Case Study: The accidental retirement (maybe)

[geekette]

Not sure if this is wise…  My husband was laid off in August (well, May, but was paid through August), and has been enjoying puttering around.  He says he's "resigned" to look for a job in the new year, but I know he really doesn't want to.  Question is, can we live well on what we have.

We're 53 and 52

Assets:
$50k cash
$145k invested outside of retirement (mostly company stock and options from previous employers)
$735k in retirement funds (lion's share in VTSAX, the rest in other index, int'l, and bond funds)
House is paid for, as are the two cars.

Income:
About $100/month in dividends and interest. Woohoo.

Monthly Expenses:
Auto (fuel, ins, tax, upkeep): $300
Dining: $200
Groceries (incl supplies): $400
Housing (tax, ins, HOA): $300
Utilities (gas, elec, water, VoIPo phone, internet, Airvoice cell) $350
Pets: $200
Personal (entertainment, haircuts, clothing, donations, misc) $240
LTC and disability ins: $60
Medical: $1200

Basically $40k a year (taxes? travel? new windows?), and medical is a wild card.  Our Cobra plan went from $950/month to $1150/month, so we're looking into the ACA plans, which start at $850/month, but large deductibles (and I take a $400/month Rx that's free with the Cobra plan, but not so much with the ACA plan).  Other than that, we really don't have much in the way of medical costs.  You know, unless something goes terribly wrong.  Wild card.

Pets is a bit high too, but since we spent $1300 over Thanksgiving on a very sick cat, it might not be out of line, at least for this year.

If he does really retire, we could ditch his car and buy windows with the proceeds, and cut our car costs by about $100/month.  I know our food costs are a bit high, and I'm working on that.  His cell plan is $10 every three months and mine, in a few days, will be $10/month (yay, Airvoice!)  We can also cancel his disability insurance (probably should anyway, but it's only $20/month).

Once he hits retirement age, SS and medicare should help. 

I just don't know if I should encourage him to stay retired or let him head back off into the workforce, assuming he can find anything he actually wants to do.   

[Cooperd0g]

You have a good deal of money! A 4% withdrawal rate from $930,000 would get you $37,200 per year. How much you can pull from the retirement funds themselves will depend on of they are Roth or not. If not, you might be able to do Roth conversions and then take that money out later. There is also a way to take equal distributions from traditional accounts.

As far as your expenses go, like you said you could definitely cut one of the cars if he retires. Your mention both phone and cell in the utility categories and you could easily cut the home phone out in favor or VOIP or just using the cell phones and getting on better MNVO plans. Obviously the dining and personal entertainment could be trimmed as well. With your level of money I would ditch the long term care and disability - you have essentially insured yourselves already with that level of income.

The biggest monkey on your expense back is the medical. I wish I could help you out here, but I'm not knowledgable on the ways to find independent health insurance. I know MMM recommends eHealthInsurance.com from a couple of articles (http://www.mrmoneymustache.com/2011/09/21/i-can-never-retire-because-of-health-insurance-waaah-waaah/ and http://www.mrmoneymustache.com/2012/11/01/our-new-237-per-month-health-insurance-plan/. Have you looked there?

You could always go for a 5% withdrawal rate and you would have more than enough at current expense level and then draw down the withdrawals later as most people tend to do later in retirement anyway.

[geekette]

Yes, we have VoIPo and cheap cell phones.  I hadn't considered canceling the long term care insurance.

eHealthInsurance has the same plans as the ACA (plus a couple I hadn't seen, but they're no cheaper).  Prices still start at $625/month for a Bronze plan with a $6300pp deductible.  HSA eligible.  Put the extra money in an HSA account and hopefully let it grow. Hmm…

I've always done our taxes, but I really don't know how just drawing from our savings would work. 

[Penelope Vandergast]

Just curious -- why the recommendation to cancel long term care insurance? That kind of care is spectacularly expensive and a million dollars still might not be enough to get you through 8-10 years with Alzheimer's or similar -- and something like 20% of people over age 80 will have dementia. Nursing homes can cost $10,000/month now and at-home care $500/day. You'd blow through everything you have very quickly at that rate.

[beltim]

It looks like you could start taking substantially equal periodic payments (SEPP) of up to about $29k based on a free online calculator (http://www.bankrate.com/calculators/retirement/72-t-distribution-calculator.aspx).  That plus withdrawals of 11k per year from your taxable accounts would give you your required 40k until the taxable ran out, which assuming no investment gains wouldn't be until ages 66 and 65, at which point you're eligible for social security. That keeps for 50k cash for a margin of safety.  If your social security benefits will exceed 11k, then I think you can retire now.  I durn some more detailed calculations to figure out your margin of safety, but a back of the envelope calculation suggests that you're in good shape.

[Argyle]

I agree on not cancelling the longterm care insurance.  To get Medicare you'd need to use up all your savings, which would leave the non-disabled person in a very bad position.  People in this situation often decide to divorce to preserve the other's assets.  That's an option, but it would be better not to reach the crisis point in the first place.

