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I'd like to see comments on the issue of early retirement.
First, consumers in their 50s and 60s spend more on healthcare than
youngsters, so they will need a good insurance policy. Around here
that costs around $1000/month. Ignoring taxes because I don't know
what they'll be a decade or more from now, using a 4% withdrawal
factor requires a present value sum of $300,000 just for health
insurance (that's for those who retire today).
Given that number, and looking at a 4% withdrawal factor, future
yearly inflation and obstacles to withdrawing from 401k and IRAs, I
question the practicality of a normal person trying to plan for an
early retirement that comes anywhere near maintaining their present
lifestyle.
-HW "Skip" Weldon
Columbia, SC
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On Sep 4, 7:04 am, "HW \"Skip\" Weldon" <s...@y...com>
wrote:
> I'd like to see comments on the issue of early retirement.
>
> First, consumers in their 50s and 60s spend more on healthcare than
> youngsters, so they will need a good insurance policy. Around here
> that costs around $1000/month. Ignoring taxes because I don't know
> what they'll be a decade or more from now, using a 4% withdrawal
> factor requires a present value sum of $300,000 just for health
> insurance (that's for those who retire today).
>
> Given that number, and looking at a 4% withdrawal factor, future
> yearly inflation and obstacles to withdrawing from 401k and IRAs, I
> question the practicality of a normal person trying to plan for an
> early retirement that comes anywhere near maintaining their present
> lifestyle.
>
> -HW "Skip" Weldon
> Columbia, SC
>
Depends on your definition of "normal" dosen't it? For example a
large number of state employees have life time health coverage after
their vested retirement age (sometimes at 50 with 5 years of
service). So they would not be "normal" by your definition?
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In article <d...@4...com>,
"HW \"Skip\" Weldon" <s...@y...com> wrote:
> I'd like to see comments on the issue of early retirement.
>
> First, consumers in their 50s and 60s spend more on healthcare than
> youngsters, so they will need a good insurance policy. Around here
> that costs around $1000/month. Ignoring taxes because I don't know
> what they'll be a decade or more from now, using a 4% withdrawal
> factor requires a present value sum of $300,000 just for health
> insurance (that's for those who retire today).
I find the same issue trying to run a small business as a single
person. I am getting to the age where my body is starting to
have issues. I looked at getting a personal medical plan, and
they quoted me $4200/month, the state maximum, due to a pre-
existing condition. I am too small of an operation to have a
group plan. It is starting to look like my only real option is
to give up on my business and find a day job with a medical
plan, or pin my hopes on some kind of government mandated
universal health plan.
-john-
--
====================================================
==================
John A. Weeks III 612-720-2854 j...@j...com
Newave Communications http://www.johnweeks.com
====================================================
==================
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On Sep 4, 9:04 am, "HW \"Skip\" Weldon" <s...@y...com>
wrote:
> First, consumers in their 50s and 60s spend more on healthcare than
> youngsters, so they will need a good insurance policy. Around here
> that costs around $1000/month. Ignoring taxes because I don't know
> what they'll be a decade or more from now, using a 4% withdrawal
> factor requires a present value sum of $300,000 just for health
> insurance (that's for those who retire today).
Assuming that a 50-year-old male is just looking to fund the insurance
policy until Medicare kicks in at age 65 and his medical insurance
costs go down dramatically, immediateannuities.com says that he can
get a fixed annuity that pays $1,000 per month for 15 years for
$131,579, with the provision that if he dies before age 65 his
beneficiaries get the remaining monthly payments. However, the monthly
payments are not adjusted for inflation.
The same male can get an inflation-adjusted single life annuity with
initial benefit amout of $1,000 per month for $253,680. I haven't
found the cost of an inflation-adjusted 15 year annuity, but it
probably is in the $180,000 range.
The bottom line is that he would need to set aside far less than
$300,000 to provide for medical insurance to age 65.
Dave
Dave
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HW "Skip" Weldon wrote:
> I'd like to see comments on the issue of early retirement.
