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Wife and I have close to $3M in stocks, bonds, cash, annuities, 401K, etc. We would be 60/64 in 2020,or 61/65 in 2021 so we would still not be eligible for full SS, or medicare, so we would need to purchase Health Insurance until we both hit 65. We are estimating we would need about $120k/net per year for our lifestyle. My wife would take her SS at FRA, of 66.5, and I would try to wait til 70 to maximize mine. Trying to figure out if we have enough to pull the trigger and retire, without worry? There will be some inheritance down the line, hopefully way down, but we can estimate that at about $500K conservatively. I have done so many calculators and Monte Carlo simulators and some say we are fine, others say we still don’t have enough. So many of you are more knowledgable than me on this, I thought I would ask. Thanks.
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Does the $120K include an estimate for health insurance?

Can you keep your income below $65,840?, in order to get an ACA subsidy?

https://www.healthcare.gov/glossary/federal-poverty-level-FP...

Question for the board: How does the ACA work when one spouse is on Medicare? Would they need to keep household income below $48,560? to get a subsidy?
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Not possible to even begin to answer your question without seeing the same data you used (like the specifics on income, not just the age at which you might get it) in your various simulations.

Even then, if you have run various Monte Carlo simulations, then I am not confident that we can be any more informative to you on a message board. The output of the MC simulation is only going to be as good as the data and assumptions you put in - and there is no way we can do a better job simulating such.

At best, we might question some of the assumptions you used for the simulation.

With a NW of $3 million, perhaps it would be worthwhile to meet with a professional if you still are not convinced of your own calculations?
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How does the ACA work when one spouse is on Medicare?

No difference than any other married couple.

https://www.healthcare.gov/income-and-household-information/...

Whose income to include in your estimate

For most people, a household consists of the tax filer, their spouse if they have one, and their tax dependents, including those who don’t need coverage.


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No Adrian, I don’t think we could keep our income below that threshold, so we would include the cost for health insurance for myself, until I am 65, and my wife until she turns 65, and then for medicare supplement costs. I have included this in my net of $120,000.
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Wife and I have close to $3M in stocks, bonds, cash, annuities, 401K, etc.

I'm concerned that you are lumping annuities in with your stocks, bonds and cash, which are investable assets. A 401(k) is just another type of account to hold investable assets (stocks, bonds and cash). But annuities are not investments - no matter what the salesman told you. They are a promise to provide you income from the capital you gave to the insurance company. So if you tell the insurance company that you want to start drawing the income in (pick the year you want to retire) and to continue drawing it until both of you die, what is the income you will receive from that? How much will the income go down if they promise to increase the income by inflation each year?

We would be 60/64 in 2020,or 61/65 in 2021 so we would still not be eligible for full SS, or medicare, so we would need to purchase Health Insurance until we both hit 65. We are estimating we would need about $120k/net per year for our lifestyle.

What is the $120k 'net' of? If that's just spending, then you need to gross the needed income up by taxes to get what your gross income requirement will be, since taxes need to be included in your spending.

As far as health insurance, have you priced ACA coverage in your area? If that's not included in the $120k net, you will need to add an estimate for that, too. As AdrianC noted, if you can keep your total income (taxable income, plus non-taxable income, like SS, tax-free interest from bonds, etc.) below 400% of the Federal Poverty Level ($65,840 for a family of 2 in 2019), then you can qualify for an ACA subsidy. But even if you can't qualify for a subsidy, you probably want to look at ACA coverage costs for an estimate of how much you may need to pay for health insurance.

Trying to figure out if we have enough to pull the trigger and retire, without worry?

Not enough information provided to know. Based on the 4% safe withdrawal assumption, a $3MM portfolio with a stock/bond mix of somewhere between 60/40 and 40/60 should provide $120k in gross income, before taxes. But you don't have a $3MM portfolio to draw from, because some of your $3MM is apparently in annuities, not in investable assets. And you say you need $120k net - presumably net of taxes.

However, you apparently aren't accounting for the income that SS will provide - which could probably cover the taxes, once you start drawing on SS.

