Setting Up Your Bicycle as a Car Replacement

One of the first posts on this blog was How I Escaped the Car Clown Habit and there was a good reason for that.  Driving absolutely everywhere in a two ton metal box on wheels is fundamentally wasteful and irrational – the exact opposite of the Spartan lifestyle that this blog is all about.  The rational way to think about automobiles is that they serve very useful purposes when one needs to accomplish very specialized tasks.  If you need to transport a cord of wood from the forest to your home, you probably need to use a full size pickup truck.  If you are building a concrete patio and need to haul sacks of concrete mix from Home Depot, maybe you need to rent a small truck.  Long road trip to a remote beach to go camping?  A car is probably the way to go.  There are plenty of other examples, but I would argue that cases where you actually need to use an automobile are quite specialized.  Most people use cars for all kinds of things that could be better accomplished on foot, on a bicycle, or using public transportation.

If one accepts the idea that the automobile is a tool best used for specialized and rare tasks, the irony of how most people view bicycles becomes quite apparent.  Most people view bicycles as the specialized tool and the automobile as the general purpose tool, not the other way around.  In fact, a bicycle is a very useful tool for getting around most of the time – it is a general purpose tool, not something to bring out only on a sunny weekend.  However, in order to get the most utility out of a bicycle, it is necessary to spend some money up front to make sure that it secure and has the carrying capacity to meet your daily needs.  If you consider your daily routine, you might realize that you need to carry your laptop and other materials to work, you’ll need some carrying capacity for groceries, maybe you will need a child seat, and so on.  In my case, a typical trip might be to a local cafe or to the grocery store.  About once a month, I usually go to Wal-Mart to stock up on household supplies.  Almost everything is within a five mile radius of my home.

My Bicycle

I have owned a Specialized Rockhopper mountain bike for over twenty years which I purchased new for around $700, a substantial amount of money for a bicycle at the time.  It was a fairly high end model that I actually used for mountain biking for many years but it has long since been surpassed technically by more sophisticated mountain bikes.  Nevertheless, it remains in good condition and completely functional.  It also has very simple parts that I have no problem maintaining myself.  For the past decade, the bike has had very little use.

When I moved to a new city in late May, I had to adjust to new ways of getting around.  I have been car free since 2014, but in my old city I primarily relied on getting around by foot or on the extensive subway system.  I lived in a high rise and stored my bicycle in an out-of-the-way storage room.  I used it recreationally a few times a year, at the most.  My new city has a bus system and limited streetcar service but there is no extensive subway system.  Although I can walk to a Whole Foods easily from my apartment, I find the prices ridiculous even after Amazon cut a few items after acquiring Whole Foods earlier this year.  The regular grocery store is about a mile away and requires walking through some neighborhoods that don’t seem all that great.  I prefer biking through those areas rather than walking.  I used to go to coffee shops (where I often do some reading or work on my laptop) primarily by subway and now prefer to use my bike most of the time.  I can store my bike securely inside my first floor apartment which makes it easily accessible.

Securing the Bicycle

Although I feel quite safe in my new neighborhood, crime statistics suggest that I should be worried about theft.  For the limited recreational use of my bike in my old city, I had a cheap lock that I purchased at a CVS for $10.  Any competent criminal would laugh at that lock and defeat it in seconds.  Clearly, I needed a new way of securing the bike.

In general, you have a choice between securing your bike with a cable lock or a U-lock.  A cable lock can easily be cut using bolt cutters and isn’t really a good option in urban environments with any significant level of crime.  A U-lock is harder to defeat but there are a large number of models at various price points to choose from.  Although my bike is not very valuable, losing it would be a huge hassle for me and I wanted to seriously deter criminals.  After doing a lot of research on U-Locks, I decided to opt for a Kryptonite New York Fahgettaboudit Lock which, as the name implies, is intended to deter serious criminals.  This lock is expensive and very heavy at over four pounds but looks bombproof and is visually distinct from lesser locks and (hopefully) looks intimidating.

Anyone who has seen bikes locked securely from the frame to an immovable object but missing wheels and saddles knows that thieves are willing to rip off anything that is attached to the frame.  I have “quick release” hubs for both the front and rear wheel which is great for easily removing a wheel to change an inner tube or to perform other service but is also an invitation for a criminal to steal the wheel.  My saddle is also secured with a quick release.  When I go to the local grocery store and will be in and out in a few minutes, I sometimes take a risk and just use the U-Lock.  However, if I’m going to spend any time in a cafe or if I’m going to Wal-Mart, I also use a Kryptonite KryptoFlex Cable to secure the wheels.  I loop the end of one cable through the rear wheel, then loop the other end through the first loop, secure the front wheel, and finally loop the cable through the U-Lock.

I have no illusions that my bike is perfectly safe, but I try to secure it to very immobile objects such as lamp posts or stop signs and I am hoping that the U-Lock is intimidating enough to make a thief think, “This isn’t a very valuable bike and it would take a long time to defeat the lock so I’m going to move on to something easier.”

Carrying Items on the Bicycle

Some people are satisfied with carrying what they need in a backpack but this gets very old and very tiring quickly, especially in the summer heat.  A backpack is not a great way to carry anything on a bicycle and fortunately there are much better ways to secure many things to a bike.  For those who use a bike both for recreational purposes as well as getting around town, it is important to come up with a strategy that doesn’t encumber the bike with permanently attached accessories that would weigh down recreational rides.

Cargo Racks

For those who have very limited needs, a front basket might be sufficient but most of these baskets can only carry small and relatively lightweight items without making the bike handle poorly.  Also, having a front basket on a mountain bike that might occasionally still go off-road would make very little sense.  I clearly preferred the idea of carrying items on the back of the bike and doing so requires buying a cargo rack.  Although a rack is permanently fixed to the bike, a good one should not add too much weight or be noticeable when riding recreationally.

One of the key goals of setting up my bike was to keep things very simple and easy to use.  The idea of spending a lot of time securing things to my bike was unappealing and would make me less likely to use the bike.  I decided to look for a high quality cargo rack that would support “quick release” accessories such as panniers.  Many lower end racks do not support “quick release” products.  In such cases, straps and bungees are used to secure things to the rack.  I wanted no part of using straps and bungee cords on a daily basis so I decided to purchase the Ibera Cargo Rack which supports a variety of Ibera quick-release accessories.  At around $25, the rack wasn’t particularly expensive and it was very easy to install in about ten minutes.  It is rated to support up to 55 pounds which seemed adequate for my needs.

Cargo Trunks

When I first purchased the cargo rack, I started looking at all kinds of Ibera accessories that I could attach to the rack using the quick-release feature.  However, I wanted to start slowly and experiment with one of their products before purchasing all of the gear that I would eventually require.  I decided to outfit the bike to make quick trips to my local grocery store as well as trips to a coffee shop about three miles from my apartment.  A cargo trunk appeared to be the perfect first accessory to purchase for my new cargo rack.

