I told him to Retire! - How to Convince A Friend It's Too Early To Retire

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MrCheapo
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I told him to Retire! - How to Convince A Friend It's Too Early To Retire

Post by MrCheapo »

[Edit: Thanks to Printer86 and a few other members I got enough information to pass along to him that the ACA means he won't spend oodles on health care.] Thank God for ACA! But I still think it's not as clear cut as it seems. $3500 out of the $4500 pension has only 25% survivor benefits. So if he dies first his widow has to live on about $1850 pension fund plus draws from the retirement account. Thanks to all.

I have a friend who seems to be too eager to retire. Any ammunition to help put him off apprieciated! He's just sick of working.

He's 52, wife 53 together will draw a $4500 a month pension.
tIRA is $850K
Home is worth $700K but they owe $100K
After tax investments are $1M

He insists his expences will be $5K a month but I think I've won the argument they will be at least $7K (he's a bigger spender than me). He won't have health insurance for 13 years and he hasn't even considered that.

So my reasoning is he'll need to generate income of $105K (about $20K for local and state taxes) so about $9K a month half of which is covered by the pension. Drawing 3% of the tIRA and investments gives you the other half.

But there are two major issues which is why I'm suggesting he doesn't retire:

1) He has no health insurance for 13 years. That's going to cost a lot of money and its highly unpredictable isn' t it?
2) His pension has only has 25% survivor benefits and it comprimses $3500 of the $4500 pension.
Last edited by MrCheapo on Tue Sep 14, 2021 4:41 pm, edited 3 times in total.
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Doom&Gloom
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Re: How to Convince A Friend It's Too Early To Retire

Post by Doom&Gloom »

It sounds as if you have spoken your piece. I would call it a day and keep my friendship.
dailybagel
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Re: How to Convince A Friend It's Too Early To Retire

Post by dailybagel »

Doom&Gloom wrote: Tue Sep 14, 2021 10:19 am It sounds as if you have spoken your piece. I would call it a day and keep my friendship.
I agree. You reminded your friend of the need to purchase health insurance, which is a great service.
WAROB
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Re: How to Convince A Friend It's Too Early To Retire

Post by WAROB »

By boglehead standards they might not be there but compared to most Americans they are still way ahead. Can always go back to work, downsize to a LCOL area etc. I’d let sleeping dogs lie on this one and congratulate your friend on his retirement.
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Re: How to Convince A Friend It's Too Early To Retire

Post by sailaway »

Will they be eligible for SS or subject to WEP?

Why do you think they should have a withdrawal rate lower than the expected perpetual withdrawal rate?

What is the status of ACA in their state?

Frankly, I am not convinced based on the evidence you have presented here. Even if I were, I would agree with the previous responders that it really isn't your business to go around convincing other people how to live their lives.
quantAndHold
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Re: How to Convince A Friend It's Too Early To Retire

Post by quantAndHold »

I’m having trouble with the math. Given those numbers, I’m having trouble seeing where $20k in state and local taxes comes from.

I agree that he’s probably underestimating spending. But with a $4,500/month pension and $2m+ in assets, they they’re probably fine anyway, even at the higher level of spending.
Yes, I’m really that pedantic.
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mhc
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Re: How to Convince A Friend It's Too Early To Retire

Post by mhc »

There is not enough information to determine if it is too early or not.

What about social security? Does the pension have COLA increases?

Your friend may have enough to retire. NW of $2.5 million with a pension and probably social security. People retire with a lot less all the time.
HomeStretch
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Re: How to Convince A Friend It's Too Early To Retire

Post by HomeStretch »

Doom&Gloom wrote: Tue Sep 14, 2021 10:19 am It sounds as if you have spoken your piece. I would call it a day and keep my friendship.
+1

Perhaps you could suggest some tools that your friend can use to fine tune his estimated retirement income and expenses and to evaluate when he can retire:
1. SSA.gov and opensocialsecurity.com to estimate SS benefits and claiming strategy
2. Estimate retirement expenses including using the ACA Healthcare Exchange and Medicare.gov to estimate healthcare premiums.
3. Run his numbers through FireCalc
4. Register with this forum and post in the “Asking Portfolio Questions” format and include information on retirement income/expenses.

