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Oh how my world has turned upside down - looking for advise
Old 01-16-2009, 09:01 PM   #1
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Oh how my world has turned upside down - looking for advise

Three years ago I started a five year plan in hopes to FIRE by the time I reached 58 and DW 57. The three main keys for this plan to work were 1. keep my job that pays about $115,000/yr, 2. DW keeps her job which paid $82,000/yr, 3. we stay in good health to have the possibiity of the lowest possible self insured health insurance premiums, and 4. the stock market didn't need to improve greatly, but we needed not to be hurt by it.

I now understand the saying that goes something like, "if your really want to hear God laugh, tell him your plans". First, my wife lost her job due to a merger, then she was diagnosed with breast cancer. Since her recovery, she has been unable to find even a low paying job in this economy. Of course we lost a big chunk of our retirement as we rode the market to the bottom. Last, my good paying job is not keeping up with inflation because of no raises, loss of bonus, more co-pays for health coverage, etc. To make matters worse my company has "merged" and our business is now currently in the toilet. I expect to be unemployed within the next 6 months if not before. Neither my DW or I was ever fortunate enough to work for a company with any kind of defined pension plan so we have to go it alone.

The bright spot, if you can call it that, is we are totally debt free. We also have a bit over $500,000 saved in CD's and I bonds. We started tracking our expenses several years ago, and last year our total expenses were just under $40,000 after taxes but that does not include any heath care coverage. I truthfully have no idea what is left in IRAs and my 401K as it is too depressing to even think about it. Maybe $500,000 to $600,000 tops. I have never been real savvy on investments and have primarily relied on a mixed bag of mostly Vanguard mutual funds. I would guess the equity in my house is about $275,000 after the big hit to real estate values. I will get about 6 months severance pay with full health care coverage during that time.

When I lose my job I would really like to move away as I have never liked where I live now and the property taxes are high. Unfortunately, I feel trapped here because houses aren't selling. Regardless of whether I stay put or move, at our ages I doubt there is much chance to land more than low paying jobs with little or no benefits compared to what have lost and will be losing.

This whole thing is killing me. It is hard for me to understand how 3 years ago we thought there was a good shot at becoming financially independent after 35+ years of hard work and LBYM. Now, I am really concerned that we are in for some really tough times ahead and I am quite depressed and stressed about it. I have always felt that a person is some kind of a loser if they can't support their family, but I am seeing now that there are sometimes circumstances out of our control.

Have any of you found yourselves in a similar situation where you might be able to give any advise? I am most interested hearing any suggestions you have on how to stretch what I have in an attempt to at least reach SS age. That will probably be the next rug to get yanked out from under me.
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Hang in there
Old 01-16-2009, 09:15 PM   #2
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Hang in there

Your message caught my eye, and I was drawn to respond. First, I am so sorry about your wife's illness. From your posting, it sounds like the cancer is under control. I know the statistics for women over 50 years old who develop breast cancer are very, very good. (my mother used to tell me that cancer grows like a weed in a young person).

I just wanted to say please try to limit your stress (and if you think you are geeting depressed, seek treatment). I know it is hard with all of the change that you are going through.

The first thought (gut reaction here) that popped into my head as soon as I read your troubles is move away. (this is if you lose your job) Start over. Sell the house for a little bit of a loss. You and your beloved spouse have worked very hard. You are also frugal. You can start over someone new that you like and look for other, maybe less stressful, types of employment.

It is going to work out, you have just suffered through a lot of change this year, and my guess is the health scare shook you to the bone. Over time, that will lessen and you will begin to enjoy life without waiting for the other shoe to drop.

Please hange in there and check in for support, there are very wise people on this board.
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Old 01-16-2009, 09:15 PM   #3
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Tom,
To review the bidding:
1) You and your wife are approximately 9 years from being eligible for Medicare, right?
2) You have aprox $500K in CDs/I-Bonds plus maybe $500K in 401Ks and IRAs.
3) You have no debt (e.g. house, cars, expected college bills for kids) and your no-kidding living expenses are approx $40K per year, plus whatever you'll need to pay for health insurance.

Is that right?

Sorry to hear about the situation, but glad to hear your wife's health is good.
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Old 01-16-2009, 09:54 PM   #4
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Tom - sorry to hear of your stressful situation, but I think you still have a pretty dawgone good chance of making a go of it. If you have 1m socked away in various places, 6 months til layoff, 6 months of severence, then unemployment insurance (wife got that too?) then you have 8 years til medicare. your portfolio, at 1-1.1m should provide you with 40-44k at a 4% swr. unemployment ins will give you a boost and maybe help with med ins for a while after your layoff, 6mo severence, and 18 mo cobra.