A cargo trunk rides directly on top of a cargo rack.  Most trunks on the market appear to be intended for commuting and have a large inner compartment with several side pockets.  What I really wanted to do was to be able to go to the grocery store and load up a basket with perishable items and then bike home.  This was during the height of summer with typical ambient temperatures in the 90s.  I decided to go with the Ibera Insulated Cooler Trunk Bag.  This product has proven to be perfect to carry a limited amount of groceries.  It contains an inner insulated compartment that has a zipper enclosure.  This compartment can be removed from the trunk to create more capacity and to clean, if necessary.

How much can you really carry in this trunk?  I’ve been able to carry about five days of groceries for one person in this bag without any difficulty. Sometimes, I have strapped an additional bag with a light item (like a loaf of bread) on top of the cooler and this has proven secure and reliable.  I walk through the grocery store with this bag and items are placed directly into it at checkout which eliminates the need for paper or plastic disposable bags.  At slightly under $50, this isn’t a cheap bag by any means but it is reliable, clips on in seconds, and seems durable after several months of use.  I’ve also been able to carry a number of books, my iPad, and other items when I go to a coffee shop.  However, the bag is not large enough to accommodate my 15 inch laptop which I continued to carry in a backpack.

Panniers

A few months ago, I borrowed a car to make a large Wal-Mart run and purchased enough household supplies and non-perishable food for several months.  But this was just a stopgap step that I took knowing that I would not have regular access to a car and that my bike was not yet set up for larger loads.  I could continue borrowing a car but living the car-free lifestyle implies that regular tasks should be done without a vehicle.  In order to carry larger loads, I needed to consider buying a pannier.

Panniers ride on each side of a cargo rack and, ideally, do not prevent the use of a cargo trunk.  Since I’ve been satisfied with the Ibera trunk bag, I decided to purchase a set of Ibera quick-release panniers.  These panniers cost about $80 and have a very large capacity on each side with a secure quick-release attachment system.  Each pannier has a rigid back, side, and bottom making it easy to fill up the bag with various items.  At Wal-Mart earlier today, I was able to place a large container of oatmeal, two jars of pasta sauce, two jars of salsa, four cans of beans, and several other items into just one of the two panniers.  The panniers and the rack appeared more than capable of handling whatever I threw at it.

Each of the panniers can also accommodate my 15 inch laptop, although I have yet to use the panniers for this purpose.  Some care needs to be taken to ensure that a laptop is not damaged by bouncing around the pannier.  I plan to put the laptop in a sleeve, then in a small backpack, and finally in the pannier.  Hopefully this will protect my laptop and eliminate the need to use my backpack.  In terms of durability, both the bag material and the quick release mechanism seems robust but only time will tell how well the bags hold up.  They seemed to carry well on the bike with no excessive movement when loaded or unloaded.

There are many types of specialized panniers on the market.  For example, you can purchase the Banjo Brothers Grocery Pannier or the Bushwacker Omaha Pannier, both of which are sized to perfectly fit a paper grocery bag.  For someone who is only going to use the pannier for grocery store runs, this could work very well.  Alternatively, one can purchase a simple metal rack such as the Wald 535 Rear Carrier Basket.  The advantage of the basket option is that it doesn’t have to be removed from the bike like panniers because criminals are unlikely to be interested in it.  Panniers have to be removed and carried into stores.  However, I would hate to have a metal rack attached to my bike at times when I don’t need the capacity.  The Ibera panniers did not cost much more than these less desirable options and should provide more utility in the long run.

Riding With Heavy Loads

Some people might object to riding a bike under heavy load but this has never been a problem for me.  Thinking back three decades to my days as a newspaper carrier, the main thing to remember is that it takes longer to stop and it is a good idea to keep your momentum while moving, as long as this can be done safely.  I probably had 50 pounds in my trunk bag and panniers today at Wal-Mart (see the picture at the start of this article) and the bike did not handle poorly or feel unsafe.  It was also not hard to get moving when using a low gear and I just rode home relatively slowly.

Did I buy absolutely everything that I would put in my shopping cart if I had a car in the parking lot outside?  No, I did not, but mainly because this was my first run to Wal-Mart using my new system.  I also obviously kept an eye on the total volume in my cart to ensure that it would fit into the panniers and the trunk.  It would have been ideal to load these items into the bags while shopping but that would probably have looked like shop lifting to security personnel.  As it was, security asked me about the bags at the bottom of my cart as I was leaving the store.  So I just kept an eye on total volume and then packed up the panniers and the trunk bag in the parking lot.

Although the roads are bumpy around here, the dozen eggs in my trunk bag and the light bulbs I purchased survived the trip home perfectly intact.  One good tip is to by frozen vegetables (corn is ideal) and put that at the bottom of the trunk bag.  It serves as a substitute for ice and keeps everything in the bag very cold.  Surround the eggs with something soft that you’re buying anyway, like tortillas or bread.  Some common sense goes a long way to ensuring a successful shopping trip.

Conclusion

For my particular needs, a bicycle, walking, and occasional bus and streetcar use is perfectly adequate.  In fact, owning a car would be a hassle in terms of parking and maintenance and the DMV around here is a nightmare when it comes to registration.  The city also requires periodic “safety inspections”, no doubt for the benefit of politically connected local mechanics.  Insurance rates are sky high compared to my old city due to higher catastrophe and theft risks.  I have rarely felt like I would prefer using a car and have found Uber to be a good solution for those rare occasions.  If I really needed to use a car, I could borrow one or rent a car at one of various locations in the downtown area about four miles away.

There are obviously people who either want to own a car for recreational purposes or are convinced that they need to own a car for daily use.  There’s nothing wrong with owning a car but I would say that for most people, it is a luxury item best suited for specialized uses, not a necessity needed for daily life.  I have considered the merits of an electric bike, like one of the attractive models made by Juiced Bikes, but  I live in a flat city and I’m in very good shape.  My 20 year old bike is fine.  But one of the electric cargo bikes offered by Juiced or other manufacturers might be a great option for people who have more intense needs such as safely transporting children or heavy loads.  If you’re not in great shape and feel like a car is a necessity, consider an e-bike as a compromise.  In most cases, insurance and registration are not required.  I don’t need an e-bike, but I’m tempted.  If I end up moving to an e-bike, I will review it on this site.

Making Sense of Obamacare Open Enrollment

“I know that there are millions of Americans who are happy, who are content with their health care coverage — they like their plan, they value their relationship with their doctor.  And no matter how we reform health care, I intend to keep this promise:  If you like your doctor, you’ll be able to keep your doctor; if you like your health care plan, you’ll be able to keep your health care plan.”

President Obama, June 11, 2009

Health care is a big business in the United States. This sector of the economy consumes over 17 percent of Gross Domestic Product, a figure that has crept up steadily over the past few decades.  The health insurance system in the United States is a mishmash dominated by private insurance provided by companies to their employees as fringe benefits and government programs designed to insure the poor, the elderly, veterans and other groups.  Individuals who are not covered by their employers and do not qualify for government programs have often had difficulty obtaining health insurance in private markets.  Those who obtained coverage before encountering major medical issues could generally find affordable coverage but those who attempted to buy coverage only after getting sick typically could not buy coverage at all or only at high cost.  This caused a great deal of social dislocation for individuals facing steep medical bills and for hospitals required to provide care to all who requested treatment, even those with no ability to pay for services.

