How the government will steal your entire life savings, should you ever live in a nursing home

If you are ever lucky enough to live the American Dream and beat every POS thrown at you during your career, and become “successful” by saving a million dollars, or operating your own family business such as a farm, you will most likely lose them should you ever have to reside in a nursing home.  This is due to the fact that Long-term care is so expensive in the United States, averaging 100,000.00 annually for a single room.  However, in Alaska, the average annual cost is 800 dollars daily, or 300,000.00 annually.  Now if you have a million dollars in the bank, and don’t mind paying these astronomical fees out of your life savings, or liquidating your life’s work to pay for your LTC, that is your choice.  God forbid you and your spouse be admitted to LTC simultaneously, you will lose your nest egg twice as fast. However, if you would like to preserve these accomplishments to pass along to your family, you have the option of LTC Medicaid, if you prepare now. Remember, only Medicaid will pay for Long-term Care, Medicare DOES NOT pay for any Long-term Care costs!

There are many obstacles to hurdle in order to qualify for LTC Medicaid, and we will discuss the major ones, starting with the “asset check.”  As we discussed earlier, an important distinction between Medicaid expansion and LTC Medicaid is the expansion program removed the asset check, but the asset check still remains for LTC Medicaid qualification.  In order to qualify for LTC Medicaid, you cannot have more than $2,000.00 in countable assets such as savings, investment and checking accounts.  In fact, according to medicaidplanningassistance.org,  “Countable assets are assets that can easily be converted to cash to help cover the cost of long-term care and include the following: Cash, stocks, bonds, investments, credit union, savings, and checking accounts, and real estate in which one does not reside. However, for Medicaid eligibility purposes, there are many assets that are considered exempt, or said another way, are not counted towards the eligibility limit. Exemptions include personal belongings, such as clothing and jewelry, household goods / furnishings, an automobile, a burial plot, and one’s primary home, given the Medicaid applicant or his / her spouse lives in it and the equity value is under $595,000 (in 2020).” https://www.medicaidplanningassistance.org/medicaid-eligibility-alaska/   So as you can see, should you have spent your life working and building any significant savings, you will be forced to either “spend down” your assets by contributing them to your cost of care, or you will be excluded from the program.   “Spending down” is exactly what it sounds like.  Let’s say you have $100,000.00 in “countable assets.”  The way qualification for LTC Medicaid works is you will basically be forced to contribute that $100,000.00 towards your “cost of care” until you have reached the $2,000.00 limit, meaning 98% of your entire life savings will be spent on your medical bills. “Cost of care” is just what it sounds like as well, it is any medical bills you pay towards your hospital or nursing home care. Since the average annual cost for LTC in the United States is right at $100,000.00, you will effectively lose your entire life savings in your first year in the nursing home, making exclusion from LTC Medicaid another major POS for contributing to society. In a state such as Alaska where exclusion from Medicaid means a $300,000.00 annual bill for LTC Medicaid, this POS has an even more profound effect on your life.  Next let’s discuss the second major problem with LTC Medicaid qualification, the 5-year lookback period.

Years ago, Medicaid had what was referred to as a 3-year lookback period, which has now been extended to 5 years.  Basically, the lookback period is the 5-year period of time immediately preceding your application for LTC Medicaid.  When you apply for LTC Medicaid, Medicaid will “lookback” at all of your financial statements from all of your banking, brokerage, and other financial statements in the last 5 years, to determine where your money went.  If they discover that you went to Las Vegas and blew all of your entire life savings in a weekend, that is totally okay, but God forbid you transferred some of your assets to family or friends, you will be penalized, and possibly excluded from the program.  According to familyassets.com, “If a gift of any amount is given in Alaska during a period of 5 years before applying to Medicaid, a penalty period will be initiated. This penalty period in Alaska is called a look-back period and it can make an individual not eligible for Medicaid. Medicaid will not pay for care until the penalty period is over. The penalty is calculated by taking the total amount of any gifts given, and dividing it by $ 5,800, which creates a number of months before Medicaid kicks in. The average (monthly) cost of Nursing home care in Alaska is $24,820, so penalties can become very costly for a family that has not planned appropriately for Medicaid.  Although these numbers are specific to Alaska, the same principle applies to all states and their LTC Medicaid programs.  It is important to keep in mind that the 5-year lookback period only applies to the last 5 years before requiring LTC, making it extremely important to start planning now, not when you are admitted to the hospital and placed in LTC.

So how do you beat the system and qualify for LTC Medicaid for yourself, while protecting your assets, the answer is simple: gift your assets now!  If you don’t believe me and think I am doing this only for my own personal gain, listen to the “experts” from Forbes Magazine in the following article https://www.forbes.com/sites/markeghrari/2014/08/01/the-medicaid-look-back-period-explained/#4a0cb5313645  Currently, you can gift anyone up to $15,000.00 annually of those “countable assets” without incurring any tax liability for you, or the person who receives the gift.  This gift doesn’t have to be strictly cash and can be land, property, vehicles, stocks, bonds, gold and silver, or most any other type of asset that will be counted as far as LTC Medicaid is concerned.  The key to qualify for LTC Medicaid, while protecting your assets for future generations of your family, is to give away as many of your assets as possible now to those you plan to give your assets to upon your death.  This idea of writing a will now, and hiding it from your children until your death is nonsense, and is an outdated method.  If you don’t trust those you plan to give your assets to, then you probably shouldn’t be leaving them your life savings anyhow.  The best way to make sure you complete an asset transfer appropriately is to speak with an attorney familiar with LTC Medicaid, usually referred to as an Elder Care attorney in the state you reside.  Although they can cost hundreds of dollars an hour, their expertise will be instrumental in protecting your assets and well worth the investment.  The best attorney and program I have discovered to protect your assets and qualify for Medicaid is called the Living Trust Plus, developed by Elder Care Attorney Evan Farr. His program works for most everyone trying to protect their assets from Medicaid, regardless of income or the size of your estate. For more information, follow the link below and watch his videos on YouTube.I strongly advise you to watch his videos and look into his program as the videos and information you will learn there are absolutely free, and you can sign up for emails and webinars that will further educate you on how to best go about this process.  As a disclaimer, I had my parents look into this program and pursue this program via a different attorney, trained in the Living Trust Plus.  The Living trust Plus is available in almost every state, even where I live in Alaska.   https://www.livingtrustplus.com/    However, if you cannot afford an attorney the following are in MY OPINION, the best steps to take to protect your assets for future generations, while allowing you to qualify for LTC Medicaid.

1. Start NOW! Don’t wait. Remember, the quicker you finish an asset transfer, the quicker the 5 year lookback period expires.
2. Transfer the maximal annual nontaxable “gift” to your heirs now!  Since the $15,000.00 cap is per person, you can transfer a significant amount of “countable assets” out of your name and into your heirs names, and quickly. Waiting to transfer assets upon your death will guarantee your heirs receive less of your assets than you expected, if they receive anything at all.  Remember these assets can include land, stocks, bonds, and other financial assets. For instance, my parents have 2 children and soon will have 5 grandchildren.  If they transferred the maximal tax-free amounts for the year 2020, they could transfer $105,000.00 of countable asset wealth out of their name and into their heirs names now.  Since we’re halfway through 2020, come January 1, 2021, they could do the same transfer to the same heirs again, effectively transferring nearly a quarter million dollars of wealth or “countable assets” to the people they were most likely going to transfer their assets to upon their death anyhow in a 6-month period of time.
3. Do not simply just give this money to your heirs to spend, as thanks to the five-year lookback period, you could possibly need it back to qualify for Medicaid.  Instead, transfer it to an account with your heir as the account holder, but make sure they understand they cannot spend the $15,000.00 until the 5-year lookback period for that particular $15,000.00 has passed.  For instance, if my parents were to transfer the maximal $15,000.00 each year to me, I would need to hold that money in the account for 5 years before I could spend a single penny.  So, if my parents gifted me $15,000.00 annually for ten years then were subjected to the 5-year lookback period, the first $75,000.00 would be free and clear, where the second $75,000.00 would be subject to the lookback period and would be required to cover the “cost of care” before LTC Medicaid would kick in and pay the bill. Along this line, once the money has been sheltered in the account for 5 years, it can be withdrawn and spent or invested, or whatever you want to do with the funds.  So if my parents gave me the 15k each year for 5 years this would amount to 75k.  Beginning on year 6, when my parents hypothetically deposited another 15k into the account, I could withdraw and spend the initial 15k, as this money will have passed the 5-year look back period and no longer be subject to the Medicaid lookback period.  This method isn’t perfect, as it may very well result in some assets being taken back by LTC Medicaid, but it sure beats giving all of your assets away to cover your “cost of care” since you can only have $2,000.00 in countable assets when you begin with your LTC Medicaid.  This method will work best for those who have either a significant number of heirs, and/or those who have less than 1 million dollars in countable assets to disperse. 
4. Another possibility is to go ahead and gift everything now, but due to the $15,000.00 cap, there will be significant taxes incurred by going this route.  However, the transfer will be totally complete, and your 5 year countdown will begin.  The other issue with this method is should something happen in that five years, you will most likely have to return at least a portion of the gift to cover the cost of care.  In my opinion, this method should only be considered for those who have countable assets worth over a million dollars, and be completed with the assistance of an Elder Care attorney.
5. Another possibility to protect countable assets, and qualify for LTC Medicaid is to transfer countable assets towards your primary residence by paying off the mortgage, and/or improving the property.  Medicaid cannot take the primary residence to pay for LTC Medicaid as long as the spouse still resides in the residence, however, in order to qualify for LTC Medicaid the value of the home cannot exceed just under $600,000.00.  Although Medicaid can in theory take your primary residence after the death of both parties who own the home, but in my decade of experience I have never seen them do this.  I am sure it is due to the political fallout that would come from seizing property of someone deceased to pay for care they received while alive, and the fallout of possibly taking a family home that’s been in the family for generations.  In my opinion, it is much safer to transfer countable assets to the primary residence, than it is to wait around and guarantee Medicaid takes the funds to pay for your cost of care.  
6. The last strategy that requires some attention is the transfer of “countable assets” into gold, silver, or other jewelry.  As noted on page 1, assets exempt from the “asset check” include jewelry.  Since many gold, silver and jewelry companies such as Provident Metals accept cash, Bitcoin, and money orders, and since gold is currently trading at around $1,800.00 an ounce, in theory, it would be possible to transfer all of your countable assets to exempt assets by converting them to just a few pounds of “jewelry.”  Provident Metals and other gold and silver companies ship their metals in a very discrete manner, so that somebody doesn’t see the return address and capture your shipment before arrival at your home.  Hypothetically, you could turn a million dollars of “countable assets” into just under 35 pounds of “jewelry” with little way to track it since countable assets were not directly transferred to an heir. 😊 Once transferred into gold/silver, tracing physical gold and sliver will be very difficult for any person or agency.  
7. The last thing you can do to help lower your countable assets, although not very substantial, is to prepay all burial and funeral expenses.  With the average funeral expenses running about $10,000.00, you can lower your countable assets, while sparing your heirs the task of arranging this after your passing. 

