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Posted by Default User on September 4, 2008, 1:55 pm
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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Posted by jIM on September 4, 2008, 2:07 pm
> 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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Posted by Tad Borek on September 4, 2008, 2:08 pm
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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Posted by Chris Cowles on September 9, 2008, 11:39 pm
> * 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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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
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Posted by Elizabeth Richardson on September 10, 2008, 12:31 pm
>
> 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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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
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