The Affordable Care Act, popularly known as “Obamacare”, became law in 2010 and has taken effect over the past several years.  Obamacare attempts to provide access to health insurance to individuals regardless of pre-existing conditions by eliminating medical underwriting.  In other words, insurance companies are required by law to accept all applicants.  Premiums are regulated and cannot vary based on health risks, with the exception of surcharges for smokers.  All insurance plans are required to cover a set of “essential benefits” and are further divided into various “metal categories” such as bronze, silver, gold, and platinum based on the level of coverage provided, deductibles, and other key variables.  A very complex system of subsidies was put in place to help individuals and families with incomes up to 400 percent of the federal poverty level pay for premiums and new taxes were imposed through payroll taxes and investment taxes on higher income taxpayers.  Obamacare has survived numerous legal challenges and attempts to “repeal and replace” the law have failed.

It appears that Obamacare is here to stay and whether one supported or opposed it, coming to terms with it is no longer optional.  The law includes an individual mandate requiring one to purchase insurance or to pay a penalty.  Although the Republican tax proposal that passed the Senate recently eliminates the mandate, it is doubtful that a mandate repeal will make it into the final tax law.  With open enrollment for 2018 ending on December 15, those who wish to purchase health insurance on the Obamacare exchange have only a few more days to do so.

Note that this article covers the process one would go through to purchase private insurance on the Federal Obamacare exchange and ignores the process of applying for Medicaid.  Obamacare offered partial funding to states that wished to expand Medicaid but not all states have opted in.  In general, most readers of this site will want to obtain private coverage rather than rely on Medicaid.  Also, this article only provides links to healthcare.gov which is the federal exchange that is used for residents of states that do not have their own exchange.  Certain states have opted to set up their own exchanges.  In most cases, these exchanges should work similarly to the federal exchange but the process will vary.

Obamacare Subsidies Demystified

Obamacare includes a complex system of subsidies that are intended to help individuals and families with incomes below 400 percent of the federal poverty level afford health insurance premiums and out-of-pocket costs.  The following excerpt from healthcare.gov explains the types of subsidies available depending on where one’s income falls relative to the federal poverty level:

The 2017 federal poverty level for an individual is $12,060 and is higher for households with multiple people (for example, a four person household has a federal poverty level of $24,600).  These levels are documented on the HHS website.  Poverty levels are uniform for all states except for Alaska and Hawaii which have slightly higher levels (long suffering residents of high costs states like California and New York might wonder why their poverty level is the same as low cost states like Arkansas and Mississippi but that’s a digression for another day … )

What is “income” for purposes of Obamacare?  One must calculate expected modified adjusted gross income (MAGI) for 2018 to determine subsidy eligibility.  This is essentially the adjusted gross income (AGI) line on tax returns plus certain additional income sources such as tax-exempt income, untaxed foreign income, and untaxed social security income.

A key point to remember is that Obamacare subsidies are triggered based on income only and have nothing to do with your net worth.  

This is particularly important for individuals in the “early retirement” community who have achieved financial independence and no longer obtain their income from traditional employment.  Your expected 2018 income is all that matters when it comes to determining subsidies during open enrollment.  This means that you have an opportunity to plan your 2018 income in order to achieve a desired level of subsidy.  The best way to view this is to consider Obamacare subsidies in the context of your overall tax and income situation for 2018.  If you have flexibility regarding legal ways to alter recognition of taxable income, this can be used to your advantage when it comes to purchasing health insurance.

There are two distinct types of subsidies provided by Obamacare:  premium tax credits and cost sharing subsidies.  Each type of subsidy has complex rules and will be discussed separately.  Before proceeding, one should visit healthcare.gov and enter the number of people in your household and your home state.  You will then be presented with state specific guidelines pertaining to your situation.

For example, the following is presented to someone applying for coverage who lives in a household of four people in Kentucky:

Family of four living in Kentucky

Premium Tax Credits

Premium tax credits are refundable tax credits provided to help pay for health insurance premiums for those who have income below 400 percent of the federal poverty level.  These credits are “refundable” because they are paid out regardless of whether the taxpayer has any income tax liability.  One can choose whether to apply the premium tax credit directly to the monthly premium paid for health insurance or to receive it in a lump sum when filing federal tax returns.  Most individuals will opt to have the subsidy applied to reduce monthly health insurance payments.

Unfortunately, there appears to be no way to obtain a table showing the subsidy levels one would qualify for based on various income level ranges.  Instead, it is necessary to go to healthcare.gov and enter your income repeatedly to manually generate a listing of subsidy levels for various income levels.  One can browse plans without creating an account.  You will be asked for your ZIP code and basic information such as your household size, age, sex, and whether you use tobacco.  You will also need to estimate your 2018 income.  This will be followed by results such as what appears below (for a 25 year old with $25,000 income – this will also potentially vary by state):

This indicates that you qualify for a $184/month premium tax credit as well as “extra savings” that pertains to cost sharing subsidies (discussed in the next section).  Subsequent screens will display all plans that exist within the region you live in along with subsidized premiums that you would pay after applying the $184 per month credit.

In order to determine how the credit varies based on income, you can change your income (and other details) by clicking on the “Edit” button at the top of the page where plans are displayed:

For example, how much would the premium credit be if income drops from $25,000 to $24,000 per year?  After editing income, it turns out that the premium credit increases from $183.60 to $195.15 per month.  You can repeat this process as many times as you would like to obtain a table of subsidy levels based on income.

What you really want to do is generate a table showing the level of premium subsidy for income at various levels.  It might be useful to create a table such as the one below which shows how subsidy levels vary. In this new example, we examine the level of premium subsidy available to a middle aged non-smoker living in a southern state:

Note that in this example, $16,643 is the minimum income required for premium subsidies on the exchange.  Incomes below this level would push the applicant into Medicaid which we are not considering in this article.  Note that $48,240 is the upper limit for subsidies at 400 percent of the federal poverty level.  Also note how the subsidy suddenly drops from $62.38 to zero if income exceeds 400 percent of the poverty level by even one dollar! 

What if you estimate your 2018 income incorrectly?  When you file your return for 2018, there is a reconciliation process that will ensure that any premium subsidies paid on your behalf during the year is correct based on your actual income.  If your income is higher than expected, you will have to repay the excess credits.  If your income is lower than expected, you will receive additional tax credits even if you do not have any income tax liability. For those who are totally unsure about their income, it is possible to not have any credits applied to insurance premiums during the year and settle up with the IRS when your 2018 tax return is filed.  The choice of whether to obtain credits during the year is up to the individual.

