50+ In Wyoming, Poised to FIRE, But Health Considerations

[WyomingLife]

Dear All:

Long-time reader, first-time poster. I've been engaged in FIRE/personal finance related planning behind the scenes for the past decade. I started with MMM, which led me to firecalc and seemingly every other modeling tool available on the internet. We use PersonalCapital. "Your Money or Your Life" is on my nightstand.

I suspect my issues are more psychological (e.g., anxiety) than financial, but still I have some questions. For example, yesterday I watched Pfau's webinar on possible issues with the 4% rule/Trinity Study, so I fret about the assumptions underpinning that approach. Healthcare is another non-trivial concern.

The basic question is this: if we had to pull the proverbial plug tomorrow, would we be ok? (And I know in asking that, the right answer is "it depends" as no one can predict the future.) A key fact: a fairly serious family health issue that would likely cause problems if Obamacare's preexisting condition provision were repealed in the coming years. Neither of us would be eligible to carry an employer-sponsored plan into retirement; we would be on our own until age 65.

Still, I'm hoping some wise folks here can kindly skim the information below, and provide some comfort and critiques -- something along the lines of either: (1) "You dope, you worry too much, everything looks ok"; or (2) "You are wildly optimistic and haven't considered X, Y and Z." Or something in between.

I apologize in advance that this post is verbose, but I wanted to put it all out there to see what you think. I have no idea how this post will be interpreted, but know that I am indebted to you in advance for your comments.

Ages
Me: 54
Spouse: 58

Three grown children. College expenses are in our distant past. The children are successfully launched and independent.

State
The Cowboy State (no surprise there). That means no state income taxes and a general LCOL. Still, it isn't inexpensive to live here either. Gas prices are high, for example, because of the driving. Even going on a hike in the local mountains might burn 1/8 of a tank of gas or more. A pick-up truck is required, too, for safety if nothing else. If we really needed to get to a high-end mall (which we might do once a year for, say, a wedding gift), a two-hour drive might be required.

Desired Retirement Age
Me: 55
Spouse: Already retired

Assets
Note: Except for current 401(k), everything is in Vanguard (ETFs or the equivalent), which we manage ourselves. We are Bogleheads.

Cash/Liquid Savings/Emergency Fund: $180K (this is likely too much cash)
Qualified Plans (401(k), Rollover IRA): $2.2M
After Tax Brokerage Account: $890K

Home: $290K (no mortgage)

Cars: Two dependable beaters (pick-ups, which we deem to be necessary to live here), values not included in this summary

Asset Allocation

I could provide a lot more detail here, but among the qualified and non-qualified plans above, we are 85% equity and 15% bonds. We are largely following the portfolio recommended by Warren Buffett (for his widow). As to the equities, we are about 80% US and 20% international, each further sorted into a mix of large- and small-cap (again, all ETF's). The bond piece is largely short-term Treasuries (again, held via Vanguard low-cost vehicles). I fret the portfolio is too risky, yet we have great tolerance for risk. We've literally never sold anything, even during 2008/2009. We are classic "buy and hold" investors. I view a market drop as a buying opportunity. That said, the idea of living off our portfolio, with no income coming in, induces non-trivial anxiety.

Net Worth
$3.5M (including the house); $3.2 (excluding the house)

Current Income
$195K

Debts
None

Expenses

We track/budget with PersonalCapital. The following numbers are for a "typical" recent month, with one-time or annual expenses prorated to a monthly basis. With no debts and because we are DIY'ers, we have substantial ability to dial-back expenses, too. If we had to go into "bunker mode", we could do it. It wouldn't be pleasant, but we could do it.

