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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Mgmny on December 26, 2019, 02:15:46 PM

Title: Pay off house to get health insurance?
Post by: Mgmny on December 26, 2019, 02:15:46 PM
So, I had this thought/strategy jump into my mind earlier today, and I don't think I've seen it played out / calculated / talked about anywhere else. (If i'm wrong, please point me to the article/blog, I'd love to read it!)

Has anyone done the math on paying off your house to reduce your taxable income to qualify for better ACA subsidies during FIRE? Vs keeping most of your money in the market, but then taking a higher income to make the mortgage payment?

It should just be a simple equation: How much am i saving on ACA subsidies vs how much am i missing out on market vs. mortgage loan returns. Right?
Title: Re: Pay off house to get health insurance?
Post by: use2betrix on December 26, 2019, 03:24:56 PM
While Iím not here yet, that will be a huge consideration as to whether or not I will want a mortgage when I get into FIRE. If you have a mortgage, you need a higher income to cover it, which could impact your ACA subsidy..

This seems overlooked by a lot of people. You just need to do the math and see how it works with your specific situation.
Title: Re: Pay off house to get health insurance?
Post by: robartsd on December 26, 2019, 05:44:31 PM
Monthly payment on $100,000 30-year mortgage at 4% is about $475 ($5,700/yr). I've seen people say that marginal tax rate after considering ACA subsidies is about 22%, so $1,254. Add in $4,000 in interest and you're over 5%. Seems like early in the mortgage, it would be worthwhile (adjusting returns for risk); but the situation while holding the mortgage would look rosier as time passed.
Title: Re: Pay off house to get health insurance?
Post by: Paul der Krake on December 26, 2019, 06:44:03 PM
No easy answer, totally depends on amounts involved and sources of income in retirement.
Title: Re: Pay off house to get health insurance?
Post by: YttriumNitrate on December 27, 2019, 09:53:05 AM
So, I had this thought/strategy jump into my mind earlier today, and I don't think I've seen it played out / calculated / talked about anywhere else. (If i'm wrong, please point me to the article/blog, I'd love to read it!)
Has anyone done the math on paying off your house to reduce your taxable income to qualify for better ACA subsidies during FIRE? Vs keeping most of your money in the market, but then taking a higher income to make the mortgage payment?
It should just be a simple equation: How much am i saving on ACA subsidies vs how much am i missing out on market vs. mortgage loan returns. Right?

Based on previous posts, it looks like you're about a decade out from retiring. The healthcare landscape might look quite different a decade from now.
Title: Re: Pay off house to get health insurance?
Post by: Mgmny on December 27, 2019, 02:23:15 PM
So, I had this thought/strategy jump into my mind earlier today, and I don't think I've seen it played out / calculated / talked about anywhere else. (If i'm wrong, please point me to the article/blog, I'd love to read it!)
Has anyone done the math on paying off your house to reduce your taxable income to qualify for better ACA subsidies during FIRE? Vs keeping most of your money in the market, but then taking a higher income to make the mortgage payment?
It should just be a simple equation: How much am i saving on ACA subsidies vs how much am i missing out on market vs. mortgage loan returns. Right?

Based on previous posts, it looks like you're about a decade out from retiring. The healthcare landscape might look quite different a decade from now.

Oh for sure. I just try to stay on top of all the smart strategies, and I thought maybe I had an idea that hadn't been sufficiently explored.
Title: Re: Pay off house to get health insurance?
Post by: slappy on December 30, 2019, 03:25:01 PM
Yes, I've definitely thought of it, but like you, I'm too far out to put much into it other than the passing thought.
Title: Re: Pay off house to get health insurance?
Post by: BECABECA on December 30, 2019, 03:58:26 PM
Iím pretty sure Iím going to go that route, when my spouse decides to finally retire. For now we get health insurance through her employer, so I can keep the mortgage and let my stash grow in index funds. When the time comes, Iíll plug the numbers into cfiresim for both scenarios and see which one gives me a better outcome.
Title: Re: Pay off house to get health insurance?
Post by: kingxiaodi on December 31, 2019, 06:07:26 AM
So, I had this thought/strategy jump into my mind earlier today, and I don't think I've seen it played out / calculated / talked about anywhere else. (If i'm wrong, please point me to the article/blog, I'd love to read it!)

Has anyone done the math on paying off your house to reduce your taxable income to qualify for better ACA subsidies during FIRE? Vs keeping most of your money in the market, but then taking a higher income to make the mortgage payment?

It should just be a simple equation: How much am i saving on ACA subsidies vs how much am i missing out on market vs. mortgage loan returns. Right?

Before he departed, Sol made this thread (https://forum.mrmoneymustache.com/ask-a-mustachian/please-convince-me-to-keep-my-mortgage/) asking people to convince him to keep his mortgage. In his case, he was concerned not only with ACA subsidies but also with FAFSA. Still ,ight be worth checking out.
Title: Re: Pay off house to get health insurance?
Post by: DK on December 31, 2019, 08:31:07 AM
https://www.gocurrycracker.com/obamacare-optimization-early-retirement/
that's a good article talking about how important it is to get subsidies and the cliff you could hit.

I know I thought I was a lot closer to being FIRE until I ran the numbers recently looking at everything...i'd have to take a lot more a year to also include paying my mtg, which then would make me pay a lot more for healthcare. i was always a 'invest instead of pay off mtg' but adding that factor in i'm going to be focusing on paying it off now. i think it depends on timeframe though, as well as mtg payments...i still think i made the right choice investing vs paying it down the last 10ish years, to get the market gains. in the last couple years here, reducing costs and trying to build a cash cushion for ira rollover strategy i think makes sense.
Title: Re: Pay off house to get health insurance?
Post by: robartsd on December 31, 2019, 10:01:41 AM
https://www.gocurrycracker.com/obamacare-optimization-early-retirement/
that's a good article talking about how important it is to get subsidies and the cliff you could hit.

I know I thought I was a lot closer to being FIRE until I ran the numbers recently looking at everything...i'd have to take a lot more a year to also include paying my mtg, which then would make me pay a lot more for healthcare. i was always a 'invest instead of pay off mtg' but adding that factor in i'm going to be focusing on paying it off now. i think it depends on timeframe though, as well as mtg payments...i still think i made the right choice investing vs paying it down the last 10ish years, to get the market gains. in the last couple years here, reducing costs and trying to build a cash cushion for ira rollover strategy i think makes sense.
During accumulation, invest. ACA certainly may have an impact on where you choose to invest (pre-tax, Roth, taxable) and how you meet your cash flow needs in ER. You also may want to reduce risks after reaching FI by paying off your mortgage in full (likely from sale of taxable assets or withdraw of Roth contributions) rather than continuing to make payments. Don't make extra payments (short of a full pay off) on your mortgage.