Cost Sharing Reductions

Cost sharing reductions are provided to those who have income between 138 – 250 percent of the federal poverty level and apply only to silver level plans.  These cost sharing reductions are designed to reduce out-of-pocket expenses during the course of the year by lowering the deductible and out-of-pocket maximum for silver plans.  In many cases, the lower deductible and out-of-pocket maximum makes silver plans resemble much more expensive gold and platinum plans.

These cost sharing subsidies are controversial and President Trump recently took steps to halt cost sharing subsidies paid to insurance companies.  However, for 2018 at least, insurers must still provide these subsidies whether they are reimbursed by the government or not.  As a result, individuals can take full advantage of these subsidies when making decisions for open enrollment.  Note that unlike premium credits, there is no settlement process required for excess cost sharing subsidies received in a given year if income estimates prove to be incorrect.  This means that even if your income turns out to be higher than what you specify when enrolling for a plan, you still will benefit from the lower out of pocket costs and will not be liable to pay back these benefits.  Obviously, as a matter of integrity, one should not purposely underestimate income to get these subsidies but it is good to know that an inadvertent increase in income will not result in a large bill to repay these subsidies when it comes time to file taxes.

Reviewing Subsidy and Premium Levels

There is no way to see a table listing premium subsidies, premiums for offered plans, and cost sharing subsidies based on various incomes so it is necessary to procure this information manually.  The table below is an example for a single middle aged male living in a southern state.  The table lists the level of premium subsidy based on income along with two sample plans:  one at the bronze level and the other at the silver level.  Only the silver level qualifies for cost sharing subsidies which appear as lower deductibles and out-of-pocket maximums (Max OOP).  Note that your situation is bound to be different so this table should be used as an example only.  You will have to compile similar information from healthcare.gov for your own unique situation and then apply a similar analysis.

The following points are important:

  • Premium subsidies are only available from 138 – 400 percent of the poverty level (FPL) which is a range from $16,643 to $48,240.  Those who have incomes below $16,643 are referred to Medicaid in states that have expanded Medicaid and those who have incomes above $48,240 will have to pay full freight for health insurance with no subsidies whatsoever.
  • For those at very low incomes, such as $18,000 per year, a bronze plan is available at almost no cost but has a substantial $6,500 deductible and a $7,350 out-of-pocket maximum.  At that income level, however, a silver plan is available for $59.78 per month and has a very small $100 deductible and $1,900 maximum out-of-pocket thanks to the cost sharing subsidies.
  • For those with incomes of around $30,000, the bronze plan is $151.44 per month with the same high deductible and out-of-pocket maximum.  At this income level, which is just slightly below 250 percent of the federal poverty level, one still qualifies for cost sharing subsidies as well, although at a reduced level.  In this case, the silver plan has a premium of $201.41 per month with a deductible of $2,000 and an annual out-of-pocket maximum of $4,700.   Note what happens when income goes from $30,000 to $31,000:  the cost sharing subsidies are lost and the silver plan’s deductible rises to its “normal” unsubsidized level of $3,200 with a maximum out-of-pocket of $6,600.
  • If income is right at 400 percent of the federal poverty level of $48,240, you still qualify for a small premium subsidy but if you earn just one dollar more, you lose all subsidies!  Earning that additional dollar could cost you nearly $750/year in lost subsidies!  Clearly, caution is called for when one is approaching the income limits for Obamacare subsidies.

Selecting The Right Plan

In the example above, obviously the bronze plan will be cheaper for someone who ends up not using any health care services, or only going for an annual physical which is covered by all Obamacare compliant plans without payment of a deductible.  However, those who anticipate using more health care services would benefit from the silver plan, especially if income can be targeted to a level that results in lower deductible and out-of-pocket maximum levels thanks to the cost sharing subsidies.

Controlling Income – The Two Year Cycle

The people who Obamacare was intended to help generally cannot control their income level from year to year other than working more or less hours and, of course, seeking promotions and raises.  However, people who are financially independent and derive income from their investments generally have far more control over their taxable income in any given year.  These were not the people Obamacare intended to help since the rationale for the subsidies was to help people with limited financial means.  Nevertheless, Obamacare has no wealth test, only an income test, and anyone with the incomes specified in the law can take advantage of subsidies.  Whether you choose to do so or not is entirely up to you.

One suggestion for financially independent people with control over their income is to adopt a two year cycle.  In the first year, income is tightly controlled in an attempt to minimize taxable income as much as possible.  The goal would be to obtain a significant premium subsidy and also fall within an income range that qualifies for cost sharing subsidies.  A silver plan with a low deductible and out-of-pocket maximum should be selected.  During the year, seek as many medical services as needed including preventative services that might have been deferred.  The goal should be to end the year having consumed all plausible medical services – not wasting medical services but consuming all that is conceivably appropriate.  The following year, make no attempt to limit your reported income and reconcile yourself to not qualifying for any subsidies at all (or perhaps only a minimal subsidy).  For the second year, purchase the cheapest bronze plan that is offered on the exchange.  Go for your annual physical, available without paying a deductible, but otherwise avoid any discretionary medical services.  For the third year, again limit income and purchase a subsidized silver plan and seek out all conceivably necessary medical services.  And so on …

This process can be repeated on a two year cycle as long as one is healthy.  For those who are in poor health, it will almost always make sense to opt for a better policy (silver or above), so this strategy is only viable for those in relatively good health.

A Note on Grandfathered Plans

President Obama’s quote at the beginning of this article stated that those who liked their health care plan prior to Obamacare would be able to keep their health plan.  Politicians aren’t known for presenting a list of caveats in small print along with political statements and this case is no exception.  It is technically true that individuals who had health insurance plans prior to the passage of Obamacare could keep those plans once the new law took effect.  However, those plans were prohibited by law from changing in any material way and remained “frozen in time” in terms of benefits and deductibles, but most certainly not in terms of premiums (which could continue to increase).  Also, because pre-Obamacare plans were not eligible for subsidies, many individuals abandoned those plans in favor of plans on the Obamacare exchanges which reduced enrollment and caused many plans to be cancelled.  Finally, health insurance in the United States is highly fragmented.  If one moves away from the service area of a health plan, it is necessary to obtain different insurance coverage.  At that point, one cannot purchase an equivalent pre-Obamacare plan.  One is required to go to the exchange to purchase an Obamacare complaint policy.

In my case, I had health insurance prior to Obamacare and was able to keep that insurance through the end of 2017.  However, after moving to a different state, I was forced to change my insurance policy.  All of the Obamacare options available to me are substantially more expensive than the cost of the grandfathered policy, although adopting the two year income cycle strategy will help to mitigate the cost differential.

It should be noted that although my pre-Obamacare plan remained in force until this year, the premium dramatically increased from 2009, the last year prior to passage of Obamacare.  From 2009 to 2017, my premium increased by 175 percent, a compound annual increase of 13.5 percent. Despite that enormous increase, the grandfathered plan continued to be cheaper than the unsubsidized cost of the cheapest bronze level plan on the Obamacare exchange.  Furthermore, the grandfathered plan had a deductible and maximum out-of-pocket limit comparable to subsidized silver plans.  In addition, the grandfathered plan allowed me to contribute $3,400 per year to a health savings account (HSA) along with a direct reduction to adjusted gross income which resulted in significant tax savings.  The only HSA compliant plans on the Obamacare exchange carry much higher premiums so I will not have a HSA compliant plan for 2018.

