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My Retirement Fears

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Reading my story on this blog, you might think I’ve got it made.

Thanks to a high-paying job and relatively frugal lifestyle, I managed to save a large sum by the time I was 50, and retire early. Since then I’ve pursued new interests, travelled extensively, and worked when and where I wanted.

Recently, we relocated to our dream retirement town. During all of this, thanks to the recent bull market, our portfolio has kept growing.

So, thanks to my upbringing, some good fortune, and hard work, I managed to live out a scenario that many people dream of. And I’m truly grateful for that.

Life is good and I have no worries, right?

Sort of. Just because we’re financially secure, doesn’t mean we’re insulated from pain. Life still happens. Loved ones pass away; things break; some days it rains. Even on the financial side, all is not roses….

In the short term — the next decade or two — I have few worries. We can deal with whatever comes our way. It’s the same financial position we’ve been in since our early married years, when we paid off our debt and began saving aggressively. The security of knowing you can call your own financial shots for years to come feels great.

But, in the long term, I have concerns. What will the world be like decades from now? Will we have enough to live comfortably to the end of our days? I can’t predict the future any better than anyone else. I don’t know what inflation will do to our savings. I don’t know how the stock market or government will behave in the years ahead. I don’t know how long we’ll live.

So the fact is, that despite our relative financial security, I do have worries. Let’s dig a little deeper into some of my top concerns — they may be on your list too — and see if we can understand them better….

Health Care

Topping the list of fears for almost every retiree I know, myself included, is the cost of health care.

Recent positive headlines about a possible historic decrease in health care inflation have not yet erased a decades-long trend in my mind. Until the 2008 financial crisis, health care costs outpaced overall price inflation for three decades. At times, health care inflation averaged nearly 10% — compared to a long-term average inflation rate in the neighborhood of 3%. Even in 2012, a year that some are citing as evidence there has been a containment in health care costs, health care inflation was approximately twice that for overall consumer goods.

The math behind higher health care inflation rates is frightening. If health care starts out at 10% of your budget, but it inflates at twice the historical rate of inflation experienced by the rest of your expenses, then at the end of a 30-year retirement, health care is costing you over 20% of your budget. And should health care inflate at three times the rate of your other expenses, which has been the case in the recent past, then it will consume nearly 40% of your budget at the end of a 30-year retirement! And that is assuming you have unlimited funds to pay such expenses. The vast majority of us simply wouldn’t have the means to keep up with that kind of punishing rise in prices. We would forego healthcare, go bankrupt, or both.

Let’s hope that high-inflation scenario doesn’t materialize. The recent news is certainly encouraging. But it’s still early to assess the long-term trend. One reason for the recent lid on health care inflation is that health insurance has become less generous: putting more burden on patients to economize. Another is that the government has instituted cost savings in Medicare as part of Obamacare. In some cases, insurance companies and health care providers are shifting the costs of savings to those not on Medicare. In other cases, Medicare patients are being denied care. So it’s not perfectly clear yet whether health care costs are plateauing, or just being shifted, along with a reduction in care.

Regardless of national trends, all that really matters is the state of your own pocketbook. And, by that measure, the news on our own health care expenses in the first six months of full retirement, has not been good.

As I’ve written about previously, Caroline joined me in retirement in August 2013 and we rely on her health benefits as a retired public school teacher. We have to pay for those benefits, but it’s a group plan. For the first four months of her retirement we paid $559/month in premium for a high-quality Blue Cross/Blue Shield plan plus a bit of dental insurance. Now, in the new year, that rate has shot up to $634/month. That made for a shocking 13% increase in our first year!

We can handle such an increase once, or a few times. But, if it is part of a long-term trend, it will have a serious, detrimental impact on our retirement lifestyle. If it keeps up, our health insurance costs will double in a little less than 6 years.

Long-Term Care

As I was approaching the retirement decision three years ago, I had lunch with a trusted friend who was a financial advisor. I wanted him to review the details of my decision, play devil’s advocate. I knew from experience that he was more conservative than me in some departments, but less so in others. Altogether, he’d bring a different viewpoint to the table. We discussed my assets and expenses for a few minutes, and he concluded I was good to go. We finished eating and were about to rise from the table, when he said: “What about long-term care insurance? You’re a little young, but you really ought get a quote….”

