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Is retiree medical worth sticking around?
Old 10-29-2015, 04:54 AM   #1
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Is retiree medical worth sticking around?

Greetings, all!

Long time lurker, finally decided to jump in after seeing a post from my hometown.

I've enjoyed the insights and info here for some time and I'm getting the itch to pull the plug.

Firecalc says I'm close. I can muster 100% if I keep my spending in check.

W*rk brings me no pleasure other than a paycheck. The raises don't keep up with inflation and management has made it clear there will be no advancement for older workers. My net worth seems to have more to do with the whims of the stock market than whether I went to work that day.

The only thing keeping me here is retiree medical insurance which I can't access for another 7 years. I'm wondering if it's worth sticking around for that. The company claims to spend about $6k/yr on my behalf.
$6k x 10 years (from 55-65) = $60,000. If I was 54 it would make sense to stick it out for 1 more year.
Having to grind out 7 more years to land that benefit seems like scaling Everest. If I leave now, I'd be on the hook for medical insurance leaving me with $6k x 17 years = $102,000 of extra expense. At $500 / month, it seems like it might be manageable.

Given that rates are sure to rise, it seems risky. However, I suspect the retiree medical could go away at anytime so I could slog it out only to see it disappear as I near 55yo.

Since you've managed to follow my ramblings this far, some details are in order:
Male, 48, single, no kids
401k: 700,000
Roth: 200,000
Taxable: 300,000
Pension: 30-33,000 @ 65
House: paid off
Expenses: 40-45,000ish excl taxes & med ins.

If I leave, there's no going back. No one is going to pay me what I make today and I have no interest in the field anymore. After 20+ years, it's just a whole lot of "been there, done that". I'm not opposed to continuing to w*rk doing something I enjoy but i have no idea what that would be.

Thanks in advance for the insights and advice.
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Old 10-29-2015, 06:39 AM   #2
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I would be sticking around for another year (or two) to build up some additional capital. You may have enough to leave, but not enough if we have extended market declines. Or if you have some extra housing, healthcare, legal, travel expenses, etc.

I see ~$1.2M in investable accounts. That would not be enough cushion for me. Assume healthcare would cost you at least $500 a month, in some years even more.
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Old 10-29-2015, 07:29 AM   #3
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I see your predicament , was in sim situation, although with about 1/2 the assets at your age and I would have been un-insurable before ACA.

The $ for medical insurance , your est. of $500 mo is in the ballpark for today, but consider medical insurance be it employer paid, or individual policy historically increases 2x the CPI. I think your med. insurance cost going fwd is going to be higher, unless you are very healthy, and willing to take min. plan ACA policy.

I stayed at megacorp a little past 40, mainly looking at retiree med. ( big mistake in hindsight) , then went to work for mega city, stayed over 10 years , to be vested for medical subsidy @ 55. By the time the ACA was a sure thing, I was near 55.

Only you can make the decision, but if I the ACA was in place when I was 48, I would have quit then.

So How much do you hate your job, and what job can you find of any type to fill those years before you can draw a pension ? .

Controlling spending will be be very difficult if you are already living a frugal life.
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Old 10-29-2015, 07:58 AM   #4
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Are there any work related expenses in your current spending? Since your house is paid off. it appears you might be able to trim a little something on the spending end. If you are young and having fun, and enjoying lots of social and outdoor activities you might need to hang on a few more years.
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Old 10-29-2015, 08:12 AM   #5
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$1,200,000 throws off $48,000 at 4% Any SS coming your way? If the pension you mentioned of $30k doesn't include SS, then you are already ready to retire. Your withdrawal rate will drop down to almost nothing in 17 years and $1.2m at 4% isn't going to fail in 17 years.
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Old 10-29-2015, 09:11 AM   #6
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Retirement medical is not a legally protected benefit (as opposed to accrued pension benefits) and as such can be eliminated at any time unilaterally by the employer unless there is some type of contract (typically union or executive) in place that would govern otherwise.
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Old 10-29-2015, 09:19 AM   #7
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Thanks for the quick replies.

I would like to have a little more buffer. I find myself in that dangerous/tantalizing zone where it *just* seems to be possible. If I can get to a 60-75k withdrawal I'll definitely punch out.