In all respects, I would have been far better off had I been able to keep my grandfathered plan.  Although I am not one of people of limited resources Obamacare was designed to help with subsidies, I feel perfectly justified in maximizing my use of subsidies (via the two year cycle strategy) which will only partially mitigate the negative impact of being forced out of the grandfathered plan in 2018.

Hopefully readers have gained some insight into the complicated world of Obamacare after reading this article.  Good luck and remember that open enrollment for 2018 ends on December 15 – just six days from today!

Spartan Moving 101

Simply selecting the “default option” that everyone else seems to choose can be a very expensive proposition.  In daily life, most people are creatures of habit and emulators of the people around them.  If your friends and coworkers eat out for lunch every day, you’ll find yourself with a $200/month habit if you join them every workday.  If attending a spin class followed by having brunch at a restaurant every Sunday morning is your default (rather than riding outside in the fresh air and having a picnic), you’ll easily develop a $300/month habit.  But it gets worse:  the “default option” for the rare expense that doesn’t come up often is even more prone to pitfalls for anyone choosing the default without a reasonable amount of analysis.

16 Foot Penske Truck

Most people move infrequently.  And when people move, it is often in conjunction with a major life event such as a change of employment, marriage, children, divorce, or retirement.  It is tempting to call a moving company and have them handle all of the unpleasant logistical details.  However, this can be an expensive proposition with hidden minefields including bait and switch issues related to pricing, imprecision in terms of timing of the move itself, disputes regarding lost items, and possible damage to housing when bulky items are moved by men who are often in a rush to finish the job.

How can we be more intelligent about assessing our choices and making the best decision during an inherently stressful period?  I recently was faced with the question of how to handle a long distance move.  Naturally, I wanted to save as much money as possible but not to take steps that would be “false economies” and make my life more difficult for relatively meager savings.  Money represents claim checks against resources – products and services that can make our lives easier.  My goal was to use my money intelligently while also deploying my own time and labor where it made sense to do so.  In the process, I learned quite a bit about the moving industry, the inherent pitfalls facing consumers, and the balance between spending money and allocating one’s time and personal labor.

Preparation

Even for someone who lives a relatively Spartan existence, it is easy to accumulate too many possessions over time.  During the ten years I lived at my prior residence, I had accumulated much that I had not used for many years.  My simple rule is that if I have not utilized an item over the past year, the default action would be to sell it or give it away prior to the move, with some exceptions for books, long held sentimental items, and things that would be expensive or impossible to replace even if infrequently used.  I ended up selling a few items and giving away dozens of boxes of items to Goodwill prior to the move.  This lightened the load considerably and also provided about $150 to offset the cost of the move.

It is best to avoid purchasing boxes and moving supplies from a moving company.  In my condominium building, there are always people discarding moving boxes near the loading dock.  But I ended up purchasing moving boxes, tape, bubble wrap, and other supplies primarily from Home Depot, Office Depot, and Target for a total cost of about $150.  Obviously, having movers pack up even a one bedroom apartment would be a very expensive proposition, so I handled all packing myself over a period of a few days.  This process also coincided with giving away and selling many items involving judgment calls that cannot be outsourced.  It is difficult to conceive of a moving plan utilizing paid help for packing that could be called “Spartan”.

Full Service or Do It Yourself?

Here we arrive at the major decision facing anyone contemplating a long distance move.  Do you hire a full service moving company to handle the loading, transportation, and unloading of your items?  Or do you rent a truck and handle the move yourself?

My move was slightly over 1,100 miles so the prospect of a do-it-yourself move would involve a commitment of two days of time to drive the truck, as well as the associated travel costs and the cost of the truck rental itself.  In contrast, hiring a full service mover would eliminate the two days of time required to drive the truck but there would be additional costs associated with flying to my new city.  One important point to keep in mind is that when you drive a truck yourself, you retain possession of all of your belongings throughout and when you arrive at your new city, you simply unload and set up your new home.  If you outsource the job to a moving company, you will be given a “window” for delivery of your belongings, not a specific day.  You will have to provide for your accommodations during the time that your belongings are in transit.  Do not ignore that very real cost.

Full Service Quotes

I obtained full service quotes from several moving companies including Bekins, Allied, and Mayflower.  Bekins provided the lowest estimated quote online.  For my one bedroom apartment, the estimate ranged between $2,066 and $2,877 after I filled out a questionnaire regarding my belongings.  This was followed up with a home visit by a Bekins representative who quoted over $3,500 for the move without any explanation regarding why it was so much higher than the estimated range.  This is a common problem plaguing the moving industry:  bait and switch tactics are rampant.  In addition, the Bekins quote could not provide any assurances regarding the specific timeframe for delivery beyond “5 to 12 days”, and there would be an extra charge to specify a date to load the truck, a necessary condition given that my high rise building requires scheduling the loading dock.

Do It Yourself Quotes

Disgusted by the bait and switch games, I obtained several online quotes for rental trucks.  Penske proved to be the least expensive at $1,150 including basic insurance coverage, unlimited miles, furniture pads, rope, and a six day allowance.  I calculated that I would need a sixteen foot truck.  With estimated fuel economy of 11 to 12 miles per gallon, I estimated that I would require around 100 gallons of regular unleaded fuel.  With the price of fuel averaging around $2 per gallon, this would add $200 to the cost of the move, for a total of $1,350 for the truck including fuel.  Be sure to search for online coupons.  The moving industry is highly competitive and I found a coupon that saved about 10 percent off the total cost of the truck.

A full service move obviously includes the labor required to load and unload the truck whereas renting a Penske truck does not.  Here we get to a classic question of spending money versus time and physical effort.  I could physically load the majority of the truck myself and probably get help from neighbors for the few larger items I could not carry.  Or I could hire moving help on both ends of the move to make my life easier.  I opted for arranging for moving help using Simple Moving Labor which is the default referral option provided by Penske.  A two hour minimum costs $269 on each end.  It turned out that the loading of the truck required three hours due to the complications of being in a high rise building which brought the total cost to about $650 plus $100 in tips for the movers – a total of $750 for about five hours of labor.

So, the partial “do it yourself” option involved total costs of $1,350 for the truck and fuel plus $750 for moving labor, or a total of $2,100.  Comparing this to the $3,500 quote for a full service move, this implies a savings of around $1,400 to pay for my time driving the truck over two days – approximately $700 per day. It is true that I had to pay for accommodations and food along the way.  However, a full service move would not result in my belongings being delivered right away and I would have also had to either rent a car or fly to my new city.  Overall, I estimate that I would have spent more on lodging and meals had I opted for a full service move due to the delay in receiving my belongings.