I was not a stranger to the topic. Our parents have had long-term care insurance, in various forms. I’ve read a number of articles on the subject, and looked into prices for it in the past. But I wasn’t ready to pull the trigger then, and I’m still not.

For starters, these policies typically require underwriting, and I wasn’t up for negotiating the pre-existing conditions quagmire, prior to Obamacare. Secondly, the policy terms were unappetizing. Premiums can run to many thousands per year. Yet these policies don’t eliminate the cost of long-term care, as the salesman would like you to believe. Rather they typically pay a proportion of the expense, for a designated time frame (usually a few years). Lastly, a number of prominent insurance companies have actually exited the long term care business, because even those unsavory terms have not proven profitable for them.

I’ve already described my penchant for self-insuring whenever possible. Several experts have suggested that if you have assets in excess of $1M you may be able to self-insure for long-term care. Oblivious Investor reports on a study showing that 82% of people will have long-term care costs under $25,000 — a sum unlikely to wreck the finances of anyone who is financially independent.

I’m a big fan of do-it-yourself financial solutions, so self-insuring remains my default route of choice — long-term care included. But that doesn’t mean I don’t worry about long-term care. I do.

The U.S. Department of Health and Human Services reports that 70% of people turning age 65 will need some form of long-term care during their lives. There are entirely plausible scenarios where the expense of long-term care could bankrupt us. If I could wave my magic wand, qualify for and afford a policy that I trusted, confident that a significant portion of our long-term care expense would actually be covered, would I elect long-term care insurance? Sure.

Emergency Travel

So health-related expense concerns head my list of early retirement fears, as they do for many others. But, other than the jolt in our insurance premium, those expenses have yet to materialize fully. Meanwhile, a more imminent concern, because it’s expensive and nearly certain, is emergency travel. For example, just recently we had urgent family business and had to drop $2,500 on short notice to fly across the country, rent a car, and then fly back a couple weeks later.

I don’t begrudge this expense, but I do have to prepare for it. It’s part of life, and especially part of our life since we have chosen to live out west, while much of our family remains back east. Unfortunately there is simply no location in the country that would be close to all our family members. Our families and the various generations are spread out, geographically. So occasional emergency travel is a given for us.

That recent expense was about half our annual travel budget. With the stock market doing well, some extra income coming in from this blog, and other sources, I’m fortunate not to need to count those pennies — this time around. But what if there was an ongoing need over a period of months to travel back and forth to care for a family member? Those costs could quickly enough become unsustainable.

In a worst case scenario, we could have to relocate in order to reduce travel costs. We could afford that, if absolutely necessary. And it’s one reason we’ll continue to rent for the foreseeable future.

Other Unexpected Expenses

Emergency travel is currently the most prominent of my unexpected expense concerns, but there are others. Fortunately, by renting instead of owning our home at this stage of life, we have eliminated one major potential money drain: home repairs. I no longer lie awake at night worrying about roof leaks, furnace breakdowns, or driveway cracks. But there are other concerns….

We still have possessions that could require sudden repair or replacement. Vehicles lead the list. Our sturdy and reliable Prius costs us a few hundred dollars in repairs from time to time. That frequency will probably go up as the odometer crosses the 100K mileage mark. Our trusty camper van is basically a house on wheels, with the same systems and maintenance issues of a stationary money pit, just on a somewhat smaller scale. At the end of our most recent camping season, as I was preparing to winterize our rig, a critical and hard-to-repair water valve sheared off in my hands. Sigh.

Though we are well able to afford repairs to our vehicles now, even replacing a car if needed, these are large expenses that are difficult to budget. What if we have a string of “bad car” years coupled with a need to drive more? That could get very expensive and strain our resources.

As a precaution, at this stage, we intend to drive our existing vehicles into the ground, wringing every last cent of value out of them. Gone are the days of driving recent model cars with perfectly manicured bodies. Trusty, unpretentious transportation will be our watchword.

Real Stock Returns

When I retired in 2011, I used the classic 4% Rule as one of my tools — though not the only one — to analyze whether I had enough money. That was largely before the spate of research over the last several years exploring whether the 4% Rule has been an historical anomaly.

