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

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
marcopolo
Posts: 4747
Joined: Sat Dec 03, 2016 10:22 am

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

Post by marcopolo »

MrCheapo wrote: Tue Sep 14, 2021 12:34 pm
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?
We are a family of 3, age 54, with a son in college. We have been retired for a few years. We pay $16.92/mo for our health insurance. It is an excellent PPO plan with nationwide coverage through the BCBS network. What is available to you, and what you will pay, will vary greatly depending on where you live.

As far as the tax credits are concerned, they are here until they are not. Just like any other tax rules, they can be changed at any time. There has been some talk of getting rid of favorable capital gains tax rates. Recent budget proposal eliminates backdoor Roth, and perhaps even Roth Conversions.

This is not to start a discussion on proposed legislation, but just to highlight that any tax law that you are depending on can change, especially since such things fall under budget reconciliation rules and do not require filibuster proof majorities,bit makes it easier for both parties to make such tax changes.

As for income limits for the tax credits. Yes,there are limits, they have been suspended for 2021 and 2022, but outside of that, the amount of the tax credit is reduced as income increases, and after 2022, the credit goes to $0, when you hit 400% of the federal poverty level for your state and family size.
Once in a while you get shown the light, in the strangest of places if you look at it right.
mptfan
Posts: 6700
Joined: Mon Mar 05, 2007 9:58 am

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

Post by mptfan »

Did your friend ask for your advice?
sunsetting101
Posts: 12
Joined: Tue Apr 13, 2021 2:34 am

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

Post by sunsetting101 »

Maybe he can't retire Boglehead style but rather Money Moustache style. Present him the option of either buying a bike or go earn another million. :happy
mr_brightside
Posts: 491
Joined: Sat Oct 17, 2020 3:23 pm

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

Post by mr_brightside »

pizzy wrote: Tue Sep 14, 2021 10:38 am Your friend can absolutely retire.
agree

assuming he can get a decent ACA policy they should be good to go.

---------------------------------------------
Colorado13
Posts: 1311
Joined: Thu Apr 07, 2011 4:58 pm
Location: Colorado

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

Post by Colorado13 »

willthrill81 wrote: Tue Sep 14, 2021 11:31 am 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
Off topic: Willthrill is back! You've been missed, as noted on the "missing members"post. Welcome back!
User avatar
Sandtrap
Posts: 14022
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

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

Post by Sandtrap »

Send an email link to this forum and encourage a portfolio review.

Lead a horse to water…..etc.
Seeds falling on rock vs soil, etc.
j🌺
Wiki Bogleheads Wiki: Everything You Need to Know
MAKsdad
Posts: 201
Joined: Wed Mar 17, 2021 7:43 am

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

Post by MAKsdad »

Add me to the "seems fine to retire" bucket.
Grt2bOutdoors
Posts: 24037
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

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

Post by Grt2bOutdoors »

If your friend can’t retire, then 98 percent of Americans will be working until they drop!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
Mlm
Posts: 581
Joined: Sat Apr 09, 2016 6:00 pm

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

Post by Mlm »

You don't know insurance costs until you get the facts for his location in his state. When I went on ACA I thought it would cost me $10K and it ended up being $240 with income manipulation.

You also don't know the income taxes until you do some proforma returns. Again, with income manipulation it could be minimal.

It looks like you have more work to do before you can make any recommendations.
Mary
pasadena
Posts: 1526
Joined: Sat Jul 02, 2016 1:23 am
Location: PNW

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

Post by pasadena »

HomeStretch wrote: Tue Sep 14, 2021 10:30 am
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.
+1. You're both making assumptions and drawing different conclusions without enough information. You're both biased in two different directions.

So help him determine if he can or not instead. Give him the tools and work with real numbers.
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).
That's not an argument to have. Pulling numbers out of either of your hats isn't going to cut it. Your friend needs to take a look at their expenses for the last 1 or 2 years, and find out exactly what they are. Then he needs to go on the CA Marketplace and price out health insurance for the next 13 years.

Might also be a good idea to make a mock withdrawal plan and run that through Turbo Tax.

Will they have SS at some point?

