Very Glad That I Started Saving When Younger

[Major Tom]

Hi, my name is Tom and I'm an INTJ. Oh, not much of a revelation here, sorry

I first became interested in the idea of saving for retirement in my late 20's. I say saving rather than investing because at the time, that's what it was. I opened an IRA with my bank, put all the money into a money market fund, and after a year or two, couldn't figure out why I wasn't accumulating much in the way of growth. That was the point at which I realized that although putting money into an IRA was a good first step, I needed to work out how to make it beat inflation and then some.

I won't bore you with the details but 20 years later after fiddling around with IRA's, a 401(K) and some real estate investments, I have $400K divided between stocks, bonds and about 3 years living expenses in a high-interest savings account. $400K isn't a fortune but considering that my wages were around 35-40K/year and that I'm 46 years old, it's not a bad sum.

Initially, my goal was to get to the age of around 60 with enough money to retire and not have to live in a tin shack eating cold beans out of a can. In other words, I was motivated to save by fear. At some point, it occurred to me that I might be able to achieve some form of early retirement, either by finding some stunning investment, or by reducing my living expenses, or by a combination of the two.

Then just over a year ago, the company I had worked for for 16 years went out of business and I was laid off. The industry I was in has downsized a lot and isn't coming back, so I have to figure out a new way to make money.

Here's where it gets good. My bare minimum cost of living per month is:

Rent inc utilities $640
Food (inc occasional cheap meal out) $300
Landline/DSL $30
Netflix $20
Bicycle maintenance $20 (estimate)

Total $1010

These are my bare bones costs. I know from past experience that I can live very comfortably on a net income of $1600/month and am confident that I could happily get by on around $1300.

A quick spin with Firecalc tells me that if I wanted, I could start drawing $1100/month from my investments for the rest of my life. After capital gains taxes, that is almost enough for me to just survive. A part-time job bringing in a few hundred a month will allow me to live comfortably. If the worst-case scenario doesn't happen, maybe the portfolio will even grow a little :-)

I might live like this for a while until I come across a way of supporting myself full-time that I like. At that point I could stop drawing on my investments, and perhaps even start adding to them again. If I never find another full-time gig that I like, it's good to know that I don't have to make much from a part-time job to get me through. If I never work again, I should still get around $800/month from SS at age 62 to supplement my investment income.

The one possible problem with this plan is that I have no health insurance. No-one will cover me as I have a touch of osteoarthritis in my knee, so I'm hoping that once the healthcare reforms kick in I'll be able to find affordable coverage. I did have the option to buy coverage under HIPAA, but it was going to cost almost $600/month - too much for my budget.

The great thing is that although I don't know what the future will hold, I am very glad that I saved. As I mentioned before, $400K isn't a fortune, but it does give me options. Whenever I talk to people about the benefits of saving, I try to emphasize that the best thing about having some dosh stashed away isn't that it means you can buy more things; it's the fact that it gives you more options and that, as the ads say, is priceless.

Apologies for the ramble!

[Sarah in SC]

Hi Tom and welcome! I like the idea that you are looking to keep your options open for some kind of employment in the future (that may have health insurance). That is the only part of your plan that really worries me.

You are a prodigious saver, that's for sure, and I congratulate you on your foresight to save! I couldn't live with only a bike for transport but I'm sure that factors into your healthy lifestyle.

[aaronc879]

Not sure why you think that the healthcare reform will make insurance cheaper for you. It will guarantee you get coverage even with your pre-existing condition but there's no reason to think you'll be paying less than $600/mo. Also, you'll have to take the coverage or pay a penalty. Either way, it'll put you above your budget. Looks like you can take your time finding the right job whether part-time or full-time but eventually you'll have to go back to work for a while. Good luck!

[DeborahB]

You've done a great job! But seriously, I think health insurance is a big issue. You could get a part time job that includes benefits if you look for it. It doesn't have to be a career, just a job

[ziggy29]

Welcome to the forum! Sounds like you've been a prodigious saver, but I'm extremely concerned that one serious illness or injury can wipe all that good work out in almost no time.

[plex]

Actually, his insurance will either cost nothing (by qualifying for Medicaid), or it will cost almost nothing, as he could easily increase it to $15k/year so he could be within the low end of the subsidy range. Medicaid may become overburdened in the future (I think it is inevitable with the current trends), so the very heavily subsidized insurance option may be best, as it will provide a lot more health care options.

It would probably be best to keep working until 2014, at that point you can get the health care, and you should have enough saved up to comfortably buy a modest house, instead of renting, which will decrease your costs in the long run and keep your income really low for health insurance purposes.

[scrabbler1]

Major Tom, your budget is similar to mine, except that I have health insurance (and pay about $560 a month and have no health problems). My total expenses are about $1,800 a month with dividend income of about $2,500 a month. I am 47 years old, have about $650k in taxable investments and $300k in an IRA.

I would not dream of going without HI because it would risk everything I have done to get me here. The insurance against this risk is costly, as it is in 2010 my biggest single expense (barely). But it is necessary, at least for the next 18 years until I qualify for Medicare.

[Major Tom]

Thank you for the comments and the welcome!

aaronc879 - That was wishful thinking on my part, but I have little doubt that things will pan out as you say. As I remember reading, individuals will have to pay a penalty if they do not purchase coverage, when it can be shown that coverage with a premium of 8% or less of income is available (I think 8% was the actual figure). In other words, if your monthly income is $1500, and the cheapest coverage available has a monthly premium of $400, you do not have to pay a penalty if you don't purchase it.

thinker25 - I thought that only full-time jobs came with benefits. In this current climate where most employers seem to maximize their use of part-timers with no benefits, and hire a minimum number of full-time employees, it hadn't occurred to me that there was such a thing as a part-time job with benefits. Have I been missing something?

plex - I don't qualify for Medi-Cal (the name for the medicaid program in California, where I live.) I'm not sure what you meant when you were talking about a heavily subsidized insurance option. Increase what to 15K? Apologies if I'm being a bit dense.

scrabbler1 - HI is expensive, but I agree with your sentiment about it being neccessary to avoid risking assets. Not having HI is something that concerns me quite a bit.

I do have one other trick up my sleeve, and that is that I also have UK citizenship in addition to my US citizenship. I could qualify for healthcare in the UK by simply moving back there (I grew up in England) and becoming resident. There is no requirement to have worked for any period of time. However, I have lived in the US for half my life now and consider it my home. It also seems a bit unethical to go back there for the healthcare when I earned my living and all my money in the US.

With the UK passport I could even move to France and take advantage of their healthcare system, which is rated #1 by the WHO. They have a couple of hospitals in Paris with English speaking doctors.

But all said, the US is my home and I want to stay here. Looks like I'll be going back to work at some point in the near future.

Thanks for all your comments and help. You can call me Tom by the way; the name is just a moniker inspired by my love of Bowie!

[BigNick]

Quote:

Originally Posted by Major Tom With the UK passport I could even move to France and take advantage of their healthcare system, which is rated #1 by the WHO. They have a couple of hospitals in Paris with English speaking doctors.

The French are not exactly the world's leading linguists (unlike the Americans and the Brits, ha ha), but you can expect a reasonable level of English from a decent number of doctors under 40 in most major cities. The French medical training system is set up so that only the very brightest pass, and they tend to have had good grades in everything; plus, they read the literature, and the literature ain't all in French. And you should certainly be able to find a general practitioner who could treat you for most minor things, although you might have to shop around a little.

[militaryman]

I second the notion of a parttime job for Health Benefits.....

Starbucks offers Health coverage to employees that work 20+ hrs a week. Also you get a free bag (pound) of their coffee to take home each week!