Given recent high market valuations and low yields, the passing golden era of American leadership in the world economy, and the historically unprecedented involvement of the Federal Reserve in the U.S. money supply, it would be wise not to expect generous real returns from the stock market going forward. Growth could stagnate. Inflation could take off. And that would mean you’d need much more in savings to support a given lifestyle in retirement.

I’ve been blessed with a bull market in the initial years of my own early retirement. That’s one of the most beneficial retirement tailwinds you could ask for. But it’s not under your control. Even today, it’s not a given, and could end at any time. It’s been great watching our portfolio grow, even as we withdrew for living expenses in early retirement. But that happy trend will surely reverse eventually. How much and for how long? Nobody knows. What I do know is that when it starts, I’ll be thinking “Here we go again.”

I’ve experienced a number of deep market downturns and I know not to change my long-term investment strategy in response. Still, after a few months, I’ll be feeling, “It’s time to watch our budget closer, maybe tighten our belts.” And, if the downturn goes on for years, I’ll be taking more stringent measures. We will still be solvent — able to meet our basic lifestyle needs — for decades into the future, under all but the most dire scenarios.

But that doesn’t mean I don’t worry. I’d love to guarantee our current lifestyle. But, I can’t. Because I don’t control the future.

Surveying the Unknowns

So I’ve talked openly about some of my financial fears in early retirement: health care, long-term care, emergency travel, unexpected expenses, and real stock market returns.

A common thread running through each of these potential concerns or expenses is their unknown nature. Most can’t be predicted or even estimated in advance. What will health care cost in the future? How long will you live and how healthy will you be in your later years? What will the stock market return in the next decade?

Can such questions be answered? They look inherently unpredictable to me. The way I see it, there are two possible approaches to the problem….

A select few individuals will work long enough and/or save enough that there is little question of being able to afford whatever comes in retirement. Though everybody’s situation is different, as a very rough estimate, we are talking multiple millions to get to that level of confidence — even given a relatively frugal lifestyle.

The second approach is to save enough for financial independence if current conditions hold, while implementing an early warning system so you are prepared to deal with any drastic changes in the economic environment.

What should you most watch for? Emergency expenses like the ones I’ve described are stressful, because they are a surprise. Given a family emergency or a vehicle failure, you can be out thousands of dollars overnight. But, those kinds of expenses, unless they repeat regularly, don’t usually threaten a well-financed retirement.

The real threats are significant changes to your baseline income or cost of living. And that’s where market returns and health care expenses loom. These factors can potentially bring about 25% to 50% or greater changes in your lifestyle during retirement. And that’s a truly frightening prospect.

Decision Points

On a positive note, major retirement lifestyle changes shouldn’t happen overnight. If you’ve structured your retirement assets and expenses properly, you will have adequate warning. You may not be able to fully insulate yourself from changes in the long run. But you can at least soften the blow and absorb them over time, instead of all at once.

If we find our retirement derailing due to unexpected expenses or dramatic changes in the economic or political climate, what are our options?

Late in retirement the options are few, and that is scary. It’s one reason I’m personally resolved to arrive in my later retirement years with more assets than I have now, if at all possible.

That’s a feasible goal because earlier in retirement you have better options for coping with financial change. The leading choices are part-time work, and lifestyle flexibility. So, if you find your retirement headed in the wrong direction, yet you’ve maintained your professional viability, you can generate more income on the side. And, if you’ve maintained options for a prudent and flexible lifestyle, by not locking yourself into expensive amenities, you can cut expenses: relocating, downsizing, traveling less, for example.

Ultimately, the only solution, the only antidote to fear of the unknown, is to remain alert. Continue to track your net worth and run retirement calculators. Detect problematic trends early, before they threaten your lifestyle, then take positive action on either the income or expense side, or both.

Comments

  1. Hi Darrow,

    Excellent and thoughtful post, thank you. I agree with all of your concerns and they are some of the reasons I haven’t pulled the retirement plug yet. I’ve also very much appreciated the recent run up in the stock market. Thank goodness I didn’t pull out in 2008/2009: I just shut my eyes and held on.

    About long term care insurance: I could not agree more. On two occasions I’ve had the companies mail the brochures to us, and met with a few of the sales people. Those policies suck, and I didn’t sign up. A couple of years ago we bought $1M 20-year term life insurance policies on my wife and I, under the assumption that a) this would more than cover whatever health and care issues we face, and if the problem is that large then the person would pass away, leaving the $1M to the other and replenishing assets. But with our ages (55 and 61 at that time) the annual cost of this insurance is north of $10K/year, and now two years later, I’m thinking about letting them expire. Our health is excellent (right now) and the $10K is certainly a big annual expense.