The Move Itself

So moving day arrived and I took a local bus to the Penske location to get the truck and was quickly faced with yet another bait-and-switch.  Rather than the $1,150 that I was quoted online (and confirmed over the phone), the hostile and unreasonable Penske employee wanted to charge almost $1,400 and it took several minutes of argument to get him to lower the cost to around $1,220.  I needed the truck and had men arriving to help load it so I paid the $1,220 and then complained to Penske over the phone and received a refund of $70.  This just goes to show that the industry seems to thrive on non-transparency and bait and switch rip-offs.  Oh, there’s one more thing:  the local Penske location wanted to give me a 26 foot truck, not the 16 foot truck I had reserved.  This would be unwieldy to drive and would consume far more fuel.  It would also require more expensive diesel.  I insisted on the 16 foot truck.

Driving a sixteen foot truck takes a bit of getting used to.  I was able to drive it to my building without issues and backed it up to the loading dock fairly easily.  I doubt that the same would have been true with a 26 foot truck.  Although I had only contracted for two men from Simple Moving Labor, three showed up but the price was the same.  They were quite efficient and had the truck loaded in under three hours.  I was on the road by around 1 pm.

Commercial truck drivers typically drive about 500 miles per day.  This doesn’t seem like that much but driving a truck is definitely more difficult and stressful than driving a passenger car.  I ended up driving about 300 miles the first afternoon, 600 miles the following day, and 250 miles on the final day.  This required two nights of accommodations ($170 – three star hotels via Priceline) as well as food and miscellaneous expenses ($80).

Unloading the truck involved parking on the street in front of my new apartment which was more challenging that backing up to a loading dock.  Driving in city and highway traffic in a larger vehicle does take some getting used to, but by the time of my arrival with 1,150 miles of experience, it was a non-issue.  Simple Moving Labor assisted with the unload in under two hours and I returned the truck, taking an Uber back from the drop off location.

Conclusion

I spent about $2,500 on my move in total, which is not that bad for a long distance move of over 1,100 miles.  Probably the greatest benefit of the “do it yourself” option was having control and possession of my belongings throughout the process.  Being able to simply unload and begin unpacking immediately is a huge benefit compared to waiting the five to twelve days that Bekins quoted.  I ended up saving a significant amount of money as well, although I did have to spend two days of my time driving a truck on relatively boring interstate highways.

The bottom line is that I would probably make the same choices again for a long distance move.  Hiring a full service mover does not make much financial sense and the benefits of keeping my belongings with me was an added bonus.  Whether you go with a full service or “do it yourself” approach, be sure to shop around for the best quotes and watch out for bait and switch tactics.  If you have an online quote for a truck rental, bring it with you when you pick up the truck and insist on paying the quoted amount.  Try to look at moving as an adventure and hit the open road.

Fifteen Years to Financial Independence

There are many aspects of life that seem to follow a general pattern:  What we know is good for us in the long run seems contrary to what we think is pleasant or pleasurable in the short run.  This is obviously one of the main reasons that people make poor choices regarding food and smoking on a day-to-day basis even though everyone knows, at an intellectual level, that those poor choices will eventually come back to haunt us.  Of course, the same issue exists when it comes to personal finances.  Almost everyone understands the importance of savings, but our consumer culture bombards us with constant prompts to spend in an elusive quest for immediate gratification.

How is it possible that inflation adjusted per-capita gross domestic product (GDP) in the United States has nearly quadrupled over the past seventy years, yet many people continue to struggle with budgeting to the point where accumulating meaningful savings appears to be an insurmountable task?  Take a look at the chart below from the Federal Reserve’s FRED website:

It might be hard to believe, but Americans in the halcyon days of the 1950s were somehow happy living on per-capita incomes in the $16,000 range.  To be sure, this is a per-capita number and there were large percentages of the population that were far poorer, particularly minorities suffering from institutionalized discrimination.  Nevertheless, the meaning of what it meant to be “middle class” in the 1950s and 1960s would surely be considered to be “poor” in today’s terms.

Consider the typical 70 year old individual who has lived through this remarkable period of economic progress and, assume further, that this hypothetical individual has been right at the per-capita average in terms of personal income.  The gains probably appeared to be very gradual over his lifetime, with some bumps along the way.  Most likely, he has ratcheted his lifestyle upward slowly over time, perhaps without even realizing it, so the gains never seemed that dramatic.  In contrast, let’s say that this individual had an experience similar to Rip Van Winkle and magically fell asleep in 1997 and woke up yesterday.  The 30 percent gain in per-capita GDP would likely feel much more noticeable because it was experienced all at once rather than diffused over twenty years.  We are conditioned to slow changes in our environment, and these changes blend into the background.

The Virtuous Cycle

Perhaps the most important hurdle to financial independence involves a complete rejection of the ratcheting lifestyle trap and conscious awareness of the enormous abundance of goods and services we enjoy in the United States today compared to previous generations.  There is no doubt that disparities continue to exist but, in aggregate, the United States has never been richer than it is today and per-capita incomes have never been higher than today.  Why, then, are we made to feel like we are deprived of something if we choose to refrain from continuously ratcheting our lifestyle in lockstep with real GDP?

The virtuous cycle of financial independence is simple to understand:  Consumption and savings are two sides of the same coin.  What we do not consume can be saved and invested.  The less we are accustomed to consuming, the easier it will be to accumulate enough assets to generate passive income sufficient to fund all of our consumption.  The flip side is also easy to understand.  If we consume nearly all of our income, our savings will be meager in absolute terms and will never accumulate to the point where it is sufficient to generate passive income to meet our much higher consumption requirements.

At the risk of being slightly repetitive, the benefit of a high savings rate is not only the fact that money is accumulating at a faster rate, aided by the power of compound interest.  In addition, we make it far easier to reach the day where we reach “escape velocity” and our savings produce passive income sufficient to make working for others truly optional.  And there is massive value in having that financial freedom even if one wishes to continue working for others.

The Young Married Couple

It is far, far easier to adopt a Spartan mindset early in life rather than attempting to ratchet back a lifestyle that already consumes the vast majority of your income.  The hedonic treadmill concept of psychology makes it clear that we quickly adapt to higher levels of consumption which becomes considered the “baseline”.  But the effect is not symmetrical when we cut consumption below that new baseline.  To be sure, a rationalization of spending and a reduction to lower levels can be done and has been done by many people, but it is far better to adopt the Spartan lifestyle at an early age.

Let’s assume that we are looking at the situation facing a young married couple who met in college, found meaningful employment after graduation, had two children, and are now 25 years old.  They were industrious and frugal for their first couple of years in the workforce and managed to pay off their student debt, which was modest because they attended in-state public universities and also had a little bit of help from family.  As a result of this frugality, they retained the “college lifestyle” and are still accustomed to living on a small amount of money every month (around $2,000).  The first couple of years in the workforce were successful, they had a couple of children, and they do not plan to have any more.