Based on the information you provided, I would agree with the simulators you've asked. It might work. It might not. A lot depends on how much you would be willing to cut your lifestyle if things go wrong - so is the $120k a minimum, or does that include things that could be ditched (travel, meals out, costly hobbies, etc.) if you needed to cut your lifestyle?

AJ
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How does the ACA work when one spouse is on Medicare? Would they need to keep household income below $48,560? to get a subsidy?

The subsidy is based on total family size, not on members of the family who are getting ACA insurance. So, as long as both are still alive and MFJ, with no other dependents, they could get a subsidy if their total income was below 400% of the Federal Poverty level for a family of 2 - $65,840 in 2019, and likely to increase some each year.

Note that 'total income' adds in non-taxable income, like any SS that's not taxed, and interest from tax-free bonds. Also note that if you go $1 over the limit, the subsidy disappears.

AJ
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The subsidy is based on total family size, not on members of the family who are getting ACA insurance.

Thanks. (We're all on ACA in my family).

Also note that if you go $1 over the limit, the subsidy disappears.

I know all about that... :-(
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I'm concerned that you are lumping annuities in with your stocks, bonds and cash, which are investable assets. A 401(k) is just another type of account to hold investable assets (stocks, bonds and cash). But annuities are not investments - no matter what the salesman told you.
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Actually, for many people they are investments. You describe the old-style fixed annuity arrangement. But I think most people who have annuities these days have a variable tax-deferred annuity. And the underlying return comes from usually one or more mutual funds packaged inside the annuity "wrapper" for the tax deferral aspect. Most people who bought them did so for that reason, and you can put a lot of money into a TDA as opposed to a nondeductible IRA. After purchase, they work a lot like a nondeductible IRA. You can generally withdraw as much as you want, when you want. The withdrawals are fully taxable to the extent of accumulated income. Principal comes out last. This is different than a traditional fixed annuity.

But I would also want to know more about the amounts and terms of the annuity contracts, as much as to the flexibility involved as anything. Some companies work much more smoothly than others.

Bill
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Petrus 36
There are too many variables in your equation to do anything but speculate on what you should consider in your planning. Issues such as account titling, taxation of investment income, upcoming significant financial events, liability insurance to protect attachable assets, management of fixed investment products, timing of SS benefits, LTC planning, household debt management....all of these things, and more, need to be addressed as a single household, not piecemeal.

Professional assistance was mentioned previously. I'd second that. You have one chance to get this right. Spend some bucks and get it right before you start. I'd suggest you Google to the Garrett Financial Planning network and find an hourly CFP or CPA/PFS in your area who will take you as a FP client. This arrangement is the least conflicted in an industry where conflicts of interest are the standard.

BruceM
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But annuities are not investments - no matter what the salesman told you. They are a promise to provide you income from the capital you gave to the insurance company.

A deferred annuity is not substantially different than a CD - which is an investment.

The vast majority of deferred annuities are never annuitized. They are used as glorified tax deferred savings accounts. Only a small percentage are ever used for actual guaranteed income.

https://www.thebalance.com/all-about-deferred-annuities-2389...

Fixed Deferred Annuity

A fixed deferred annuity works much like a certificate of deposit; except, instead of having to claim the interest income on your tax return each year, the interest is deferred until such time as you take a withdrawal from the annuity contract. When you purchase a deferred fixed annuity, the insurance company will tell you the guaranteed interest rate your funds will earn.

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"Wife and I have close to $3M in stocks, bonds, cash, annuities, 401K, etc. We would be 60/64 in 2020,or 61/65 in 2021 so we would still not be eligible for full SS, or medicare, so we would need to purchase Health Insurance until we both hit 65. We are estimating we would need about $120k/net per year for our lifestyle. My wife would take her SS at FRA, of 66.5, and I would try to wait til 70 to maximize mine. Trying to figure out if we have enough to pull the trigger and retire, without worry? There will be some inheritance down the line, hopefully way down, but we can estimate that at about $500K conservatively. I have done so many calculators and Monte Carlo simulators and some say we are fine, others say we still don’t have enough. So many of you are more knowledgable than me on this, I thought I would ask. Thanks. "

******************************************************************

Just in passing, DW and I had also estimated retirement spending needs as $120000 - but
we have found that our actual expenses are lower - more on the order of $80000 to $85000.
We overestimated how much we would spend on all fronts - and that includes healthcare and
housing costs. We have not moved from the area where we lived - although we had a special
allocation set aside to cover that potential.