Edit - if you haven’t already, send a link to this thread to your friend. The various perspectives and feedback will likely be helpful to your friend and the retirement decision.
Last edited by HomeStretch on Tue Sep 14, 2021 12:29 pm, edited 2 times in total.
Californiastate
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Re: How to Convince A Friend It's Too Early To Retire

Post by Californiastate »

How will they spend their free time? Do they have inexpensive hobbies because extensive travel isn't in the budget.
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crystalbank
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Re: How to Convince A Friend It's Too Early To Retire

Post by crystalbank »

So 1.8M in investments and 0.6M home equity along with $54k yearly pension and they still CAN'T retire? :confused
oldfatguy
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Re: How to Convince A Friend It's Too Early To Retire

Post by oldfatguy »

I'd retire today with those numbers.
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Re: How to Convince A Friend It's Too Early To Retire

Post by Escapevelocity »

quantAndHold wrote: Tue Sep 14, 2021 10:27 am I’m having trouble with the math. Given those numbers, I’m having trouble seeing where $20k in state and local taxes comes from.

I agree that he’s probably underestimating spending. But with a $4,500/month pension and $2m+ in assets, they they’re probably fine anyway, even at the higher level of spending.
+1

I think it is you OP that needs some correcting and assumptions are off (like taxes and cost of health insurance with ACA subsidies)/
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ResearchMed
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Re: How to Convince A Friend It's Too Early To Retire

Post by ResearchMed »

MrCheapo wrote: Tue Sep 14, 2021 10:16 am I have a friend who seems to be too eager to retire. Any ammunition to help put him off apprieciated! He's just sick of working.

He's 52, wife 53 together will draw a $4500 a month pension.
tIRA is $850K
Home is worth $700K but they owe $100K
After tax investments are $1M

He insists his expences will be $5K a month but I think I've won the argument they will be at least $7K (he's a bigger spender than me). He won't have health insurance for 13 years and he hasn't even considered that.

So my reasoning is he'll need to generate income of $105K (about $20K for local and state taxes) so about $9K a month half of which is covered by the pension. Drawing 3% of the tIRA and investments gives you the other half. But again this ignores health insurance for 13 years.
"Too eager"??
That's really up to them, not you.
We each have different preferences and priorities.
And I certainly agree with others that they seem to be well set, at approximately the level they plan, and especially if there is any SS coming in later.
If they have to cut back a bit at some point, but HATED working... that sounds good, too. Many people have probably made such a choice.

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BlueCable
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Re: How to Convince A Friend It's Too Early To Retire

Post by BlueCable »

If the pension has a 100% survivor benefit, it looks pretty safe to me, especially if they are expecting social security.

If the pension stops upon the retiree's death, retiring now is cutting it pretty close if expenses can't be cut back.
pizzy
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Re: How to Convince A Friend It's Too Early To Retire

Post by pizzy »

Your friend can absolutely retire.
KlangFool
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Re: How to Convince A Friend It's Too Early To Retire

Post by KlangFool »

OP,

What is the problem? If your friend wants to retire and this is his highest priority in life, he will make it work. If he is forced to spend less, he would. With 54K per year of pension and a nearly paid off house, he will not be living in poverty by any mean.