The only other possible way to avoid losing everything to the government for LTC Medicaid is private LTC insurance, but I don’t recommend this route for multiple reasons.  First, it isn’t free.  The average monthly LTC insurance payment is around $300.00 but LTC Medicaid is totally free.  Second, they usually have an exclusion period, such as 1 year before you can benefit from the policy, and in the case of my parents, have a 3-month elimination period before they kick in, meaning you still have to foot the bill for the first 3 months of LTC, or roughly 30K, BEFORE the policy will begin to pay.  Third, they have maximum benefit limitations, with the average being 3 years.  In my fathers’ case, his policy is for 5 years, my mothers is for 3 years.  Fourth, if you miss a payment, they have the right to cancel the policy.  This is a sneaky, and unethical, play that these insurance companies use.  Basically, what happens is you or your loved one has a stroke or other major medical issue requiring prolonged hospitalization and while you are busy focusing on their recovery, the monthly premium is missed.  Then, a month or two later when it is time to enter LTC, your policy is no longer valid because of the missed payment.  It’s a disgusting tactic these companies use, but it is legal and they do it.  Fifth, since they only pay a set amount, sometimes the policy may not be enough to cover the full cost of care, leaving someone in your family a substantial bill.   To me, all of the possible issues with private LTC insurance policies dissuade me from even considering one for myself.

In conclusion, time is your most valuable asset, especially when it comes to transferring countable assets to your heirs.  The sooner you start, the more of your assets you can get out of your name and protect for your heirs.  Should you live long enough, you will need LTC Medicaid to cover your stay in a nursing home, or be forced to spend your entire life savings in your last few years to cover your stay in the nursing home.  Nobody ever expects to have to live in a nursing home, but the fact is millions of Americans do, none of which thought it would happen to them.  The 5-year lookback period and the asset check limiting you to $2,000.00 in savings are the two biggest hurdles to qualifying for LTC Medicaid, but can be circumnavigated by planning now.  Do not wait to start transferring your assets, begin now.  It’s never too soon to transfer your countable assets to your heirs.  Additionally, your heirs will be able to better benefit from your transfer of wealth now, as they are most likely starting families of their own, with the largest debt loads they will ever face in their lifetime.

How the ACA forever changed Medicaid and why you cannot afford to miss out on the program

Just a warning: this is going to be a long, but very necessary article, and probably one of the top 3 most useful FIRE articles I will ever write for this blog, specifically because no other FIRE bloggers have the medical background and experience with the Medicaid program that I do which is necessary to show you why these programs are so important.  First and most important when discussing Medicaid is understanding that there is a huge difference between Medicaid under the ACA expansion program, traditional Medicaid, and Long-term care Medicaid.  IF you learn nothing else from this blog, please understand that Long-term care Medicaid and Medicaid are two vastly different programs, covering two very different groups of people for two very different reasons.  So, what exactly is the difference between the two programs? The short answer is: Long-term Care Medicaid or LTC Medicaid, is a program designed specifically to cover the medical expenses of Long-term care for those 65 years and older, or disabled persons under the age of 65.  Medicaid Expansion is a program designed to cover individuals under the age of 65 for all medical expenses not related to Long-term care.  Whether you realize it or not, Medicaid coverage, whether expansion or LTC, is nearly necessary in today’s world, and is much easier to obtain than traditionally thought, thanks to the Affordable Care Act. So, lets dive into the differences between the programs, how to qualify for both programs, and most importantly, why it’s necessary for you to plan to qualify for both programs.  

First, let’s discuss Medicaid Expansion, under the Affordable Care Act.  Back when I was a kid growing up in an impoverished area of Southwest Virginia, Medicaid was a program that only the very poorest of the poor used for medical care.  However, the Obama administration, eager to artificially inflate the number of individuals covered by health insurance, changed some key definitions necessary for qualification, thus quietly expanding the Medicaid program over night.  This act was instrumental in changing the face of healthcare in the United States and was snuck in so quietly that it took me, working fulltime in healthcare, over a year to notice and recognize how significant these changes were.  After spending years of researching, I finally found an article that best describes the changes, and the effect of the changes on qualification for the program.  The article can be found here: https://ccf.georgetown.edu/2015/01/30/getting-magi-right-primer-differences-apply-medicaid-chip/      I highly recommend you read the entire article so you can see for yourself how the changes will apply to you for qualification for Medicaid expansion.  Since this is a 17-page article, I will summarize and discuss the two major changes to Medicaid under the ACA, allowing millions more Americans to join the program.

You need to understand that Medicaid expansion doesn’t include all states currently.  Currently 36 states and Washington D.C are included in the list of states offering Medicaid expansion, but my guess is eventually all states will offer the program. So, check the listing of states, as your state may not currently recognize the program.  The two major changes to the Medicaid program under ACA expansion were: 1.  The definition of MAGI, or Modified Adjusted Gross Income, was changed, eliminating many sources of income that were previously counted towards MAGI, from the list of countable income sources.  2.  The asset check was completely eliminated, allowing millionaires to qualify for Medicaid under the expansion program if their MAGI was under the state threshold.  Let’s discuss MAGI first.

MAGI stands for Modified Adjusted Gross Income, which is the primary threshold used to determine eligibility for Medicaid.  Although MAGI was used to determine eligibility for Medicaid long before the ACA, the changes to the definition revolutionized the program, allowing millions of more Americans to quietly slip onto the Medicaid rolls.   Refer to page 12 on the above article for a detailed list but let’s cover the major changes here.

1. Self-employment income:  Before the ACA, many expenses were NOT deductible, however after the ACA net income, including losses, and tax-deductible expenses like depreciation, were included.  This was extremely important, as it allowed those with major assets such as farmers and business who owned millions of dollars of property and machinery, to effectively qualify for Medicaid by looking at only their bottom-line profits or losses on paper.  Remember, accounting like this allowed Amazon to avoid any federal taxes in 2018, so if Amazon were a person, they would have qualified for Medicaid under the expansion program in 2018 if they lived in the right state.  The asset check would have previously eliminated these people from qualification, but that was also eliminated in the ACA.
2. Child support income:  Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!
3. Alimony:  Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!
4. Workers Compensation Benefits: Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!
5. Gifts and inheritances: Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI! So, your rich uncle could die and leave you ten million dollars of cash, and you could still qualify for Medicaid under the ACA.
6. Veterans Benefits: Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!
7. TANF and SSI payments: Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!
8. Contributions to accounts such as a 401k, traditional IRA, FSAs, and other non-taxable accounts: Pre ACA, this income was COUNTED towards MAGI.  Post ACA, this income was NOT COUNTED towards MAGI!

DO you see a trend here?  Numbers 1 and 8 are the most crucial changes made to the definition of MAGI according to the ACA in terms of allowing YOU to take advantage of the program, however all of these changes had a significant impact on the expansion program.  Number 1, when combined with the removal of the asset check, allowed individuals will millions of dollars of assets to qualify for Medicaid expansion overnight with the stroke of a pen, thanks solely to fancy accounting.  Thankfully, number 8 will allow normal working class Americans like you and I to take advantage of this opportunity to qualify our families for Medicaid, thus saving us hundreds of thousands of dollars in insurance premiums and medical bills, while protecting us from the possibility of medical bankruptcy.  Here is how it works.

Since I live in Alaska, and I am familiar with Alaska Medicaid income eligibility limits, we will focus on how the program works in Alaska, and how I can qualify even with my income as an Occupational Therapist, but check your local state listings for information on your state limits. Eligibility for Medicaid expansion is determined by comparing your ACA MAGI, against the FPL, or Federal Poverty Level income. According to healthcare.gov, FPL is “A measure of income issued every year by the Department of Health and Human Services (HHS). Federal poverty levels are used to determine your eligibility for certain programs and benefits, including savings on Marketplace health insurance, and Medicaid and CHIP coverage.” Most states set the cutoff for Medicaid expansion at 133% of FPL, however this is up the individual state you reside in, so check your state regulations.  In addition to the traditional 133% of FPL equation, many states like Alaska, have extended eligibility to other groups, with even higher FPL limits.  For instance, in Alaska, pregnant women can be covered at 200% of the FPL, while children under 19 with insurance can be covered at 177% of FPL, and children under 19 with no insurance can be covered at 203% of the FPL.    Check out this website for current Alaskan FPL MAGI limits based on household size:  http://dpaweb.hss.state.ak.us/POLICY/PDF/Medicaid_standards.pdf

Another key factor in determining eligibility under MAGI rules is family size.  For instance, in Alaska, for each additional member of your family, you can make an additional $621.00 monthly, allowing large families to easily qualify for Medicaid expansion under the 133% expansion group.  For instance, currently my family consist of 4 individuals, my wife, two children and myself.  However, my wife is going to have our third child in November of this year, increasing our household size from 4 to 5 people.  This will in turn, raise our MAGI threshold monthly income from $3630.00 to $4251.00.  Since we plan to have 4 children, eventually this MAGI threshold will be $4872.00 for our family of 6, should things go as planned.  So, with a family of 6 at the 133% Medicaid threshold qualification, my wife and I could make a combined annual ACA MAGI of $58464.00, but since the FPL increases every year with inflation, this number will likely be over $60,000.00 by the time our fourth child arrives.  Both Alaska and Hawaii have slightly higher FPL limits than the other 48 states, however I find this ironic as its actually cheaper to live in Alaska than most people think, and in circumstances like ours, is actually cheaper when compared to the lower 48 states. This will be the topic of another blog discussion in the future.  Regardless, FPL levels for the other 48 states aren’t substantially lower than Alaska and Hawaii.  A list of the current FPL limits can be found here:  https://www.healthcare.gov/glossary/federal-poverty-level-fpl/  Remember though, ACA MAGI is usually 133% of the FPL, or higher depending on the target group.  So, for a pregnant woman in Alaska, you could make twice the listed incomes, and still qualify for Medicaid under ACA MAGI rules.  

The second major change made to the Medicaid eligibility requirements through the ACA was the ELIMINATION of the asset check.  Before Medicaid expansion, there was something called an asset check, where basically the government made sure an applicant didn’t own millions of dollars of assets such as land, and excluded those who did from qualification for Medicaid.  However, the Obama administration completely eliminated the asset check, meaning that millions of people across the country could now qualify while owning millions in assets, as long as their bottom line MAGI fell below the FPL thresholds set by the individual state implementing Medicaid expansion.  Here is an example of how it works.  Let’s say a family of 4 with 2 adults and 2 children owned a 1-million-dollar property in Alaska in 2019.  If the bottom-line MAGI of the family after all expenses such as taxes, depreciation, and insurance fell below the state thresholds, the family would be eligible for Medicaid under the expansion program.  However, before ACA Medicaid expansion, this family would be excluded from Medicaid, because they could hypothetically sell the asset, and have 1 million dollars in the bank, and afford their own health insurance.  I personally agree with the elimination of the asset check, as the asset check is a POS punishing Americans for hard work by making them ineligible for a program they pay into via federal taxation.  