A good education and industrious habits have resulted in pre-tax income of $100,000 for this two income couple.  They are ready to start enjoying more of the fruits of their labor but have had a lifelong goal of achieving financial independence by middle age, not because they necessarily want to “retire”, but because they want to have the option to fully control their time.  How realistic is this goal?

Financial Freedom by Age 40

The couple is well positioned to reach their goal due to their $100,000 pre-tax income and the fact that they have diligently kept their monthly spending to around $2,000 per month.  Understandably, a couple earning $100,000 would wish to enjoy some of that income as they go through their lives rather than saving everything, but the extent to which they choose to increase spending will have a major impact on achieving their goals.

Let’s assume for the sake of simplicity that the family lives in a state with no income tax such as Texas or Florida.  Due to their married status and the benefits associated with having two children, the federal tax burden is relatively modest at around $9,400 using 2016 tax rates (CalcXML’s tax estimator was used to derive this figure).  In addition, the couple will owe Social Security and Medicare taxes of $7,650, or 7.65 percent of their gross income.  The total income tax burden is about $17,000, leaving the family with $83,000 of after-tax income to allocate.

Let’s say that the couple decides to increase monthly spending by 50 percent to $3,000 per month.  That’s a significant increase in monthly spending and should have a noticeable impact on their day-to-day lives.  This implies a savings rate of about 55 percent of their $83,000 after-tax income.  Actually, that savings rate results in $37,350 available for spending so the family can take a modest vacation in addition to spending $3,000 per month ($36,000/year) on other expenses. They have no savings to speak of today, so they are starting from scratch.

Can this really be done? 

From the standpoint of someone earning and consuming $83,000, moving to a 55 percent savings rate will seem agonizing.  But it will not be agonizing at all to this family because they are increasing their spending by 50 percent!  For them, it is a windfall and will seem luxurious in comparison to their prior lifestyle.

To be sure, spending $3,000 per month isn’t going to result in luxury living but it can go further than many people assume through intelligent and thoughtful spending. However, the upside is that this plan is very likely to result in financial independence for the couple by the time they are 40 years old.  Ultimately, it is a matter of priorities.  There will no doubt be peer pressure from coworkers and, possibly, family members to consume more given the family’s income.  That’s where self control comes into play.

A Look at the Data

Let’s get down to the specifics of this situation.  Here are the assumptions:

  • The couple earns $100,000 pre-tax and retains $83,000 after tax.
  • The 55 percent savings rate results in annual spending of $37,350 in the first year.
  • The family achieves a 1 percent real increase in income annually.  In other words, if inflation is 2 percent, the assumption is that the family’s nominal income will rise by 3 percent.  The savings rate stays constant over time, meaning that the family increases both real spending and real savings by 1 percent annually.
  • The real return on investment is assumed to approximate 5 percent.  The Standard & Poor’s 500 stock index has generated real returns of approximately 5.4 percent over the past twenty years according to an investment calculator that uses data provided by Robert Shiller.
  • Assume a withdrawal rate of 3.5 percent of savings.  Once the family reaches a savings level where a 3.5 percent withdrawal exceeds annual spending, we consider them to be financially independent.

It is important to emphasize that the figures that appear in the table below are adjusted for inflation and represent real purchasing power using 2017 dollars.  Also, note that the family is not totally deprived of increases in their standard of living which we allow to rise by 1 percent annually.

The table shows the starting balance of the family’s savings (which is initially zero), the annual investment assumed to be made in a lump sum at the end of the year, and the ending balance of savings assuming the additional investment along with the 5 percent return.  Obviously, in reality, the return will not be a smooth 5 percent but will vary along with the gyrations of the stock market.  The final two columns show the family’s annual spending along with the potential withdrawal rate based on the year-end savings balance.  The green rows show years when the potential withdrawal exceeds the family’s annual spending – that’s the point at which financial independence has been achieved.

Is it surprising that the family can achieve millionaire status (in real, inflation adjusted dollars) in just fourteen years and be financially independent in fifteen years?  Not really, because the power of saving 55 percent of after-tax income coupled with compounding of returns has combined to turbo charge the size of the portfolio.  We can see this effect accelerate further after year fifteen, should the family choose to continue working rather than retire.  Within 30 years, the family will have savings of over $3.6 million.  Even more importantly, that level of savings would allow for annual spending of nearly $127,000, far in excess of what the family is accustomed to.

The Other Path

This is a hypothetical example and the lives of real people including those reading this article will invariably be less perfect and more complex.  However, the basic principle remains valid.  The path to financial independence involves harnessing the virtuous cycle of limiting consumption and saving an unusually high percentage of income.  Doing this will almost inevitably result in financial independence due to the power of compounding over long periods of time.

But let’s briefly consider the more typical scenario where the family has taken the advice of financial planning “experts” and saved only 10 percent of after-tax income.  Ten percent is considered a “high” rate of savings, and it is compared to the majority of people, but it is totally insufficient to result in savings that will ever replace the family’s much higher level of consumption.  Leaving all other assumptions unchanged but changing the savings rate from 55 percent to 10 percent yields the following scenario:

The family is consuming nearly $75,000 per year and saving a paltry $8,300.  After 30 years, the savings balance is just over $650,000 which would support annual withdrawals of $23,000, but by that time the family is accustomed to spending over $100,000 per year.

At the age of 55, the couple is not financially independent, and not by a long shot.  They can both choose to continue the status quo and work another ten years.  At that point, they would finally reach millionaire status with savings of $1.2 million which could generate close to $43,000 in annual withdrawals, but by then they are accustomed to spending over $111,000 per year.  So, at the age of 65, the couple will have to make some tough choices.  They can cut their consumption and start taking Social Security and should be able to retire.  However, cutting consumption will not be any fun, having been accustomed to higher spending for decades, and they will have little margin for error should unexpected expenses come up.

Conclusion

The pursuit of financial freedom is not for everyone.  Many people will never do it because they will allow a ratcheting lifestyle to absorb all available resources.  Or, as in the “other path” scenario above, they might follow the advice of a “financial expert” and save 10 percent of income and be able to retire by age 65, but not without making compromises after a lifetime of being accustomed to much higher spending.  In contrast, thoughtful choices early in life can yield an alternate outcome – financial freedom in early middle age that allows for many additional choices later in life.

Some will inevitably object to the entire premise by claiming that the scenarios completely ignore the utility the couple would get from a higher level of spending over 30 or 40  years compared to the more restrained spending that would allow for early financial freedom.  This isn’t entirely invalid since additional spending should lead to increased utility, but beyond a certain level that spending isn’t correlated with a higher level of happiness.  Instead, the hedonic treadmill takes over.  We become accustomed to the higher level of spending and will notice it when it is gone, but will not get much out of in on an ongoing basis.

Ultimately, the choice is yours to make.  And the choice isn’t restricted to a couple that is just starting out either.  Someone who is 40 years old could employ the exact same approach to reach financial independence by age 55.  The difficulty is that a 40 year old would likely have to adjust spending downward in order to implement the strategy, but “difficult” isn’t synonymous with “impossible”.  The tangible and intangible benefits of financial freedom cannot be reasonably attained without making at least a few sacrifices.

