Estimating Retirement Costs - Some big numbers that I can't guess

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verbose
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Estimating Retirement Costs - Some big numbers that I can't guess

Post by verbose »

I'm trying to do some long-term planning for retirement. I need to estimate retirement income and expenses. A few of those numbers are both very important and very difficult to estimate. These two numbers are big enough and variable enough that I cannot settle on a target number for retirement at age 60 without better estimates.

My spouse and I are about 50 years old. We are using a rough target of age 60 for retirement.

The two numbers I cannot estimate are health costs and Social Security income.

Health Care:
- Ages 60 to 65 on Marketplace plan (whatever that looks like, legally and cost-wise, in 10 - 15 years)
- Ages 65+ on Medicare
- Currently have employer-provided health care, will have no options for retiree health care from employers
- What kind of number should I use for forecast?

Social Security:
- Spouse and I made close to same earnings (him a bit more)
- Assume we each collect on our own work record
- For myself, every year I don't work after age 60 replaces a high-earning year with a zero
- For spouse, every year he doesn't work after age 60 replaces a high-earning year with a much lower number, even with inflation adjustment
- How do I take the estimate that SS gives me for collecting at age 67 (which assumes we work at max earnings until age 67) and adjust for not working as long? I guess a percentage? What's a rough number for a percentage less due to extra zeros in years worked?

I know these are tough, but I'm just looking for something to start with. My estimates of these numbers are so uncertain and my ranges so wide that I can't make any prediction of whether our savings are on track.
tibbitts
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by tibbitts »

I disagree with most Bogleheads in that I believe planning at 50 for what you're going to experience at 60 is completely futile and entirely a waste of time. That's based on my own experience having been both those ages; my life and finances completely changed in entirely unexpected ways between those ages. Just have a reasonable amount of savings/investments and don't think about it until you're 60.
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MP123
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by MP123 »

Unsubsidized ACA plans might run $20k/yr for a late 50s-60s couple. But they can be free if you can keep your income low enough. It's hard to pick a number since it depends on your personal situation. You can visit healthcare.gov to see what a plan would cost you today.

The SSA website was updated a little while ago with a much better tool for estimating benefits. You can enter 0 for future salary now to see how that will change your benefit.
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by jebmke »

tibbitts wrote: Mon Nov 21, 2022 12:52 pm I disagree with most Bogleheads in that I believe planning at 50 for what you're going to experience at 60 is completely futile and entirely a waste of time. That's based on my own experience having been both those ages; my life and finances completely changed in entirely unexpected ways between those ages. Just have a reasonable amount of savings/investments and don't think about it until you're 60.
Pretty much our approach. I didn't really focus on it until it was within3-4 years and various other non-financial stars appeared to be aligning.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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mrmass
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by mrmass »

Here's a link to a thread here addressing the many Social Security Calculators
viewtopic.php?t=310816
Many of the calculators will be able to address your zero years you mentioned.

It will be difficult to figure out what health insurance will cost in 10 yrs. Here's a link that might help with ACA info

https://www.healthcare.gov/marketplace-in-your-state/
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by jebmke »

mrmass wrote: Mon Nov 21, 2022 2:43 pm Here's a link to a thread here addressing the many Social Security Calculators
viewtopic.php?t=310816
Many of the calculators will be able to address your zero years you mentioned.

It will be difficult to figure out what health insurance will cost in 10 yrs. Here's a link that might help with ACA info

https://www.healthcare.gov/marketplace-in-your-state/
Health care costs are such a wild card that trying to make precision estimates in advance may not be worth the time invested. There are quite a few uninsured risks that add to the challenge. Picking a "plausible" range as a place-holder is probably the best approach -- especially 10 years out. When I budgeted retirement expenses before I retired in 2007 I picked a nice round number of $1K/month/person; I haven't kept track of actual costs but my perception is that we came in a little below that but not enough to move the needle.
When you discover that you are riding a dead horse, the best strategy is to dismount.
delamer
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by delamer »

I’m not sure if you are misunderstanding Social Security or I’m misunderstanding what you wrote.

No high-earnings years get replaced by zeroes in the calculation. The calculation is based on your highest 35 years of earnings, indexed using average wages.

So if you have less than 35 years of earnings, then there will be some zeroes. But nothing that you did earn gets zeroed out.
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MP123
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by MP123 »

delamer wrote: Mon Nov 21, 2022 3:18 pm I’m not sure if you are misunderstanding Social Security or I’m misunderstanding what you wrote.

No high-earnings years get replaced by zeroes in the calculation. The calculation is based on your highest 35 years of earnings, indexed using average wages.

So if you have less than 35 years of earnings, then there will be some zeroes. But nothing that you did earn gets zeroed out.
I think the misunderstanding might stem from the way the calculator at ssa.gov used to work.

It assumed one would continue to work at their current salary until they claimed SS. This had the effect of inflating the projected benefit in some cases since the future year's salary (that would really be 0 if one retired early) would replace earlier lower salaries in the 35 highest.

So a prospective early retiree planing to retire at 60 wouldn't know what the benefit would actually be, because 2-10 of their lower years would be automatically replaced with their current higher salary (which they weren't planning to earn in the first place, because they'd be retired).