$500/month was what ACA was quoting me for a gold policy so there's some wiggle room there. The horror stories of increases makes me skittish though.

It occurred to me about a year ago that if I just let the pile simmer undisturbed for about 20 years it would be plenty. In other words, along the lines of Lake's comment, I just need a job that covers my needs today. That could be nearly anything. I may have to noodle on that.

Rising expenses are always a concern. If you're not at w*rk making money, you've got lots of time to be out spending it.

Fermion's got perfect timing. I was running that exact calculation, thinking "this really ought to work", when that comment posted. The trick being to net the 4%.

In the short term, I guess I'll chug along adding to the buffer in the hopes of a VLO/ER offer from MegaCorp to push me over the edge.

Did I just succumb to OMY syndrome??!!





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Old 10-29-2015, 09:37 AM   #8
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Welcome aboard, Genld ist Freiheit

Here are a few questions you might thing about while you consider your options Some Important Questions to Answer Before Asking - Can I Retire?

gauss makes an important point to keep in mind, as retiree medical benefits are not guarenteed and can be cancelled any time.

In response to your other question, average annual premiums for employer provided healthcare do cost $6.2K, according to KFF (here). You can estimate yours looking at a typical policy in your zip code on your state or federal healthcare exchange. Keep in mind that, in addition to average medical inflation, the policy will increase another 3% per year due to age. Deductibles are also quite high, you might want to consider building an emergency fund separate from your portfolio to finance large out of pocket costs for health or home repair.
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Old 10-29-2015, 10:25 AM   #9
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Originally Posted by Geld ist Freiheit View Post
The only thing keeping me here is retiree medical insurance which I can't access for another 7 years. I'm wondering if it's worth sticking around for that. The company claims to spend about $6k/yr on my behalf.
What the company spends on your behalf is not as important as what you will need to spend under two different scenarios: (1) using the ACA - you identified $500 per mo, or (2) retaining employer medical for retirees.

You need to know if #2 is more expensive than what you pay for employee medical now. Most companies share the premium cost with employees. They subsidize more for an active employee than for a retiree. You don't say what you will receive in 5 years as a retiree. Is it fully paid, or is there a subsidy? That should be clearly stated in the materials HR produces describing the retiree benefit.

Once you know that you have a good indicator if #2 is more than #1, or if #2 is a better deal financially than #1. Then its your decision whether you should stay for the subsidy or move on.

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Old 10-29-2015, 10:36 AM   #10
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$1,200,000 throws off $48,000 at 4% Any SS coming your way? If the pension you mentioned of $30k doesn't include SS, then you are already ready to retire. Your withdrawal rate will drop down to almost nothing in 17 years and $1.2m at 4% isn't going to fail in 17 years.
The only problem I see with this is that there's only $300K in taxable. There's $200K in Roth but OP can only withdraw contributions, not earnings before 59.5. So at best he has $400K to last 11 years which won't work with his expected spending. He can do 72t but I wouldn't want that hassle. What i'd do is continue to work a couple years with most of my new savings going to taxable not 401K. Depending on income, he may be a good candidate for Roth conversions. Either way I think he needs to work 2-3 more years.
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Old 10-29-2015, 10:52 AM   #11
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Welcome to the Early Retirement Forum!

I waited two years past the time when I would otherwise have retired, in order to qualify for retiree medical insurance. But that was back in 2007-2009, well before the Affordable Care Act (ACA) was passed.

In my case, working a little longer to get retiree medical insurance was a very good choice and one I am thankful for every day, even now that I am on Medicare with my retiree insurance as secondary. The cost of non-group health insurance really skyrocketed during those years just before I retired.

The ACA has changed the whole ball game, though, and the topic of health insurance has gained quite a bit of complexity in the past few years. I don't really know enough about health care options right now to recommend waiting or not waiting, and I think it depends a lot on one's individual situation.

So, I'll let those who know more about it recommend what they think would be the best choice in your situation. I just wanted to say hi and welcome you.
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Old 10-29-2015, 10:52 AM   #12
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I have been in a situation very similar to the of the OP (major company downsize at 49, retiree medical at 55). I elected to stick it out (and survived 3 layoffs in the intervening 6 years). My primary reason was simply the salary, secondarily the pension and only tertiarily (is that even a word?) for the retiree medical.