    Best regards,

    Barry

    • Thanks Barry. Congrats on the market persistence: it has always paid off in my experience. And interesting approach with the life insurance — appreciate those details. It’s a dilemma, however you slice it.

  2. John Strachan says:

    I share your concerns, particularly about spiraling health care costs. Although we are financially comfortable with savings and pensions, neither I nor my wife have any employer-provided health care benefits. We supplement Medicare with Medicare Advantage policies. Now three years into retirement, we are already paying more than double what we paid in premiums three years ago. Premiums are up 108 percent — an average of 36 percent per year. And as the premiums go up, the benefits go down. A modest eyeglasses benefit has been cut in half, and the modest allowance for dental care will only cover preventive care and no actual dental repair.

    • Thanks for the comment and details John. Wish the news about Medicare was better. Clearly those of us who haven’t reached that stage yet, can’t expect it to solve our problems. Sounds like the same issues prevail.

  3. Ah yes, healthcare costs. I just don’t understand why the quotes/rates vary so much from state to state. For example, your new state appears to be about half of a new england state or west coast state. I’d love to see the cost structure breakdown on some typical procedures to see what is driving the deltas. Better yet, these costs/rates should be made public to the consumer so educated decisions can be made (especially for early retirees). Can you imagine taking your car in for service and not knowing the final cost of the repair? As you pick up your car, “…why Mr. Kirkpatrick, that will be $10,000…our mechanic had to replace your water pump.” The Affordable Care Act should have mandated transparent pricing. Starting from there, competition should do a better job of keeping prices in check as consumers are able to shop for elective procedures. So much is hidden in the pricing of group plans. The only way I see to counter-act this unknown right now is to hold a portion of my portfolio in the Vanguard Health Care mutual fund. 🙂

  4. Good piece Darrow – But you forgot some of the ways we make do here in California. The following three-step program is the mantra for the Silicon Valley types: 1. Marry an heiress or venture capital fund partner, 2. Win the lotto, and 3. Create a best selling app for Apple devices or a website that goes viral. It’s as simple as that. Oh, and exercise and eat healthy, too. Happy New Year.

  5. Howard Bernstein says:

    To allay my long-term care concern, I bought a policy 6 years ago when I turned 55. What I wanted, and what I think you would benefit from, was a catastrophic policy, i.e. one that would allow me to self-insure for perhaps the first 3 years, but cover thereafter me in the relatively rare event that I needed really long term care. Unfortunately, such a policy was not available at the time and a recent Forbes story (http://www.forbes.com/sites/howardgleckman/2013/10/25/it-is-time-to-think-about-catastrophic-long-term-care-insurance/) states that you still can’t buy one. Because few people survive more that 3 years after qualifying for benefits the relatively modest premium would present an appealing value proposition.

    • Thanks Howard. That indeed sounds like the ticket. Comparable to the deferred income annuities that function as “longevity insurance.” The cost is relatively low because they insure the long-term/low probability/high consequence outcome. You self-insure the short term. Appreciate the insight.

  6. Hi Darrow,

    How are you structuring your portfolio? I am wrestling with this. The long term worries you mention can all be affected by strategy selection.

    1. Declining stock % with age (like a target date fund)
    2. Stable stock % with age (rebalancing as needed)
    3. Increasing stock % with age (there is a new article by Pfau that is claiming this is superior for eliminating down side : link -> http://www.fpanet.org/journal/ReducingRetirementRiskwithaRisingEquityGlidePath/ )

    • Hi lentilman. Good question. Wish I had a comprehensive answer. Option 1 concerns me because of inflation: might need the growth from stocks to overcome that. Option 3 concerns me because of volatility, though I’m interested in the concept, especially with Pfau’s recent work. Meanwhile, I’m sticking with Option 2. I’ve been about 50% stocks (plus/minus about 5%) for many years, and that allocation has kept me comfortable through many different economic seasons.