1. Home Improvement: $2500 (this is our hobby, and it is increasing the value of our old home -- if we had to dial this back, however, we could)
2. Home Maintenance: $700 (again, we live in a very old house, but we enjoy it greatly)
3. LTC/Life Insurance Premiums: $691 (roughly divided in thirds as follows: LTC premium for me, LTC premium for spouse, and $1M fixed term life insurance policy for me)
4. Groceries: $500
5. Medical (out of pocket deductibles, etc): $400
6. Personal Travel: $500 (visit family, etc.)
7. Telephone (cell): $154
8. Cable TV/Internet: $152
9. Gasoline: $300 (lots of driving to get anywhere in Wyoming)
10. Homeowners Insurance: $109
11. Gas & Electric: $107
12. Car Maintenance: $100
13. Pet Related (boarding, etc.): $100
14. County Services (trash, water, etc.): $100
15. Automobile Insurance: $98
16. Gifts: $66
17. Vehicle Registrations (tags): $50
18. Gym: $20
19: Housecleaning: $180
20: Entertainment: $100 (fishing licenses, flies, gear, movie, others)
21: Clothing: $50
22: Property Taxes: $100

Monthly Total: $7,077

There are two wild cards.

The first wild card is health care. The government exchange says that a policy for the two of us would vary from $3000 to $3500 per month (ouch). And one of us has a serious illness, and I'm 10 years away from 65. So under a FIRE scenario, the monthly estimate above becomes $10,577 in Month #1. And what happens if the government exchange goes away? And how can we possibly estimate premium costs in, say, five years? The idea of self-funding insurance for a decade induces sleeplessness.

The second wild card is taxes. Firecalc doesn't estimate taxes, as you know. I lack great confidence in my ability to forecast taxes throughout a potential 35 year retirement.

In any event, the running total above is too low because it does not consider self-funded health care or federal taxes (again, no state income tax in Wyoming).

SS
The following are rounded estimates from the SS website:
Me (claim at 70): $35,000 annually (this already takes into account leaving the workforce early)
Spouse (claim at 62): $15,000 annually

Will Our Lifestyle Change "In Retirement"?
I don't think so. If anything, we are apt to be even more conservative. When I run the firecalc models for both constant (inflation adjusted) spending and the Bernicke approach, we are fine. And I am a believer in the Bernicke approach. If we had to, I think we could live off of SS post-age 65. Pre-age 65, I fret that health care costs will crush us.

Life Expectancy
Me: SS says 78, but my Father lived well past that
Spouse: SS says 95

Again, one of us has a fairly serious illness (though being managed); if we both made it to 85, it might be a miracle. But for planning purposes, I run the models for 35 years.

Again, my big picture question: If we pulled the plug tomorrow (or, more accurately, Monday), would we be ok with a reasonable margin of safety, knowing that nobody can predict the future?

Thanks to all.

Regards,

WyomingLife

 

[cynicalbuthopeful]

First - welcome! Great first post. I am sure you will get a lot of feedback. Suggest you plug in your numbers to FireCalc and use that has a informer. I would also check out medicalsherpa.com to confirm your costs.

 

[Brat]

You could look at the state of WA. No income tax but they do pick your pocket in other ways. If you intend to do consulting in the state they have a nasty gross receipts tax so be aware. WA does have a sales tax which could bite when you replace your vehicles. The sales tax does vary slightly by county. The big question is the cost of health insurance. Group Health is now Kaiser and is available in NW Washington and in the WA counties in the Portland area. Otherwise, you have the usual list of insurers. Homes are much cheaper outside the Seattle commuting area.. like everywhere location, location, location. If you buy a home with a good septic system that is cheaper than on a sewer system but the health department wants to get folks on sewer systems (the sewer district on the south end of Bainbridge Island offers the best value.. I was a Commissioner when I lived there). Good luck finding heaven.

 

[Lukeee]

Don’t forget property taxes in your calculations.

I’ve gone through this exercise myself many times on the expense side for fear that I might have missed somethibg

 

[WyomingLife]

Thank you

(Hoping I am using the "reply" function correctly. IT sophistication isn't my strong suit.)

Thank you both so very much.

I've run FireCalc, and everything looks acceptable (90%+), but Pfau now has me thinking about other issues. Plus the typical unknowns -- health, federal taxes.

We are pretty much committed to living in current State (WY) and would only consider moving if disaster struck and we needed to flee to an even lower LCOL jurisdiction. I think we've settled in a fairly decent LCOL jurisdiction. We love it here.

 

[WyomingLife]

Lukee -- Thank you; I did neglect property taxes in the listing. Great catch.

