Sumi Das: Hello, I am Sumi Das for MoneyWatch.com. Cobra, HSH, Irish,
401K case, the self employed have an alphabets super plans to
choose from when considering options for Health Insurance and
saving for retirement and a decision of what to do can be especially
daunting when you are on your own as is the case with freelancers
and small business owners. Bill Sherman runs his own business
and he says after struggling for awhile, he finally has it figured out.
He recently created his very own Do-It-yourself Benefits package
and he is here to tell us what he learned. Bill thank you so much
for being with us.
Bill Sherman: I’m glad to be here.
Sumi Das: So we are going to start with Health Insurance. Tell us the
common mistakes that the self employed normally make when
they are trying to figure out which health insurance plan to go
with?
Bill Sherman: I think we attend to buy too much insurance. We treat insurance
like it is a prepaid system for health care which means we have to
pay the insurance company first to take their cut to pay our
providers and it just wastes a tremendous amount of money. I
found that what you got to do is, if you are single take out a
catastrophic insurance policy. If you are a family, have a high
deductible so that you choose your own care. You pay directly and
you will find that you pay a lot less overall. I think I have saved
probably $30,000.00 over the last 10 years by doing it myself.
Sumi Das: So, you decided to go the high deductible route. Tell us, how it
helped you out.
Bill Sherma: Well, it helped me out because I do not have to pay an insurance
company half worth third of my health bill. I pay it directly to the
providers every month, exactly. I find, first of all, I make good
health decisions. When I do it that way and secondly if you go to
health care office about 80% of the time I find they have a secret
little rate sheet for people who do not have insurance to cover their
day-to-day services.
And they are about third or half what the rate is for the insurance
companies. That’s because they do not have to go through regular
rule with the insurance companies. So you pay much less up front
plus if you do have a catastrophic or high deductible plan your
insurance company will also have negotiated low rates on all the
other items that they cover. So you get the best of both worlds. The
low cost of the insurance companies have negotiated plus the even
lower cost that you can generally get by working directly without
provider.
Sumi Das: That brings us to retirement because hopefully you can use the
money that you are saving on health insurance and put it towards
your savings for retirement. You said that you struggle then
initially. So, tell us what you did wrong when it came to selecting
your retirement plan.
Bill Sherman: Well, I’d say I did one thing wrong and one thing right. What I did
wrong was to scatter my investments across into the wide field. It
is great to invest in a thing that just interest you and that’s fun. But
it was a mistake to just have a scattered set of investments with no
theory behind it, no plan behind it. So, that is what I did wrong.
What I did right was I maximized my deductions early on. Every
opportunity I had to put money into a retirement account tax free, I
took that opportunity and thank goodness I did now, because I
would be way behind the eight ball especially with the economy
where it is if I had not done that, smart savings early on.
Sumi Das: There are so many options when it comes to saving for your
retirement. What did you end up going with and why?
Bill Sherman: Well, I am a very busy person and I always forget what all of these
initial stands for. So, every year at tax time I have to remind my
self, but basically I have got two retirement systems. One is the
SEP IRA for my self employment income, the contractor income
that I have and the others is a simple IRA for the income that I
received as employed of my non-profit organization. I maximized
both of them. So, I just pushed the little buttons on my
computerized tax form and maximized both of them. It ends up
being 15 or 20% of my annual income and I take that out. I do not
ever see that so I do not spend it. That was the smartest thing I
have ever done was just taking that money out and maximizing it. I
would encourage that to everybody.
Sumi Das: What type of advice do you have for somebody whose just finding
themselves self employed for the first time and needs some help
figuring out how to create their own DIY benefits package.
Bill Sherman: Well, I will recommend you go to a firm, not a big upfront fee firm
but a firm that can work with you on one master account to plan
for your retirement. How much money you are going to need in
your retirement and how much money do you have to set aside
given conservative assumptions to reach that level at the time you
are going to need it and then put that money aside and one of the
best way is to put is aside is the save on a health care side.
So on the health care side, cover your self ala carte as you go but
make sure you have an insurance policy that will cover you in the
event of catastrophic incident or something that will push you
over, let us say your limit, $5000.00 a year, $10,000.00 a year, or
$3000.00 a year, whatever would be catastrophic for you, you want
to make sure that you covered that with your health insurance but
no more because it just money output at the door.
Sumi Das: Bill Sherman, thanks for being with us today and sharing some
smart advice.
Bill Sherman: Thank you.
Sumi Das: For MoneyWatch.com, I am Sumi Das. Thanks for watching.
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