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IMhooked
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Re: How to Convince A Friend It's Too Early To Retire

Post by IMhooked »

Does YOUR concern come out of YOUR fear? It's his path and as a friend you should respect it. His path might wind different than yours but let him discover his own as he wishes. He's obviously given it some thought and isn't being haphazard in his thinking. He has a life partner as well and together they will adjust their sails based on the winds that prevail. As a friend he's probably looking for your excitement and support regardless of your belief. Share your thoughts but be supportive.
keystone
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Re: How to Convince A Friend It's Too Early To Retire

Post by keystone »

KlangFool wrote: Tue Sep 14, 2021 10:39 am OP,

What is the problem? If your friend wants to retire and this is his highest priority in life, he will make it work. If he is forced to spend less, he would. With 54K per year of pension and a nearly paid off house, he will not be living in poverty by any mean.

KlangFool
I agree.

It's not like most retirees stay on a fixed withdrawal rate, keep it on auto-pilot and then realize suddenly they are down to zero dollars. Circumstances will change along the way. I think they have a pretty high likelihood of success. They have made it this far, so they must possess a good deal of financial literacy.
Last edited by keystone on Tue Sep 14, 2021 10:45 am, edited 1 time in total.
hoofaman
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Re: How to Convince A Friend It's Too Early To Retire

Post by hoofaman »

They sound pretty flush compared to most people.

My in-laws will only have SS for income, and then 100k pre-tax saved and about 100k in home equity. One is waiting until age 70 to start taking SS , but he probably won’t be able to work until age 70, maybe late 60s
Last edited by hoofaman on Tue Sep 14, 2021 10:46 am, edited 1 time in total.
Marseille07
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Re: How to Convince A Friend It's Too Early To Retire

Post by Marseille07 »

I think the OP's math is wrong regarding $20K for local and state taxes. There's no way withdrawing 100K LTCG would be taxed 20K.

The friend has enough to retire; not by a large amount, but enough nonetheless.
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KlangFool
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Re: How to Convince A Friend It's Too Early To Retire

Post by KlangFool »

OP,

My annual expense including mortgage plus medical insurance while I was unemployed is only 60K per year.

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Re: How to Convince A Friend It's Too Early To Retire

Post by sailaway »

Marseille07 wrote: Tue Sep 14, 2021 10:46 am I think the OP's math is wrong regarding $20K for local and state taxes. There's no way withdrawing 100K LTCG would be taxed 20K.

The friend has enough to retire; not by a large amount, but enough nonetheless.
Maybe they thought friend wasn't including property taxes in their expenses?
Juice3
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Re: How to Convince A Friend It's Too Early To Retire

Post by Juice3 »

Marseille07 wrote: Tue Sep 14, 2021 10:46 am I think the OP's math is wrong regarding $20K for local and state taxes. There's no way withdrawing 100K LTCG would be taxed 20K.

The friend has enough to retire; not by a large amount, but enough nonetheless.
Not sure why everyone is beating up OP on taxes. This alone
Home is worth $700K
could generate most of 20K in taxes.

Income tax is 1 of many.
ponyboy
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Re: How to Convince A Friend It's Too Early To Retire

Post by ponyboy »

OP...how old are you and can you retire right now if you wanted? I have a feeling you have some resentment towards your friend. Their numbers are fine and they can retire if they want. In general, people have this idea that you must retire at 65. I dont get it.
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Re: How to Convince A Friend It's Too Early To Retire

Post by Escapevelocity »

ponyboy wrote: Tue Sep 14, 2021 10:55 am OP...how old are you and can you retire right now if you wanted? I have a feeling you have some resentment towards your friend. Their numbers are fine and they can retire if they want. In general, people have this idea that you must retire at 65. I dont get it.
Lots of truth here. I have a friend who is 53 years old, single, doesn't spend money and has north of $4M in investments. He plans to work to age 62 even though he hates his job. I asked him why and he said he was too young to retire.
dukeblue219
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Re: How to Convince A Friend It's Too Early To Retire

Post by dukeblue219 »

Personally I wouldn't ever try to convince someone to delay retirement unless I was worried they would become destitute. If they follow your advice and work another 5 years and then one spouse has a heart attack, the other will never ever forgive you.