Spending is quite and individual thing and what one experiences will not hold for another - but
checking over the budget is a good thing. A $3 million nest-egg is a great place to be - and
you should have options that others will not have. Good luck and congrats.
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BruceCM: "find an hourly CFP or CPA/PFS in your area who will take you as a FP client"

Bruce - what is a PFS - acronym finder listed 80+ alternatives? Also what is an FP client? Full Pay?

Regards, JAFO
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JAFO31 asks,

what is a PFS - acronym finder listed 80+ alternatives? Also what is an FP client? Full Pay?

</snip>


PFS is a Personal Financial Specialist. It's an alphabet soup designation conferred by the American Institute of Certified Public Accountants (AICPA). The AICPA regards it as competitive with the Certified Financial Planner credential.

https://www.aicpa.org/membership/join/pathway-pfs-credential...

FP is a Financial Planning client, though I suppose "full pay" is equally descriptive of the relationship. <LOL>

intercst
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intercst:

JAFO31 asks,

What is a PFS - acronym finder listed 80+ alternatives? Also what is an FP client? Full Pay?

</snip>

"PFS is a Personal Financial Specialist. It's an alphabet soup designation conferred by the American Institute of Certified Public Accountants (AICPA). The AICPA regards it as competitive with the Certified Financial Planner credential.

https://www.aicpa.org/membership/join/pathway-pfs-credential...


Thanks.

"FP is a Financial Planning client, though I suppose "full pay" is equally descriptive of the relationship. <LOL>"

I thought F might be for fiduciary, but could not think or find any P-word that made sense with it.

Regards, JAFO
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Get out! No, seriously, get out of the USA. Move to Costa Rica, Mexico, Columbia, Spain, Portugal, or [insert *International Retirement* websites here].

Visit first (read: have some fun), check out health care options, and pull the trigger. This assumes you are not too spoiled and happy where you live (that could happen).

Money
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I don’t think we could keep our income below that threshold [$65k], so we would include the cost for health insurance for myself, until I am 65, and my wife until she turns 65, and then for medicare supplement costs. I have included this in my net of $120,000.

OK. Well, in my mind there's no doubt you could retire...you have $3M fer cryin' out loud!

You just might have to be a bit less spendy than you want, some years.
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AdrianC writes,

OK. Well, in my mind there's no doubt you could retire...you have $3M fer cryin' out loud!

</snip>


I think it depends on where you live and what you're accustomed to.

A nest egg of $3 million is a King's ransom in rural Georgia, but it won't fund what most people consider to be a middle-class lifestyle in San Francisco.

intercst
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There will be some inheritance down the line, hopefully way down, but we can estimate that at about $500K conservatively.

You should conservatively estimate this inheritance to be $0. NEVER count it getting one, things change. If you do get something, consider it an unexpected windfall.

JLC
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Wife and I have close to $3M in stocks, bonds, cash, annuities, 401K, etc. We would be 60/64 in 2020,or 61/65 in 2021 so we would still not be eligible for full SS, or medicare, so we would need to purchase Health Insurance until we both hit 65. We are estimating we would need about $120k/net per year for our lifestyle. My wife would take her SS at FRA, of 66.5, and I would try to wait til 70 to maximize mine. Trying to figure out if we have enough to pull the trigger and retire, without worry?

Make a spreadsheet:
-Year/Age in first column (go out to a reasonable long term...I used age 95)
-Base expenses in next
-Health insurance in next
-Other income (SS + pension +?) in next
-Add/Subtract to get your annual need
-Apply an interest rate reduction to the "annual need" column (to show that the amount you need today for an outyear is reduced by the interest rate)
-Sum that last column to get what you need in today's dollars.

Even if you can't do the interest rate, you'll see that you need to self-fund a lot of money in the first couple years, then less when you hit Medicare, then less still when you start collecting social security. In fact, you can use this spreadsheet to see the impact of different years of SS claiming strategies.