Property taxes here are fairly low, too. Prorated, those would add about $100/month. So our worst case monthly number would now be $10,577 (including marketplace health insurance premiums but not including federal taxes).

 

[Dtail]

Can you manage your MAGI to be less than 400% FPL, so you can qualify for an ACA subsidy?
3K+ monthly is quite a bit of monies.

 

[Katiek]

Welcome. I think any retirement decision is likely to be somewhat unnerving and people who have been careful savers (and you obviously have) often have a hard time switching to saving.


Your monthly budget has a big cushion for house improvements, so I think you have some built in cushion. If fire calc and other models show you as OK with the cushion, you have some room for error (or extra medical costs).

 

[WyomingLife]

Dtail: Thank you so much. That is a great idea. The 2018 FPL for a family of two is $16,460. Times four = $65,840 annually, or $5,486 monthly. That might be in range, but I need to look at the ACA subsidy benefits (not sure how to do that, but I presume there is a table somewhere). Or maybe we could just guesstimate total premiums until we both get to 65 (and spouse gets there four years before I), withdraw that amount in Year 1, take the tax hit then, then use that account for premiums in Years 2-10, thereby lowering income in Years 2-10.

Katiek: Thank you kindly as well. The psychological aspect is challenging. I also recognize we pale in comparison to folks who are doing this a lot earlier in life, so we are fortunate. I stand in awe of the folks here. In the grand scheme of life, ages 55/59 really isn't all that "early", I suppose. We just need to manage it, and I need to stop fretting.

 

[Dtail]

Dtail: Thank you so much. That is a great idea. The 2018 FPL for a family of two is $16,460. Times four = $65,840 annually, or $5,486 monthly. That might be in range, but I need to look at the ACA subsidy benefits (not sure how to do that, but I presume there is a table somewhere). Or maybe we could just guesstimate total premiums until we both get to 65 (and spouse gets there four years before I), withdraw that amount in Year 1, take the tax hit then, then use that account for premiums in Years 2-10, thereby lowering income in Years 2-10.

Katiek: Thank you kindly as well. The psychological aspect is challenging. I also recognize we pale in comparison to folks who are doing this a lot earlier in life, so we are fortunate. I stand in awe of the folks here. In the grand scheme of life, ages 55/59 really isn't all that "early", I suppose. We just need to manage it, and I need to stop fretting.

Bolded - that is one way of doing it.
You can also check out healthcare.gov and type in "plans 2018" to check out current plans in your area. You can put in various MAGI numbers for your zip code and the site will produce the resulting premiums for 2 people and list what the tax subsidy is.
The results can be substantial. I use 150% of FPL for 2 people ages 58/57(which granted is low) in FLA and the total yearly premium for a full Silver Plan is $3,600. Without a tax subsidy the amount would be ~$23,000.

 

[WyomingLife]

Bolded - that is one way of doing it.
You can also check out healthcare.gov and type in "plans 2018" to check out current plans in your area. You can put in various MAGI numbers for your zip code and the site will produce the resulting premiums for 2 people and list what the tax subsidy is.
The results can be substantial. I use 150% of FPL for 2 people ages 58/57(which granted is low) in FLA and the total yearly premium for a full Silver Plan is $3,600. Without a tax subsidy the amount would be ~$23,000.

Wow, that's huge. I had no idea. Thank you for walking me through this, Dtail.

 

[treeofpain]

You have $3.5M worth of stuff. Congratulations, that is quite an accomplishment.


I doubt that we will see the preexisting condition part of Obamacare repealed. It would be political suicide.


One thing to consider is how your income needs may change as you enter retirement. Some folks say 80% of current, but that is simply a swag. It's good to dial this in based on your own situation.

 

[Dtail]

One last thing. See below for the rules of what constitutes MAGI.

http://laborcenter.berkeley.edu/pdf/2013/MAGI_summary13.pdf

 

[Hermit]

Bolded - that is one way of doing it.
You can also check out healthcare.gov and type in "plans 2018" to check out current plans in your area. You can put in various MAGI numbers for your zip code and the site will produce the resulting premiums for 2 people and list what the tax subsidy is.
The results can be substantial. I use 150% of FPL for 2 people ages 58/57(which granted is low) in FLA and the total yearly premium for a full Silver Plan is $3,600. Without a tax subsidy the amount would be ~$23,000.