Life is short. A few million dollars in assets is more than most people will earn in a lifetime.
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Re: How to Convince A Friend It's Too Early To Retire

Post by ScubaHogg »

They’ll only need to draw down that much for ~15 years before SS should kick in, so 3% is likely an extremely conservative withdrawal rate
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Re: How to Convince A Friend It's Too Early To Retire

Post by 123 »

Your friend may have income or assets s/he is not disclosing to you. S/he may not want you to know their spectacular wealth. Perhaps they think the truth would upset your feelings.

Often when people do things that we can't understand it is due to reasons and information of which we are unaware.
Last edited by 123 on Tue Sep 14, 2021 11:29 am, edited 1 time in total.
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Re: How to Convince A Friend It's Too Early To Retire

Post by mbasherp »

Your friend is absolutely set for a comfortable retirement at either of those expense numbers. Seriously, do the math including pension and SS if applicable. If you pay off the mortgage from taxable the expense comes down further. By what calculation of yours are they not okay? ACA makes health insurance affordable in that range and I can’t imagine why taxes take 5-7k per month up to 9k.

Celebrate their accomplishment! Otherwise you are likely being “that” friend.
Last edited by mbasherp on Tue Sep 14, 2021 11:36 am, edited 1 time in total.
RoadagentMN
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Re: How to Convince A Friend It's Too Early To Retire

Post by RoadagentMN »

MrCheapo wrote: Tue Sep 14, 2021 10:16 am I have a friend who seems to be too eager to retire. Any ammunition to help put him off apprieciated! He's just sick of working.

He's 52, wife 53 together will draw a $4500 a month pension.
tIRA is $850K
Home is worth $700K but they owe $100K
After tax investments are $1M

He insists his expences will be $5K a month but I think I've won the argument they will be at least $7K (he's a bigger spender than me). He won't have health insurance for 13 years and he hasn't even considered that.

So my reasoning is he'll need to generate income of $105K (about $20K for local and state taxes) so about $9K a month half of which is covered by the pension. Drawing 3% of the tIRA and investments gives you the other half. But again this ignores health insurance for 13 years.
His money - his rules.
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Re: How to Convince A Friend It's Too Early To Retire

Post by CyclingDuo »

MrCheapo wrote: Tue Sep 14, 2021 10:16 am I have a friend who seems to be too eager to retire. Any ammunition to help put him off apprieciated! He's just sick of working.

He's 52, wife 53 together will draw a $4500 a month pension.
tIRA is $850K
Home is worth $700K but they owe $100K
After tax investments are $1M

He insists his expences will be $5K a month but I think I've won the argument they will be at least $7K (he's a bigger spender than me). He won't have health insurance for 13 years and he hasn't even considered that.

So my reasoning is he'll need to generate income of $105K (about $20K for local and state taxes) so about $9K a month half of which is covered by the pension. Drawing 3% of the tIRA and investments gives you the other half. But again this ignores health insurance for 13 years.
Even if they needed $105K per year, that's only a 2.7% withdrawal rate to fill the $51K gap between the pension amount and $105K. Even lower once they claim SS.

CyclingDuo
Last edited by CyclingDuo on Tue Sep 14, 2021 11:31 am, edited 1 time in total.
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willthrill81
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Re: How to Convince A Friend It's Too Early To Retire

Post by willthrill81 »

The friend is an excellent position to retire, even with buying health insurance.

The OP would probably have a conniption after seeing my own retirement plan. :D
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EnjoyIt
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Re: How to Convince A Friend It's Too Early To Retire

Post by EnjoyIt »

MrCheapo wrote: Tue Sep 14, 2021 10:16 am I have a friend who seems to be too eager to retire. Any ammunition to help put him off apprieciated! He's just sick of working.