Although this doesn't account for "sequence of returns risk," it's a good way to see which assumptions barely move the needle and which ones swing it like crazy.

My assumptions have been:
-Health insurance at $20K per year when self-paid, $7K per person for Medicare, 1.3% is a fairly worst-case interest rate. (If you don't do the interest rate column, then you're essentially using 0%.)

If you each have 140 quarters of full-time employment (35 years) to be getting a good SS payout, I can't believe 3 Million isn't enough to pull the trigger at 61/65 if not earlier. Also, take a closer look at your expenses--are there some things you could cut back or do without in case of a market pullback? Can you decide if that risk is worth retiring a year earlier?

I also am managing for the worst-case scenario so that I don't retire early and then discover I don't have enough in my 70s. But the realistic case is that I'll probably work that extra year and then end up with more money than I started.
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Thanks for the response, of course we have done spreadsheet upon spreadsheet, and do have financial advisors that say we are fine, although they would like us to wait for 2021 just to get another year of 401K, and health insurance provided by our companies. We do live in an expensive state, due to elderly parents being there and nobody willing to move. We are slated for one of us to retire at FRA and get $2600/month, and for the younger to try to wait til age 70 and collect $3700/month, of course barring any changes to SS cuts that might be brought on by Govt. I guess I just wanted to hear from some of you that have already pulled the trigger, that YES, you are on track, should be fine, or NO, I would wait a bit longer as the money doesn’t go as far as it used to. We would want to travel while we are young and healthy to do so, so we are not looking to cut back on anything in a perfect world, which we know it is not.
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"I think it depends on where you live and what you're accustomed to.

A nest egg of $3 million is a King's ransom in rural Georgia, but it won't fund what most people consider to be a middle-class lifestyle in San Francisco.

intercst "

********************************************************************

Which is one reason God designed humans with two legs.

Go elsewhere young man - lady - child.

Change is not always for the worse.
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Wife and I have close to $3M in stocks, bonds, cash, annuities, 401K, etc. We would be 60/64 in 2020,or 61/65 in 2021
.
.
.
We are slated for one of us to retire at FRA and get $2600/month, and for the younger to try to wait til age 70 and collect $3700/month, of course barring any changes to SS cuts that might be brought on by Govt.


So, your wife is older, will be 66.5 in 2022 or 2023, and will start collecting $2600/month then, and you are currently 59, and will start collecting $3700/month in 2030, or 11 years.

That means that if you were to retire in 2020, you would need to cover $120k in expenses, including taxes, from your $3MM portfolio for 3 years. Then for another 7 years, you would need to cover $90k from your portfolio, since ~$30k would be covered by her SS. Beginning in 2030, ~$75k of your expenses would be covered by your combined SS. Even if there are 25% cuts in SS beginning in 2033, you would still get $56k from SS, meaning you would need to cover $64k from your portfolio.

The highest percent that you will need to cover from your portfolio in retirement is 4% for the first 3 years. Then it drops to 3%, and then to something around 2%, depending on what you think will happen with SS.

I'd say you'd be fine to retire tomorrow, if:
- You are confident in your expenses
- You will be able to pull enough from your portfolio without incurring penalties until you are both 59 1/2

I'd even say that if a large portion of your portfolio is in Traditional accounts, that you might want to look at having both of you wait until 70 to collect SS, and take the extra 3 years to spend more from the Traditional, and/or do Roth conversions.

AJ
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...Then for another 7 years, you would need to cover $90k from your portfolio...

Seems like I read that they were including very expensive health insurance premiums into the 120K a year of expenses. If that is the case, wouldn't the expenses for the years from 65 to 70 drop dramatically?

Gup
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Seems like I read that they were including very expensive health insurance premiums into the 120K a year of expenses.

The OP indicated that health insurance premiums were included in the $120k. There were suggestions to see if they could decrease their income enough to qualify for an ACA subsidy, and the OP said that it probably wasn't going to be possible to do that. That said, they didn't say how expensive their estimate was.

If that is the case, wouldn't the expenses for the years from 65 to 70 drop dramatically?

But they didn't say that their income needs would decrease when they went on Medicare, so I didn't want to assume that would be the case. It could be that they plan to spend the money on something else.

AJ
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