Retiree medical is certainly a desirable benefit, but its value pales in comparison to my savings and increase in pension value earned over the same period. So in short, I would not let retiree medical be the primary factor in determining whether to remain at work. Look at your total assets and decide if retirement is feasible. If you're so close to the line that retiree medical makes a big difference, you're probably close enough that some extra savings would matter even more.

I hesitate to recommend a succession of OMYs (one more year) as they haven't been much fun for me either, but if you need the money then sometimes it's the only reasonable choice. Sticking it out for the whole 7 years may not be necessary. Maybe only another year or two will put just enough of a pad on your NW to make you comfortable. But retirement is a big (and often irrevocable) step. I'd want to feel financially confident before taking it.
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Old 10-29-2015, 10:52 AM   #13
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The only problem I see with this is that there's only $300K in taxable. There's $200K in Roth but OP can only withdraw contributions, not earnings before 59.5. So at best he has $400K to last 11 years which won't work with his expected spending. He can do 72t but I wouldn't want that hassle. What i'd do is continue to work a couple years with most of my new savings going to taxable not 401K. Depending on income, he may be a good candidate for Roth conversions. Either way I think he needs to work 2-3 more years.
Nah, he can do a Roth pipeline.

Let us assume the $300k in taxable has a 50% basis (so he pays long term cap gains on 50% of withdrawals from that).

Year one he takes $50k out of the taxable, converts $25k of the 401K to Roth, pays tax on $50k of income (some LTCG) which likely would be no more than $5k, net $45k to live on.

Keep doing this until year seven, when his taxable is now close to zero.

In year seven his Roth now has at least $350k ($200k + $150k of new contributions). He takes out $50k of the contributions and converts $50k of the 401K to Roth. He pays tax on the $50k, probably still netting $45k.

He can continue in this manner until age 60 when he can directly access the 401K if he desires.

If his taxable currently has a better basis than 50%, he can probably work his taxes a lot lower than $5k a year. He could fund a HSA which would remove $3300 from taxable income while still giving him some access to that money.
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Old 10-29-2015, 11:02 AM   #14
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Welcome, Geld!

I concur with several other posters to take a little time to work out different scenarios rather than letting retiree medical drive your decision. Different companies do it very differently, and even after you retire and are on the plan, they change it - I am now on a high deductible PPO plan with higher premiums and lots of exclusions (such as office visits other than annual checkup and prescription drugs subject to the overall deductible than the previous generous PPO plan).

You might take some time to consider what a second "career" (even if it's just part-time work) might look like to give you more of a cushion to leave sooner rather than later. There are lots of books out there about "redefining retirement". You don't mention where you live, snd certainly some areas have more opportunities than others.

Also it's always good to have a very firm handle on your expenses in detail so you know where you can cut back if needed during down years in the markets - many of us are subscribing to "variable withdrawal strategies" rather than a straight percentage (you can search for threads on that topic).

All the best!
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Old 10-29-2015, 11:08 AM   #15
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Nah, he can do a Roth pipeline.

Let us assume the $300k in taxable has a 50% basis (so he pays long term cap gains on 50% of withdrawals from that).

Year one he takes $50k out of the taxable, converts $25k of the 401K to Roth, pays tax on $50k of income (some LTCG) which likely would be no more than $5k, net $45k to live on.

Keep doing this until year seven, when his taxable is now close to zero.

In year seven his Roth now has at least $350k ($200k + $150k of new contributions). He takes out $50k of the contributions and converts $50k of the 401K to Roth. He pays tax on the $50k, probably still netting $45k.

He can continue in this manner until age 60 when he can directly access the 401K if he desires.

If his taxable currently has a better basis than 50%, he can probably work his taxes a lot lower than $5k a year. He could fund a HSA which would remove $3300 from taxable income while still giving him some access to that money.
That's not a bad plan but could be risky. If he retires into a down market then the taxable won't last 6 years. Most would say the market is overweight right now. What if it drops 20% in his first or second year of retirement? Not saying he couldn't go for it, just saying it could be tight. Depends just how much he hates his job and if he's willing to cut expenses for the first few years if needed.
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Old 10-29-2015, 11:14 AM   #16
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That's not a bad plan but could be risky. If he retires into a down market then the taxable won't last 6 years. Most would say the market is overweight right now. What if it drops 20% in his first or second year of retirement? Not saying he couldn't go for it, just saying it could be tight. Depends just how much he hates his job and if he's willing to cut expenses for the first few years if needed.
Simple. Put taxable in short term bonds, CDs, TIPs or whatever, just to try and keep up with inflation. Leave all of the growth stock stuff in the 401K.

