Caution vs paralyzing fears

[urn2bfree]

I have been talking with my spouse about FIRE as it seems from what I can tell that we are closer than I thought possible to FIRE--but she asks some reasonable questions about budgeting in ER...
among her concerns are:
What if one of our kids ends up not being able to support himself?
What if one of us needs long term care? Long term care insurance seems a pretty dicey field to me...I would hope to be able to self-insure against that.
How much is enough to budget for the increased travel?
and the tricky metrics are that these things are somewhat mutually exclusive...if one of us needs long term care- there goes the expansive travel plans for at least one of us (probably both)
How do people factor in these contingincies without planning so much for rainy days that you can't ever go out and play at all?

 

[Meadbh]

It's impossible to plan for every contingency. Studies show that many people actually spend less in retirement than they expected to. DW's fears may be unfounded, but she may need data to feel more secure. Would it help her to have a financial plan done that takes these contingencies into account?

 

[FIREd]

I think you do the best you can to plan for those eventualities. Then you learn to roll with the punches and make do with what you have. Perhaps you won't be able to help the kids. Or perhaps you won't be able to travel the way you anticipated. Such is life.

 

[ERD50]

Also consider - what if one of these catastrophes did unfortunately hit, would working, say, another 5 years have really changed things much?

A wipe out is a wipe out. Maybe actually mapping those things out against X years of delaying retirement would help. Is it worth X years to plan for any of this?

You can get reasonably conservative to cover the bad cases (and I recommended it), but at some point it points towards working till you croak. You have to draw a line somewhere.

-ERD50

 

[LOL!]

I just tell my wife that she can go to work if something happens.

The reality is that many withdrawal stage plans divide expenses into 2 categories:
1) Necessary, must always be paid, and
2) Contingent, such as vacations, gifts.

Most folks do this implicitly in that they do not retire willingly if they can afford only the bare bones necessary expenses.

Have you divided your retirement expenses up like this? If something happens, you stop the contingent expenses and use the money for your other contingency.

 

[Arnie]

I agree it is scary to think of all the things that can happen to blow away your retirement plans once you pull the plug. For me it helps to balance those concerns against the scenario where I decide to w*rk those "few more years" and get my number called before I get a chance to enjoy a little of what we've been w*rking for all these years.

 

[GregLee]

Devise backups. Two of my backups are taking out a reverse mortgage on our house, and renting out a room of our house.

 

[East Texas]

What if one of our kids ends up not being able to support himself?

If they need to live at home, they need to have at least a part-time job to pay his/her expenses. You can provide rent; but, their part of food, utilities, and spending money needs to come from them.

What if one of us needs long term care? Long term care insurance seems a pretty dicey field to me...I would hope to be able to self-insure against that.

That's the biggy. My spouse and I both have long term care insurance as a hedge against a highly probable long-life with extended care needed towards the end of our life. Our personal decision is to have long term care insurance since we have seen first-hand what happens otherwise. I had a relative who was in a nursing home with Alzheimer's for over ten years. His wife lost everything except their one acre homestead. We've told our children we're not going to leave them anything; however, we're not going to cost them anything either because we have LTC.

How much is enough to budget for the increased travel?

It depends on where you want to go. Traveling the states is a whole lot different than spending 15 days on a cruise to Antarctica.

You're not going to be able to plan for everything. You make sure you've got enough funds to cover your monthly and annual expenses plus contributions to savings. Then you just make do. I'm assuming you'll have retiree health insurance.

 

[Koolau]

Any chance you could partially retire (cut hours, take months off etc.)? If you could make a trial run and see how the lower income works out for you (but do some "expensive" traveling) you might get a feel for whether this will work for you. Your DW might like this idea if it could be worked out in your situation. Many here on the forum have done this.

 

[Katsmeow]

Devise backups. Two of my backups are taking out a reverse mortgage on our house, and renting out a room of our house.