  7. Health care is probably the only thing that could catastrophically bankrupt you, leaving the surviving spouse destitute. You might consider buying a single premium annuity (dual life) when you get to 75 or 80 (when the payoffs begin to look attractive), the idea being that if one spouse gets drained by medicals and ends up on Medicaid for long term care, the other one won’t get wiped out, because there is no asset to be “taken”, only a stream of income. Look into it — its complicated because you need to understand the threshold for getting Medicaid and what assets “count” for qualification (you want to have ones that don’t count), but your worst financial scenarios are going to be one spouse continuing to live with a chronic condition that requires lots of expensive care forcing you to spend down all your assets before qualifying for Medicaid.

    Your best financial defense is going to be taking care of yourself health-wise.

    • Thanks for spelling out some hard facts Dragline. I’m hoping by the time I reach 75/80 that our society will have figured out a sensible way to allocate resources to health care without forcing us to play legal games with our assets. Meanwhile, I like your best defense.

  8. Grim topics, Darrow, but a very good read!

    We’ve experienced most of those issues ourselves, and we’re still debating long-term care. (Surely the new hybrid policies will solve this problem any day now.) When you add the issue of “longevity insurance” to the mix, it seems prudent to recommend that every retiree annuitize a portion of their portfolio (beyond Social Security).

    I still have faith in the 4% SWR, particularly because people reduce spending as they age even without adverse market conditions. Nobody blithely spends at a 4% SWR during a bear market, either, yet our computer models are still grappling with simulations of variable-spending criteria. I’d rather retire now with an 80% chance of being right and try to insure against the other 20% with an annuity and a variable spending plan… especially if the alternative is working longer at employment drudgery.

    • Thanks for the sage words Doug. Especially like your 80/20 analysis. I think those who want a 99% confidence level on their retirement are likely to shortchange what remains of their life.

  9. Darrow,

    My biggest fear is planned income streams disappearing or significantly reducing. Pensions, annuities and even Social Security. I will be a while before I need SS and while a lot is promised, nothing is guaranteed. My second biggest fear is the market downturn and the third biggest fear is my passing alone where my wife would only get half my pension and half my social security and lose her social security (if I understand SS benefits correctly).

    In my opinion, the best approach to SWR is to use a tool like flexibleretirementplanner but this is not a set and forget. My study so far indicates that if a significant downturn in the market occurs, an adjustment is the spending rate is required. The lower the percentage (Success Rate, say 80% vs 99%) is the more urgent the spending rate must be addressed. And the lower the percentage is the more drastic the salary or spending rate must change with the severe market downturn. My approach is to recalculate the spending rate each year and if a significant market downturn occurs (<10%) to recalculate the spending rate at that time and apply it at that time.

    Thanks,

    • Thanks for the valuable comment Ralph. You’ve obviously thought through these issues too. Very interesting to read your list of concerns, and how you will address some of them through modeling each year. Most modern retirements are definitely not set and forget. Thanks again.

      P.S. Not an expert on SS here, but do double-check that spousal benefit to be sure.

  10. Healthcare is going to the biggest costs for everyone, and you are in a lucky state where you have lifetime coverage. I am working for a Fortune 100 companies for the last 20 years, and I have NO coverage from any of these companies, since they all got rid of it. So, it is Medicare and nothing else. It might also be possible to go and live in another country where insurance is cheaper, labor is cheaper and get decent health care insurance coverage.

    LT Care is another issue, but again it can be resolved by residing in a cheaper country where lots of people are thinking about migrating also.

    Overall, having a very decent base of assets with a diversified portfolio that includes real estate, commodities, equity and debt instruments is the best option for retirees who will be living for another 20 years.

    The top of the top idea that you mentioned is taking care of health, and if that is done well, then life will be better. Of course, making those life choices early in the 50’s is key to success.

    Good article…..Thank you.

    Kenny

    • Thanks Kenny. I think your corporate experience is the norm. Same for me. I’ve heard from readers who retired in other countries with lower health care costs. But it’s not an option I’ve studied in depth, so I’m always interested in learning more.

  11. Darrow, I for one chose to buy a long-term care policy. I bought it in my early 50s so that the cost was cheaper due to my age. I know I would be too cheap to pay to take care of my wife or have her pay to take care of me out of my own pocket and thus would hurt ourselves with hard physical labor, if one of us ends up needing care. Remember that when a claim happens you will most likely be in your late 70s or 80s and not the strong man you are today.