Once that's done, use the simulators with him. Then it's his choice. Not enough? Reduce expenses, now that he knows where their money is going. Enough? Enjoy retirement, now that he has a framework to work with.
EddyB
Posts: 1681
Joined: Fri May 24, 2013 3:43 pm

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

Post by EddyB »

MrCheapo wrote: Tue Sep 14, 2021 12:32 pm
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 ...
But the OP said $20k for the state and local taxes. You’re throwing in $10k in federal taxes to get there. I’ll not even sure that’s right, if half the funding is withdrawals from taxable accounts.
sailaway
Posts: 3614
Joined: Fri May 12, 2017 1:11 pm

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

Post by sailaway »

willthrill81 wrote: Tue Sep 14, 2021 11:31 am 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
Lot's of bogleheads did :wink:
Topic Author
MrCheapo
Posts: 419
Joined: Tue Dec 22, 2020 3:43 pm

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

Post by MrCheapo »

EddyB wrote: Tue Sep 14, 2021 5:04 pm
MrCheapo wrote: Tue Sep 14, 2021 12:32 pm
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 ...
But the OP said $20k for the state and local taxes. You’re throwing in $10k in federal taxes to get there. I’ll not even sure that’s right, if half the funding is withdrawals from taxable accounts.
Well it is right if he draws it out from his tIRA. Even if its drawn from an after tax account he needs to pay capital gains and in CA capital gains is taxed as income.
runninginvestor
Posts: 735
Joined: Tue Sep 08, 2020 8:00 pm

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

Post by runninginvestor »

Does the pension have a COLA adjustment? I didn't see a mention of that, but may have missed it. If not, that could eat into income projections, especially if inflation isn't as transitory as the Fed how's for.
User avatar
ResearchMed
Posts: 12337
Joined: Fri Dec 26, 2008 11:25 pm

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

Post by ResearchMed »

I'm confused.

Did you, OP/Mr. Cheapo, change the title of this thread to add "I told him to Retire!"?
If so, then why are you still focusing on all of the problems he'll have, how much specific taxes or other expenses may (or may not!) add, etc.?

:confused

RM
MrCheapo wrote: Tue Sep 14, 2021 10:16 am [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.
This signature is a placebo. You are in the control group.
J295
Posts: 3014
Joined: Sun Jan 01, 2012 11:40 pm

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

Post by J295 »

I transitioned from full-time employment in 2013 before the ACA was ruled constitutional. We were not going to let the health insurance tail wag the dog.

Annual premium cost for us since then, fully subsidized, is $0 per month. Out of pocket health expenses since that time (almost 9 years) approximately $25,000.

Their mileage may vary.
User avatar
willthrill81
Posts: 25534
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 »

sailaway wrote: Tue Sep 14, 2021 5:20 pm
willthrill81 wrote: Tue Sep 14, 2021 11:31 am 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
Lot's of bogleheads did :wink:
What can I say? I like to poke the BH bears! :twisted:
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
User avatar
Watty
Posts: 23439
Joined: Wed Oct 10, 2007 3:55 pm

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

Post by Watty »

MrCheapo wrote: Tue Sep 14, 2021 10:16 am 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).
It would be good for him to post here himself asking if he should pay off the house or not. There lots of opinions about paying off a house or not but at least for me that made my retirement numbers work a lot better. Needing less income to pay a mortgage also helped me keep my income low to get a large ACA subsidy.

I did not follow all the numbers but with no mortgage payment it sounds like the pension could cover all of his monthly costs.
Dottie57
Posts: 10320
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

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

Post by Dottie57 »

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.
What about property tax and income tax and sales tax?
Topic Author
MrCheapo
Posts: 419
Joined: Tue Dec 22, 2020 3:43 pm

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

Post by MrCheapo »

I did change it to puts some closure on the topic.
ResearchMed wrote: Tue Sep 14, 2021 6:20 pm I'm confused.

Did you, OP/Mr. Cheapo, change the title of this thread to add "I told him to Retire!"?
If so, then why are you still focusing on all of the problems he'll have, how much specific taxes or other expenses may (or may not!) add, etc.?

:confused

RM
MrCheapo wrote: Tue Sep 14, 2021 10:16 am [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.
Katietsu
Posts: 5272
Joined: Sun Sep 22, 2013 1:48 am

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

Post by Katietsu »

marcopolo wrote: Tue Sep 14, 2021 1:27 pm. It is an excellent PPO plan with nationwide coverage through the BCBS network. What is available to you, and what you will pay, will vary greatly depending on where you live.
I thought this had become a unicorn. Very interesting to know these still exist.
marcopolo
Posts: 4747
Joined: Sat Dec 03, 2016 10:22 am

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

Post by marcopolo »

Katietsu wrote: Tue Sep 14, 2021 9:12 pm
marcopolo wrote: Tue Sep 14, 2021 1:27 pm. It is an excellent PPO plan with nationwide coverage through the BCBS network. What is available to you, and what you will pay, will vary greatly depending on where you live.
I thought this had become a unicorn. Very interesting to know these still exist.
It is very location dependant.
We are very fortunate to have that option where we live.
Our son is in a different state attending college and the plan covers him there, including the university health system and the local hospital.
Once in a while you get shown the light, in the strangest of places if you look at it right.
EddyB
Posts: 1681
Joined: Fri May 24, 2013 3:43 pm