This is a good point. We own a house we are trying to sell now plus the land we want to build our new house on. We don't want to start building until we sell. So we need somewhere to live for up to a year. Since we have several dogs (and a couple of cats) renting a typical house is out (since subdivisions don't allow that number of pets). We considered various options but think we are going to build a guest house now on the land. During the build process we will live in it with a travel trailer (4 of us at home). Anyway, one of the options is that we could always rent out the guest house if we needed money later. If we don't need money we can use it for guests, or even to have a family member live there if we wanted or as a study, etc. But in this area it would do very well as a rental and would give us a fair amount of money.

To the OP -- As someone suggested we've looked at our numbers in terms of the minimum we have to have and we are well above that. We also looked at the discretionary/irregular amount we will need/want. We don't have enough to fully fund every possible discretionary thing we would want to spend plus fund every possible bad thing that could happen. But, in reality, you don't have a situation where every bad thing happens and you keep spending all your discretionary stuff. At this point we are not buying LTC insurance (the benefits for the cost just don't seem to work). On the other hand, we have enough to weather many storms with decreasing discretionary spending.

If you try to plan for every bad thing that could happen and have it bullet proof against every unlikely event then there is a risk of never retiring or doing it too late to enjoy it. That is also a bad thing that you are then creating.

 

[urn2bfree]

Any chance you could partially retire (cut hours, take months off etc.)? If you could make a trial run and see how the lower income works out for you (but do some "expensive" traveling) you might get a feel for whether this will work for you. Your DW might like this idea if it could be worked out in your situation. Many here on the forum have done this.

No real chance for part time in my field really as it working in my field that I have come to despise---and part time really does not work in it anyway...I like what others say about making sure we have the minimums covered, some of the discretionary but realizing that putting off the retirement until every single disaster is covered is not just unrealistic, it is self-destructive.

 

[chinaco]

Note.. my comments in this reply exclude black swan world meltdown type event... Planning for that requires extreme measures... (e.g. Bullets and Bomb Shelters).

But for personal financial scenarios... planning is absolutely necessary... especially for the known issues that can ruin one financially.


For known financial issues that face us today, one is very unlikely to hit all personal calamities know to mankind.... A common pool of reserve money (i.e., part of your nest egg) can go a long way toward mitigating financial risk. In some cases, transferring the risk to to an insurance company makes sense (pooling of money).


But if a planned or unplanned event occurs, all one can do is adjust to the situation based on the circumstances at the time.


This is a very complex topic. No simple answer and the right answers are dependent on your specific situation.


It you are totally perplexed... you should spend more time studying "Your" situation to be confident about your decision before you FIRE. If you step away from your job for a few years and try to go back... you will most likely earn less (unless you are some sort of superstar).

When you FIRE.... you are accepting some personal risk. But you have some of those same risks while you are working because you could lose your job, get sick, die, etc. The same calamities could occur.

 

[chris2008]

If your partner is reluctant to ER because "something might happen and kill our assets" you might try this: set up a hypothetical plan, assuming you work till traditional retirement age and save the same ratio as up to now. The result will show how much more you would have accumulated.
Then you can discuss if this additional amount would really protect you from all the risks she is addressing now and the risks of the traditional way in comparison. One or both of you might not even reach the traditional retirement age to enjoy your savings. You could even put a number on this risk if you look up the longevity tables.

And if this "something" is so extreme that might kill our assets when we ER it would probably kill our assets just as well if we go the traditional way.

 

[East Texas]

I lived on my estimated retirement income five years before I retired. Everything else went into savings. It was a valuable lesson - I could easily live on a reduced income. The savings amount became an emergency fund for big emergencies.

 

[walkinwood]

Devise backups. Two of my backups are taking out a reverse mortgage on our house, and renting out a room of our house.

I absolutely agree. Here are some ideas in addition to Greg's

- Move to a lower cost-of-living area
- Downsize home
- Retire only when you have some amount of padding in your budget
- Keep your knowledge current or learn a skill that can allow part time employment.