    Also if an LTC event happens think about where you would draw the assets from. Most likely from tax-deferred accounts. So when you go to withdraw the money that you need for care, you would have to draw down extra assets to pay for the income taxes due. Say at a 15 or 25% tax rate this will be a very expensive “premium” that you could’ve just paid for with “regular” and much less expensive insurance premiums. Also the policy that I have has a 5% compound inflation rider attached to the policy. Thus my policy is “guaranteed” to grow at 5% compound and this is income tax-free money when it is spent on a claim.

    Since you are self-employed you can deduct a portion of the premiums that you pay for LTC insurance from your income taxes.

    If you had a vehicle worth $25,000, would you pay for collision and comprehensive insurance? If you’re willing to pay premiums for that, something you could much more easily self-insure for, why would you leave the risk of long-term care open to self-insurance. This is the magic of insurance you pay a small portion along with hundreds of thousands of other people in case something happens to you. Rather than absorbing the entire risk out of your own pocket book. One of my greatest concerns in later life is for my wife, I want her to be financially secure throughout her life. I would hate it if I spend most of our assets on my long-term care and then left her someone broke in her later years.

    Lastly, you need to buy it while you are healthy, you are one doctor appointment away from being told something that may preclude you from being able to qualify for the insurance. Also later policy versions are always more expensive than earlier policy versions, so the sooner you buy the policy the cheaper it will be going forward. Anyway those are my thoughts hope this adds to the discussion.

    • Hi Mark, thanks for sharing your experience. It’s a personal decision. My own situation is a little different from your assumptions in some key respects. But you’ve provided good food for thought. It’s an area of concern, that I’ll continue to monitor. It would be interesting to know the terms of your policy: the premium, waiting period, duration, percent of coverage, and maximum.

      • Darrow in reply to your questions:
        “It would be interesting to know the terms of your policy: the premium, waiting period, duration, percent of coverage, and maximum.”
        My wife and I each have our own policies that are the same, hers is slightly cheaper as she is two years younger. Each have a 4 yr benefit period; monthly benefit is now $5,700 and compounding at 5% annually. If we start out receiving care at home there is no elimination period. If we had to go straight to a facility then there is 90 day elimination. However, any service days we may have received at home count toward the 90 days. Our combined total premium is $2700 annually. At 5% compound, in 15 years our monthly benefit will have grown to about $11,400 in each policy. So providing my premium stays the same about $113 per month (waived if I go on claim) I feel that is an excellent trade off for the benefit I may receive. Some might say “but what if you pay all those years and never have a claim?” I have paid my auto liability for 40 years now and have never had a claim and hope I pay another 40 and never have a claim. Same with my home insurance. Hope that helps.

        • Thanks Mark. Generous of you to share that data. That gives everybody here some concrete numbers to process. I agree, your policy looks pretty appealing, assuming such terms are still available, and somebody could make it through the underwriting. My one caveat would be the 4 yr benefit period. That’s still within a range that some of us can self-insure, though it would be painful, to be sure. The really concerning scenario is 10 or 20 years of long-term care. As Howard commented above, that’s where “catastrophic long-term care insurance,” if it were available, would be appealing. Thanks again for your detailed reply.

  12. While I love these articles/blogs, I do have to comment that they are fast becoming very depressing reads for me. Ok, so all our lives we’ve heard “scrimp, sacrifice and save”. save for retirement, save for a rainy day, etc etc, etc and we did. Now of course the mantra is becoming “be afraid” even if you do the right thing because you’ll get sick and have to all your hard earn money on health care. So don’t retire, save some more, buy more insurance. etc etc.
    Maybe it’s just my mood today, maybe it’s the lousy winter we are having but for pete;s sake, when does a person just say “job well done”. let’s retire and enjoy life. Have I save, scrimped and sacrificed for the last 40 years to just enter into a new phase of the same game?

    Sorry to sound so cynical today but at some point in my life I would like to be able to see Europe without the fear that I’ll be risking financial armaggedon by not saving the money.

    • Hi Alice, I hear you. I debated with myself quite a bit before writing this post. If you read through my past posts, I think you’ll find them generally upbeat and positive. I believe in realistically evaluating risks, and then accepting them, self-insuring as much as possible. My philosophy is to retire while you still have life to live. And that’s the choice I made 3 years ago!

