Author Topic: Case Study: High medical costs  (Read 2866 times)

MayDay

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Case Study: High medical costs
« on: January 21, 2014, 01:27:49 PM »
Background info:  We are a family of 4 with my H working, me at home with the kids, and a 4 and 6 year old.  My H has a health issue, my 6 year old has special needs, and I have a cancer gene with a 100% guarantee of cancer by age 50.  Thus the title:  just doing all the appropriate annual check-ups and screening procedures puts us at about about 8K of medical costs a year.  We are on the best plan that my H's employer offers balancing premium prices and what is covered (it is an HSA and we fully fund the HSA every year for the tax advantage).  I am 31, H is 38.

That costs are pretty fixed, no matter how much we bike or how much kale we eat ;)

Assets: 
Home could reasonably sell for 250-260K
Roth IRA's and 401K's I need to add up but we are around 350K
Own 3 cars outright:  2 2003 Civics that are our daily vehicles, each with about 100K miles.  One 2004 Sienna with 175K miles.  Notes about the cars are below. 
About 20K in bank (e-fund).

Liabilities:
Owe about 200K on the house.  Under 4% interest rate.

Monthly budget:
Income after life insurance, health insurance premiums, HSA deductions, 12% to 401K, etc:  5200

Expenses:
Kids (clothing, activities, babysitters, etc): 200 
Daughter's preschool (cheapest around by far):  185
Groceries:  650 (we eat mostly organic and as much local food as possible.  I know we could switch to conventional but I am not convinced our situation is bad enough to warrant that.  This is both an ethical priority and a health priority for us).
Eating out:  100
YMCA:  62 (allows kids swim lessons.  Lesson costs are under the Kids category.  We do use it.  We will drop it once the kids are through lessons).
Adults clothing:  40 (this is mostly shoes and replacement of my H's work clothes.  We buy virtually no casual clothing).
Car gas:  150
Car insurance:  60
Car repairs:  in 2013 we had 2 timing belts to replace, but other than that we have never had anything besides oil changes.  I don't have a good budget number for this.
Roth IRA:  416
Medical costs avg 650

Mortgage including taxes and HOI:  1519
Electric 98
Garbage 21
Natural Gas 100 (this number is for winter, it is about half that in summer)
Water 50
House phone and internet 68 (My H feels strongly about keeping the house phone for emergencies due to his health condition and bc we get poor cell service.)
Cell phones:  100 (2 smart phones on family plan with my parents.  Contract is up in Nov and we will price out pay as you go options then).
Misc. House maintenance:  100
 
Total outflow= 4529

The difference in income and expenses is currently invested in my H's employee stock purchase plan.  He has a chunk that he can sell whenever.  Probably about 5K worth (the plan just started 6 months ago).  We get a 15% discount on the stock.  Plan is to sell whenever the stock price looks good and not invest in the company long term (want to diversify).  The plan for that money is medium term savings- car repairs, house repairs, costs to move to a new house (transaction costs, we will move ourselves), and if we don't need it to put it in savings of some kind (Roth, 529, idk.  Haven't gotten that far yet).

Goals: 
-Buy a different house.  Probably not any more expensive mortgage, but different location, and likely an older house in need of work, so we would have renovation costs.  We are considering buying a smaller house with lower cost as well.  Likely just depends on what comes along as there is low supply here.  We aren't actively pursuing this, just keeping an eye on things so if we see the perfect thing we can jump on it. 
-Me return to work whenever the right job comes along and it makes sense with respect to childcare costs. 
-Retire someday.  Due to our high medical costs that seem likely to only go up as we age, retiring on time and healthy is good enough!


Story on the cars:  H and I have had the 2 civics forever.  Last month we were gifted the van by a close family friend.  We drive the Civics on a regular basis, and only use the van if we need it for yard/garden work or carpooling kids.  The plan is in a few years we will sell one civic and the van, and buy something that is larger than the Civic but more fuel efficient than the van.  Or maybe we will find that we don't use the van enough to need a larger car at all.  The reasoning for this plan is that the van could die soon given its mileage, and we don't plan to sink a ton of money into fixing it.  It would very much hurt our friends' feelings if we turned around and sold the van immediately, thus waiting a few years. 