He's 52, wife 53 together will draw a $4500 a month pension.
tIRA is $850K
Home is worth $700K but they owe $100K
After tax investments are $1M

He insists his expences will be $5K a month but I think I've won the argument they will be at least $7K (he's a bigger spender than me). He won't have health insurance for 13 years and he hasn't even considered that.

So my reasoning is he'll need to generate income of $105K (about $20K for local and state taxes) so about $9K a month half of which is covered by the pension. Drawing 3% of the tIRA and investments gives you the other half. But again this ignores health insurance for 13 years.
Your math is wrong regarding taxes and medical expenses. This family can probably get away with $0 or close to it in income tax as well as huge health insurance subsidies.

You are also ignoring SS
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Starfish
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Re: How to Convince A Friend It's Too Early To Retire

Post by Starfish »

He is in a good position to retire.
If you manage to convince him not to retire and he spends working a large percentage of the few heathy years he has in front of him, he might hate you.
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Re: How to Convince A Friend It's Too Early To Retire

Post by humblecoder »

I agree with others that your friend will probably be okay. Or said differently, it is not such a slam dunk that your friend will be destitute that it is worth ruining a friendship over.

1. 3% withdrawal rate is probably too conservative. Depending upon your friend's asset allocation, he can probably sustain a 3.25%-3.5% withdrawal rate

2. Your friend has various levers that he can pull if needed. Others have mentioned cutting back on expenses, but he can also move to a lower cost home to gain access to equity, as another example.

3. Social Security isn't factored in. That is a lever on the revenue side.

4. Another lever on the revenue side is going back to work if things get tight, even if it is to access cheaper health insurance.

My point is that your friend is in decent shape most likely, and even if things don't quite work out, he has several potential Plan B's.
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ResearchMed
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Re: How to Convince A Friend It's Too Early To Retire

Post by ResearchMed »

RoadagentMN wrote: Tue Sep 14, 2021 11:29 am
MrCheapo wrote: Tue Sep 14, 2021 10:16 am I have a friend who seems to be too eager to retire. Any ammunition to help put him off apprieciated! He's just sick of working.

He's 52, wife 53 together will draw a $4500 a month pension.
tIRA is $850K
Home is worth $700K but they owe $100K
After tax investments are $1M

He insists his expences will be $5K a month but I think I've won the argument they will be at least $7K (he's a bigger spender than me). He won't have health insurance for 13 years and he hasn't even considered that.

So my reasoning is he'll need to generate income of $105K (about $20K for local and state taxes) so about $9K a month half of which is covered by the pension. Drawing 3% of the tIRA and investments gives you the other half. But again this ignores health insurance for 13 years.
His money - his rules.
His money - HIS LIFE - his rules.

He's hardly about to step right off a cliff without even thinking about it.

Are you perhaps confusing your friend's situation and his decisions with your own worries about retiring quite soon at age 50?
viewtopic.php?f=1&t=334546&p=5696815#p5696815
You seem to think there that "...$100K a year would be more than enough to survive on..."
Your friend seems to feel the same way.
(And it appears that you'd still have two teens living at home, yet you still feel that $100k is going to be "doable".)

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Re: How to Convince A Friend It's Too Early To Retire

Post by KyleAAA »

I don't see where $20k in state/local taxes could possibly come from. Do you mean sales and property tax? It sounds like your friend is actually easily capable of retiring even assuming your pessimistic math.
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MrCheapo
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Re: How to Convince A Friend It's Too Early To Retire

Post by MrCheapo »

ResearchMed wrote: Tue Sep 14, 2021 11:39 am His money - HIS LIFE - his rules.
Fair enough but I'd counter a friend in need is a friend indeed.

He's not handled COVID well and is just making rash decisions so I wanted to calm him down before he jumps off.

I added some key points to my original post that I bolded. Namely 1) he doesn't have any estimate of the cost of health insurance for 13 years and 2) His pension is $3500 but only comes with 25% survivor benefits.