      But I also want to be honest about my experience. Sometimes I’ve felt my blog painted too rosy a picture, and readers needed to know that I’m far from perfect and do have financial concerns like everybody else. So this was my effort in that vein. Rather than all doom and gloom, I did try to include some evenhanded facts and some solutions. The great comments and discussion after has added some more.

      In the future, I’ll continue to focus on happier themes. Thanks again for the heartfelt comment.

      • LOL, thanks Darrow,

        I think in my case part of the problem is fear. “The old guy” (my wonderful husband) and I are still relatively young, mid 50’s and we always dreamed of retiring early (before 60’s). I think we naively thought when the time came it was be super easy to “make the jump”. that we’d go skipping merrily off to HR to hand in our papers. Now financially we feel that we’re in a good place but we’re fearful. The kiddies are almost done college, house is paid off, the dog still cost us a fortune but what can you do.
        Long term insurance is the one piece left in our puzzle. We have both been blessed with parents who lived long healthy lives. We joke that my 87 year old father is our hero, He literally went to the yankees game, came home had a dinner of Jack Daniels and steak and died in his sleep.

        Keep the articles coming, as I try in vain to beat into my kids, “knowledge is power”

        • Thanks Alice, sounds like your father’s last day was a happy one. We can all hope for as much. FWIW, one of the best tools in overcoming my own fear of retirement has been having a small, lifestyle business on the side. It keeps me viable, produces some income, and gives me some control over my economic environment. But retirement is still a very difficult decision.

      • Darrow- Thanks for another well written “financial engineering” article. What’s great is that you always shoot straight and bring a non-typical financial perspective to making the tough choices in retirement. What you point out so well is the individual balance that we all must play in retirement and you show your classic engineering mindset of trying to deal with all the knowns and engineering in safety steps for the unknowns. Most financial planners shoot too high in order to deal with these issues and this keeps people from enjoying a potential early retirement. Regardless of how much money we have it is likely we will always fear outliving our money and living on the street. It appears you are living a new retirement model (I call it retirement sustainability) where you have covered your known retirement needs and are engineering solutions as you go along for your unknowns. As you indicated, this will keep you highly engaged and productive through your retirement years. This sounds terribly exciting to me! Best of Luck -Ed

        • Hi Ed, thanks for the insight. That’s a reasonable description of my approach. I prefer to think in terms of risks and probabilities instead of impossible-to-achieve certainties. Most financial planners I’ve encountered are overly conservative. They have no incentive to be otherwise. But it’s your life, not their’s, at stake.

  13. I’ve heard of self-insuring for car insurance, but wasn’t aware there was such a thing for health insurance.

    Is this as simple as paying your own expenses as they arise, or are there established entities or procedures involved? I’m not there yet, but I, too, like DIY solutions when possible, since they may not be the easiest, or prettiest, but typically fit the best since they’re exactly what you needed and couldn’t find anywhere else…

    • Hi Jack. You can evaluate the possibility of self-insuring for any risk. Some thoughts on that are in this post of mine: When Should You Self-Insure? But I would not be one to advocate fully self-insuring for modern health care, other than via high-deductibles. The chances of accident/illness incurring 6-digit medical bills in the blink of an eye are just too unpredictable, in my opinion. But long-term care is a different animal, in my view. Your family history and current health provide some insight into the probabilities. And the need unfolds over time, with options available to mitigate the impact. (Cutting expenses elsewhere, family help, part-time nursing care at home, etc.)

  14. I decided to move to Canada (I have dual citizenship with the US) because of the health care situation. Unless things improve consderably in the US situation, I don’t see myself ever moving back there permanently due to the huge financial risk involved with the healh care system. I want to retire early and the only good solution I could find for myself was to move to a country with socialized medicine. Long term care in Canada is also quite a bit cheaper than in California (where I used to live). The income taxes are higher now while I am still working, but after I retire in a few years things should be manageable and the big risks minimized. I moved to a city with great public transportation, so I no longer own or need a car. I am in a condo so there are fewer big maintenance issues to come up. And I have a large emergency fund for travel to the states when my parents get old and ill. Of course I still worry about stock market performance and Social Security going broke, but there’s nothing I can do about those, other than to keep my core expenses down to a minimum. I have already done all the traveling I want to do, at this point I just want to enjoy my family and friends and spend more time outside in the world during the day rather than cooped up in an office.

