Actually, for some states, income tax AND real estate tax can be lower for retirees. It is good to try to get your most accurate guesstimates so you have fewer whoops under calculations of expenses, imho.
For folks who find lumping expenses, that can work. For folks who find it useful to pull out the individual items, that can also work well. The thing is to prepare as best one can be—poverty in old age is really rough.
Can someone please provide the link to the WSJ spreadsheet again? I keep trying to find it and I get retirement software package hits. TIA
The FIRE crowd got some press last week…
https://www.nytimes.com/2018/09/01/style/fire-financial-independence-retire-early.html
The one big elephant in the room that is not addressed is the health insurance. How did the FIRE crowd deal with it before Obamacare? How are they handling it now? Understandable, the couple with the wife working is probably getting a plan through her, but the others? No answers in the article.
ACA still exists. That makes it pretty easy for early retirees. Actually easier than pre-ACA if you have pre-existing conditions.
I know. But it is a big expense even with Obamacare and it is not addressed in the article.
Unless they have significant unearned income that they can’t control when they get it, it’s straightforward for a lot of FIREs to arrange their finances such that at least every other year they are receiving the maximum subsidy, making their ACA insurance practically free.
Sure. Techies who have it all stashed in the form of their company stock (earned via grants and cheap options) can have zero taxable income… but that requires taking out a sizable chunk of money out during the “on” year to have a zero tax liability during their “off” year. A few of these people mentioned are earning something on the side as bloggers. Financial Sanurai apparently makes a tidy sum off his blog, but writes off his $750 monthly premium as a business expense.
Again, the article does not address that issue. Not trying to debate anything here, guys, just pointing to a big missing piece. 
I suppose I kinda sorta meet the definition of FIRE. I closed my office at age 44 and have been semi retired ever since. DW retired from her health care job about the same time. Health care costs are an issue but we’re trying to play the alternating year ACA game, where we keep our income low enough for a subsidy one year, take more income while paying unsubsidized premiums the next, and so on until we qualify for Medicaid.
It’s not that hard. Keep some of your assets in very liquid cash equivalents. Income is minimal given the low interest environment. That also enables a young retiree to more aggressively invest the rest of it. Kind of a barbell approach. You don’t need to be a techie to make it work nor a blogger.
I would say that if you choose to FIRE, hopefully you’ve thought about your insurance costs and have built in some kind of cushion for that including a more expensive health insurance landscape. IMO, that should be a part of your scenario analysis.
The article might not mention it but a lot of FIRE articles/websites do talk about health insurance.
Pre-ACA (or if ACA is repealed), those who retired young probably did not have pre-existing conditions that would have disqualified them from buying individual medical insurance policies (though it is possible that they may not have thought ahead of the possibility of difficulty buying it between early retirement and Medicare). Of course, since ACA, it is possible to buy medical insurance in most areas. Cost is obviously a significant factor in financial planning. Note that this is similar to dealing with medical insurance if one wants to go into self-employment.
Those who retire with very high levels of wealth may have the capability to self-insure medical costs (i.e. several million dollars beyond the amount whose investment income would cover other retirement costs) if there is a future scenario where medical insurance is impossible to buy.
I’m sure it’s probably not what the article is about. But we have several friends who retired very young, are retired auto workers so have retiree health benefits through their employers. They get their pension and health care and work a side job.
Also retired military gets health benefits.
I have a good friend who retired from the auto industry, was in the military, national guard and reserves. Retired from all, has pensions and health care. Another retired from active duty and worked another job but still retired early and gets military health care.
My H’s employer offers retiree health benefits once you hit 55 and have a certain amount of years in service. We know lots of people who have retired early. H will retire at 62 and will have health care to tide us over until Medicare.
One friend’s husband retired from UPS at 55 - they were able to keep their insurance pay $20 per month.
Cousin’s retired at 57 from Farmer’s Insurance - they were able to keep their insurance and pay $400 per month.
Sister-in-law retired from teaching public school at 55 - they were able to keep their insurance and pay $400 per month.
It’s an incredible benefit if one has it. I have no idea how many companies provide that. It makes me envious.
Pre-ACA retirees could buy catastrophic insurance plans that would pay for major expenses (trauma, cancer…) but the retiree would pay for routine care out of pocket. Those plans are not now available for those over 30, so it has gotten more expensive for that crowd to FIRE.
Most military retirees have to be 60 to be eligible for health insurance coverage. Same goes for federal employees, and state employees where we live. It’s the one thing that keeps DH working.