In reality, I think you are in shock, but I think with some planning you'll make it ok. Just hang onto the job as long as you can, then severence, then cobra and unemployment if you don't find another job. There is also the possibility of reducing expenses. I don't know how you spend, but you can revisit that yourself (my folks live on less than 20k a year after tax and medicare/medigap, in california). Remember that at 40k income your taxes will be relatively low. you will also have some job related expenses vanish (no gas for a commute, suits replaced with jeans, maybe 1 car instead of 2, lunch at home instead of out, no need to buy your secretary a birthday present, no more contributions to 401ks, etc, etc). Check into all that stuff to see what you really need to be able to make ends meet. It might be less than you think. And, you may be able to live a bit on the barebones side for a couple years while the market recovers some, and then tweak your lifestyle back up a bit as it does.

Keep in mind that the market will, at some point recover. If all of your IRAs and 401ks were in equities, then you could concievably be back to 1m there plus your cds in a couple years, depending on a lot of factors of course, but possible. Have you checked to see how your 401k and iras are made-upo...i.e., lots of dividend payers?

How else can we help you?

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Old 01-17-2009, 07:15 AM   #5
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Tom,
To review the bidding:
1) You and your wife are approximately 9 years from being eligible for Medicare, right?
2) You have aprox $500K in CDs/I-Bonds plus maybe $500K in 401Ks and IRAs.
3) You have no debt (e.g. house, cars, expected college bills for kids) and your no-kidding living expenses are approx $40K per year, plus whatever you'll need to pay for health insurance.

Is that right?

Sorry to hear about the situation, but glad to hear your wife's health is good.
That's what I see too. Tracker made some good comments on stepping back and taking a deep breath to keep from being overwhelmed psychologically. I'll second that. Nobody here can really know what you've gone through but we've all gone through some set backs in our lives concerning jobs, loved ones and definitely portfolio losses over the past year.

Leaping forward to just the money side. You need to run FIRECalc. If you don't know what I'm talking about there's probably a link on the forum and you can also do a quick search.

With a cancer history, your wife will probably be forced into a state "high risk pool" for heath insurance. Since you're over 50, you will probably be too no matter how healthy you think you are. From my experience, being over 50 is a pre-existing condition that excludes you from most individual heath policies. Your state may be a little different but in Texas a high risk plan is about $5-7,000 / year per individual and it comes with a $5,000 deductible. I've estimated that a year of medical coverage will cost me and DW $20,000 per year.

If you and DW are truly living on $40,000 per year, you will need about $70,000 to cover insurance, taxes and the $40,000 to live on. You have about $1.3 MM in assets after selling your house. You're 55 now so you'll be eligible for SS at 62 with your wife being able to collect the following year. With these simplified assumptions, I think you're both going to be fine financially although you'll need to make the leap from wage-slave to living off your assets.

You want to move so there may even be more cost savings available. Most mega-corps are located in higher cost of living areas. Many nicer areas can be found with a much lower cost of living. You'll also have options to save more since you won't both be running to jobs in different places. Heaven forbid you might actually want to do something part-time and get a little extra coming in. Please make sure it's something fun that you can enjoy.

This forum is a good place to get some suggestions on investing for retirement and help putting your other issues into perspective. If things do start to seem overwhelming, do get some real help from a professional.

PS - don't even think about buying an annuity, especially a variable, indexed one.
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Old 01-17-2009, 07:19 AM   #6
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Originally Posted by 2B View Post
You need to run FIRECalc. If you don't know what I'm talking about there's probably a link on the forum and you can also do a quick search.
Here you go: FIRECalc: A different kind of retirement calculator
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Old 01-17-2009, 07:38 AM   #7
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Financially it seems to me that y'all are in great shape. Healthwise it may be different. If you read around here more, you can structure your portfolio so that it is much more tax efficient and that will increase your bottom line quite a bit by looking at your total assets as one large single portfolio.

For example, if it is true that you have about $500K in CDs separate from your 401(k)s and IRAs, then you are probably pay lots of taxes on the interest of the CDs. So something to think about is to use your 401(k)s for all your fixed income assets where the interest and dividends will be tax-deferred and use your taxable accounts for your tax efficient investments like stock index funds where your losses are tax deductible, your unrealized gains are tax-deferred, and your realized gains are taxed at a favorable rate as low as 0%. Some of this is explained at Placing Cash Needs in a Tax-Advantaged Account - Bogleheads

This means that if you need $40K for living expenses and $15K for health insurance that you might only pay about $2K to $4K in income taxes each year.

