or wrong. You don't know. Right. So just make a decision and know it's still okay. Feasible wise and.

Taylor: Yeah, but more than anything, again, based on like the hundred comments I probably got about, like, I can't do that because healthcare before Medicare. So more than anything, I just, I don't want this topic to discourage somebody from retiring earlier than maybe, you know, they thought, they think they can, there are options out there. Go through the exercise, figure out what works best for you. Understanding. Like, some people literally can't do it.

Roger: Right.

Taylor: Some people maybe they truly have to wait till Medicare. So I, I don't want to dismiss that idea either.

Roger: And, that's a great point. You don't want to dismiss it out of hand and just fall back into, I must. I got to keep working. And the other part is you also don't want to hold it up as this scary thing, not examine it and use it a little bit as, as an excuse to keep on working. That's more of a psychological.

Taylor: Yeah.

Roger: Taylor, thank you so much for sharing your wisdom. We will put a link to your video in our noodle email. and always good to see you, buddy.

Taylor: Yeah, I appreciate it. also a few weeks ago, and you can share this as well, or, you know, listeners can go and listen. I shared a little bit more detail, on the Stay Wealthy Retirement podcast about the ACA subsidy changes for 2026, and shared a pretty specific example, of how to kind of navigate that. So if you're interested to learn more about how we're approaching, how we're thinking about it, what some of those changes mean, I think it turned out to be a great episode and in conjunction with the video that you referenced. So, yeah, Roger, I appreciate you having me on again. It's good to be back.

SMART SPRINT

Roger: Now it's time to take a baby step you can take in the next seven days, not just to rock retirement, but rock life. All right, in the next seven days related to healthcare, here's what I want you to do. I don't want you to go do this now, but what I do want you to do is put a reminder in whatever system you use to remind you. Reminders in Apple, a calendar, project management software. Whatever you use, put a reminder for yourself to review your healthcare coverage using a systematic approach. Maybe it's this OODA loop format and the things that we talked about. Maybe it's something you find. If it's a decision that's ripe, okay, go ahead and do it. But if this is something that you don't have time or it's a little bit premature, just set a reminder for yourself when you want to take time to think through this in an organized way so you give yourself some time to make a decision. Now, if you're already on Medicare, then this might be towards the beginning of Q4 so you can reevaluate Medicare during open enrollment and all of that other stuff. Remember, as Nicole Mills always says, the worst minute is the last minute. So let's plan ahead.

CLOSING THOUGHTS

Roger: All right, hopefully you found that helpful. I know I found it helpful to think through this in an organized way, I learned a lot in this. Thank you for all your feedback and suggestions. Thinking through this logically is helpful for me in sharpening my saw in this area. Hopefully it's helpful for you too. Excited to want to feel loved. Excited to talk to Harry about how to feel love next week and then we'll get into some geeky stuff with Wade. Hope you're having a great day.

The opinions voiced in this podcast are for general information only and not intended to provide specific advice or recommendations for any individual. All performance references are historical and do not guarantee future results. All indices are unmanaged and cannot be invested in directly. Make sure you consult your legal, tax or financial advisor before making any decisions. This podcast may include testimonials and or endorsements.