We have $8 million saved for retirement, are in our early 50s and want to retire early, but are worried about healthcare expenses — what can we do?

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Dear Marketwatch,

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My wife and I are 50 and 52 years old and live in Boston. Our current combined annual income is approximately $400,000. We have approximately $6 million in non-retirement investments (stocks, bonds, cash). Another $2 million is invested in 401(k) plans. Our house has been fully paid for and we do not have any other responsibilities.

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Our annual expenses range between $100,000-$150,000, depending on the type of vacations we take.

1. Based on these numbers, can we retire early (in the next few years) and age wisely?

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2. A big unknown is the cost of health insurance. We currently get our health insurance through our employer which is a very generous PPO plan that allows us to see any specialist without a referral. I’m not sure if there are insurance plans we can buy that can offer a similar kind of flexibility. How can I know more about this?

SP

I am 56 years old, my husband is 57 and retired. We have about $750,000 saved and a military pension. I’m tired of ‘working in America.’ Can I retire in three years?

Dear SP,

Congratulations on amassing such a strong retirement nest egg – $8 million is a true accomplishment.

Often, when I answer letters like yours where that person has millions of dollars saved, I get responses from other readers who are disappointed because they think all this money will make retirement an absolute breeze. The truth is that money certainly helps – there’s no question about it – but if you don’t have the right plans and security, or you don’t keep some sort of reasonable budget, you’ll need to live within your means. , you may be at risk of missing out on your retirement as well. There are too many surprises that can derail your goals, just as they can for anyone.

There are a few things you should think about before retiring early, even if based on the numbers you’ve provided and the fact that your annual expenses align well with your total savings, you may be in “very good shape”. should be in,” said Leyla Morgillo, a certified financial planner at Madison Financial Planning Group.

“Retiring early requires careful monitoring because there are many variables that can throw them off track – market volatility, low investment return environments, high inflation or high taxes, to name just a few,” she said. .

Because you’ll be relying heavily on the investment markets for your income, you need to make sure your portfolios meet your goals and needs, and react accordingly when they don’t, she said. For example, if the market drops significantly in one year, try to cut your discretionary spending so you don’t dip into your investments too little — they’ll already come back because of volatility, and you want to. are there to keep as much of it there as possible when the market bounces back.

Plus, said James Guarino, certified financial planner and managing director at Baker Newman Noyce, “retirement isn’t one more complete event.” Your annual expenses should be calculated and assessed every year anyway.

Morgillo said you didn’t mention whether you expect to have any other income streams once you retire, but it’s something you should think about. Having multiple sources of income is always safer than one, but especially when the main source is in an investment portfolio.

Of course, that doesn’t mean you’re in danger if you’re about to retire now. far from it. Edward Jastrem, a certified financial planner and director of financial planning at Heritage Financial, ran a very basic test in his financial planning software with a few assumptions: that you retire now and receive no more earned income, out. Choose the tab for -off-pocket health care costs, have a “balanced” portfolio with investment returns, see general inflation of about 1.92% and health care cost inflation of 6%, marginal for Social Security benefits at full retirement age Get the estimate, and that determines your life expectancy by age 95. They didn’t account for any other lump-sum expenses or specific income tax statements. This scenario was just to see, with very basic information, what you might look for in an early retirement.

Jastrem found that the plan looked healthy, as most people would have assumed. But there is more to analyze, he and other financial advisors said. Take for example the actual investment itself.

“The biggest risk for this couple is a lack of productivity from their assets,” said Alex Klingelhofer, a certified financial planner and wealth advisor at Accentual Wealth Advisors. “I often see people who are too conservative with their investments, who are too aggressive. In fact, I would say that on average 90% of clients who come to me with this position are those with low investments. Huh. ”

There are plenty of investment strategies that an advisor can suggest that will allow you to continue spending in early retirement while making money work for you for decades to come. Keep in mind, these points here are just the beginning. With so many assets and goals in place for more than a decade before your full retirement age, there are a number of ways a financial planner can make all the difference for your specific situation. If you’re not interested in working with a financial advisor on a regular basis, you can find one who charges on an hourly basis, or plan to meet only annually or biennially. They will be very well versed in what your next steps should be.

Klingelhofer suggests reviewing your asset allocation, along with the actual location of your investments and the tax implications of this. For example, traditional 401(k) plans are not taxed until withdrawal. “When our retirement accounts increase, we are also increasing our future tax liability at regular income tax rates,” he said. “When we increase assets in taxable accounts, we have increased capital gains tax rates, which are currently 10-15% lower than regular income tax rates.”

“Ultimately, investing is about both what you earn and what you keep,” he said. “By having a better asset location, we can enhance the what-we-keep side of the ledger, and Uncle Sam doesn’t get that much of our hard earned money.”

Tax diversification is as important as asset diversification. When withdrawing, try to avoid jumping into a higher tax bracket than necessary and use Roth conversions when appropriate, Garino said.

Check out the Businesshala column “Retirement Hacks” For actionable advice on your own retirement savings journey

You mentioned that health insurance was a main concern, and I can see why. Health care costs increase every year, and they only get more expensive as a person ages. You can look in your state’s health insurance market for insurance options.

John Scherer, a certified financial planner, said, “The good news is that with the exchange these days, health care coverage is a matter of being an added expense in retirement and it doesn’t matter if a person gets coverage in the first place. Or not.” and founder of Trinity Financial Planning. Based on a quick look at what was available at the highest priced premium (platinum level coverage) in the Boston area, health insurance for two would cost around $2,500 a month, or about $30,000 a year.

The good news: You can afford it without worrying about pulling out a lot of money in early retirement, Klingelhofer said. “Given their comfortable spending level, there is certainly room in their budget for a premium health care plan if they choose to buy one,” he said.

You should also carefully consider what insurance you’ll need, such as long-term care coverage, as well as the home, auto, and umbrella policies you’ll need before you retire, Jastrem said. Not everyone is a fan of long-term care insurance, as it can be expensive and eventually not everyone will need it in their old age, but if you’re self-insured, looking at it — if only in the plan — may be worthwhile. could. And don’t forget to create an estate plan with important documents like healthcare proxies and wills, and more to make sure your assets pass out the way you want.

Be prepared to be flexible in the future, and understand what or where you want to change and how it will affect your retirement as well as your financial picture, Garino said.

“Will they be able to maintain their home or do they want or need to move to the retirement community?” he said.

The last thought I’ll leave to you (there are a lot of things to talk about when discussing retirement planning) is something I tell everyone: Think carefully about what you’ll do with your time in retirement. Early retirement isn’t for everyone – some people absolutely love it, while others find themselves bored and back in the workplace in a few years. If you retire together, expect to make some daily adjustments if you’re not used to spending that much time together at home. One of my favorite pieces of advice for couples retiring together is to create an “activity jar” with each person suggesting different things they’d like to do on any given day, like going to a museum, trying a new restaurant, exploring. Do the next state and so on. You may also want to look into volunteering or counseling work, which brings joy to many retirees.

“If they retire too young, most of their friends will still be working, so they risk not having ‘someone to play with’ in retirement,” Scherer said.

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