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

Post by EddyB »

MrCheapo wrote: Tue Sep 14, 2021 6:09 pm
EddyB wrote: Tue Sep 14, 2021 5:04 pm
MrCheapo wrote: Tue Sep 14, 2021 12:32 pm
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 ...
But the OP said $20k for the state and local taxes. You’re throwing in $10k in federal taxes to get there. I’ll not even sure that’s right, if half the funding is withdrawals from taxable accounts.
Well it is right if he draws it out from his tIRA. Even if its drawn from an after tax account he needs to pay capital gains and in CA capital gains is taxed as income.
You should run some mock returns for your friend; it already seems you’ve halved the original claimed state and local taxes and there may be some too for federal tax-free capital gains.
jharkin
Posts: 2898
Joined: Mon Mar 28, 2016 7:14 am
Location: Boston suburbs

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

Post by jharkin »

MrCheapo wrote: Tue Sep 14, 2021 6:09 pm
Well it is right if he draws it out from his tIRA. Even if its drawn from an after tax account he needs to pay capital gains and in CA capital gains is taxed as income.
I think you are confusing terms. You said "state and local" which by convention does NOT include federal. And then you put federal in.


Honestly those tax numbers sound very modest for somebody who had the income to amass close to 3MM net worth by their 50s.
redmaw
Posts: 297
Joined: Mon Apr 22, 2019 7:20 am

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

Post by redmaw »

MrCheapo wrote: Tue Sep 14, 2021 12:32 pm
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 ...
without reading the following this has probably been mentioned, but ...doesn't seem like that's a good number.

105k spending gets 10k in federal taxes?

Alright lets do some real math 54k in pension - straight ordinary income - 50k from a combination of taxable and IRA - lets say this is split 50/50. That nets you 75 ordinary income, and 25k from taxable + lets say 5k cost basis (seems low) -> agi = 100k, minus 25k standard deduction = 80k taxable income. At that level long term capital gains are 0%, so you get taxed on 75k-25 deduction (no this isn't double counting the deduction) 50k *.12 = 6k in taxes (and i ignore the fact that a 10% bracket exists).
I have no idea what state and local taxes look like, but it appears your estimate could be double what the true amount is, which would lead to even lower raw spending and tax numbers. Also it seem reasonable that his mortgage includes his property tax and is already included in his spending estimate.

Now to your original question, how do you convince him its too early to retire? Well assuming you are right, despite all the feedback you have gotten here that you may not be, I wouldn't go at it by telling him you disagree and attacking his plan. That will make him defensive and less receptive to criticism. The tact I would take is say his plans have you taking a more serious look at your own readiness but I am having problems with healthcare...how did you solve this. Hey what about taxes, how did you get a SS estimate, etc. Have him help you figure out your picture and it should expose holes in his own plan. If he doesn't have answers or hasn't considered something important a pointed "don't you need to figure that out before you pull the trigger" might be all you need to do.
quantAndHold
Posts: 6363
Joined: Thu Sep 17, 2015 10:39 pm

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

Post by quantAndHold »

MrCheapo wrote: Tue Sep 14, 2021 6:09 pm
EddyB wrote: Tue Sep 14, 2021 5:04 pm
MrCheapo wrote: Tue Sep 14, 2021 12:32 pm
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 ...
But the OP said $20k for the state and local taxes. You’re throwing in $10k in federal taxes to get there. I’ll not even sure that’s right, if half the funding is withdrawals from taxable accounts.
Well it is right if he draws it out from his tIRA. Even if its drawn from an after tax account he needs to pay capital gains and in CA capital gains is taxed as income.
So, I’m in California, and I retired a few years ago at age 52 with numbers not that different than your friend.

What is the cost basis in his taxable account? Remember that he only pays taxes on the *gains* in the taxable account, not every dollar he withdraws. That makes a big difference. Our tax bill last year was zero, Federal and state, on about $105k in spending. It isn’t zero every year, but it’s also never been $20k or anywhere close to that. Most people draw down their taxable account before age 65, to keep income down for ACA purposes.

Along with that, they will likely qualify for some ACA subsidies, and even if they don’t, California is one of the cheapest states for the ACA. Also, California has its own subsidy, so the “Obamacare cliff” is more of a gradual drop off. So $200k over 13 years is probably the outer limits of what they could pay.

I know you’re trying to be a good friend, but I’m not seeing your friend’s plan as being that risky.
Yes, I’m really that pedantic.
Post Reply