We’ve saved $ 8 million for retirement, we’re in our 50s and want to retire early, but we’re worried about healthcare costs – what can we do?

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My wife and I are 50 and 52 years old and we live in Boston. Our current combined annual income is approximately $ 400,000. We have approximately $ 6 million in non-retirement investments (stocks, bonds, cash). Another $ 2 million is invested in 401 (k) plans. Our house is fully paid for and we have no other responsibilities.

Our annual expenses range between $ 100,000 and $ 150,000 depending on the type of vacation we take.

1. Based on these numbers, can we retire early (say in the next two years) and be of the current age?

2. A big unknown is the cost of health insurance. We currently get our health insurance through my employer, which is a very generous PPO plan that allows us to see any specialist without a referral. I’m not sure if there are any insurance plans we can purchase that can provide that kind of flexibility. How can I find out more?

SP

The needle: I am 56, my husband is 57 and retired. We have about $ 750,000 saved and a military pension. I am “tired of working in America”. Can I retire in three years?

Dear SP,

Congratulations on building up such a sturdy retirement nest egg – $ 8 million is a steal.

Often, when I reply to letters like yours, in which the person has saved millions of dollars, I get feedback from other readers who are frustrated because they think all that money will make retirement a breeze. The truth is, money definitely helps – no question – but if you don’t have the right plans and protections in place, or you don’t stick to some sort of reasonable budget that allows you to live within your means, you may be at risk of not being up to par even in retirement. There are also many surprises that could derail your goals, just like they can for anyone.

There are a few things you should think about before retiring early, although based on the numbers you’ve provided and whether your annual expenses line up well with your total savings, “you should be fit enough,” he ha said Leyla Morgillo, a certified financial planner at Madison Financial Planning Group.

“Early retirement requires careful monitoring as there are a number of variables that could mislead them: market volatility, a lower return on investment environment, higher inflation or higher taxes, to name a few,” he said.

Since you will be very dependent on investment markets for your income, you will need to make sure your portfolios meet your goals and needs and react accordingly when they don’t, he said. For example, if the markets drop significantly in a year, try to reduce your discretionary spend, so as not to dive too far into your investments – they will already be rejected due to volatility and you will want to keep as much reasonably as possible for when the markets will recover.

Additionally, “retirement is not a one-time event,” said James Guarino, certified financial planner and chief executive officer of Baker Newman Noyes. Your annual expense should be calculated and evaluated every year anyway.

You didn’t say if you expect to have other streams of income after retirement, but that’s something you should be thinking about, Morgillo said. Having multiple sources of income is always safer than one, but especially when the main source is in investment portfolios.

This obviously does not mean that you are in any danger if you were to withdraw now. Away from it. Edward Jastrem, a certified financial planner and director of financial planning at Heritage Financial, ran a basic test in his financial planning software with a few assumptions: that you retire now and no longer receive earned income, take the bill for – pocket health care costs, have a “balanced” portfolio with returns on investment, see general inflation of around 1.92% and health cost inflation of 6%, receive modest estimates for social security benefits at full retirement age and set your life expectancy at age 95. Did not take into account other one-time expenses or specific income tax details. This scenario was just to see, with very basic information, what you might see in early retirement.

Jastrem found that the plan looks sound, as most people would have thought. But there is a lot more to analyze, he and other financial advisors said. Take the investments themselves, for example.

“The biggest risk for this couple is a lack of productivity from their resources,” said Alex Klingelhoeffer, certified financial planner and wealth consultant at Exencial Wealth Advisors. “I often see people who are too conservative with their investments compared to people who are too aggressive. Indeed, I would say that on average 90% of the customers who come to me with this situation are little invested “.

There are many investment strategies an advisor might suggest that would allow you to continue spending what you need in early retirement while the money works for you for decades to come. Keep in mind that these points here are just the beginning. With so many resources and the goal of retiring more than a decade before full retirement age, there are so many ways a financial planner could make a difference for your specific situation. If you are not interested in working with a financial advisor regularly, you can find one that charges on an hourly basis or schedule annual or semi-annual meetings only. They will be much more knowledgeable in what your next steps should be.

Klingelhoeffer suggests reviewing the allocation of resources, as well as the actual location of their investments and the tax implications they may have. For example, traditional 401 (k) plans are not taxed until retirement. “When we have growth in our retirement accounts, we are also increasing our future tax liability at normal income tax rates,” he said. “When we increase assets in taxable accounts, we have growth at the capital gains tax rates, which are currently 10-15% lower than the normal income tax rates.”

“Ultimately, investing is both about what you earn and what you keep,” he said. “By having a better position of resources, we can increase the side we keep of the ledger and not have Uncle Sam get as much of our hard-earned income.”

Tax diversification is just as important as business diversification. When withdrawing, try to avoid jumping to a higher tax bracket than necessary and use Roth conversions if and when appropriate, Guarino said.

Take a look at the MarketWatch column “Hack for retirement” for useful tips for your retirement savings path

You said health insurance was a major concern and I understand why. Healthcare costs rise every year and they just get more expensive as a person ages. You can look into your state health insurance market for insurance options.

“The good news is that these days with the exchange, health coverage is more a matter of having an extra expense in retirement and not a question of whether a person can get coverage in the first place,” said John Scherer, a planner. certified financial. and founder of Trinity Financial Planning. Based on a quick look at what was available in the most expensive premiums (platinum level coverage) in the Boston area, health insurance costs for two would be around $ 2,500 per month, or around $ 30,000 per month. year.

The good news: You can afford it without having to worry about withdrawing too much money if you retire early, Klingelhoeffer said. “Given their comfortable spending level, there is definitely room in their budget for a premium health plan if they choose to purchase one,” he said.

You should also carefully consider which insurance you will need, such as for example long-term care coverage, as well as the home, car, and umbrella policies you’ll need before you retire, Jastrem said. Not everyone is a fan of long-term care insurance, since it can get expensive and not everyone will eventually need it in their old age, but if you’re self-insuring, it might be worth looking into, even just in planning. . And don’t forget to create a real estate plan, complete with important documents like a health power of attorney and will, and to make sure your assets pass the way you want.

Be willing to be flexible in the future and understand that what you want or where could change and that will affect your retirement and financial picture, Guarino said.

“Will they be able to keep their home or will they want or have to move to a retirement community?” He said.

The last consideration I leave you (there are so many things to talk about when it comes to retirement planning) is something I tell everyone: think carefully about what you will do with your time in retirement. Early retirement isn’t for everyone – some people absolutely love it, while others get bored and return to work in a few years. If you are retiring together, expect to make some daily adjustments if you are not used to spending so much time together at home. One of my favorite tips for couples who are retiring together is to create a “activity jar“Each person suggests various things they would like to do on a given day, such as going to the museum, trying a new restaurant, exploring the next state, and so on. You may also want to look into it. Volunteering or counseling work, which brings joy to many retirees.

“If they retire at an early age, most of their friends will continue to work, so they run the risk of having ‘no one to play with’ in retirement,” Scherer said. “This is not a reason not to retire, but something that people often don’t consider when planning their life.”

Readers: Do you have any suggestions for SP? Add them in the comments below.

Have a question about your retirement savings? Write to us [email protected]

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