In terms of driving in general, we live in a rural area about 30 minutes from a larger city.  My H works off a rural highway and does not feel safe biking to work (he formerly biked to work when we lived in a city so he isn't turning his nose up at it for no reason).  He has maybe a 5 mile commute with no traffic so we expect his Civic to last until we eventually give it to our teenagers in 10 years or so.  I stay at home and drive my kids to activities, and drive into the 30 mile away city maybe 2-3 times a month for Dr's appointments, therapy for my son, Costco trips, etc.  I try to combine trips.  Due to the ages of the kids and my sons physical delays we are not very successful at biking places.  I hope that as the kids get older we can consider being a one car family, as they will hopefully be able to bike further, and I will be able to run DH to work easily since they will be able to be left at home.  We do own a bike trailer but they weigh a combined 85 lbs and I can't physically bike them the distances we need to go to get to school, etc.  We can bike more on the weekends when H and I can each tow one kid.

MayDay

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Re: Case Study: High medical costs
« Reply #1 on: January 21, 2014, 01:34:26 PM »
Also- I tried to explain the reasoning for some of the expenses in depth to answer potential questions in advance.  Please don't take them as excuses!  I am ready for some hard truths if you think we need to cut some things, or if you think my reasoning is bad.

marblejane

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Re: Case Study: High medical costs
« Reply #2 on: January 21, 2014, 03:55:21 PM »
So, it looks like you are maxing out one Roth IRA and your husband's 401k, plus maxing out his ESPP? If I'm reading that right, great job. My advice...

1) Be more specific about your goals. Why do you want to buy a new house? Would moving to a new location be financially prudent? When do you want to start working again? "Whenever the right opportunity comes along" is very vague. Are you actively looking for work, or networking to keep abreast of opportunities? Have you estimated your post-retirement annual expenses, including healthcare? Just going through the exercise of understanding what you want your life to look like and what you will need to do to get there will be illuminating.

2) Sell the ESPP shares. Don't hold on to those longer than you are required to. You already have a ton of exposure to your husband's company through his salary, you need to diversify that risk asap. Your husband can open and fund a spousal IRA for you with the proceeds.

3) Do some contingency planning. You are a single income family, both parents have medical issues, and you have high fixed housing and medical expenses. How long will your emergency fund last if your husband loses his job or is unable to work? The emergency fund amount that you now have in place may be fine, but I'd just encourage you to think through what amount you need. Maybe you've already done this. Good job having life insurance.

4) Examine your mortgage. How many years left to pay? What's the principal/interest/insurance/tax breakdown? The $1519 looks a bit high to me, but it's tough to say without more details.

5) Save for your kids? Are you planning to contribute to your children's college expenses? How much do you want to set aside for them?

If I were you, I would play around with some of the retirement calculators, and other savings calculators. I'd set a goal to move into a new house in X Months/years, go back to work in y months/years (or at least do a breakeven analysis to determine the minimal annual salary that would make it "worth it" for you to go back to work) and retire in z years. Just doing a back of the envelope calculation, if we assume that $300/mo of your $1519 for your house is taxes and insurance, and you have 15 years left on your mortgage, and post-retirement, your healthcare and other expenses won't change, then you would need about $3,000/mo, or $36,500 annually in retirement. Using the 4% safe withdrawal principle, you would need $910,200 to retire (hidden in this amount is the assumption that you will own your home outright when you retire). If you have $350,000 now, and max out a 401k and two Roths annually, you should have about $1M in 20 years (conservatively assuming a 5% annual yield on your assets). These numbers are illustrative and you should do your own math on this.