Now that you understand how the ACA asset check elimination, MAGI rules and income limits work, it’s time to put them to work for you, allowing you to qualify for Medicaid expansion for your family, saving yourself hundreds of thousand of dollars in premiums alone, which if invested elsewhere could result in savings of over 1 million dollars by the time you retire.  Currently, I pay 600 dollars in monthly health insurance premiums alone for my family.  Since I am 34, if I could save this 600 dollars monthly and invest it over the remainder of my typical working career until I reach the age of 65, if I got an average 9 percent annual return, I would have 1,085,000.00 when I retired at age 65.  This is why you literally cannot afford to pass up the opportunity to take advantage of the Medicaid program for your family, and one of the many reasons why it actually makes financial sense to intentionally reduce your income, and qualify for Medicaid expansion. Here is exactly what you need to do in order to qualify.

First, as I said before, it is absolutely mandatory that you reduce all your debt, especially mortgage debt ASAP, as this plan will most likely fail if you still have a significant mortgage payment.  For this to work, the key is to be able to comfortably live at or below the ACA MAGI threshold for your family size.  In my case, this will be impossible while having a 3300.00 monthly mortgage payment as our monthly threshold will be $4872.00.  It would be very difficult to make all of our other bills on just over a thousand dollars a month, thanks primarily to other POS’s. However, when our mortgage is eradicated in 2-3 years, $4872.00 is more than enough money to cover our monthly expenses and live a comfortable life. Remember, these $4872.00 dollars are AFTER contributions to your retirement accounts, and FSA accounts which could be as much as an additional $56,000.00 annually under current maximal contribution limits to retirement accounts and your FSA.

The second step to qualify for ACA MAGI Medicaid is to maximize all of your non-taxable retirement accounts and FSA account if possible, thus reducing your ACA MAGI, and your overall taxable income, while saving for your future.  Here is how it works.  Since the 401k limits for 2020 are $19500.00, and IRA limits are $6000.00, a married couple, such as my wife and I, can effectively disqualify $51,000.00 of our income from counting towards our ACA MAGI for Medicaid by simply contributing to our retirement accounts!  Tack on an additional $5000.00 for a daycare FSA, and my wife and I have now reduced our Obamacare MAGI by $56,000.00!!!!!  It’s not that we didn’t make this income, its simply that we placed it in a tax deferred or tax exempt account.  Since we will hopefully have a family size of 6 when we implement this strategy, with an annual Alaska ACA MAGI threshold of just over $58,000.00, this means my wife and I could actually make $114,000.00 and still qualify for Medicaid for my wife and myself, as well as our 4 children.  In addition, since we would have 4 children under the age of 19, all of which would no longer have or need my private health insurance, they would qualify under the 203% of FPL.  This means that my wife and I could make over $145,000.00, and still have all of our children qualify for Medicaid under the expansion program, however my wife and I would not qualify for the program due to being over the 133% threshold for ourselves.  

That is all! Two simple steps to reduce your ACA MAGI, allowing you to qualify for Medicaid under the expansion program while saving hundreds of thousands of dollars in insurance premiums over your lifetime, eliminating your chances of bankruptcy due to medical bills, while simultaneously maximizing your annual retirement savings yielding you millions of dollars in retirement.  What an amazing combination!!!  In my case, if I can implement this strategy in 2 years at the age of 35, my wife and I could save nearly 4 million dollars, and still qualify for Medicaid thanks to the removal of the asset check. 😊 This is assuming my wife and I continue to contribute the maximum $51,000.00 annually to our traditional IRAs, and 401ks, while earning an average 5% annual return until the age of 65, yielding almost 3.4 million dollars by retirement.  When combined with the 600.00 monthly health insurance premium savings, invested over the same time at the same 5% annual rate of return, the investment will yield just over $450,000.00, for a combined total of just under 4 million dollars. 😊 Since 401k and IRA contribution limits will continue to increase, our overall contribution limits will continue to increase, meaning an even larger percentage of our income could be excluded from MAGI.  Now we obviously don’t plan to work until 65, because we are interested in the FIRE movement, which by its very nature requires us to quit working while we are still relatively young, and enjoy quality time with friends and family, but you get the point.  Now do you understand why you cannot afford to miss out on ACA Medicaid under the expansion program??? Now do you understand why exclusion from Medicaid because you work, is one most likely the largest POS you will ever face, second only to the cumulative effect of taxes?  Now do you understand why it no longer makes financial sense to work in this country?  Exclusion from the Medicaid program, while paying for the program yourself via taxation, is one of the two largest POS’s you will ever experience in your lifetime.  

So now that you understand why you need Medicaid, let’s explore what ACA Medicaid expansion covers compared to your current employer sponsored health insurance.  In Alaska, Medicaid under the expansion program covers everything you could imagine relating to your healthcare expenses.  For instance, let’s say you live in Southeast Alaska in Wrangell, but need to see a cardiologist in Anchorage.  Medicaid will cover not only your medical bills for your cardiology appointment, but they will cover your round trip airfare on Alaska Airlines, your hotel, all of your cab rides while in Anchorage, food vouchers, and should you need it will even pay for an “escort” to accompany you on your trip.  Should you live somewhere even more remote, don’t worry as Medicaid will send you your own private charter float plane to pick you up and transport you to the appointment!  We won’t even to begin to discuss the fraud and abuse made possible by this program, but this article about how a woman used her private float plane Medicaid charter to transport to go shopping for construction supplies to take back to her remote home, resulting in overloading, crashing, and the death of the pilot, should give you an indication to how the program is abused.   https://mustreadalaska.com/medicaid-flight-plane-crashed-was-filled-goods-masonry/   Now let’s say for a minute that you have private insurance provided by your employer, like I do.  Since my employer sponsored insurance will not assist whatsoever with in state medical travel, I would have to pay just under one thousand dollars, plus taxes and fees, for a round trip ticket to Anchorage to see my cardiologist.  Since I am not on Medicaid, should I need my wife to assist me, I will need to pay another thousand dollars for another ticket on Alaska Airlines.  Since I don’t have Medicaid, I would be responsible for my own hotel, running approximately 100 dollars per night, and due to the plane schedule, would require at least 2 nights in Anchorage to complete my appointment.  Since I don’t have Medicaid, I would be responsible for all of my meals, and my transportation to and from my hotel, the airport, and my cardiologist.  When all the costs are totaled, I would have to pay approximately $2,000.00 to attend my specialist appointment in Anchorage, not counting the actual cardiology bill, while someone on Medicaid would receive the same services for free.  Remember, since I actually work and try, the government has already taken at least 31% of my income from income tax, and my share of FICA tax, meaning this single trip would take 3k of my gross income.  In fact, due to the cost, my wife and I always plan dermatology appointments around our vacations back home, to lower our costs.  So once again, we have another POS thanks to exclusion from Medicaid.  It isn’t just the cost savings of not having to pay your monthly premiums, but exclusion from Medicaid also cost you a significant amount of money when it pertains to actual medical bills, and the travel surrounding those appointments.  

Another often overlooked POS surrounding Medicaid vs employer sponsored health insurance is the headache involved in dealing with the insurance company, the clinics, hospitals, doctors, dentist, and every other healthcare provider.  When I have Medicaid and go to one of the above, I simply show my card and walk away.  Then somebody from Medicaid contacts the provider, and they work out an arrangement to pay for the services.  With private health insurance, that nightmare is YOUR responsibility. For instance, when our first child was born, we traveled to Ketchikan, Alaska, as our town does not provide the services necessary to deliver a baby.  Since we were not on Medicaid, we were responsible financially for our own travel, lodging and food: had we been on Medicaid at the time, all of these expenses would have been covered.  The care we were provided at the hospital was amazing, but the aftercare relating to the bill was a nightmare.  I received somewhere around 20 individual bills in the mail, all for the labor and delivery charges.  Since I could not keep up with which ones I had paid, and which were duplicates, I simply called every few days, and paid the hospital.  After months of doing this, I finally got the hospital to note in my chart that all of my bills for the labor and delivery were paid in full and that I would not receive another bill.  A few weeks later, I received another bill.  All together I estimate I spent 20-30 hours dealing with this issue, while paying over 6,000.00 out of pocket for the labor and delivery charges alone.  While I love my children, it’s a POS that I had to pay this out of pocket expense, after paying my monthly insurance premium, while someone on Medicaid who received the exact same services in the same facility from the same providers, paid $0.00.  If this isn’t enough to convince you to reduce your work to qualify for Medicaid expansion, when you learn how Medicaid expansion is actually funded, you will. 

Under the ACA Medicaid expansion program, the Federal Government pays for 90 percent of the cost of the program.  Yes, you read that right ninety percent of all Medicaid expansion costs are covered by the Federal Government.  Since you pay federal tax dollars via income and FICA taxes, your federal tax dollars are being taken from you, to fund a program you are ineligible for, because you work and pay federal tax dollars and FICA tax to fund the Medicaid expansion program.  It sounds totally crazy and insane, but it’s absolutely true!!! If you don’t believe me, Google it.  If that doesn’t make your blood boil, you should know that it only recently started funding 90 percent.  Up until 2017, under the ACA, the federal government was contributing up to 100% of the cost of the program!  Altogether, the federal government (your federal tax dollars) pay over 70 billion dollars annually for the expansion program alone.  Add in traditional Medicaid spending, and federal tax dollars pay for over 600 BILLION dollars of Medicaid services annually! https://www.kff.org/medicaid/state-indicator/medicaid-expansion-spending/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D  

If taking an extra 70 billion dollars annually of your federal tax dollars wasn’t enough, the state steps in and takes that extra 10 percent of the tab that the federal government didn’t cover.  States do this through, you guessed it, taxation!! Now here is where it gets interesting for Alaska.  As you may know, and definitely will if you keep reading this blog, Alaska has no state income, sales, or property taxes of any kind at the state level.  Alaska for decades, has relied solely on income from its natural resources to cover the bills for the entire state.  In fact, we’ve had such an abundance of money, that starting in the 70s, the state government started requiring that 25% of all revenues be invested, resulting in what is today known as the Permanent Fund, which holds over 60 billion dollars and counting. Excess funds from the Permanent Fund were supposed to be distributed to the individual Alaskans via a formula that was written into state law.   Former Governor Walker in his infinite wisdom, signed Medicaid expansion into effect in September 2015, increasing the number of those covered by the program by nearly 90 thousand, in a state of only 750 thousand residents.  Overall, over 200 thousand people were put on the Medicaid rolls, representing over one quarter of the entire states’ population on Medicaid.  Almost exactly 1 year after signing Medicaid into law, Governor Walker, with the stroke of his pen, cut the required dividend by more than half, citing budget shortfalls.  In 2016 alone, the Medicaid expansion program cost the state of Alaska 1.8 billion dollars, for their share of the program. Again in 2016, Governor Walker cut 666 million dollars of Permanent Fund Dividends to the residents of Alaska.  Altogether, Governor Walker cut 1.3 billion dollars from the budget, citing budget concerns, while paying out 1.8 billion dollars for Medicaid expansion.  Let that sink in for a minute.  Former Governor Walker used his veto power to override a law mandating a certain percentage of the Permanent Fund be transferred to the residents of the state, while simultaneously paying 3 times the amount of the PFD veto, in Medicaid expansion.  So, Medicaid expansion under the ACA is another POS as it directly took money out of the pocket of all Alaskans, to pay for Medicaid expansion for some Alaskans.  Ever since Medicaid expansion was passed in this state, our state has been struggling to pay its bills, partially due to low oil prices, and partially due to nearly 2 billion dollars of annual spending on Medicaid expansion.  My fear is as time progresses, Alaska will implement some type of tax reform, such as income, property, or state sales tax, which will be just one of the many POS’s caused by Medicaid expansion under the ACA.  