>
> First, consumers in their 50s and 60s spend more on healthcare than
> youngsters, so they will need a good insurance policy. Around here
> that costs around $1000/month. Ignoring taxes because I don't know
> what they'll be a decade or more from now, using a 4% withdrawal
> factor requires a present value sum of $300,000 just for health
> insurance (that's for those who retire today).
>
> Given that number, and looking at a 4% withdrawal factor, future
> yearly inflation and obstacles to withdrawing from 401k and IRAs, I
> question the practicality of a normal person trying to plan for an
> early retirement that comes anywhere near maintaining their present
> lifestyle.
It depends on what you mean by "early", I suppose. I am at the stage of
really starting to look at some the issues, as I crossed the
half-century mark last year. Right now, my tentative plans are to punch
out around age 60.
My 30 mark with the company comes up in 2011. I have a pension coming,
but not much in the way of retiree health coverage. I believe, but I'll
need to confirm with HR, that I can continue the company's coverage
indefinitely (paying the full premium of course). If the market had a
good bull rally over the next few years, I go earlier. A really bad
bear market might delay things, say to 62 and start early SS.
Brian
--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)
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On Sep 4, 9:25 am, Dave Dodson <d...@j...com> wrote:
> On Sep 4, 9:04 am, "HW \"Skip\" Weldon" <s...@y...com>
> wrote:
> > using a 4% withdrawal
> > factor requires a present value sum of $300,000 just for health
> > insurance (that's for those who retire today).
> Assuming that a 50-year-old male is just looking to fund the insurance
> policy until Medicare kicks in at age 65 and his medical insurance
> costs go down dramatically...<snipped>
> The same male can get an inflation-adjusted single life annuity with
> initial benefit amout of $1,000 per month for $253,680. I haven't
> found the cost of an inflation-adjusted 15 year annuity, but it
> probably is in the $180,000 range.
>
> The bottom line is that he would need to set aside far less than
> $300,000 to provide for medical insurance to age 65.
But what if they raised the eligible age for Medicare?
And even if he/she did have 300K for health insurance, we
already know that the rate at which medical expenses are
going up far exceeds the rate of inflation that the above
mentioned 4% withdrawal rule would allow for.
If at all, one should budget more than 300K for this, not less!
The cost of making incorrect assumptions is poverty
in old age...I'd err on the very conservative side.
Anoop
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> I'd like to see comments on the issue of early retirement.
>
> First, consumers in their 50s and 60s spend more on healthcare than
> youngsters, so they will need a good insurance policy. Around here
> that costs around $1000/month. Ignoring taxes because I don't know
> what they'll be a decade or more from now, using a 4% withdrawal
> factor requires a present value sum of $300,000 just for health
> insurance (that's for those who retire today).
>
> Given that number, and looking at a 4% withdrawal factor, future
> yearly inflation and obstacles to withdrawing from 401k and IRAs, I
> question the practicality of a normal person trying to plan for an
> early retirement that comes anywhere near maintaining their present
> lifestyle.
Most of my research on early retirement suggests 4% withdraw rate
might be "too high" and 3% might be closer for money to last 40 or 50
years. 3% allows for initial withdraws to be the dividend yield of a
portfolio, allowing principal to grow for a significant time while
retired.
There is more than one way to retire early, more than one way to
withdraw and I have found a whole web community which discusses this
(not sure if appropriate to post links, if you want a link, ask).
Having a good handle on expenses is important.
Health care as you mentioned is on that list. Replacement cars every
10 years, funding the new roof or home repairs is also on that list.
Travel or other leisure expenses to. To retire early having a handle
on the expenses appears to be a pre-requisite.
Withdraw strategies also factor in- the 4% rule was designed for a
60-40 porfolio to last 30 years. Increase the duration to 40-50-60
years and there is risk that 4% as the starting withdraw rate is too
high.
Dividend yield is one way many people can retire early (live off
yield, let principal grow).
Not increasing withdraws when market drops is another.
There is a 95% rule I don't fully understand, but I believe it
suggests to leave 95% of portfolio value intact or to adjust withdraw
rate once portfolio is 95% of original value which some people also
use.
I have 18 years to retire at age 53. I plan to have an HSA for health
expenses, a paid off house and travel much more than I do now (Europe,
cruises, skiing in the rockies, white water rafting).