If everything went south, you could afford the $23k/yr. The question is do you want to join DW in retirement. It is really your choice.

 

[WyomingLife]

One thing to consider is how your income needs may change as you enter retirement. Some folks say 80% of current, but that is simply a swag. It's good to dial this in based on your own situation.

Thank you so much, treeofpain. I am suspicious of "income" based approaches -- they don't seem analytical. I need to get better at Excel, I think, to come up with our own spreadsheet to dial-in a more refined analysis.

I also think we can rely upon a lower FireCalc success level, too (say, 60% vice 90%) because SS could, in theory, provide a non-trivial percent of living expenses by the time (if?) we made it to age 70. That conclusion was reached by David Blanchett in "The Impact of Guaranteed Income & Dynamic Withdrawals on Safe Initial Withdrawal Rates" (FPA). Pfau has/is doing a lot of interesting work on SWR's. I'm a big Pfau fan.

 

[EastWest Gal]

Also, use TaxCaster to estimate taxes. Without the W-2 income, your income tax will be based on your income from dividends and capital gains distributions as well as from capital gains from assets sold from your taxable account.

Until your income hits $77K, your income tax on qualified dividends and capital gains is 0%.

If your MAGI is under ~$65K, you will be able to get a huge subsidy on your health insurance as well. I know based on your numbers that your MAGI will be less than that. I’ve been doing these calculations over and over and my MAGI is $70K based on dividends and cap gains- ouch. But my taxable account and tax deferred accounts are the reverse of yours, so I know you will be pleasantly surprised by your low expenses in these two areas.

A couple of things I noticed about your expense estimates. First, you characterized your auto registration at $50/mo-shouldn’t that be an annual expense? Second, with both of you retired, do you really need a house cleaner? Third, shop around for cell phone plans. There are several smaller companies that use the big networks but cost a lot less. Fourth, consider dropping the term life insurance policy. You don’t need it. Fifth, I don’t understand needing a pickup truck for “safety”. Are you talking about ice and snow or buffalo or something else. You could have a smaller hybrid for summer and use the pickup for winter. I’m not sure I understand using a pickup in summer to drive to the mountains to hike as a necessity in summer. And you may not be driving nearly as much after retirement.

You have a nice cash cushion should things go south in the markets. I don’t think it’s too much cash and I wish I had the same. I’m working OMY to build my cash cushion and lower health insurance expenses.

You said you have high equity exposure. Realize that you can buy and sell in the tax-deferred accounts with no tax consequence. So you can rebalance your 401K and IRA to a different asset allocation immediately with no consequence.

All in all you are probably good to go. But I agree, the health insurance question is a huge one. It scares me too.

 

[COcheesehead]

You should have enough assets. Somethings to consider unless I missed them:
Dental
Auto replacement

You mention 180,000 in cash, but that is less than 2 years worth based on what you outlined. With your AA, you are open to sequence of returns risk. You might want to explore that more.
Good luck and keep us updated.

 

[WyomingLife]

Everybody here is so kind and wise. I cannot thank you all enough.

EastWest Gal: Great comments. I wasn't aware of TaxCaster; and generally, I need to get a lot smarter about the tax laws. The auto registration is annual; I had just converted all such annual expenses (to include homeowners insurance) to monthly. We could easily ditch the house cleaner, and I agree the term life insurance policy is not needed at this point. We will look for cell phone plans. Great observation about the vehicles, too. I keep thinking we're running a lean household, but if fact we're not.

COcheesehead: A thousand thanks to you as well. You are exactly right -- I haven't budgeted for auto replacement, and I was blithely assuming that dental would be covered by the ACA. Today, what I think I will do is, with respect to the qualified plans, do some rebalancing there (EastEast Gal: thank you) to bring the equity exposure down a bit, thereby reducing sequence of returns risk, as you wisely suggest.