But sometime in the last year or two the calculator was improved and now one can indicate that future years prior to claiming will be at a specified income including zero.
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by carolinaman »

Do the best estimate you can now and begin looking more intently every year when 5 years out with better numbers. Planning to retire at 60 gives you a good hedge. If you are not comfortable with your retirement plan, you can work longer.
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by Tamales »

MP123 wrote: Mon Nov 21, 2022 1:00 pm [...]
The SSA website was updated a little while ago with a much better tool for estimating benefits. You can enter 0 for future salary now to see how that will change your benefit.
Do you mean the downloadable AnyPIA tool was updated/improved, or just some web-based tool on the SSA website?
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by Jack FFR1846 »

I've been looking at these 2 big numbers as well, but am 65 and retiring next year. DW already stopped working and if she goes back to work will do part time, fun stuff only. For health insurance, I'll be on medicare, and she'll be on ACA. Premiums for both depend on your previous income, so your first year, you're likely to gasp and wonder why anyone thinks medicare is such a bargain. But after that first year based on a huge income, with strategic planning, your next years of income can be quite low. Taking income from taxable, only the gains are really looked at so medicare and ACA can drop dramatically. For numbers, I suppose you can use one of the estimators and put in dummy numbers to match what you expect for when you stop working and for each year after that. For social security, of course there's the drain of the trust fund that will drop payments to 80% or so. I do keep track of this in a spread sheet mainly to be sure I'll be fine as will DW. But I've vastly over-saved, so this can be zero and I'm still fine.
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by JerryB »

Grandchildren and RMD taxes are significant in retirement.
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by Kenkat »

delamer wrote: Mon Nov 21, 2022 3:18 pm I’m not sure if you are misunderstanding Social Security or I’m misunderstanding what you wrote.

No high-earnings years get replaced by zeroes in the calculation. The calculation is based on your highest 35 years of earnings, indexed using average wages.

So if you have less than 35 years of earnings, then there will be some zeroes. But nothing that you did earn gets zeroed out.
Just to add, I retired this year at 58. Re-estimating my social security benefit by entering zeros for my remaining years only dropped my PIA by about $100/mo. I do have 35 years of full time job earnings, but some of the early years were at closer to entry level professional wages.
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MP123
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by MP123 »

Tamales wrote: Tue Nov 22, 2022 8:58 am
MP123 wrote: Mon Nov 21, 2022 1:00 pm [...]
The SSA website was updated a little while ago with a much better tool for estimating benefits. You can enter 0 for future salary now to see how that will change your benefit.
Do you mean the downloadable AnyPIA tool was updated/improved, or just some web-based tool on the SSA website?
I meant the tool on the SSA website. Some of the more sophisticated calculators already support early retiree/pre-Social Security "zero" years, but now the SSA site does too.
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by PaddyMac »

During the few years where you plan to be on the ACA, keep a close eye on the threshold for getting subsidized premiums. If you get a subsidy, then the monthly premiums are low and the income threshold is fairly reasonable ($68K a year AGI etc). Also note that this year there is a sliding scale, but the ACA "cliff" is likely to return. If it does, one dollar more of AGI and you lose the entire $10K of a subsidy etc.

Then for those years if you need more money to live on, then be prepared to withdraw from tax-free accounts: HSA for medical, Roth-IRA, Roth-401k or taxable (watch cap gains though).

We're been doing this calculation until we reach Medicare age, and with the subsidy at @ $10K a year, it's really worth it to keep track. I dread the cliff returning as that is difficult during tax return time because sometimes you get more cap gains from Taxable accounts than you expect when the final statement arrives in March.
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Re: Estimating Retirement Costs - Some big numbers that I can't guess

Post by LittleMaggieMae »

verbose wrote: Mon Nov 21, 2022 12:40 pm I know these are tough, but I'm just looking for something to start with. My estimates of these numbers are so uncertain and my ranges so wide that I can't make any prediction of whether our savings are on track.
I feel your pain. In your shoes with your expected retirement year 10 years out into the future - if you have already come up with a range of estimates - I'd use a "middle" amount or "middle" scenario as what to shoot for.

Then, you review/adjust this plan every year. Starting 5 years from when you are planning to "retire" you do a really deep dive/review and maybe reset your targets (these targets will be more "meaningful" and more "likely" - so those are the measurements you will use to determine if you really can retire or not). Since you would have been reviewing and maybe adjusting BEFORE the 5 years before - you shouldn't be too far off course when you get to the 5 year before milestone.

That's how I would approach it (it's what I did/am doing).

I've NEVER been able to get any plan (no matter how short or long) to actually go according to plan the entire way from beginning to completion. I have found that starting with a range and then shooting for the middle or the high end and doing reviews and "adjusting" the plan on some timeline is the best way to keep me moving towards the goal and to handle a changing goal.

I've also NEVER had an end goal that actually panned out "perfect" or exactly like what the goal started out as. The end result is always quite a bit like the original goal - it just never is perfect and/or exactly like what I started out trying to achieve. I am not really good at anything (never really achieve perfection at anything no matter how hard or long I keep at it.... I'm ok with this. it's just the way it is.) but I get pretty close to what I expected and for most stuff it's "good enough". :)

I take the "keep your eye on the goal" and re-evaluate/adjust as you work the plan to heart.
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