The very last POS related to Medicaid expansion is bankruptcy due to medical bills.  Multiple studies have indicated that medical bills in the United States are one of the leading causes, if not the leading cause of bankruptcy.  A Harvard study published in the American Journal of Medicine found that nearly 66% of all bankruptcies were related to medical bills.  Read about the study here: https://pnhp.org/news/illness-medical-bills-linked-to-nearly-two-thirds-of-bankruptcies-harvard-study/

What’s even more scary is it found that nearly 75% of those effected, actually were insured!  The issue was the individual bills the patients received were so high, the patients could not pay them, even with insurance.  Another issue was since the patients were no longer working due to the medical complications, their medical insurance coverage lapsed, leaving them with a hefty bill. So here is where Medicaid comes into play.  If you are on Medicaid, you can never go bankrupt due to medical bills.  Furthermore, depending on your state and the Medicaid program, some programs are “retroactive” meaning that you can apply for Medicaid and get it AFTER you have had a medical emergency, and Medicaid will then pay for your bill.  Good luck getting employer sponsored insurance to do the same!  Simply put, even if you have employer sponsored health insurance, you still stand a significant risk of financial bankruptcy should you ever face any significant medical condition.  Nobody ever expects something like a heart attack, car accident or stroke to happen to them, but if these things never happened, I wouldn’t have a job.  You literally cannot afford the risk of being caught in a medical emergency without Medicaid, as it could bankrupt you, causing you to lose everything you have worked for in your lifetime. 

In conclusion, exclusion from Medicaid, while paying for Medicaid with your tax dollars is the second largest POS you will experience in your lifetime, second only to taxation.  Whether it’s paying for it by working, or being excluded from it for working, it is a massive POS that can cost you millions of dollars over your lifetime in both medical expenses, and lost investment income from the money you could have saved if you were on the program.  Since all Medicaid recipient care is 100% covered by Medicaid, there is a 0% chance you can go bankrupt due to medical bills.  Since medical bills are the number one cause of bankruptcy in the United States, you will no longer have to worry about this issue, if you are on Medicaid.    If losing over half of your income to some form of taxation wasn’t enough to get you to reduce your working hours and enjoy your life, the possibility of losing what little you have left to medical bills because you don’t have Medicaid should be enough to finally convince you that it no longer makes financial sense to continue to try to work hard and be successful in our current United States of America.  Eliminate your debt and reduce your ACA MAGI to just under the threshold to qualify for Medicaid for your family, then enjoy the extra time you have now with your friends and family.  Remember, you only get one life, don’t waste it working, and remember the primary focus of this FIRE pathway is for you to enjoy the life you have been given, with the people that mean the most to you.  Time is your most valuable asset, don’t squander it.

In the earlier segment we discussed the effects of student loans from a national standpoint, and how to fix them.  In this segment, we will dig into exactly how student loans are for many “educated” American families, one of the largest POS’s we face. This is going to be a long segment, but each of these topics covered is extremely important, and the combination of them all is the reason student loans are a huge POS.

1. First and foremost, college is no longer necessary to live a good life, be successful, and financially independent, and hasn’t been for over a decade now.  Many trades such as welders, mechanics, plumbers, electricians, and carpenters can make six figure annual incomes with little to no formal education.  An example is our local marine mechanic shop has a shop rate of 104.00 per hour, and the mechanic courses required for this position require less than 1 year of education.  My local welder, electrician, and diesel mechanic all charge 75 dollars an hour, and all were self-taught or learned their jobs in trade school. I as an Occupational Therapist with a Master’s degree, make less than 50 dollars an hour after working in the field for a decade with a 5 year education.  I am not complaining about my income, I am merely showing that many jobs pay more than I make, while requiring minimal higher education. On top of this, many of these professions have waiting lists for clients, because they are so busy! So, while college is an OPTION, it is not a requirement.
2. The cost!  According to a 2019 U.S. News and World Report article on the cost of college tuition, the average cost for 1 year of college is just shy of 37,000.00 for a private college, 22,577.00 for public, out of state tuition, and 10,116.00 for public in state tuition. These numbers include TUITION and FEES only and exclude costs such as room and board.  Many colleges, like the one I attended, require students to live on campus and have campus meal plans, thus further increasing actual costs of college.  For instance, when I attended college my college required all undergraduates to live on campus unless they grew up close to the college.  When I hit graduate school and moved to a nearby private apartment complex, my “room and board” fees decreased since I was no longer required to pay the predetermined and inflated college rates.  So, the true cost of tuition could easily be increased by 10-20K annually when you include room and board for a grand total of around 50K per year for all college expenses at a private college, plus interest.  https://www.usnews.com/education/best-colleges/paying-for-college/articles/paying-for-college-infographic
3. Lost Income.  Every year spent in college is one less year available to make money.  As we will discuss further, and you probably have read elsewhere, the best asset to have on your side for building wealth is time.  For instance, 1k invested monthly for 30 years at 5% interest will yield over 800K after 30 years.  But subtract those 5 years I spent in college, and the savings drops to 576k!  So, in the long run, those 5 years I spent in college cost me 225k in retirement savings, compared to the plumber or mechanic who started his business after graduating trade school when he was 18.  
4. Tax deductions.  I cannot recall how many times I’ve heard “why worry about student loan interest, it is a tax deduction!”  This is only partially true, and besides you don’t want any debt at all!  Student loan interest is deductible up to $2500.00 only per year, and only if your individual MAGI is BELOW 70K with a reduced rate for individual MAGI between 70 and 85k. God forbid you do something extremely productive and meaningful to society like become a physician, surgeon, dentist, physician assistant, or CPA and you will be ineligible for any student loan interest deductions due to your income!  Ironic isn’t it??
5. Income based repayment plans.  This is the absolute worst idea ever invented for student loan repayment!  If you ever had any question that the government wants you to be an indentured servant to your loans, look no further than this program.  Basically, the program requires you to pay between 10 and 15 percent of your “discretionary income” every month.  In many cases, this will cause the loan balance to INCREASE, like in my wife’s case, because the payments aren’t enough to cover the annual interest on the loan.  The result, along with the compounding interest effect, mean that every year your principal balance will continue to expand.  Should you make all your payments year after year for 20 to 25 years, the government promises to forgive any remaining balance you may owe on the loans.  However, if you have been watching the news in the last few years, you may have noticed that the Department of Education is currently getting sued for allegedly failing to forgive the student loan debts of government and non-profit workers who were promised after ten years their remaining loan balances would be forgiven.  I feel for these people, as many of them took lower paying jobs with the promise of full student loan forgiveness after a decade of work.  Unfortunately for them, they cannot get that decade back, and are still saddled with the debt.  SO, if you want to take the risk of waiting 25 years to find out if your loans will be forgiven that is up to you, but I do not recommend it at all.  Currently, I have a college friend who recently posted the details of one of his federal student loans.  On an original balance of 10k, after paying 10k for ten years, he owed just over 10k!  Ten years, ten thousand dollars of payments and he still owed ten thousand dollars on an original balance of ten thousand dollars!  If that isn’t modern day highway robbery, I don’t know what is. 
6. Student loan forbearance.  In the student loan forbearance scheme, the government simply says you don’t have to make any payments on your balance at all, but your balance will continue to expand due to interest. Again, thanks to the effect of compounding interest, every month you delay payments significantly increases how many payments you will have to make to pay off the loan.
7. Bankruptcy.  If the “income-based repayment plans” weren’t enough to convince you that your student loans are modern day indentured servitude, the bankruptcy regulations surrounding student loans will.  With almost all student loan repayment plans, should you file for bankruptcy, your loans will not be discharged.  Simply put, if you go bankrupt and lose your home, car, and any other possessions, you will still be stuck with your student loan balance. https://www.businessinsider.com/people-filing-for-personal-bankruptcy-carry-student-loan-debt-2019-6  and https://www.cnbc.com/2018/08/13/twenty-two-percent-of-student-loan-borrowers-fall-into-default.html
8. Disproportionate effect on minorities. Although the average student loan balance owed in the country is around 30k, the majority of the outstanding nearly 2 trillion dollars in student loan debt is made up of loan balances totaling less than 10k.  Let that really sink in.  Nearly 1 trillion dollars of student loan debt is made up of people who owe the equivalent of 1 year of education at a public in state institution.  Because these people most likely didn’t obtain a college education, and our educators spent a decade telling them college was the only pathway to success, they don’t make enough income to survive, and don’t have any extra income to pay towards their loans.  I would love to see all balances on student loans below 10K forgiven.  The positive effect on the economy would be more than worth the short-term loss.  If Congress can pass a COVID19 stimulus worth over 2 trillion dollars and have no idea where the money really goes, they can forgive 10K of student loan debt for those who were tricked into the college scheme. Furthermore, thanks to income-based repayment plans, minorities were much more likely to owe larger principal balances on student loans even after paying towards them for over a decade!  Simply put, student loans which were designed to assist minorities in getting ahead in this country not only failed miserably but have caused a larger financial burden.  https://www.usnews.com/news/education-news/articles/2017-10-17/crisis-for-african-american-student-loan-borrowers and read the full study here: https://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2018410
9. Taxes. Having a college education and a typical 9-5 job, will most likely put you in a higher tax bracket, while excluding you from government programs such as Medicaid and the recent $1200.00 stimulus check.  Due to our income, my wife and I, both healthcare workers during a pandemic, were excluded from the $1,200.00 stimulus checks based only on our income.  This also effected half of nurses, all physicians, physician assistants, nurse practitioners and surgeons.  Let that sink in for a minute: Congress excluded the majority of healthcare workers during a pandemic from funds for pandemic relief!  This POS adds salt to the wound so to speak and is too variable to discuss in detail and will be discussed in a separate post.  Basically, instead of being rewarded for trying hard, working hard, and being successful after years of dedication and study, the government will take a larger percentage of your paycheck, causing those student loan payments harder to pay every month, thus setting you up for “income based repayment plans.” Hopefully now you understand why student loans are the largest POS those of us “educated idiots” who went to college will ever face, and will take the largest chunk of our discretionary income we have left after paying other POS’s.  Although federal student loans are not truly a tax, in my opinion, the interest you pay on them is.  The initial principal balance is your money.  You use it to further your education whether its to pay for the classes themselves or textbooks, but the interest is a payment you make monthly to the federal government, just like payroll taxes. I also consider it a tax and POS, since actual costs for classes varies so much based on the income of your parents.  When I attended college, I was excluded from many government programs and college discounts, based on the income of my parents.  So, I was punished with higher college costs, based solely on the fact my parents worked hard.  So, this is a POS that literally spans generations, and will influence your children too. 