I think 1) is a real issue as God knows what will happen with the ACA and the premiums seem to change yearly often by a lot. I estimate those 13 years of health insurance will cost him close to $200K.
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MrCheapo
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Re: How to Convince A Friend It's Too Early To Retire

Post by MrCheapo »

123 wrote: Tue Sep 14, 2021 11:27 am Your friend may have income or assets s/he is not disclosing to you. S/he may not want you to know their spectacular wealth. Perhaps they think the truth would upset your feelings.

Often when people do things that we can't understand it is due to reasons and information of which we are unaware.
Nah, we are very close and he's looked over my stuff and my his stuff.
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Re: How to Convince A Friend It's Too Early To Retire

Post by KlangFool »

MrCheapo wrote: Tue Sep 14, 2021 11:47 am
ResearchMed wrote: Tue Sep 14, 2021 11:39 am His money - HIS LIFE - his rules.
Fair enough but I'd counter a friend in need is a friend indeed.

He's not handled COVID well and is just making rash decisions so I wanted to calm him down before he jumps off.

I added some key points to my original post that I bolded. Namely 1) he doesn't have any estimate of the cost of health insurance for 13 years and 2) His pension is $3500 but only comes with 25% survivor benefits.

I think 1) is a real issue as God knows what will happen with the ACA and the premiums seem to change yearly often by a lot. I estimate those 13 years of health insurance will cost him close to $200K.
MrCheapo,

<<I think 1) is a real issue as God knows what will happen with the ACA and the premiums seem to change yearly often by a lot. >>

But, with the median household income of 60K per year, it cannot go up to the level where most people cannot buy ACA at all.

<< I estimate those 13 years of health insurance will cost him close to $200K.>>

Let's assume 20K per year and make it 260K, it is still not a problem with a portfolio of 1.8 million plus pension.

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willthrill81
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Re: How to Convince A Friend It's Too Early To Retire

Post by willthrill81 »

MrCheapo wrote: Tue Sep 14, 2021 11:47 am I think 1) is a real issue as God knows what will happen with the ACA and the premiums seem to change yearly often by a lot. I estimate those 13 years of health insurance will cost him close to $200K.
Even if we were to subtract $200k from his investments right now to account for that, he would still be golden as he would have $1.65 M in investable assets but only $30k in needed annual withdrawals ($7k - $4.5k = $2.5k monthly). Even at a very conservative 3% withdrawal rate, he could withdraw about $50k annually from his portfolio and be extremely likely from a historic perspective to see his portfolio continue to grow.
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Re: How to Convince A Friend It's Too Early To Retire

Post by Wannaretireearly »

KlangFool wrote: Tue Sep 14, 2021 10:39 am OP,

What is the problem? If your friend wants to retire and this is his highest priority in life, he will make it work. If he is forced to spend less, he would. With 54K per year of pension and a nearly paid off house, he will not be living in poverty by any mean.

KlangFool
+1. As someone said on another thread, most of the rest of the world adjusts to the amount of money they have in retirement. I've seen it in my family too. Friend should have a fine retirement enjoying his 50's, picking up a part time/fun job etc.
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Re: How to Convince A Friend It's Too Early To Retire

Post by Vtsax100 »

crystalbank wrote: Tue Sep 14, 2021 10:31 am So 1.8M in investments and 0.6M home equity along with $54k yearly pension and they still CAN'T retire? :confused
On this forum you can never retire!
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Re: How to Convince A Friend It's Too Early To Retire

Post by fortunefavored »

I agree, seems like he can make it work.. sure, sharpen that pencil and make sure he's got handle on taxes, social security and ACA subsidies.. but it looks possible.

A pension like that is really a glorious floor under early retirement.. I mean, even if you're 62 and end up with a portfolio of $0.. you could limp to social security/medicare with that pension. I can only dream of such a thing. :)
jharkin
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Re: How to Convince A Friend It's Too Early To Retire

Post by jharkin »

MrCheapo wrote: Tue Sep 14, 2021 10:16 am I have a friend who seems to be too eager to retire. Any ammunition to help put him off apprieciated! He's just sick of working.

