Early retirement

  • Thread starter HW \Skip\ Weldon
  • Start date

H

HW \Skip\ Weldon

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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P

PeterL

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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J

John A. Weeks III

HW \"Skip\" Weldon said:
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-

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Newave Communications http://www.johnweeks.com
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D

Dave Dodson

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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D

Default User

HW said:
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

--
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won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

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A

anoop

On Sep 4, 9:04 am, "HW \"Skip\" Weldon" <[email protected]>
wrote:
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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J

jIM

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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T

Tad Borek

HW said:
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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J

joetaxpayer

HW said:
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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J

jIM

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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I

Ignoramus17332

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.
The 401K withdrawal difficulties only would last until the age when
the withdrawal penalty goes away.

Also, younger people spend more than older people, on things such as
kids and mortgage. So when one gets to the point of retirement,
hopefully the kids are grown and do not require maintenance, house is
paid off, etc.

Also, instead of full retirement, one could opt for working part
time or just getting a less demanding job.

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E

Elizabeth Richardson

HW "Skip" Weldon said:
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.
Skip, I'll use a term I've used before. That $1000 a month pays for sick
care, not health care. Health care comes from daily exercise, spending time
and money in the produce department at the grocery store, and minimizing
stress in one's life. These are far less expensive ways of addressing the
issue.

That said, I'll be the first to admit that we wouldn't have been able to
retire early if it hadn't been for the health insurance component of my
husband's pension.

Elizabeth Richardson

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J

joetaxpayer

rick++ said:
Meidcare premiums and copays are on the same doubling rate,
but starting at a lower amount. The premiums have inreased from
$53 a month to $122 for standard medicare in the past five years. Plus
co-pays are going up. Plus means-testing is phasing in ...
At some point, won't costs have to level out? If any one sector grows
faster than the rest of the economy, won't it grow as its share of the
pie, until it crowds out all others?
(I recall in 1984 being told that semiconductor sales in $$ grew at 14%
long term. I mumbled 'not for long' and was asked to explain myself. If
the economy grew at 5%, that meant that semi's share of the pie would
double in 8 years, give or take. Indeed, cars were using more
electronics each year, but at some point it had to level out. It took a
couple decades, but the growth and forecasted growth had mitigated.)

Joe

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R

rick++

rick++ wrote:
At some point, won't costs have to level out? If any one sector grows
faster than the rest of the economy, won't it grow as its share of the
pie, until it crowds out all others?
The US has an insatiable appetite for medical care - basic healing,
extreme healing ($100K drugs for a few extra months of life), looking
good, and sport. 16% of US GDP is now health-related, with
projections
of 20% to 25% by mid-century not out of line. The wealthy US economy
decided to spend its economic surpluses on health.

That 16% isnt funded out of thin air. Its a mixture of public and
private revenues. 25% of the federal budget goes to medical:
19% for medicare & medicaid, 3% for federal retiree medical,
and 3% for veterns medical. So I'm personally paying a 7%
"medical tax" of all my income - 1/4 of my total taxes last year.
My additioanl private expenditures doesnt bring me up to that 16%,
but I can see where that could happen for sicker people.

Its not of line to project 1/4 to 1/2 of my retirement budget
to be devoted to medical premiums and expenses, the way trends
are going.

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C

Chris Cowles

* plan waaaay in advance and stick with a career that leaves you with
some benefits, if early retirement is a priority.
I don't think anyone can plan for employer-provided health benefits in
retirement. You might have them when you retire, but how long will it be
before the employer makes unilateral changes?
--
Chris Cowles
Gainesville, FL

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E

Elizabeth Richardson

Chris Cowles said:
I don't think anyone can plan for employer-provided health benefits in
retirement. You might have them when you retire, but how long will it be
before the employer makes unilateral changes?
--
There are several "tiers" to the PERS retirement system in Alaska. The court
has ruled that the retirement benefit package promised to the employees,
including system-paid health care, are a contract and cannot be unilateraly
revoked. I don't know why this doesn't seem to apply to privately
admnistered pensions. Perhaps the employees aren't so well organized nor
represented.