mollyjade

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Re: Case Study: High medical costs
« Reply #3 on: January 22, 2014, 09:58:35 AM »
Most likely your income disqualifies you for most programs, but it's worth doing a quick search on Partnership for Prescription Assistance to see if there are any programs you're eligible for that you're not taking advantage of (assuming some of your medical expenses are prescriptions). Often states or even pharmacies have discount programs available to anyone, for instance.

http://www.pparx.org/en/prescription_assistance_programs/list_of_participating_programs

MayDay

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Re: Case Study: High medical costs
« Reply #4 on: January 22, 2014, 12:45:43 PM »
So, it looks like you are maxing out one Roth IRA and your husband's 401k, plus maxing out his ESPP? If I'm reading that right, great job. My advice...

1) Be more specific about your goals. Why do you want to buy a new house? Would moving to a new location be financially prudent? When do you want to start working again? "Whenever the right opportunity comes along" is very vague. Are you actively looking for work, or networking to keep abreast of opportunities? Have you estimated your post-retirement annual expenses, including healthcare? Just going through the exercise of understanding what you want your life to look like and what you will need to do to get there will be illuminating.

2) Sell the ESPP shares. Don't hold on to those longer than you are required to. You already have a ton of exposure to your husband's company through his salary, you need to diversify that risk asap. Your husband can open and fund a spousal IRA for you with the proceeds.

5) Save for your kids? Are you planning to contribute to your children's college expenses? How much do you want to set aside for them?


To answer some questions:

Yes, we are maxing that stuff.  We have thought about moving (5K per year) our emergency fund into a Roth for me, since we can take out the principle if needed, and we aren't getting any growth in the bank.

1.  Want to buy a new house in a more walkable area.  Hoping to get a smaller/older house that will meet our needs, be walkable, and be the same price or cheaper.  This will make dropping a car more achievable and also bring happiness.  I want to work now, but not if I pay all my income to childcare.  I ideally want to only work PT but most PT jobs seem to be minimum wage or close to it, which isn't financially sensible when my daughter isn't in full time school.  I don't have much direction in this area right now. 

2.  I am pushing to sell the ESPP now for the reasons you stated.  DH wants to hold on for 2 years so we pay the lower tax rate.  He at least wants to wait for spring as the stock always tends to peak in the spring and then drop.  I am working on him on this one.

5.  So far my grandfather saves 60$ a month for each kid into a 529.  We just switched to new Fidelity AmEx's that give 2% back into a 529.  That is all we are saving so far for college, per the advice to save for retirement first.  The goal is to cover in state tuition and they are responsible for room and board and other expenses.  We could cash flow it if I am working, or have the mortgage paid off and use that money.  That is our current thought. 

Thegoblinchief

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Re: Case Study: High medical costs
« Reply #5 on: January 22, 2014, 06:57:16 PM »
The $200 kids category seems high. You live in rural area, so I'm guessing there's no rec department to provide cheaper swim lessons.

Food is high, but $650 for local/organic and 4 mouths is not shabby at all. Investigate savings on ingredients where organic doesn't bring a whole lot to the table. Keep in mind, "organic" doesn't equal better in many case. I could tell you stories.... (Wife works in industry and has an MS in Food Safety.)

Rural highway for 5 miles would be bikable for me, but your car costs aren't that high.

2004 Sienna with 175K has PLENTY of life in it.

Anatidae V

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Re: Case Study: High medical costs
« Reply #6 on: January 22, 2014, 10:01:26 PM »
Is a HSA some kind of health savings thing that can be used on medical purchases? Are you maximizing this? I am in Australia, and we have something similar, but it's run through the private health insurers, so I am planning on increasing my amount so I can get a "discount" on my Physio appointments. We spent $4k on medical appointments plus $2.5k on our health insurance last year, and we are a couple without kids.
It's worthwhile looking into some of the "easier" ways to make money from home while watching kids, there's lots of advice on that all over this site, but that kind of thing depends on your energy levels too.