How to think about retirment

[question everything]

Interesting story in AARP Bulletin.

The writer says that we need to think about years that our saving will last, not the absolute number.

Two examples: Someone who is worth $1 million and whose lifestyle cost $200,000 a year. This person has only five years of freedom and security.

On the other hand, someone who is worth $200,000 and lives on $10,000 a year, has 20 years of financial independence.

He concludes that wealth has to be measured by time, not money alone.

He has a formula:

Start with net worth (assets less liabilities).

Estimate your annual expenses.

Calculate annual guaranteed income: pension plus social security benefits.

Subtract the guaranteed income from annual expenses. This is the additional annual needs.

Divide net worth by that amount needed and one gets wealth measured by years.

Interesting exercise.

[3Hotdogs]

1. Not included, is the reduction of expenses when you get old.

You may not want to go out as much, travel as much , want new clothes, eat out as much and so forth.

o.t.o.h., medical and pharm. expenses will likely increase.

Any other variables I didn't think of?

[question everything]

2. Part of the same story suggested that the biggest expenses of households heading by someone

65 or older are housing. Transportation, health care and food are next.

I was surprised as these expenses - housing, transportation and food can be controlled.

Agree about health care. One of the facts of aging, from my experience, is a weakened immune system that brings on newer health problems with more expensive treatments.

[progree]

3. Fidelity: a couple will need $280,000 just for health care. Does not include long-term care

Fidelity estimates, for example, that a couple, both reaching age 65 in 2018 will need $280,000 over their lifetimes for OUT-OF-POCKET medical expenses ( https://www.cnbc.com/2018/04/27/how-to-plan-for-higher-health-care-costs-in-retirement.html ). They are both on Medicare, so this is medical costs above and beyond those paid for by Medicare.

Nor does the $280,000 include long-term care (e.g. nursing homes, assisted living facilities), and it doesn't include most dental, eye, or hearing care.

So lard up on your triple-tax advantaged Health Savings Accounts contributions -- same as a Roth IRA (no taxes on earnings or gains, no taxes on withdrawal) PLUS there is an up-front tax deduction. But withdrawals must be used for medical costs.

[question everything]

4. Does this include premium for supplemental insurance?

Our Long term insurance premiums alone are close to $10,000 a year. They have raised it recently.

And our premiums for supplemental insurance and dental are around $4500 a year.

[progree]

5. Does this include premium for supplemental insurance? - yes.

ditto for any premiums paid for Medicare Advantage and for Part D drug plans.

My Medigap is a bit under $2500/year (for one individual, me)

[progree]

6. If you mean can Health Savings Accounts be used to pay for healthcare premiums...

Some yes, some no, as I recall from having looked into it a couple years ago...

[PoindexterOglethorpe]

7. Just common sense.

It's how I've been thinking about my money for some years now.

I'm 71, and my income sources are:
Social Security
two annuities
a very small pension
what I take from my savings/investments.

The first three cover my basic expenses. The last takes care of various luxuries and things like travel.

I also have a long term care policy that's paid up, and even if I actually use up all of its benefit, there will still be a death benefit. Plus I have another decent life insurance policy.

[BSdetect]

8. If you earn income from investments your nest egg ought to grow even as you cash in some each year

So having $1 million may last more than 10 years if you spend $100,000 per year.

Medical expenses are the great unknown and could be devastating for many of us. In the USA that is especially so.

[PoindexterOglethorpe]

9. I often look at my money and think,

okay, at $1,000/month, that will last x months. How large that x is makes a difference.