In conclusion, student loans and college in general are not a necessary pathway to obtain FIRE, and in fact, may very well cause some road bumps on your journey.  Student loan interest is only partially deductible at best, and student loans cannot be discharged in bankruptcy.  Second only to taxes, and possibly mortgage/rent payments, student loan payments are the next most significant POS you will pay each month/year, and are the second largest payment you will make each month, again to the federal government.  See a trend here?? These facts combined with the fact you lost years of your working life in return for that piece of paper, make student loans the “ultimate POS.”

Part II: Housing: 

How your traditional mortgage is a 30-year game of Russian Roulette, and why your home is only worth One Thousand Dollars

Once upon a time, but not too long ago, there existed a well developed yet evolving country where a family could raise multiple children on a single income, afford a nice house in the suburbs a new American made car and healthcare.  However, over time, that reality slipped away and became a fairy tale.  Now we are merely left with the memories of what this life was like from our grandparents, as we will likely never see it again in my lifetime. So, what happened?  What caused home ownership to slip away and become a fairy tale from the past and a nightmare of the present?  The answer is a multitude of factors, which can all be boiled down to one simple word: greed.

Back in the 1950s to the 1980s, a house was actually a home. It was a place where children were raised to be adults, and served a simple purpose: to provide adequate shelter for the family.  But starting around the late 80s to early 90s, this trend shifted and suddenly families of 4 were living in McMansions with ten times the square feet necessary to provide shelter.  Homes transitioned into houses, that were used as more of a status symbol, than an actual residence for a family.  Since one large home wasn’t enough, many families doubled down, buying a second vacation home somewhere else so they could visit three times a year on holidays.   Simply put, homes transitioned from shelters to status symbols, which were bought with overextended credit.  In 2008, this fairytale lifestyle transitioned from dream to nightmare.  

The decline in the markets in 2008-2009 was a rude awakening slapping many Americans back into reality.  It was a double whammy, because suddenly the large stock accounts that Americans had hedged their frivolous house buying against, were now worth a fraction of what they were just a few short months before.  Many lost their jobs, and unable to pay 1 or two mortgages, foreclosed on their homes.  Unfortunately, many Americans have already forgotten this hard lesson taught just a decade ago, and have once again begun to get over extended and once again hedge their bets against their investment accounts.  It’s a sleeping giant waiting to be awakened, and I am afraid COVID 19 is about to wake the sleeping beast.  

A traditional home mortgage is a 30-year game of Russian Roulette.  You have 360 chances over a 30-year period of time, or nearly half a lifetime, to have something go wrong prohibiting you from making that monthly payment.  Unfortunately, the odds of having something significant in a 30-year period of time are very high, and as we have seen with COVID19, can effect nearly every American.  The faster you can eliminate your mortgage, the less your chances are of having some adverse life event that could result in the foreclosure of your home.

Research shows that the average American switches homes 3 times in their lifetime, averaging 13 years in a home before moving.  Unfortunately, I have already “owned” 3 homes by the time I was 30.  The problem with this trend is this: every time you sell a home and move to the next, the majority of Americans buy a larger more expensive home, using any equity from the previous home in the down payment for the next home.  This also hits the reset button on your mortgage, meaning instead of having 17 years remaining on your original 30-year mortgage, you now have another 30 year mortgage.  This has a significant negative effect on those who are older when they purchase a new home.  For instance, I worked with a lady who bought a new home when she was 42, opting for a 30-year mortgage, meaning she would be 72 when the mortgage would be paid in full.  Do you expect to work to 72 to pay off a mortgage? Do you have enough savings to cover a mortgage well into your 70s, or better yet, do you want to be chained to a mortgage when you’re retired? If this wasn’t bad enough, another issue comes from the way a mortgage is designed. 

Your typical 30 year mortgage, or any mortgage for that matter, is front loaded with high interest and low principal payments. For instance, a 30 year mortgage at 5 percent interest will result in a monthly payment of 1073.00, not including taxes or insurance.  According to the amortization schedule for this loan, the first payment to the bank will include 883.00 of interest, and 240.00 in principal.  The very last payment, 30 years from now, will be 44 dollars in interest and 1069.00 in principal.  As you can see, interest makes up the vast majority of the payment, in fact taking 15 years of payments before principal paid in the monthly payment is more than interest paid.  Since the average American hits the reset button every 13 years starting over in a new home with a new mortgage, they spend a lifetime paying more interest than principal on their home.

An additional mortgage related POS that effects primarily young home buyers is mortgage insurance or PMI.  I absolutely despise this POS as it punishes first time buyers, lower income Americans, and those who think that home ownership is the American Dream they want to capture.  Basically, thanks primarily to 2008 and the fraud completed by the lending institutions, the lending institutions now require you pay PMI on most loans where you pay less than 20% down on your home.  For instance, a Federal Housing Authority loan or FHA loan, requires a 1.75% up front fee, followed by an annual .5 to 1% fee on your outstanding loan balance.  This means on a $100,000.00 mortgage balance, you pay $1,750.00, and an additional $1,000.00 annually.  Sure this rate will drop with time, but remember, since the majority of your initial payments are interest, it takes years for this rate to decline.  What’s even better about this program is its extremely difficult to get rid of PMI payments.  The only way to get rid of PMI is to either pay on the loan long enough that you reach more than 20% equity in the home, or if your home goes up in value, and you get an appraisal to show your equity is above 20%. Either way, this will cost you a significant amount of money as the average home appraisal cost is around $500.00, and/or paying that extra 1% until you reach 20% equity in the home.  Either way, PMI is a POS that effects your ability to buy a home, thanks primarily to the events of 2008.  

Why your home is only worth $1,000.00

Americans should wake up and get back to the mentality of our parents and grandparents- a house should be a home and simply put, a safe place to lay our heads at night. Since the average rent payment is around 1000.00 per month, a homes value should only be 1000.00 per month.  This is because no matter how long you live or where you live, you will have to come up with one thousand dollars a month on average to keep a roof over your head.  Even if you do own your home outright, it should still be only considered to be valued at $1,000.00 monthly.  Why? Well let’s say your home is appraised at $250,000.00.  That’s awesome, especially if you own it outright. However, since you need a roof over your head, its only worth $1,000.00. This is because no matter where you go, you will still need a home.  If you sell the initial home for its $250,000.00 value and buy another home at $250,000.00 then you don’t have any money in the bank.  If you sell your home for $250,000.00 and buy a new home for $200,000.00 then you pocket $50,000.00, but your new home is still only worth $1,000.00 since that’s the rent/mortgage payment you would have paid. Put simply, your home may be worth $250,000.00 to your heirs should they sell it, but to you its only worth the $1,000.00 you would have spent each month on rent or your mortgage to provide shelter for you and your family.  Americans should not “bet the farm” and ever risk or hedge their primary mortgage or take out a home equity line of credit. Furthermore, Americans should refrain from any secondary home, including rentals, until their primary residence is completely paid for, eliminating the possibility of the bank stealing the home and its equity, leaving just the government capable of that instead of two entities.  Unfortunately too many Americans forgot, and now I am afraid COVID-19, and its effect on incomes and the ability to pay the mortgage once again, including rentals, will once again be another rude awakening for Americans hell bent on getting over extended. In my opinion, passive income from rentals, or secondary homes should never be considered in the FIRE community and in fact is extremely dangerous as long as you have a mortgage.  They should only be considered as an investment strategy if they are fully paid for and owned outright because if the renters can’t pay, the bank doesn’t come after them, they come for you.  Depending on rental income to cover the mortgage should never be considered as the primary way to repay the debt on the investment.

In conclusion, a house should be a home, not just a house.  It should serve its purpose to provide shelter in a safe location.  Your home should never be valued at anything more than 1 thousand dollars, as too many factors could negatively impact your homes value.  I’m certain the people of Pripyat Ukraine didn’t expect their home values to drop to 0 overnight, but it happened.  The thousand dollar value comes from the fact that the average rent payment would be just that, and you want to own your home outright, so you aren’t dependent on any income to ensure you have a roof over your head and a safe place to sleep at night for your family.  Mortgage interest is front loaded, taking 15 years on the traditional mortgage for you to begin to pay more towards principal than interest, refinancing resets this, starting over with an even larger interest payment.  Most importantly remember to achieve FIRE, you need to ensure you have a home for the rest of your life, don’t bet that rental income or any passive income will cover your payments because as we have seen twice in just over ten years, unforeseen factors can destroy your best laid plans, leaving you homeless.

After World War 2, my grandfather started sorting mail in the basement of American Electric Power, a Fortune 500 company, and by the time he retired, he had risen to the rank of division manager. He eventually became a lobbyist for AEP, which lead to a long career in politics during his retirement.  However, my grandfather had no “formal education,” merely a high school diploma.  Due to some of the obstacles he faced while climbing the ladder without a degree, he was determined his children and grandchildren would receive college educations to give them the advantage he didn’t have during his career.  Fortunately for myself and my sister, my grandfather invested in companies such as Coca-Cola and The Walt Disney Company and left his estate for our college education.  Thanks to his investing and care for his family, my sister and I were able to graduate with our Masters Degrees debt free, but most aren’t so lucky.

When I first met my wife and we started dating she informed me of her student loan debt of around $80,000.00 at the time, plus interest.  Since she was working 2 part time jobs at the time, she had been put on a “income-based repayment plan” and was paying just under 400 dollars a month.  I didn’t think much of it at the time as I didn’t understand the loan process since I never had any federal student loans.  Later when we were reviewing our credit to purchase our home, I discovered something truly amazing: my wife had a larger student loan principal balance at the end of the year than what she began with!  At first I just couldn’t comprehend it.  Why would the government intentionally set her payments at such a low minimum payment that it would guarantee she wouldn’t ever pay them off?  How could that not be a criminal act, to intentionally set up someone for a lifetime of payments for a debt they could never repay?  The more questions I asked, the more upset I became.  Our government in its infinite wisdom, while attempting to help people become more educated with higher paying jobs, had effectively enslaved an entire generation with burdensome debt they could never repay, and couldn’t discharge even in bankruptcy! 