However, BOTH of you have to be 'comfortable' with the decision. You can never be 100% sure of your plan, but you must have enough confidence in it to allow you to enjoy your life.

 

[Meadbh]

Great suggestions. I also suggest running your numbers through Otar's Retirement Calculator, which takes a much more pessimistic view than the simple "average ROI" that many FAs use. If your prognosis is optimistic using that, you should not be constrained by fears of financial ruin.

otar retirement calculator

 

[BigNick]

Note.. my comments in this reply exclude black swan world meltdown type event... Planning for that requires extreme measures... (e.g. Bullets and Bomb Shelters).

But for personal financial scenarios... planning is absolutely necessary... especially for the known issues that can ruin one financially.


For known financial issues that face us today, one is very unlikely to hit all personal calamities know to mankind.... A common pool of reserve money (i.e., part of your nest egg) can go a long way toward mitigating financial risk. In some cases, transferring the risk to to an insurance company makes sense (pooling of money).

After a certain point, the "what if things melt down" planning is no longer about ER. If the world economy collapses, a lot of people would be compulsorily ER'd, aka laid off. So worrying about "maybe I might have to go and get a job" is rather academic.

When doing my planning, I'm dimly aware that the thing that I should be more conservative about is inflation. When I was a teenager in the 70s, my Dad loved inflation. He worked in local government with a COLA salary and pension, and inflation reduced his mortgage payments to the point where they were less than his car payments. But since then, I've lived in Europe with a combination of rock-solid currency (Dutch guilder, French franc after the D-Mark link, now the Euro) and average 2-2.5% inflation. Less than half of our retirement income will be subject to COLA, so this is a non-trivial consideration.

 

[Katsmeow]

Great suggestions. I also suggest running your numbers through Otar's Retirement Calculator, which takes a much more pessimistic view than the simple "average ROI" that many FAs use. If your prognosis is optimistic using that, you should not be constrained by fears of financial ruin.

otar retirement calculator

I downloaded this to look at it and I just ended up being irritated by it. For the trial version you can't change the ages. That doesn't sound like a big deal but it means you can have a 55 year old primary person and can't have a secondary person. So for a married couple it is useless.

So I looked at how much it cost for the full version. It is $99.99 which seems extremely steep for a retirement calculator.

 

[Corporate ORphan]

I was "retired" from a mega-company after working there for 30 years when it was bought out in 2008. I was 53. I was planning to stay until 58 so I could get full pension benefits and employee health care. It has taken me until now, two years later to feel "comfortable" with my decision not to find another job. I wouldn't have picked this but I am glad it worked out this way. I'm not sure how much money I would need to feel completely comfortable with my decision. One of the things that helped was talking to a financial planner at Vanguard who told us that our estimated spending per year versus our income would not outlive us in all the scenarios setup in their model. We should feel free to spend more since we aren't interested in preserving assets for our heirs (we don't have any kids.)

Once we get health insurance to replace COBRA, I am hoping I can completely "relax".

 

[urn2bfree]

Can You Really Get Health Insurance?

NY Times had a piece on Saturday on how hard it was to get health insurance even for a relatively healthy family....I dont think I am allowed to post links on here yet, but if you google for Dubinsky Health Insurance or look in the Sat NY times you should read it....scary.

 

[LightningDawg]

NY Times had a piece on Saturday on how hard it was to get health insurance even for a relatively healthy family....I dont think I am allowed to post links on here yet, but if you google for Dubinsky Health Insurance or look in the Sat NY times you should read it....scary.

Interesting piece. I will keep this in mind when I apply for health insurance at the age of 55.

 

[meierlde]

Two ways pick a state with an open high risk plan (not cheap but available) or move to the community ratings state. Third possiblity at least a few professional organizations offer insurance that they will up the premium 50% for uninsurable people.