So if you have ANY stock index funds in your IRAs, you need to exchange them for CDs. And in your taxable account, you can exchange an equivalent amount of CDs into stock index funds. Do you see you will own exactly the same assets as before, but in a more tax-efficient way? In your 401(k), you can do something similar, but usually CDs are not available in a 401(k). However, stable value, money market or other fixed income funds are available.

Even if you continue to work, you should consider making these changes to save thousands of dollars a year on taxes. Good luck!
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Old 01-17-2009, 07:49 AM   #8
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Sorry for the avalanche of misfortune that found you.

Things can improve as fast as they deteriorated for you, Buddy. The market will probably self-correct sooner or later, your job situation may improve, and health care reform may relieve some worries about that. Stay the course, make the decisions that need to be made.

If you look at your original plans as a first edit rather than a final road map, it helps. Try, revise, try revise. Few of us are still on plan A.
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Old 01-17-2009, 08:01 AM   #9
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So sorry for all your problems. But as others have said, your situation is not that bleak. You still have a pretty nice portfolio and in time, your mutual funds will come back. It could take years.....but they should come back.

Health insurance is the biggie though. As 2B said, your wife may have to go the state risk pool route. But you might be able to find a job at a company like 'Sam's'. I know that sounds like a big come down for you but that is exactly what one my friends did. He just needed some income to cover basic expenses plus have access to medical coverage. His wife has a job so she had insurance, but you might have access to dependent coverage through a company like Sam's. BTW, he actually enjoyed the job. He's not a 'greeter', he works in the office handling shipping information and occasionally handles some public relation work for Sam's by visiting various businesses in town.

So try not to be depressed. Life is too short. Make the most of what is offered to you in your area.
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Old 01-17-2009, 08:38 AM   #10
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BTW, he actually enjoyed the job. He's not a 'greeter', he works in the office handling shipping information and occasionally handles some public relation work for Sam's by visiting various businesses in town.

So try not to be depressed. Life is too short. Make the most of what is offered to you in your area.
Back when I was "important" I was under a lot of stress but didn't really realize how much until I got fired. Being out of a paycheck for 15 months wasn't fun either but the nice thing about LBYM is that a six month severence check will last about that long. At least it did for me, I got a lower paying position that was about 2/3 of my prior "important" one. That lasted 2 years and I'm now about 40% over my original position and there is no stress that even resembles what I was going through. The scary part is that I like doing what I'm doing. Our business is starting to fall apart though so I also expect to be retired within the year. Fortunately, this forum has shown me I'm FI and can get by very well on my assets.
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Old 01-17-2009, 09:01 AM   #11
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Just a couple of things to keep in mind. There is nothing wrong with looking at the 500K in CD's/I-bonds as a source of income for the 4 or 5 years you need to bridge to SS. It's after-tax money, and currently is probably earning fairly little interest, with short-term rates as low as they are today, so the opportunity cost of spending this principal is small. This will also minimize your taxes. So I would spend the CD's/I-bonds (principal and interest) as they mature

Assume your AGI is 40K (and it may be less since you won't be counting the maturing CD principal). This means your medical expenses (including health insurance) will be deductible on Sched A once it exceeds 7.5% of AGI, or 3K in this example. In 2009, the standard deduction is 11.4K, so you will likely exceed that with health insurance by itself. If you are itemizing, property taxes will be deductible, as well as some other items. So your tax liability may well be close to zero.

It appears that you have been paying the maximum in SS taxes, and your wife has probably been paying just a bit under the max. Hence, between the two of you, your age-62, SS is probably pretty significant. You can look at this income as replacing that from the CD/I-bond principal you spend over the next 5 years.

Also, take a look at what your dividend/interest income from your 401K's/IRA's is. Think of this as income whether or not you actually take it out. Let's say you have 500K in retirement accounts, and it earns 20K in dividends/interest. If you spend 20K of your after-tax cash (e.g, the CD's), think of it as spending interest (not principal) since it is being offset by retirement account earnings. It is also, more tax-efficient to spend the after-tax cash first.