Now the market can tank during his first 6 years and he is fine.
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Old 10-29-2015, 11:23 AM   #17
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Simple. Put taxable in short term bonds, CDs, TIPs or whatever, just to try and keep up with inflation. Leave all of the growth stock stuff in the 401K.

Now the market can tank during his first 6 years and he is fine.
Ok, you talked me into it. If I were in his position i'd retire. His home is paid off and he has no dependents. He should be able to cut back on spending in the early years if needed. Once he hits 60 he'll be in great shape for the rest of his life.
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Old 10-29-2015, 11:35 AM   #18
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Simple. Put taxable in short term bonds, CDs, TIPs or whatever, just to try and keep up with inflation. Leave all of the growth stock stuff in the 401K.

Now the market can tank during his first 6 years and he is fine.
Except all the income on these investments is taxable, and other than TIPS none of the investments keeps up with inflation. So, he has less to spend during the six years before he can take money from a 401k or IRA.

The original question was should he stay to qualify for retiree medical, and secondarily, he provided info on what he has saved thus far.

Certainly, enough cash/cash equivalents that are easily accessible before 59.5 are key to retiring early. But one wants to avoid extra income tax and also wants to take advantage of any subsidy available under the ACA if he retires before qualifying for retiree medical.

So, it's a bit of a puzzle.
* How much cash does he need to hold him he meets the qualifications for penalty-free withdrawals from a 401k, T-IRA?
* How does one hold that in a taxable account to avoid income tax yet maintain the growth of the taxable account?
* Is it necessary for all of the six years of cash be in the taxable?
* Could 4 years worth be in the Roth - and "tagged" as the value of his deposits in the Roth so it could be withdrawn penalty-free as needed?
* Should these "tagged" funds then be invested in slow-growing safe investments, i.e., TIPS, CDs, Short-term bonds? With the remainder of his Roth in equities to increase the value of the account over time?

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Old 10-29-2015, 12:00 PM   #19
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If I leave, there's no going back. No one is going to pay me what I make today and I have no interest in the field anymore. After 20+ years, it's just a whole lot of "been there, done that". I'm not opposed to continuing to w*rk doing something I enjoy but i have no idea what that would be.
Just wanted to weigh in on this particular aspect of your situation. I am also a single guy, no kids, mid/late 40s. What you said here reminds me very much of how I felt a few years ago when I decided to step back from my full-time career after 20 years. I knew I was financially in good shape, but what I didn't spend much time thinking about was what I was going to do to replace that sense of community, meaning, and purpose that my career had provided. Now of course, a job/career isn't the only way, or even a very good way, of providing those important things in one's life, but for many people (like me, and perhaps you) it is what happened naturally over the course of 20+ years. I am still struggling, honestly, nearly two years after leaving the world of full-time employment, to find those things and to feel really fulfilled on a day-to-day basis. I would suggest you think long and hard about these types of issues before you make any big decisions. Early retirement (or early semi-retirement) can be an awesome, wonderful thing when done at the right time and with the right planning and mindset, but it can also bring a whole new set of challenges and frustrations that you might not expect.
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Old 10-29-2015, 12:09 PM   #20
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Looks like I'll have lots to keep me entertained this weekend.

Some additional info:

Pension is non-cola'd and freezes this year so no need to stick around for that [astute readers probably have a pretty good idea of who cuts my paychecks :-) ]

I didn't include SS in the pension number. SS website estimates $2600/ mo but that assumes working to FRA so the real number should be much less. I don't include SS in any of my calculations. I don't expect it to be there. If it is, so much the better. I see it as a hedge against rising healthcare/unknowns ect

I see the lack of taxable savings as an issue. This year I throttled back the 401k to just hit the pre-tax limit and funnel the rest into another brokerage account slated as retirement money.

I'm thinking I may be better off changing companies. A healthy raise siphoned off could replace the retiree medical. A 2nd career is certainly a possibility. It would be nice to do something you actually enjoy.



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