  15. Darrow,
    Thanks for sharing your retirement fears, and for your blog. We have some similarities. Thanks to well paying jobs and our philosophy of spending wisely, saving aggressively, and investing prudently, my wife and I were both able to retire at age 50 (almost five years ago). We moved back to our hometown to be with family, and also spend time volunteering, traveling, and with recreation. We have a great health care plan, but are concerned about its future. We also struggled with the long-term care decision, but decided to purchase it (in part) in an effort to limit our down-side exposure.

    One thing we struggle with is after years and years of being net savers is getting comfortable with the idea of (eventually) being net spenders. As relatively young retirees, we have seen our net assets grow since retiring, thanks in part to the increases in equities. But there are still many unknowns and, hopefully, many years to go. As problems go, we know this is a minor one, and we have been tremendously blessed.

    Thanks again for sharing your thoughts and we look forward to future discussions.

    • Thanks Tony, interesting similarities. Agreed it’s hard to go from saving to spending, though the market has spared us the last few years. Having a little income from part-time work provides some comfort. I assume as we age it will be easier to accept some rate of spending down, or annuitizing assets. But, in my 50’s, I wouldn’t tolerate much of that without taking action to increase income or reduce expenses. Thanks again for contributing.

  16. Terrific post, as usual. Whenever I start looping through all the potentials for financial calamity, I always come back to this: I don’t know whether I’m going to run out of money, but I know beyond all certainty I will someday run out of time.

  17. Thanks for the post, Darrow. I’m in my mid-50s, and considering early retirement. One solution to the ridiculous cost of health insurance I’m considering is a faith-based health sharing plan. These are basically a co-op where members share the actual costs of each other’s health care. A couple more common ones are Samaritan Ministries and Medi-share. These are not insurance plans, but they do qualify under the affordable healthcare act. I found the cost to be roughly one third that of conventional health insurance plans I’ve researched for my wife and me. There are typically lifestyle stipulations for these plans, and being faith-based they tend to be on the “right” side of the conservative line. But they do offer a viable alternative for those who are looking for a significantly lower monthly spend.

    A Google search can provide more details to those interested.

    Thanks again for your thoughtful post.

  18. Ron Johnson says:

    I read in this blog that medical costs can be one of the biggest stumbling blocks with early retirement. Are we all thinking that Medicare will definitely be in a bad state and not have anything left 15-20 years from now ? I am originally from the UK and national health care is a given over there. Is Medicare in such doldrums that we cannot take that for granted even in our early to mid sixties (FYI – I am in my mid-40s )

    Thanks

    • Hi Ron. The social safety net (including Medicare and Social Security) is an enormous and complex topic. I’m not an expert – just an avid reader, and potential user of these services. My personal opinion would be that it is a mistake to envision these programs as “running out” of money. They rely, to some extent, on current tax revenues – so unless there are no young workers left paying taxes, there will always be some funding. I think it’s more accurate to view the future of these programs in terms of benefits being reduced, either directly, or through inflation. How bad could it get? I really don’t know. For my own purposes I would like to ensure a comfortable retirement even if benefits are cut 25% or more, but I can’t say if that is realistic or not. The further away you are from retirement, the larger the potential cuts from today’s levels.

  19. Philip Schneider says:

    Ron: For estimating flexible withdrawals using the bucket method I ran a spreadsheet calculation for 35 years into the future accounting for inflation, asset allocation, and other factors. I found two things: 1) I ran out of money at the end of the period, just as with a fixed withdrawal approach accounting for inflation, and 2) the amount I can withdraw annually is less than with what can be obtained from the fixed withdrawal approach. It appears the problem with the bucket system is that too much of the portfolio is relegated to cash and bonds. Otherwise, I liked your analysis of the different withdraw approaches and your conclusion – a hybrid approach.

  20. Great article. Basically getting old sucks!

    The thing that really worries me is that the rules/laws we are all planning to can change at the whim of the government. Here in the UK the amount of tax relief on pension contributions is being reduced and you can never be sure that any future changes regarding exemptions, reliefs etc won’t be applied retrospectively.