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HW "Skip" Weldon wrote:
> First, consumers in their 50s and 60s spend more on healthcare than
> youngsters, so they will need a good insurance policy. Around here
> that costs around $1000/month. Ignoring taxes because I don't know
> what they'll be a decade or more from now, using a 4% withdrawal
> factor requires a present value sum of $300,000 just for health
> insurance (that's for those who retire today).
Skip, as someone mentioned you only need to bridge yourself until
Medicare eligibility, not a lifetime, and it might be more like a 10-12%
withdrawal rate. But you're right, it's going to be a substantial cost
for an early retiree, under the present system (which I believe will
change, but who knows how long that will take). Some possible ways to help:
* get some part time work that has benefits, even if only access to
self-paid health insurance at group rates (if that's helpful). Not an
option everywhere but it's out there.
* do some part-time work as an independent contractor, strictly for the
purpose of paying for this, and being able to fully deduct it - which
effectively reduces the cost. Under current law you would pay only
self-employment taxes if you earn $12k and pay $12k in health insurance
premiums. With no SE income it's an itemized deduction, part of medical
expenses, which are only deductible to the extent they exceed 7.5% of
your AGI.
* plan waaaay in advance and stick with a career that leaves you with
some benefits, if early retirement is a priority. I'm doing my best to
talk a client into this one at the moment...staying put with the present
employer instead of job-hopping to yet another, very similar job, would
set up excellent early-retirement benefits. People need to factor this
into job changes once they reach a certain age.
I don't think working a bit is such a bad way to go, if you plan it in
advance so you have something enjoyable (or at least tolerable) to do.
Especially if the upside is being able to retire early.
-Tad
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HW "Skip" Weldon wrote:
> I'd like to see comments on the issue of early retirement.
>
> First, consumers in their 50s and 60s spend more on healthcare than
> youngsters, so they will need a good insurance policy. Around here
> that costs around $1000/month. Ignoring taxes because I don't know
> what they'll be a decade or more from now, using a 4% withdrawal
> factor requires a present value sum of $300,000 just for health
> insurance (that's for those who retire today).
>
> Given that number, and looking at a 4% withdrawal factor, future
> yearly inflation and obstacles to withdrawing from 401k and IRAs, I
> question the practicality of a normal person trying to plan for an
> early retirement that comes anywhere near maintaining their present
> lifestyle.
As Dave responded, the health issue may be more about bridging the gap
to 65. If 'normal' is median, then it just doesn't happen. On the other
hand, you read about the $80,000 earners who never changed lifestyle as
they worked up from $40,000. If one can save a high (25-30) percent of
income, they may find they are saving toward that 20X number but they
can live on less than half their pre-retirement gross.
I think the health warning is the one to worry about more than any
other. I can plan for a certain lifestyle yet cut back on things like
vacations, dinners out, etc. in bad times, but the rising health costs
are toughest to plan, and will eat into everything else.
Joe
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>On the other
> hand, you read about the $80,000 earners who never changed lifestyle as
> they worked up from $40,000. If one can save a high (25-30) percent of
> income, they may find they are saving toward that 20X number but they
> can live on less than half their pre-retirement gross.
>
> I think the health warning is the one to worry about more than any
> other. I can plan for a certain lifestyle yet cut back on things like
> vacations, dinners out, etc. in bad times, but the rising health costs
> are toughest to plan, and will eat into everything else.
>
I see two issues:
1) accumulating the money
2) expenses in retirement
As joe alludes- most of my ER strategy now is accumulation. I started
saving 6% of my pay (small amount- just graduated and single) in
1997. Fast forward a marriage, twins born in 2008 and our savings
rate is 20% of 3X my original salary now. Every year I will attempt
to bleed another % or two out of this. If I am saving 50% my personal
savings will mean more than compounding in many ways to reach the
desired level. Most people which ER have a savings rate of 30-40% (or
so I read).
The expenses part also varies, but if a person could LBYM to save
30-40% then they could easily retire spending less than they earned
while working. I think the living below one's means is an important
part of early retirement planning.
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