Also, once you turn 59.5, you can start taking money from your IRA, if you need to. If your tax liability turns out to be zero, make sure you take enough out your IRA to offset any unused deductions. This will also help you down the road with regard to RMD's.

In summary, it appears to me, that financially, you are in better shape than you think you are. Good luck to you both.
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Old 01-17-2009, 09:33 AM   #12
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With you for me and me for you, we'll muddle through whatever we do....together...

Hi Tom,

My husband and I are a few years older than you (I'm 62 and he's 59) and when I read your story I thought, "been there, done that".....and we survived. I won't go into detail because I just want to offer encouragement. I just want to say that if you and your wife are as devoted to each other as you seem to be, you will be okay.

We planned, we saved, we lived way beneath our means, we had goals......and then life just took a few awkward turns of its own. From the time I was young, I believed that if I had a plan and followed it carefully, my life would be perfect. HA HA HA

But the nice thing is that we have a paid-in-full roof over our heads, we are both currently very healthy, and we do have enough money accumulated to live modestly for the rest of our lives. My husband and I are each other's best friends, and we are so grateful to have one another.

Life isn't over, it will just be different from what you expected. Our experiences have taught us to be more flexible. I honestly could give up almost everything we own and live out of a backpack....having less is very freeing. You may not believe me now, but post back here again in a couple of years.

Practical note: my sister went back to work two years ago at 67 so she could earn enough to pay for extensive dental work for her husband and so they could buy a new car (she's a nurse). The hospital offered medical coverage, 401(k), dental, life insurance and other benefits -- it is mostly an office job. She says it is the best job she has ever had. Her husband's teeth were falling apart, and her dental is covering nearly 100% of his restorations. Perhaps your wife could look into hospital work. When I was young, I helped work my way through college as a nursing assistant. The pay wasn't great, but the benefits were good and hospital people are great coworkers.

Finally, I saw from one of your other posts that you live in Naperville. Take a drive through some less affluent areas, maybe some of the poorer parts of Joliet. Or come up here to Lake County where I live and drive through North Chicago or most of Waukegan. When I had some down days, I used to drive through those poorer neighborhoods, and I would feel ashamed of being sorry for myself. Those are the kind of neighborhoods where I was raised, and it was such a horrible struggle to live when you are REALLY poor.

Good luck to you. You're going to be fine.

Pie
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Old 01-17-2009, 09:48 AM   #13
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Tom52,

I'm not going to comment on your finances because it looks like you got some good info and comments on that already, but I will comment on the huge amount of stress you are feeling.

I'm in the car business (own a small Chevy dealership), and my life has been on a real roller coster since September of 2008, so I think I can relate. I went from making 400K in 2007 to losing big money in 2008. To make matters worse, we bought too big of a house in 2007 and now have a big payment and big living expenses ($9500 per month with the house payment), so I really feel pretty stupid at this point financially, especially since we had lived in a small, paid off house for the last 10 years. But, the wife wanted to update, so......... As a result of all of this, my stress level has been off the charts and my health is starting to suffer in various ways (no energy, some weird chest tightness and other stuff I don't need to mention). I'm only 43 and was planning on selling the store and hanging it up in 2009, and while I still might hang it up there is not much to sell now.

So anyway, on the surface it looks like things have really gone to hell for me, but I'm trying to stay positive. If I can get this store closed and stop the losses I can still quit and we can live off our investments. Maybe not the way I had envisioned, but we can still do it with some trimming.

I guess my point after all this rambling is DON'T LET THINGS GET YOU DEPRESSED, it is usually not as bad as it seems to be.

Take care.
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Old 01-17-2009, 10:00 AM   #14
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I am sorry to hear about your health problems. My father always said your health is worth more than your wealth. I will tell what I would do if I were in your shoes. I think you are in good shape money wise but if you lose your job I would sell the home and move even for 20k to 50k less than the 275k. What are your house taxes? You need to get to a low cost area where your money can buy more. If it were me I would head to a small town in MO,AR or OK where the cost of living is very low. A nice small house in a safe area can be bought for 50k and the taxes would be around $600 a year. I also think when you are in the midwest you can knock 10k off your spending going down to about 30k a year. Spend the taxable money first then when it is all gone go to the retirement money. This will help with taxes. I am in the midwest and know many couples that live on SS and their net worth is less than 500k. Money wise I think you are in great shape. What will your SS be when you both can collect at 62?
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Old 01-17-2009, 10:58 AM   #15
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I think your health care costs will be high but otherwise your finances sound all right even if you don't move (but that is a very good idea to sell your house even below market value--you will likely sell it for more than you bought it for?--and move somewhere where taxes are lower). Imagine the stress if you hadn't started your 5-year-plan, and more importantly, if you hadn't started saving even before that.