 

[WyomingLife]

After years of using the tool, I just now noticed the following sentence at the bottom of the "Spending Models" tab on FireCalc: "Note: FIREcalc supporters can make yearly spending revisions throughout the duration of their plan." So I think I may do that today, too.

Long live FireCalc and this community.

 

[braumeister]

yesterday I watched Pfau's webinar on possible issues with the 4% rule/Trinity Study, so I fret about the assumptions underpinning that approach.

I've run FireCalc, and everything looks acceptable (90%+), but Pfau now has me thinking about other issues.

One small point, since you seem to be concerned with Pfau's thinking. He has some valuable points to make, but I believe it's important to remember that he is connected to the insurance industry (American College) and so has some built-in bias. Some here would call it a large bias, others not so much, but it's a fact to consider.

 

[joeea]

Ages
Me: 54
Spouse: 58

Gas prices are high, for example, because of the driving. Even going on a hike in the local mountains might burn 1/8 of a tank of gas or more.

Net Worth
$3.5M (including the house); $3.2 (excluding the house)

Expenses
Monthly Total: $7,077

So under a FIRE scenario, the monthly estimate above becomes $10,577 in Month #1.

In any event, the running total above is too low because it does not consider self-funded health care or federal taxes (again, no state income tax in Wyoming).

SS
The following are rounded estimates from the SS website:
Me (claim at 70): $35,000 annually (this already takes into account leaving the workforce early)
Spouse (claim at 62): $15,000 annually

Will Our Lifestyle Change "In Retirement"?
If we had to, I think we could live off of SS post-age 65.

Life Expectancy
Me: SS says 78, but my Father lived well past that
Spouse: SS says 95

With $3.2M you should be fine in any situation. Don't be so worried.

- Are you sure "SS says 95" for longevity? I've never seen anything connected with Social Security that would make a prediction that far out.

- If you truly could "live off SS post age 65" then how could you possibly be worried. There are no circumstances I can think of that would consume all of your portfolio between now and 65.

- gas prices? You can't truly be worried about that can you?

Perhaps you aren't really sure you want to retire? And it's causing a mis-directed anxiety about finances? Is your spouse pressuring you to retire now? Just because you can retire, that doesn't mean you should.

 

[WyomingLife]

One small point, since you seem to be concerned with Pfau's thinking. He has some valuable points to make, but I believe it's important to remember that he is connected to the insurance industry (American College) and so has some built-in bias. Some here would call it a large bias, others not so much, but it's a fact to consider.

Very helpful, thank you. I hadn't focused on that.

 

[WyomingLife]

With $3.2M you should be fine in any situation. Don't be so worried.

- Are you sure "SS says 95" for longevity? I've never seen anything connected with Social Security that would make a prediction that far out.

- If you truly could "live off SS post age 65" then how could you possibly be worried. There are no circumstances I can think of that would consume all of your portfolio between now and 65.

- gas prices? You can't truly be worried about that can you?

Perhaps you aren't really sure you want to retire? And it's causing a mis-directed anxiety about finances? Is your spouse pressuring you to retire now?Just because you can retire, that doesn't mean you should.

Thank you for the comforting words -- and non-financial observations.

(1) I did misspeak as to life expectancy. It wasn't the SS estimator, as I had erroneously stated, but instead is the online "Lifespan Calculator" at nmfn. When we answer the questions, it spits out 95.

(2) As to gas prices, I have been imprecise here, too. I'm not worried about gas prices, though my original post effectively suggested that. Gas consumption does jump out as one of the negatives of living here, that's all.

Many thanks.

 

[street]

^ I can agree gas prices does and can effect the bottom line. Living in the west and remotely can cost a bunch. To do anything is 100 miles this way or that way and then back again. LOL I spend a lot on gas and when it was 4 plus a gallon it did make a difference.

 

[MRG]

You sound like I did. Relax you'll be fine.

Your only real issue is health insurance. Many of us are in the exact situation with preexisting conditions. Yeah, it's expensive. Policy for me, 61 M, is supposed to be $1850 monthly. I pay less than $400 by playing the subsidy game. Understanding how the subsidies work might help make some choices, like stocking up on cash.