He's 52, wife 53 together will draw a $4500 a month pension.
tIRA is $850K
Home is worth $700K but they owe $100K
After tax investments are $1M

He insists his expences will be $5K a month but I think I've won the argument they will be at least $7K (he's a bigger spender than me). He won't have health insurance for 13 years and he hasn't even considered that.

So my reasoning is he'll need to generate income of $105K (about $20K for local and state taxes) so about $9K a month half of which is covered by the pension. Drawing 3% of the tIRA and investments gives you the other half.

But there are two major issues which is why I'm suggesting he doesn't retire:

1) He has no health insurance for 13 years. That's going to cost a lot of money and its highly unpredictable isn' t it?
2) His pension has only has 25% survivor benefits and it comprimses $3500 of the $4500 pension.
Maybe you have spent too much time on Bogleheads....

He has 1.85MM to draw on. Even at a conservative 3% SWR thats 55k/yr (and with over half in taxable he can engineer withdrawals to make a lot of that tax free)
Then he has 4500/mo pension = 54k/yr

So we are at 109k/yr.
And we haven't even added in Social security yet.

Healthcare *may* be an issue, but it may not. Organizations that offer traditional pensions also often offer retiree health plans. And they can buy ACA which in some states is still heavily subsidized, especially if they engineer their income to stay low enough for a generous PTC.



He is probably going to be completely fine and I'd recommend staying out of his business.
printer86
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Re: How to Convince A Friend It's Too Early To Retire

Post by printer86 »

MrCheapo wrote: Tue Sep 14, 2021 11:47 am
ResearchMed wrote: Tue Sep 14, 2021 11:39 am His money - HIS LIFE - his rules.
Fair enough but I'd counter a friend in need is a friend indeed.

He's not handled COVID well and is just making rash decisions so I wanted to calm him down before he jumps off.

I added some key points to my original post that I bolded. Namely 1) he doesn't have any estimate of the cost of health insurance for 13 years and 2) His pension is $3500 but only comes with 25% survivor benefits.

I think 1) is a real issue as God knows what will happen with the ACA and the premiums seem to change yearly often by a lot. I estimate those 13 years of health insurance will cost him close to $200K.
To the OP,

I'm retired and we are in our late 50's. I'm able to manage our income in order to garner a decent ACA discount. the monthly premium for the 2 of us is $1.64.

There are ways to make things work. Your friend may even have a potential inheritance in his future. A share of Mom and Dad's house could easily add a couple hundred grand to the nest egg.
jarjarM
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Re: How to Convince A Friend It's Too Early To Retire

Post by jarjarM »

MrCheapo wrote: Tue Sep 14, 2021 11:47 am
ResearchMed wrote: Tue Sep 14, 2021 11:39 am His money - HIS LIFE - his rules.
Fair enough but I'd counter a friend in need is a friend indeed.

He's not handled COVID well and is just making rash decisions so I wanted to calm him down before he jumps off.

I added some key points to my original post that I bolded. Namely 1) he doesn't have any estimate of the cost of health insurance for 13 years and 2) His pension is $3500 but only comes with 25% survivor benefits.

I think 1) is a real issue as God knows what will happen with the ACA and the premiums seem to change yearly often by a lot. I estimate those 13 years of health insurance will cost him close to $200K.
Maybe he has an expected high inheritance. Or he can engineer his income to get ACA subsidies that would reduce his healthcare premium dramatically, or he'll just wing it and we have a reasonable market return in the next 30 years. Either way, he'll likely be fine except for the direst of environment. It's a risk and reward analysis and he choose to take a bit of risk to retire early. There are many out there with less asset than your friend who retired early and survived.
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MrCheapo
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Re: How to Convince A Friend It's Too Early To Retire

Post by MrCheapo »

quantAndHold wrote: Tue Sep 14, 2021 10:27 am I’m having trouble with the math. Given those numbers, I’m having trouble seeing where $20k in state and local taxes comes from.