I hope your wife continues to enjoy good health and you are so right about man plans while God laughs. But sometimes we laugh as well, and I hope you can too.
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Old 01-17-2009, 11:27 AM   #16
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I also have been there done that . I had the perfect life great husband , new paid for house , good income and two great kids . My life has changed dramatically and it will never return to what it was but it's good now . Unfortunately we all face losses especially as we age and it is okay to grieve them but then you need to brush yourself off and make the best of what you have .Good Luck in going forward !
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Old 01-17-2009, 11:28 AM   #17
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I thank you all for the words of encouragement. I will be back later with some responses to your comments and questions.
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Old 01-17-2009, 11:36 AM   #18
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Tom, it sounds like tough times. It's really hard on anyone to get hit three times like you and your wife have. You must be reeling.

Be sure to check out Martha's great FAQ on buying private health insurance.

If you're interesting in moving anyway, and you're likely to be forced to buy state high pool risk insurance, you have some research to do. Premiums and coverage vary enormously from state to state.

Best wishes to the two of you.

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Old 01-17-2009, 02:45 PM   #19
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Tom,
To review the bidding:
1) You and your wife are approximately 9 years from being eligible for Medicare, right?
2) You have aprox $500K in CDs/I-Bonds plus maybe $500K in 401Ks and IRAs.
3) You have no debt (e.g. house, cars, expected college bills for kids) and your no-kidding living expenses are approx $40K per year, plus whatever you'll need to pay for health insurance.

Is that right?

Sorry to hear about the situation, but glad to hear your wife's health is good.
To answer your questions,
I turned 56 last month, my wife will turn 55 in 3 months. I am not even sure when Medicare would be available. If it is at your full retirement age that would be at age 66 ror me or 10 years away.

I finally had to guts to take a quick look to see what the year end results are for our IRAs and 401K. It is not quite as bad as I thought, it is approx. $728,000. However, CDs are less than I thought, $292,000, most all were renewed last year with 4 year maturities with APR between 4.75-5.50% interest. Ibonds = $130,000 plus interest earned of approx. $7,000. Misc. money markets and cash laying around probably = $50,000. There are a couple of municipal bonds with a face value of $30,000. I also have about $45,000 in cash value of a Whole Life insurance policy that I purchased many years ago and continue to pay every month. I don't even know how you take advantage of the cash value of this policy. So it looks like a rough total of $1.2M if I can really get access to the cash value of the insurance policy.

I have zero debt except the monthly credit card balance which is paid in full monthly. One daughter is thru college and has a good job. Two fairly new vehicles, 3 years old and 6 years old, paid cash for both.

According to my spread sheet we spent $38,487 which includes about $5,000 in vacation expenses which can go away if necessary. Property taxes were $5,000 last year and are included in the total. We have cut out most of the fat over the last couple years. We dine out about once a month instead of once a week, no subscriptions to newspapers or magazines, I brown bag it to work, I cut my own hair, but not to worry I let my wife do her thing with the hair stylist. We rarely go to movies or rent movies. Years ago I eliminated lawn service, I change my own oil in the vehicles, I can fix most anything that breaks around the house. There is not much more I could reduce except the land line phone and cut the cable TV back to the basics, but that is one of our few extravagances.

Future health insurance costs are my biggest concern.
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Old 01-17-2009, 02:56 PM   #20
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I still do not think you are in bad shape. I am guessing you both would have at least 3k a month in SS at 62. Health insurance will be high for ten year but after that dirt cheap. You might be able to get a health care policy with a high deductible for yourself and a plan with a lower deductible for you wife. I am guessing health care could cost you $700 a month look here http://www.ehealthinsurance.com/ehi/...alID=__tid__1_
So with about 1.3M not counting the house you will be in good shape if you move to an area with low cost living. I would work that job until the last day then sell the house even if you only get 225k for it, remember the saving by moving will be more than that in the long run. So lets say that health care will run about 9k I think you could save more than that by moving and downsizing. The way I look at it is you will be going through a rough patch for 10 years but with 1.5M you can handle it even if health insurance over that 10 years is 100k. You have to remember that after the 10 years it will be over. Even with no job the next seven years with health insurance would be 350k that would leave you about 1.1M and your SS you should be fine.
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