For as long as I can remember, my teachers continuously preached that the only pathway to success was through college.  They even doubled down forcing all students to take an annual exam in high school that showed us what occupation would best fit us, and what degree we would need to obtain to acquire that job title. Both of my parents were teachers, and as I look back now the irony that they now pay their mechanic more per hour than they made when they retired is overwhelming.  Even more ironic is the fact that I wanted to be an electrician, but since that didn’t require a liberal arts education with at least a Bachelors degree, my parents refused, stating I needed to go to a “real college” and get a liberal arts education.  As a result, I now pay my electrician twice my hourly wage. An entire generation of students was lied to, and the result is the student loan crisis.  The student loan crisis while creating its own problems created a secondary problem: a lack of students to enter the trades such as electricians, plumbers, mechanics and skilled carpenters.  After all, we were told for nearly two decades that the only pathway to success was college, so why waste our time in trade school?

How in the world did we get into this position and how can we fix it?  How did we as a country get to a point in a program designed to help its citizens put them in nearly 2 trillion dollars of debt, not including interest? Keep in mind the average total annual income of all federal taxes is 3 trillion dollars, so student loan borrowers owe the federal government nearly 2/3 of all the income the government makes in an entire year from all taxes, fees, and revenue sources. The answer is simple: an entire generation of students did exactly what they were conditioned to by our public education system: they went to college.

The idea behind federal student loan programs was simple: invest in our citizens, so they could become more productive members of society, earn higher wages, and help expand our economy.  The problem, like most government programs, it backfired.  The problem was simple, and the solution is even more simple and recently was implemented, although on a short-term basis. So what is the solution to the nearly 2 trillion dollar student loan debt crisis?  The answer is to suspend interest payments.

As part of the response to COVID 19 and its toll on the economy, President Trump suspended student loan interest indefinitely.  Suspension of interest rates on student loans is the answer to the student debt problem and I have been screaming for years that this is the only feasible response.  Forgiveness is not an option, as that will take us down a road to destruction of our entire economy. The average federal student loan interest rate is just under 6 percent.  My wife’s average interest rate was 7 percent for her degree she obtained in 2010.  While the FED was holding interest rates below 1 percent due to the recession in 2008, they were handing out student loans with 7 percent interest rates!  Suspending interest rates will allow students to repay their debt, and allow them to contribute to the economy, the entire intent of the program. As a way to encourage student borrowers to indirectly join the FIRE community and encourage debt to be repaid quickly, I would personally like to see a progressive interest payment system in the future.  For example, the first 3 years after graduation for a Bachelors degree would be interest free, 5 years for a Masters, and 7 years for a PHD level of education, followed by a 1 percent annual increase.  This would encourage loan holders to pay off their loans quickly, and simultaneously complete the mission of the loan program, to empower our citizens to lead a better life.

How we destroyed our student loans

Our personal struggle with our student loans really goes back to the first step, which is admitting you have a problem.  When we met, my wife had around 80k of student loan debt, plus interest.  We didn’t realize it at the time, but this debt was a crushing burden on our finances.  Even though the loans were in her name, I considered them my debt as well because they directly impacted our household expenses.  One of the failures in relationships about debt I often see is the idea that student loans are “his or her debt” when in reality since they impact net household income, they are the responsibility of both parties.  Once we realized this debt was a problem, and that her income-based repayment plan was actually adding to her principal balance, we formulated a plan to eradicate her loans.

The plan was simple, we doubled her minimum loan payment, and would continue to do so until the loans were repaid in full. This action meant significantly more money was going towards paying down her principal balance, instead of adding to it with the income-based repayment plan. Since we were a team now sharing expenses, my contribution towards our daily living expenses allowed her the opportunity to contribute to more to her student loan debt.  Remember, having a teammate in this process is the single best thing you can do to battle debt.  Then at work one day sometime in 2018 we were presented with an opportunity to pay off the remaining balance, without changing jobs, moving, or making any other drastic moves, we simply had to fill out some forms and send in some information and boom, our student loan debt was a thing of the past!

What exactly did we do to erase the 40K remaining student loan debt? No we didn’t take 40k out of savings, or have a rich uncle who left us 40K in their estate as some other financial bloggers have done, our facility was purchased by a Indian Health Services provider, making my wife eligible for the Indian Health Services Loan Repayment Program. This program offered to pay 20k a year, up to 3 years, for a grand total of 60k of student debt, simply for working at the facility where we were employed!  Furthermore, since Uncle Sam in his infinite wisdom considers this loan forgiveness program “taxable income,” the program includes an additional 6k per year to pay towards federal income taxes.  The only thing that had changed was the name on the building and some administrative staff, but this opportunity was given to us thanks to our new company moving into town.  My wife applied for the program and a few short months later she was accepted to the program! In December 2019, the money arrived in my wife’s account and she began paying her student loan payments from the new account we had set up with IHS!  When we knew she was accepted into the program, we reduced her monthly payments back to the minimums, as we knew the money was coming and we would have more than enough from the loan repayment program to pay off her balance.  We had paid down 40k of principal on our own between 2015 and 2019, and thanks to the IHS loan repayment program, we now no longer have to make student loan payments with our own paycheck.  

For anybody in health services, I strongly urge you to check out the Indian Health Services Loan Repayment program.  This program is available for a range of professionals from doctors and nurses to therapists and social workers.  I helped my wife apply for her repayment program, and then assisted 3 nurses and 1 therapist through the program this year, all of which have been awarded the program!  This program is a great recruitment and retention tool as well. To date, this is the best program I have discovered for health professionals as it truly offers you twenty thousand dollars a year to work in the field you have chosen, with locations ranging from Florida to Alaska. For those of you not in health services, I strongly encourage you to explore options in your own field because, “you don’t know what you don’t know.”  Although my wife and I had worked in healthcare for 8 years, we had never heard of this program before, and had the new company not acquired us, we probably still wouldn’t know the program existed today.  There may be opportunities out there for you in your field that you simply don’t know exist, which could be costing you dearly.

In summary, we all only have one life to live, and we need to live it to the best extent possible.  Time is the most precious asset that any of us have, and none of us can buy more time on Earth.  The student loan debt crisis will continue to spiral out of control unless student loan interest rates continue to be suspended, and a program is implemented with little or no interest to allow new graduates the ability to live a productive, meaningful life without going bankrupt and support our economy.  If you have student loan debt, explore all options for repayment in your field.  Ask around, and you may stumble onto an opportunity like we did!

I cannot count the numerous articles I’ve seen over the years from “experts” that have mistakenly claimed things such as housing costs, healthcare, utilities, or childcare are the largest annual expenses for the working class American, when in reality, taxes are the largest annual expenditure of nearly every working class American.  I get so tired of listening to these “experts” tell us that if we just live in a smaller home and switch to LEDs we will save enough money for us to “get ahead” when that simply isn’t true, and will never be true.  In fact, the truth is not only are taxes your largest annual expenditure, they also are progressive in nature and largely unavoidable.  The only way to legally avoid them, is to be smart enough to learn to play the system, legally as I have.  

Taxes suck.  Nobody likes taxes; however, we all need to pay them in order to live in a civilized society.  Contrary to what it may sound like in this blog, I don’t have a problem paying taxes.  In fact, after sitting on our local city assembly, I discovered we need to pay more local taxes, in order to avoid pitfalls in the future in this community.  My issue with taxes, especially on the federal level is simply waste.  In 2017, the federal government received over 3.3 TRILLION dollars in federal tax revenue.  Over 83% of that, came from income and payroll taxes, otherwise known as the working class, while corporations paid less than 10 percent of all taxes: https://www.cbsnews.com/news/tax-day-where-the-government-gets-its-money  While I am not for higher corporate taxes, its absolute bullshit that the government can take in over 3.3 trillion dollars in revenue, while at the same time continuing to increase the federal debt year after year to 20 trillion dollars currently, not including the 2 trillion “stimulus” Congress recently passed. 

Sometime when you want a good laugh, and to make your blood boil at the same time, hop on the internet and search “wasteful government spending.”  There you will find thousands of results of wasteful spending from studying the effects of cocaine on sexual habits of the Japanese quail, to hamster fights.  While these projects alone may not account for a significant amount of money from the perspective of the federal government, they add up to hundreds of billions a year in simple waste.  My personal favorite is a program that was designed to catch disability fraudsters.  Although the program was effective and recaptured many times the amount of money spent on the program, Congress in its infinite wisdom, defunded the program. Throughout our lives, we’ve all had that one friend or relative that simply couldn’t get their act together.  We’ve done things like loan them money, fill their gas tanks, and pay their bills year after year.  Eventually, we realize it’s futile, so one day we have a heart to heart conversation with them and inform them we can no longer support their poor decisions.  Well, consider this blog my heart to heart discussion regarding taxes. However, with federal, state and local taxes, one simply cannot just stop paying taxes, so I’ve spent years researching how to effectively reduce, but not totally quit paying taxes. Now that we have identified why I have issue with taxes, let’s look further at the actual structure of how taxes work. 

Most people don’t have a clue how taxes work.  We simply go to work, fill out some papers when we start our job, and at the end of the year get some weird form called a W2 in the mail which we take to our nearest budget tax preparation center, and pay someone with a few weeks of training to be responsible for our income for the last year.  This used to be me, but not anymore.  From now on, I refer to taxes, user fees, and exclusions from government programs such as Medicaid, Penalties of Success, or simply “POS’s.”  One of the most important things to understand about taxes, is they are progressive in nature.  Not only are income taxes progressive in nature, meaning the higher your gross income the larger tax bracket you’re in, but more importantly, these taxes come “off the top,” resulting in you having fewer dollars to pay the following taxes.  For example, let’s say you make a gross income of 50k after all deductions, well congratulations you’re in the 22% tax bracket.  What does this mean?  Well since taxes are progressive, it means you pay 10% tax on your first $9,700.00 of income, 12% on you remaining income up to $39,475.00, and then finally 22% on your remaining income up to 50k.  In all, you would pay $6,858.00 in federal income tax on this 50k of income, or roughly 14 percent.  Next comes state income tax since it comes “off the top” as well.  I’m going to use North Carolina, as it’s the state we fled for Alaska.  The state of North Carolina charges you an additional 5.25% state income tax for the pleasure of working in the state, so now you pay an additional $2,625.00. Doesn’t sound too bad right, after all you’ve only paid just under $9,500.00 of income tax on your 50K income (after adjustments.) Well it really isn’t, but here is where the problem comes in: this is just the first of hundreds of other taxes you will pay, each taking progressively more from your income, and we haven’t touched FICA taxes yet!