[geekette]

The LTC is only on my husband.  Although I'm healthy, IMHO, I'm considered uninsurable, and have been for decades.  The advent of the ACA is the only reason we can possibly think about early retirement.

There's no Alzheimer's in either family, but for $40/month, it's probably best to keep it.

I'll look into SEPP - does that include Roth accounts?  About $143k of our retirement savings is in Roths.  I know we can withdraw contributions (after 5 years?) 

[beltim]

Yes, you can do SEPP on a Roth IRA.

[lentilman]

Most disability policies only pay out if one is working when disabled, so you may be paying for a policy that you can never collect anything on.  Check the fine print on the policy you have.

[Argyle]

If it's longterm care insurance, you don't have to be working -- that's the kind that pays out even for extremely old people having to go to nursing homes.  Disability insurance is a different thing, and that is indeed designed to replace working income.  You'd have to look at the small print to see whether it excludes people who were not technically employed before becoming disabled.  Most come into play when you're incapacitated from working, whether you were actually working or not.  However, as I understand it, it's longterm care insurance that the OP has, not disability insurance.

[brewer12345]

Since you do the taxes, I imagine you would have a handle on what your taxable income would look like for 2014 (little, I would guess).  Take a look at ACA policies with subsidies and I suspect you will be pleasantly surprised.  If you can keep your MAGI to a bit under 150% of the federal poverty level for a 2 person household, you will not only get heavy subsidies toward premiums, but you will also get more generous cost sharing if you pick a silver plan (that means lower deductibles, copays, coinsurance, etc.).  If you have minimal wage and interest income, you should be able to dial in any income level you like (Roth conversions will bump up your MAGI if you need to do so to avoid going on Medicaid).  Do you have enough to fully retire on?  Iffy, IMO.  However, you could very plausibly semi-retire, generating maybe 10 to 20k a year in wage income to supplement draws on the portfolio.

[_JT]

I think it's a slam dunk that he (and you, as well) can retire now, with one caveat: that you find something you enjoy doing that will bring in a bit of cash. Whether it's freelancing in your old fields or just monetizing a hobby. If you can generate 5k in income that way this year, and ramp that up to ~10k thereafter, I think you'll find plenty of free time left over and more than enough of a cushion.

[geekette]

Any significant cuts to the budget, and he'd rather go back to work.  Ditto moving.  He'd also rather go back to work than have me work (outside the home), because that would mean he'd have to do all I do (which is everything to do with the household except, oddly, dishes).  Besides, he can easily make in a day what I might be able to make in a week. 

Part time would be wonderful, but it's extremely rare, AFAIK, in his industry, in this area.

This ACA stuff is very convoluted.  We're supposed to plan next year's income, get the subsidies and cost sharing stuff, but then what if he goes back to work?  Someone PM'd me a name of an agent who's on this board who might allow me to pepper him with questions.

But anyway, good ideas. 

Do housewives get to retire?  I don't think so.

[SnackDog]

For confidence to retire early and get minimum $40k/year for 40 years I would wait until you had about $1.3MM (3%).  The most efficient means to achieving that is to work straight through. Taking a break may reduce your employability, depending on the length, as well as reducing savings.  Shifting gears to a lower paying job may work if you don't like your current job and are ok to work more years more something you hate less.

[lentilman]

However, as I understand it, it's longterm care insurance that the OP has, not disability insurance.

OP mentions both.

[Argyle]

Yes, I need to read more attentively about the disability and the longterm care insurance.  My bad.

[_JT]

Any significant cuts to the budget, and he'd rather go back to work.  Ditto moving.  He'd also rather go back to work than have me work (outside the home), because that would mean he'd have to do all I do (which is everything to do with the household except, oddly, dishes).  Besides, he can easily make in a day what I might be able to make in a week. 

Part time would be wonderful, but it's extremely rare, AFAIK, in his industry, in this area.

Sounds like he likes his job well enough that he may as well keep working for a few more years.

I will, however, that people said part time work was extremely rare in my industry whenever I talked about quitting or backing off how much I worked. And then I did it anyway, and I've had more work than I can do every single year since. So I don't think that excuse holds much water.

[fidgiegirl]

Here's what I don't get, and I apologize if I missed . . .

Where is the income supposed to come from?  From drawing on the balance in the retirement accounts?  Obviously the $100 in monthly earnings isn't anywhere near what would be needed.  What other income could be generated, even if not from a FT soul sucking job?  Does/will either one of you work, even part time?

[rubybeth]

Here's what I don't get, and I apologize if I missed . . .

Where is the income supposed to come from?  From drawing on the balance in the retirement accounts?  Obviously the $100 in monthly earnings isn't anywhere near what would be needed.  What other income could be generated, even if not from a FT soul sucking job?  Does/will either one of you work, even part time?

Yup, that's how retirement works. You start selling off investments and living on that money, which you then rename "income."

[gimp]

Pick up a side job (expand a hobby?) and try to get maybe $600/month income. Drop your expenses a couple thousand a year. Pull the rest from your retirement accounts, and you've retired.

(You're spending $600/month on food for two people; you can cut that to $350/month and not even notice the difference. That'll make a dent.)