Readers can download the spreadsheet used to develop the scenarios above and play around with the assumptions.

Disclaimer:  This article is not financial advice.  Seek the advice of a financial professional if necessary. 

Everything is Negotiable – Including Your Cable Bill

In a cash-based economy, people tend to negotiate when it comes to all sorts of purchases as they go through their daily routines.  Part of this is obviously due to culture and a history of bartering, but it seems like that the need to part with actual physical currency might play a psychological role as well.  If you are paid in physical currency for your labor, that represents tangible evidence of your effort and parting with currency demands receiving value – for every single transaction.  Our modern system of relying on electronic payments for an increasing share of our day-to-day spending and almost all of our large recurring expenses tends to dull the linkage between earning money and spending it.

Of course, whether we make a payment in cash or use a credit card or other form of electronic payment makes no difference when it comes to our long term purchasing power.  We are still ultimately constrained in our consumption based on the financial resources we have access to and we still need to focus on obtaining value for each and every purchase.  For a surprising number of transactions, we should avoid the tendency to believe that pricing is “fixed” and look for ways to save money through negotiation.  Furthermore, it is actually relatively easy to negotiate with large businesses which might seem a little counterintuitive.

Cutting a Deal with Comcast

There are very few companies that are as infuriating to deal with as providers of cable television, internet, and phone services.  Most people have only a couple of viable choices and the service is viewed as non-discretionary.  My personal opinion is that television and landline service is completely discretionary but having access to reliable high speed internet is mandatory.  I view high speed internet as being on par with having electricity and water in my home.  I do not own a television and do not have a landline.  This “cord cutting” is possible, in large part, due to the ability to have fast and reliable internet connectivity on demand.

Over the past several years, I have routinely switched between Comcast’s Xfinity and Verizon’s Fios services.  It has been possible to obtain reasonably high speed internet service for under $50 by subscribing to introductory plans, usually with a one year discounted period.  After that one year, the price of service usually goes up dramatically and I simply switch back to the other carrier.  However, these companies do not make it easy to switch.  You cannot cancel online and have to endure long wait times and amateurish sales pitches intended to retain your business.  It can take an hour or more to make the switch each year.

In February 2016, I switched to Comcast at a rate of $34.99 for their “Performance Internet” package which normally cost around $60 based on my recollection of pricing at the time.  This plan recently expired and Comcast tried to charge me $74.95 for next month’s service which is far more than the $60 that prevailed last year and, in my opinion, a ridiculous amount to pay for internet service.  I looked into switching to Fios but there were no good discounted plans available in my area.  As a result, I logged into the Comcast site to examine my options.

Bundles and Price Transparency

The first thing I noticed was that Comcast tries to direct people toward their Triple Play package which includes internet, television, and a land line.  There’s an absolutely dizzying array of choices and the first three (of many more) are shown below (the prices are regional so they might differ in your area):

One of the key features of Comcast’s pricing is that they make it as confusing as possible to compare apples to apples. You have all kinds of variables shifting around, such as the number of channels, the speed of the internet service, and various extras that are included.  The names of the plans are confusing and make it nearly impossible to compare the value between plans.  There is also different pricing for agreeing to a two year contract versus having no term agreement.

The confusion is intentional, as is the attempt to direct people to bundled packages where they cannot clearly see how much they are paying for each distinct service.  I have no desire to have television or land line service, so I hunted around the site to find the current pricing on internet-only plans:

I use the internet for my work which requires the ability to easily download documents and to manage various activities that are cloud based, but I rarely watch videos or stream other content.  As a result, I decided that I would just switch to the “Performance Starter” plan for $49.95 per month.  It is more than the $34.95 I am currently paying but since Fios doesn’t seem to have cheaper options, I thought it made the most sense to just switch to the $49.95 plan.  Of course, I couldn’t do this easily on the website so I had to call customer service.

No WiFi?  Are you kidding me? This is 2017! 

After about 20 minute going through endless automated menus, I finally reached a representative who tried to talk me into keeping the $74.95 plan.  Finally, she agreed to switch me to the $49.95 plan, but there was a catch:  That plan only allows customers to connect one device at a time.  And there’s more:  You have to use an Ethernet cable to connect that device!

That’s right:  Comcast’s entry level internet plan does not allow customers to connect a WiFi router and use devices like smart phones, tablets, or modern laptops.  They want you to use a wired connection.

Why?

It has nothing to do with bandwidth.  Comcast is providing a certain level of bandwidth and it doesn’t cost them any more to allow customers to use WiFi.  The reason is to make the plan unattractive and unusable, thereby pushing customers toward more expensive options.

Now, at this point, most people would probably resign themselves to just paying the $74.95 per month, ending the endless phone call, and getting on with their lives.  But I was angry because I knew what Comcast was trying to do.  They force customers to endure a long, frustrating phone call.  They attempt to use text book sales tactics to get customers to buy more than what they want.  And then they finally “agree” to switch me to the plan I wanted, but then tell me that it is essentially unusable. So, I was quite angry by this point.

I threatened to simply cancel service.

This wasn’t really a bluff  because I could have switched to Fios for around $60 per month.  It would have still been cheaper than the $75 Comcast was asking for, although it would have been a hassle.

So, what happened?  I was transferred to a “customer retention” representative who immediately offered to discount the $74.95 plan to $59.95 for another year.  I immediately said no.  I was then put on hold for another five minutes.  The representative came back and said that he was sorry but that was the best Comcast could do.  I again told him to cancel my service.  After another hold, he came back and offered $49.95 which I agreed to.

Almost Everything is Negotiable

Big companies like Comcast that operate in industries where customers have few choices thrive on making their pricing as confusing as possible, offering decent deals for a limited period of time, and then hoping that customers simply continue to pay the higher price due to inertia and the fact that automated billing makes it easy to do nothing.  However, the marginal cost of providing internet service to an existing customer is low and retention of customers is very important.  These companies do not want to lose your business.  They make it difficult and frustrating to cancel but, if pushed, will often provide much better deals than advertised on the website.

It is true that I spent about an hour in a state of extreme frustration with the entire process, but the result was saving $300 over the next year compared to the “auto-pilot” option of doing nothing.  $300 is a significant amount of money, and compound interest will make it even more significant when saved or invested for the future.  My time is valuable, but I’m still willing to trade an hour to save $300, and I think almost all readers probably would feel the same way.

The way Comcast and similar companies treat customers is infuriating but they are selling internet services that, in my view, are not discretionary.  We have much more competition in wireless phone and internet service than we do for home internet service and companies like Republic Wireless make it extremely simple and transparent to purchase service for a very reasonable cost.  It would be great if we could have cheap, wireless service intended for more intensive home use.  Until that happens, it is necessary to negotiate.  It is unfortunate that few people even realize that companies like Comcast will move on pricing when they are pushed to do so.