Now here is where things get interesting. Let’s take the next tax, property tax. Whether you rent or “own” your home, you pay for the property tax.  Again, I’m going back to North Carolina, since we escaped their high taxes by moving to Alaska.  The property I owned just before moving to Alaska had a “value” of 234k according to Wilkes County.  Although I only paid 170k for the place and later sold it for a loss at around 160k, when I contacted the county in regards to the artificially inflated value, I was simply told that was their assessment, and there was nothing I could do until assessment time came around in another 5 years or so.  So, I paid the county $1,616.00 in property tax on this parcel while I lived there.  The issue is that this $1,616.00, even if not inflated, takes a significant larger chunk of my remaining income, thus making it progressive in nature.  Here’s how it works:

Original income after deductions: $50,000.00

After state/federal income tax: $39,475.00

Property tax: $1616.00 or 3.2% of the original income, but 4.0% of the after-tax income! This means that every following tax continues to take a larger and larger percentage of your remaining expendable income, resulting in less and less money for you to save, or put towards your cost of living.

Next let’s cover FICA tax, or another “penalty of success” tax. FICA taxes in my opinion are the most crucial and overlooked taxes, as they come “off the top” and most people have no idea they exist. They also account for the majority of Federal tax revenue by source.  Most people have no idea what FICA tax is or what it even stands for, yet alone, what it represents and how much of their paycheck it actually eats up.  FICA stands for “The Federal Insurance Contributions Act,” AKA FICA, or payroll taxes. FICA is simply a combination of Social Security and Medicare taxes.  Social security represents 6.2% while Medicare is 1.45% of each paycheck.  However, Uncle Sam also requires your employer to pay an additional 6.2% Social Security, and 1.45% Medicare tax.  Together, the total of all employee and employer FICA contributions comes to a whopping 15.3% of your paycheck!!  Now some people will say, “but wait, the employer pays half of that figure, so you truly don’t pay 15.3%.”  My response to those people is sure, you’re right, but since your employer has to take this into account before they even hire you, Uncle Sam effectively guaranteed you a 7.65% pay reduction since the employer KNOWS they must pay “their portion” of FICA tax! The same goes for health insurance premiums!  So just like any other tax the government tries to place on employers or companies, the cost is passed along to the employee.  

So, lets revisit our hypothetical income above to see the effects of FICA taxes. Remember, above our annual income was 50k AFTER DEDUCTIONS!  Simply put, deductions will vary from person to person and is too complicated to try to cover here, that’s why were looking at a 50k income AFTER all DEDUCTIONS.  The important thing to realize here is FICA taxes come off of GROSS income, not net income or after-tax income.  Why does this matter? It matters because since it comes off the top, it is not recaptured in income taxes: FICA and income taxes are two separate things.  For example, let’s assume that the gross income in this situation was 62,200.00, the person was single and took the standard deduction only, resulting in a taxable income of 50,000.00.  Since FICA came “off the top, the 15.3% total, or your 7.65% employee contribution came from the 62,200.00 figure meaning you paid $4758.00 in FICA taxes, while your employer paid the same for the privilege of having you as an employee, for a grand total of $9516.00 in payroll taxes on your behalf sent directly to Uncle Sam with no ability to recapture any of those dollars. So now on your original income of 62k, you have effectively paid over 15k in federal taxes alone, leaving you less than 47k of your income to pay for other POS’s.  Add in your employer’s contribution to FICA on your behalf, and you have paid almost 20K of your hypothetical 62K income to federal income, FICA, and state income taxes alone.  The key takeaway here is that FICA taxes and income taxes are two separate things, but both have a major negative effect on your overall income and are progressive in nature. 

The next POS I would like to cover is health insurance, and Medicaid.  Since you work, unfortunately you most likely make too much to qualify for Medicaid, thus requiring you to have your own insurance, or face a fine thanks to the “Affordable Care Act.”  This particular issue is a double whammy so to speak, because it literally takes money from you via taxation to pay for medical care for others, while exempting you, and instead requiring you to pay even more out of pocket for your own healthcare!  Also working in healthcare for the past decade, its even more infuriating to see how our government intentionally neglects the very working class that supports all their subsidized healthcare plans. Refer to the above, where most taxes collected come from payroll and income taxes, AKA the working class.  Currently, the average cost of healthcare insurance premiums alone for a family in the United States is over 20k per year!!! Now your employer picks up most of this tab, but as with any “penalty of success” your employer must pay, they REDUCE your income by that amount before they even offer you the position!

https://www.investopedia.com/how-much-does-health-insurance-cost-4774184

TWENTY THOUSAND DOLLARS!!!  Thankfully, these premiums are deducted before any state or federal taxes, so they are truly pretax dollars, but still!  20 thousand dollars of your hard-earned money just went out the window just for the ability to have health insurance for your family, while simultaneously excluding you from Medicaid!!!  These are premiums only and do not include any co-pay, deductible, or other related expenses, simply the ability to have the insurance available in the first place.  To me, this 20k figure, and the intentional exclusion from Medicaid, is the reason we should have true appropriately implemented universal healthcare, but that’s a topic for another day.  What I know after working in the field for a decade is the current system cannot support itself under its own weight, and as more and more working class Americans leave the workforce, or intentionally reduce their workload to qualify for Medicaid, it will simply continue to pour gas on this already raging wildfire.

Should you be lucky enough to have any money left over after these above taxes, and numerous ones I couldn’t cover in 3 lifetimes, the state of North Carolina will now take 4.75% of any of the remaining dollars you have left to spend on necessities such as food, clothing, shelter and transportation via a sales tax.  But remember, due to the progressive nature of taxes, the fact that you now have less of your true income, this 4.75% tax is actually significantly higher, as you have fewer dollars in your pocket to spend.

Let’s do a quick recap of how much taxes, or “penalties of success” have cost the average person so far.

1. A progressive income tax on all taxable income of $4543.00 plus 22% of your remaining income up to $84,200.00.  Anything over the $84,200.00 will be taxed at 24% up to $160,725.00!
2. A state income tax of 5.75% of taxable income in North Carolina.
3. 15.3% total or 7.65% individual FICA payroll tax, and unlike income taxes which can be reduced to some extent via things like the standard deduction and other deductions, FICA comes from every paycheck! The only way to reduce FICA taxes is to reduce your hours worked.
4. Health insurance premiums, of 20k per family on average. This doesn’t include deductible, co-pay, travel or other healthcare related expenses.  This is simply the premium.  Period.  This on average represents about 6k of out of pocket expenses for you, the remaining for your employer.
5. 4.5% sales tax on any remaining necessities such as food, water, clothing, electricity, and transportation costs. 

In Conclusion:

The 5 things listed directly above don’t include the numerous local taxes such as city sales and property tax, as well as hundreds or thousands of other POS’s that aren’t listed here and vary from place to place.  How much all POS’s actually cost you will depend on multiple factors, specifically your filing status (married or single), children, and any other deductions, as well as where you live and what you “own.”  By the time all of these POS’s are tallied, you will pay well over half of your income in some form of POS. A 5% state sales tax is more like a 10% tax since now you only have half of your original income to spend.  Remember since FICA takes dollars from every paycheck with no way to recapture them, they can have a larger effect on your take home pay than income taxes and represent a guaranteed 15.3% payment of every dollar you make going straight to the federal government. Therefore payroll taxes are a larger proportion of all federal income, vs income taxes.  Remember the “experts” told you your single largest monthly/annual payment was your mortgage, not state and federal taxes, and I’m just some farm boy from Southwest Virginia.  Most importantly, learn to understand your local, state, and federal tax rates and the impact they have on you and your family.  A CPA is a great asset to help you understand and will pay dividends compared to some roadside tax preparer.  Remember, you only have one life to live, don’t waste it working so you can pay the government a larger percentage of your income, than you pay yourself.  Penalties of Success are also progressive in nature, and our government will continue to add more POS’s every year, making working for a living that much more futile every year as well. 

Second only to admitting you have a problem, finding a partner to travel down the FIRE path with you is the next most important thing you will ever do to obtain FIRE.  I don’t care if its your boyfriend, girlfriend, wife, husband, best friend, or family member, the best way  to safely pour gasoline on the FIRE is to find another person, or persons, with whom you can split all of your daily living expenses.  When you find this person, then instantly all your living expenses have effectively been reduced by 50% or even more for every additional asset you add to your team!  Suddenly your portion of rent, electricity, water, sewer, cable, internet, insurance, car payments, repair bills, appliance purchases, and all other bills has been reduced by 50%, or more.

Before my wife and I even moved to Alaska, we were already working on our mortgage of our new home in Alaska.  This was the first time in my life I had ever cosigned any financial document with any person, and it was a big scary step.  Shortly after signing the paperwork though, I noticed the advantages of having this partnership.  Suddenly instead of my mortgage and her rent for her apartment, we only had the one mortgage payment, which was less than half of our previous monthly combined rent/mortgage payments.  No longer did we have 2 cable and internet bills, we had one.  One garbage bill, one electric bill, and one water bill.  The excess we were able to save was then diverted to other bills, which helped continue the “snowball effect” on our debt.  Also keep in mind that this 50% or greater reduction in your monthly living expenses, is on 50% of your net income.  As we will often discuss, this is huge because your net income is quickly diminished by “penalties of success, or POS’s.”

The only issue with this step is you better be certain, or as certain as possible, that the person or persons you pick, uphold their end of the bargain.  While adding a great team member to your FIRE team will be the single best thing you can do to, adding somebody who becomes a burden or doesn’t uphold their end of the bargain, will set you back significantly in your quest.  Unfortunately, things can happen like divorce, death, disease, or just pure laziness, which can put your FIRE path in jeopardy.  Although we can never be certain about many things in life, just try your best when picking these people.  Consider contractual agreements, to help protect yourself should you have somebody who fails to uphold their end of the bargain.  

In summary, finding a partner for your FIRE journey is the single most effective thing you can do to lower your monthly expenses, and allow you the ability to save more of your extremely valuable and limited net income.  Since money for expenses comes from the few crumbs left over after the government takes most of your paycheck, having the ability to save these extra crumbs for FIRE is imperative.  Having this partnership, and reducing your burden will allow you, and your partner, the ability to increase 401k and IRA withholdings, further allowing you to decrease your tax burden, while simultaneously increasing your savings, making this a win-win financial situation compared to a lose-lose situation when you travel the FIRE path alone. There is no other single step you can take on the FIRE path that will be as effective and will even come close to reducing your daily expenses by 50%, other than finding a partner in the FIRE movement. 

As cliché as it may sound, truly the first step in the FIRE process is to admit you have a financial problem and address it.  The fact you are reading this, most likely means you have already come to this conclusion, but for those of you who have yet to admit you have a problem, please continue to read.