Elizabeth Richardson

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A

Avrum Lapin

Elizabeth Richardson said:
There are several "tiers" to the PERS retirement system in Alaska. The court
has ruled that the retirement benefit package promised to the employees,
including system-paid health care, are a contract and cannot be unilateraly
revoked. I don't know why this doesn't seem to apply to privately
admnistered pensions. Perhaps the employees aren't so well organized nor
represented.
My recollection of the deciding case (Douglas Aircraft - before it was
part of McDonnell Douglas now Boeing) was that the offer of health care
after retirement was not a contractual promise and was not covered by
ERISA (pension law).

I suspect that if you read the Alaska plan it specifically promises
coverage after retirement. I no longer have the booklets that I got from
General Dynamics which offered coverage until age 65 and then an
allowance to cover the cost of Part B. After GD sold the missile
business to Hughes, we were left to Hughes' generosity - the ability to
buy health coverage at COBRA rates until age 65 and then you depend
solely on Medicare. There was a legal challenge but the Douglas
precedent held.

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W

Will Trice

HW said:
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.
This is certainly a concern, but your healthcare insurance premium seems
high. I just got a price sheet from Kaiser Permanente for individual
(non-employer) plans. Monthly rates for each covered adult ages 50-54
are $199, 55-59 are $249, 60-64 are $298. This is a 70/30 plan, $2000
deductible with hospitalization and prescription coverage, $30 copays.
This is similar to plans I've had with previous employers so I would
call this a "good" plan, but perhaps it's not? Do health insurance
premiums vary that widely region to region? Perhaps then early
retirement may also entail changing residence to a
lower-health-insurance-premium location?

-Will

william dot trice at ngc dot com

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R

Reed

Will said:
This is certainly a concern, but your healthcare insurance premium seems
high. I just got a price sheet from Kaiser Permanente for individual
(non-employer) plans. Monthly rates for each covered adult ages 50-54
are $199, 55-59 are $249, 60-64 are $298. This is a 70/30 plan, $2000
deductible with hospitalization and prescription coverage, $30 copays.
This is similar to plans I've had with previous employers so I would
call this a "good" plan, but perhaps it's not? Do health insurance
premiums vary that widely region to region? Perhaps then early
retirement may also entail changing residence to a
lower-health-insurance-premium location?

-Will
Bear in mind that KP is not really an "insurance" co. They are a
*non-profit* health "plan". Their salaried doctors, their
hospitals, etc. Only available in 9 states where they have their
own facilities.

Check this from:

https://prospectivemembers.kaiserpermanente.org/kpweb/structurekp/entrypage.do

"About us
Kaiser Permanente is the largest nonprofit health plan* in the
United States, serving 8.6 million members in nine states and the
District of Columbia. We are an integrated health delivery system,
which means that we provide and coordinate the entire scope of
care for our members"


Don't get me wrong, I have several family members in Denver who
have KP coverage, and their care has been excellent, and
reasonable cost. I wish it was available in CT. Quotes I have for
individual insurance coverage, age 64, in CT, start about
$900/month. Which is why I am still working, with coverage thru
employer.

--Reed

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A

Avrum Lapin

snip
Premiums do vary across the country (even between adjacent counties).
For individuals, Kaiser uses underwriting which means that the quoted
rates are for those without preexisting conditions. A person with
significant preexisting conditions may pay several times more.
Bear in mind that KP is not really an "insurance" co. They are a
*non-profit* health "plan". Their salaried doctors, their
hospitals, etc. Only available in 9 states where they have their
own facilities.
Kaiser is an HMO - which implies that you see your primary care Kaiser
physician first and require referrals to see Kaiser specialists. As a
SHIP (Medicare) counsellor I have heard only two opinions about Kaiser -
"the greatest thing since sliced bread" or "I wouldn't send a dog there"
- nothing in between. Kaiser is one of the few HMOs which accepts
individuals. Their costs (premiums) are average.

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