We’ve been following the FIRE philosophy and Pete Adeney (Mr. Money Mustache) specifically for years. Pete helped us understand that we were already deep into the FIRE zone (no mortgage, car payments, or debt and residing in a low COL area with all necessary amenities within walking distance) and could step off any time, but there’s a faith position there that we had to embrace as my idea of what that investment nut needed to be was a lot higher than Pete felt it needed to be. Our goal was to reduce our living footprint (all obligations) to SS levels and use a small percentage draw from our investments for all travel and non-essentials. Although we “retired” at 59/60, we have yet to begin that draw as we also amassed four years of living expenses before we stepped off to help get us closer to Medicare. Then, DH found that his company had a retiree healthcare benefit we didn’t know about that provides heavily subsidized HC for both of us until DH turns 65 followed by an extension that will cover me an additional nine months until I turn 65. “Mustachians” cover HC through a form of self-insurance. (Not sure if I can link, so Google Pete’s Our New $237/month Health Insurance Plan article. There are many other HC-related articles on his blog. These options only work for those who are already financially sound so perhaps that’s why the article did not focus on that aspect.)
For now, we are in the “barista FIRE” category because DH has found that he can consult on his own terms as an independent either through his old company or on his own and currently has a low-stress highly-controllable part-time contract that he enjoys and will probably take us back to Ireland at some point providing both income and subsidized travel. Our son loves Mr. Money Mustache and has embraced Pete’s (IMO) rather extreme philosophy and is well on his way to his own brand of FIRE. He plans to retire in his 40s so he can pursue his own interests, ones that will probably produce income but, like Pete, coincidentally and not of necessity. His military benefits will certainly help him achieve his goals.
The issue with the FIRE philosophy is that it heavily relies on starting early or becoming draconian later when income is at its peak. Obviously, starting early is easier, so we think introducing the principles to kids is key.
MMM often infuriates me, for many reasons.
In any case, that $237/mo policy was a catastrophic insurance policy, which are no longer available. He is now paying $1000/month for an ACA policy.
Yes, that article is from 2012. His many other articles describe how his HC strategy/philosophy has evolved. I pointed this out just as an example of how some early retirees approach healthcare as the question was asked above because the article did not elucidate,
IMHO many people will see high health insurance costs before they qualify for M/C - there are the exceptions people up-thread have mentioned.
We have 3 more years to hang on to our health insurance. By then we will have the house paid off. We have contingency plans if there are changes with H’s company - he may need to work from home or relocate if local plant goes away. But we believe he has solid employment. Most likely he could work from home. H told me company President is on a contract. H is not quite at that level to be privy to many decisions.
Saw our financial planner Friday, and we saw projections based on current investments and SS income in retirement. Our income stream and investments are pretty solid and lots of $$ left over at age 100 if all goes well. An interesting development has been that our Nationwide New Heights annuity flipped with our Allianz annuities - the Allianz is doing really great while the Nationwide is doing OK but not as strong as the Allianz on ROR.
I want to analyze 401k and think about the investment choices there. Roth and 401k are considered to be in ‘bucket 3’. Bucket one is income (our annuities and SS), bucket 2 is for additional expenses beyond income stream.
I mentioned the WSJ spreadsheet and the $4.25 M assuming 20 years in retirement. Financial Planner said one could probably be comfortable with half of that assuming they had it invested well and controlled spending/some budgeting. However we are in a state with low property taxes and generally low taxes.
We are truly empty nesters - both DDs are self supporting and have their own health insurance, etc. They have no school debt. They are good at budgeting, live within their means, and seem to have things figured out. DD2 had a semester long course in HS that turns out was Dave Ramsey’s course for HS students (they had a work book and watched videos, along with teacher guidance.) DD1 came about with budgeting more naturally.
I do continue to pay on term insurance (we do have cash value insurance as well), and our excellent LTC insurance policies.
W/O LTC insurance, that puts an additional risk on retirement funds.
Fidelity had calculated an amount for average couples retiring today (at age 65) will need $280,000 to cover health care and medical costs in retirement (April 19, 2018 article). They assume lifespans of 87 for man and 89 for the woman. It excludes the cost of long-term care. It also excludes most dental work. If younger, need to plug in higher costs. And of course where you live, your gender and your health conditions all have an impact.
Finally we are getting help from a financial planner. She was highly recommended by someone at work, who showed me 26 pages of charts and numbers that she did for him. Figured out how much of a mortgage he could afford, and when he should start taking his pension. Apparently she knows more about our pension than we do. What is great is that she doesn’t try to sell you any products, and her services are free, paid for by our union. And she has worked with many people is very similar situations as us.
So…putting down the numbers is kind of alarming. I can’t believe how much we spend, and we are starting to budget tomorrow. I’d like to be able to afford to retire by 60, but there’s no way we could do that with the current level of spending. If nothing else, it’s good to pay attention to it.
“So…putting down the numbers is kind of alarming. I can’t believe how much we spend, and we are starting to budget tomorrow.”
That alone is a good exercise. Might be eye opening and therefore unsettling but knowledge empowers you to make changes. Congrats on the steps you’ve taken.