When I moved to Alaska, I had no idea I had already taken a huge step down the path of realizing I had a financial problem.  Between the 2 mortgages, 2 new car loans, student loans, and credit card debt, my wife and I stepped into Alaska with well over 500k of debt.  Embarrassing as it is, I honestly don’t know exactly how much debt we had, but I am certain it was in the 500-750K range, not counting interest! By moving to a place with a slower pace of life, I noticed some strange things.  The richest people in the town, the guys with millions in halibut IFQ, boats and permits, lived in average or below average homes and drove “beaters with heaters.”

  For far too long, our society has been built upon debt, both at the government and individual level.  There is a major flaw in our advanced society, when the average family cannot afford 500 dollars for an emergency, without going further into debt. Everywhere you turn, there is somebody trying to take your hard-earned money; this is why the advertising business is a multi-billion-dollar annual industry.  In order to break free from the rat race, you must realize you are even in the race to begin with. https://www.cbsnews.com/news/most-americans-cant-afford-a-500-emergency-expense/

“Keeping up with the Joneses” and the debt that goes along with it, in my opinion, is responsible for the rise in depression rates across the globe, but specifically in the United States.  This is a topic requiring further discussion in the future.  Whether it’s a 30-year mortgage, or a 10 year car loan, when we sign that piece of paper, we are stating we will pay the lender a set amount of our paycheck every month, for the next however many years. The only way to break this destructive cycle is to get ahead of the problem, by reducing our debt and living well below our means.  Instead of taking a loan out for a brand-new car, we should consider a used “beater with a heater” instead.  After all, a car is simply a means of transportation necessary to get you from your home to your job. 

The primary goal of the FIRE movement is to obtain financial independence, or simply to have enough money or assets working for YOU that YOU no longer must work for them.  In order to even begin this process, you must reverse this trend from what’s “normal” and become “abnormal, in order to escape the rat race.”  For you to be successful on your pathway to FIRE, you first have to realize that you aren’t even on the path, and modify your course so you are.

Chapter 1: My history

I truly believe in order to understand my perspective, you need to understand my background.  After all, its our life experiences that lead us to be the individuals we are today.  You wouldn’t take medical advice from Dr. Kevorkian, banking advice from Bernie Madoff, or legal advice from Michael Avenatti, so why listen to me? Its simple: experience. I grew up in one of the poorest regions in the country, and continually busted my ass to become “successful” only to discover when I was nearly 30, after acquiring a Masters Degree and working in healthcare for 8 years,  that trying so hard was one of the biggest mistakes I made in my financial life. After nearly a decade in healthcare, seeing patients life savings destroyed in a matter of months, I determined working hard and saving for the future is mostly futile.

In our bathroom window, my wife has this little wooden decoration that says: “When you get there, don’t forget where you came from.”  Since I finally feel like I have arrived “there,” I have stopped to reflect on how I arrived at this point in my journey through life.  Not only do I look at what I did, I look back to what my parents and grandparents did for me to be able to live the life I live today.  I think of the times growing up on the farm working in 95 degree heat, while wearing jeans, long sleeve shirts and a large hat to try to avoid sunburn, and realize my father did the same before me, only he did it while using horses instead of a tractor. I think of the years of exposure to harmful pesticides/herbicides required to keep our farm free of unwanted visitors.  I think of the time when I worked so hard that I had a heat stroke, only for my uncle to show up at the hospital with the labels of the herbicides we sprayed that day to determine if it was chemical poisoning instead. When I was teens and early 20s, I worked harder than most teens of today could even imagine.  But for what? Why did I work this hard?  Its simple really, I didn’t have any other choice. 

I grew up in a rural area of Southwest Virginia in the Appalachian Mountains, where the cattle outnumber the people 10 to 1 working on our family farm.  I attended high school, where we had less than 300 students in grades 9-12, graduating second in my class behind my best friend.  Since every educator I had in high school, my parents, and guidance counselor told me the only pathway to success was to go to college, I went to college where I received my Masters in Occupational Therapy in 5 years.  Thanks to my maternal grandfather living the American dream and investing well, as well as a work study program, I graduated debt free.  

After graduation and shortly before, I immediately made every financial mistake you could imagine, from buying a H1 Hummer at 10 percent interest, to withdrawing funds from an IRA, and paying the early withdrawal penalty to purchase a motorcycle. I continued to make financial mistakes throughout life, because, well everyone around me did the same thing and nobody had educated me along the way about saving, at least not in a significant manner.  Other therapists and professionals I worked with were buying houses, new cars, boats, ATVs, and so on. I, being a new graduate, just assumed this was the way life was supposed to be.  Welcome to the reality we call “Keeping up with the Jones’s.”  I didn’t know there was any other way, after all society teaches us from an early age to grow up, go to work, work 40 hours a week, while paying for a 30 year mortgage, and hopefully, if were really good, we can save 10 percent of our income for “retirement” when were in our late 60s.  I didn’t know there was any other way, until my 29^th birthday.  

Just after my birthday, I met a man who “retired” in his early 40s.  Although at a later time I found out this was far from reality, it sparked my interest.  After all, how can somebody “retire” when they are 40?  Society had taught me this was impossible!  I had to wait until 67 to collect social security, 65 to qualify for Medicare, and according to the “experts” needed at least 1 million in the bank to have any chance of leading a decent life in retirement at the country club.  Through my research, and other FIRE blogs, I discovered that this train of thought is absolute and total BULLSHIT!  I just needed somebody to open my eyes, so I could see the truth.  After all, it had been staring me in the face, literally, for every working day of my career.  I just had to open my eyes and ears.

Most likely, you have never heard of something called an Occupational Therapist.  I hadn’t either until I hurt my arm my sophomore year of school while playing football.  The orthopedic surgeon referred me to occupational therapy, where they fixed my arm back to its normal function in a matter of a couple of visits.  Since my parents and educators preached there was no other pathway to success besides college, I decided to attend college to become an Occupational Therapist, where I graduated in 2009, thus working 10 years in the field this year.  

As an OT, my primary function is to restore a persons ADL’s or Activities of Daily Living, to their prior level of function so the patient can return to their normal routine.   ADLs consist of things such as bathing, dressing, toileting, grooming, and self-feeding.  My secondary function is to work on a patients IADLs or Instrumental Activities of daily living.  These include things such as shopping, home management, driving, and financial management.  It wasn’t until I became acquainted with the FIRE community, that I realized the most important ADL or IADL is actually financial management.  Why? Because without financial management, I don’t have clothes on my back, a home to shower in and manage, or food to eat.  It really is that simple, however financial management gets little if any significant attention in the majority of Americans daily routines.

Working primarily in long term care for the majority of my career I began to see a trend: most Americans are not financially prepared at all, especially for a significant medical event that requires prolonged therapy, hospitalization, or long term care.  For instance, most patients think when they hit 65, should they ever need Long term care, Medicare will pay for it. This simply isn’t true.  If you don’t learn anything else from this blog learn this: MEDICARE DOES NOT PAY FOR LONG TERM CARE!!!!!!

  Most states will cover Long term care with Medicaid, but most working class Americans don’t know this fact, or the fact that in order to qualify for LTC Medicaid, you basically have to have no assets other than your primary home, and less than 2k in the bank, or you have to give them to the state in a trust in order to secure payment for your long term care.  Some people say “well I will just give my assets to my kids.”  Well thanks to Medicaid’s 5 year “look back period” that is impossible, and will disqualify you from Medicaid.  This particular subject requires greater conversation which will be covered in a following chapter. The trend I’ve witnessed, and know to be an unfortunate fact of life in this country today, is this: should you live long enough to ever need Long term care, the cost of Long term care will wipe out your entire life savings.   

Now that I knew that should I or my wife ever need long term care, it would wipe out our entire life savings, even if we had that 1 million dollar “expert recommended” nest egg, I began to ask myself, “Is it worth it?”  After all, what’s the point in working my entire life away, missing time with my children, wife, family and friends and doing things  I love to punch a time clock 5 days a week, just to have every cent I ever made taken from me to pay for a small room packed into a facility with 100 other people in the same position?  The more I asked this question of myself, the more I realized the answer was simply “NO.”

But why is the answer no?  Surely the possibility of requiring long term care alone isn’t enough to make me throw in the towel in my early 30s, and it wasn’t.  What caused me to “throw in the towel” was a multitude of different things I call “penalties of success” or simply POS’s.    POS’s, when combined and weighed against doing the things in life I enjoy, with the people I enjoy in the time I have here, just don’t make sense to do. 

“Penalties of success,” are things such as the thousands of types of taxes and fees at the local, state, and federal level, a “progressive income tax,” the cost of daycare, and the inability to qualify for Medicaid while paying for the Medicaid system, on top of my private health insurance premiums.  This list goes on and on, and literally consists of thousands of taxes, fees, as well as income-based exclusions from government programs. Now add the upcoming presidential election where the front runners for the Democratic party are promising Universal Basic Income, free healthcare for all, and 1.7 trillion in student loan forgiveness, this simply guarantees that these penalties will continue to increase in both number and cost.  What I realized after careful computation of all these penalties, was this: It simply doesn’t make financial sense to continue to work anymore, even at our income level today, and definitely will not in the future.

So my dilemma was this:  If it makes no sense to work my life away, but I need my living expenses covered today and in the future, then how do I become financially independent enough to do so, while paying for these expenses today and into the future?   I spent the better part of the last 2 years of my life studying, researching, and finding the answer to the above question in a combination of tactics to reduce my bottom-line monthly cost of living at the end of the month.  What I discovered was this: By reducing our overall debt to zero, my wife and I could reduce to part time work, keep our kids at home thus spending more quality time with our children, while eliminating our daycare bill.  Furthermore, we could maximize our retirement savings, lowering our MAGI, and thanks to Obamacare redefining MAGI while eliminating the “asset check,” become eligible for Medicaid for my entire family, thus eliminating the need for private insurance, and our 600 monthly insurance premium.  After eliminating all these bills, even working part time, our monthly take home will be more than it is currently!

So now I know, you’re sitting there saying to yourself “sure that sounds easy enough, Ill just pay off my mortgage, cars, student loans, and credit cards tomorrow and get right to that.”  I know it sucks, and it takes time, but that’s exactly what we’ve done.  The key here is time.  When I discovered the FIRE community about 4 years ago, my wife and I “owned” 2 new cars, 2 homes, had 30k combined credit card debt at 20%,and my wife had 80k of student loan debt.  As of today, we own 3 old vehicles that are paid for, have 1 mortgage of about 80k on an original balance of 200k in 2015, and have eliminated all credit card debt, and student loan debt: not bad for adding 2 children at the same time.  

So how did we do it? How did we eliminate all that debt, in such a relatively short period of time, while maintaining nearly the same quality of life?  Stick with me and I will walk you through exactly how we accomplished this, how we continue to chip away at our debt while still saving for the future, so  we can enjoy more time with each other, our families, and our friends.