I agree that he’s probably underestimating spending. But with a $4,500/month pension and $2m+ in assets, they they’re probably fine anyway, even at the higher level of spending.
$10K Fed
$3.5K State
$6.5K Property/Local.

Welcome to California ...
Topic Author
MrCheapo
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Re: How to Convince A Friend It's Too Early To Retire

Post by MrCheapo »

printer86 wrote: Tue Sep 14, 2021 12:10 pm
MrCheapo wrote: Tue Sep 14, 2021 11:47 am
ResearchMed wrote: Tue Sep 14, 2021 11:39 am His money - HIS LIFE - his rules.
Fair enough but I'd counter a friend in need is a friend indeed.

He's not handled COVID well and is just making rash decisions so I wanted to calm him down before he jumps off.

I added some key points to my original post that I bolded. Namely 1) he doesn't have any estimate of the cost of health insurance for 13 years and 2) His pension is $3500 but only comes with 25% survivor benefits.

I think 1) is a real issue as God knows what will happen with the ACA and the premiums seem to change yearly often by a lot. I estimate those 13 years of health insurance will cost him close to $200K.
To the OP,

I'm retired and we are in our late 50's. I'm able to manage our income in order to garner a decent ACA discount. the monthly premium for the 2 of us is $1.64.

There are ways to make things work. Your friend may even have a potential inheritance in his future. A share of Mom and Dad's house could easily add a couple hundred grand to the nest egg.
Thanks, I wrote you a PM regarding the future of ACA as we are not allowed to discuss it publicly.

But is it really only $1.64 for a quality health plan. Further, this must be subsidized, when does this subsidy end? Finally is there an income threshold when the ACA plans become expensive?
tibbitts
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Re: How to Convince A Friend It's Too Early To Retire

Post by tibbitts »

MrCheapo wrote: Tue Sep 14, 2021 10:16 am I have a friend who seems to be too eager to retire. Any ammunition to help put him off apprieciated! He's just sick of working.

He's 52, wife 53 together will draw a $4500 a month pension.
tIRA is $850K
Home is worth $700K but they owe $100K
After tax investments are $1M

He insists his expences will be $5K a month but I think I've won the argument they will be at least $7K (he's a bigger spender than me). He won't have health insurance for 13 years and he hasn't even considered that.

So my reasoning is he'll need to generate income of $105K (about $20K for local and state taxes) so about $9K a month half of which is covered by the pension. Drawing 3% of the tIRA and investments gives you the other half.

But there are two major issues which is why I'm suggesting he doesn't retire:

1) He has no health insurance for 13 years. That's going to cost a lot of money and its highly unpredictable isn' t it?
2) His pension has only has 25% survivor benefits and it comprimses $3500 of the $4500 pension.
You've provided some information but not enough, especially about what his detailed plans for expenses are. Maybe he's going to replace his $700k house with a $3M house. Or a $300k house. In my case during my first two years of retirement expenses have been maybe half of what I'd planned due to the pandemic, and obviously there's no end to that in sight. Well maybe add back in 5% for unanticipated inflation. But there's only so much you can spend when you don't travel more than a few miles from your house, never eat at a restaurant, never do activities with other people, etc.

Regarding healthcare, it's very dependent on state/local residence and any ability you might have to manage income for subsidies if any Not just for cost but regarding your "quality" question: in some locations much better quality plans are available than in others, regardless of price. I doubt anyone is forecasting the demise of some ACA-like program in the near future, but of course beyond that nobody knows. The only really significant ACA-related issue that I can see affecting retirement would dropping the pre-existing condition terms to where there would be either no coverage available or only unaffordable coverage. At most nibbling around the edges of what exists now seems much more likely.
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