If you read the book the Millionaire Next Door, you learn that a majority of people who have saved a lot of money have done so by living below their means for a long time. So downsizing further isn’t much of a burden to them. A lot can depend on what someone plans to do when they retire or retire early. Not everyone wants to blow money on constant travel and living in luxury. If by 55 years of age you have saved including the equity in your home about a million dollars, and have been working and investing since their early 20s, it’s possible to do. Unless someone has plans to do something very different than how they lived, expenses go down when you retire too.
If you’re retired from the workforce and also hold a retired military ID card, you don’t pay for most health care costs above Medicare. Tri-Care covers prescriptions and doctor visits.
The “everyone else” hasn’t paid into the system for half-a-century before getting anything back.
And Medicare isn’t free. Part A (hospitalization), yeah, but Part B (doctors) costs $105/mo, and Part D (prescription medication) whatever your insurer pegs it at. Most beneficiaries have either a “Medigap” plan (for deductibles and co-pays) or Part C (HMO-type coverage) as well, at additional cost.
If you don’t enroll when you are first eligible, you pay an excalating surcharge when you do enroll (meant to discourage you from waiting until you reallly, really need coverage).
As other posters have noted, finding providers who will take Medicare can be a problem, so “pretty good” not guaranteed.
Yes, it’s possible to live on $20k a year. In fact, my household of two people has been living on $15k a year for several years now.
It’s a pretty Spartan existence and I don’t think most people would like it much. Certainly, there’s no keeping up with the Joneses. Having subsidized healthcare and housing makes it a lot more bearable, and senior citizens are more likely to have either or both of those.
My mother is 80 and lives on $1300 a month SS, and $300 retirement. She has medicare (Part A only), but no additional insurance. She is also still paying a mortgage ($450 month) since she purchased her house quite late in life. Add to that the cost of heat, electric, cable and car insurance, and you can imagine what she has left over for food. She was a single mother from the time I was a year old, and since we barely made ends meet, there was no way she could have set anything aside for retirement.
That being said, I never wanted for anything growing up, and she always made sure we had a nice vacation together every summer. I really don’t know how she did it.
She makes too much to qualify for Medicaid and food stamps. :mad:
No, but supplemental insurance is relatively inexpensive, especially compared to full non-Medicare coverage. And, as mentioned, not absolutely necessary.
I was assuming retiring at 55. Health insurance below that is a much bigger problem, though someone living on $20K a year might be eligible for Medicaid.
It also strongly depends on how much of that $1 million is in the house. If none of it is you can probably do better than $20K a year without touching principal. The recommended amount of principal to take out is 3 - 5% a year, but I don’t think that assumes retiring so early, so it would be lower.
BTW, to compare supplemental coverage, if I retired later this year before 65 my very good COBRA would cover my wife and me for about $1100 a month, which is about a half to a third what I could get from my first shot at platinum coverage under ACA - for nowhere near as good coverage.
Before ACA retirement outside the COBRA window would have been impossible for me because of pre-existing conditions.
My health insurance pays my medicare premium which results in a $115.00 per month increase in my SS income. SS, by the way, is the only income I have for reasons I don’t care to examine too closely.
I own my condo free and clear and I drive a ten year old car that I won’t be able to replace when it finally dies. I don’t go out much and I watch my expenses very carefully. I treat myself to cable TV, including internet access, and that’s it for entertainment. My HOA payment includes water, sewer, basic cable service and garbage removal; my only utility is electricity and I minimize that expense as best I can but I don’t deny myself AC or such heating as is required in Florida. I do all my own cooking and I watch for sales pretty carefully. It ain’t always easy but I manage to get by.
Thanks for sharing that. Does this involve any sort of extremely frugal living? I should clarify what I would consider extreme, such as not having adequate heat for the winter or air conditioning?
Someone who’s 55 and has a nest egg of $1 million can probably afford to spend about $40,000 a year, assuming that the stock market does something like it’s done in the last 100+ years (no guarantee). FireCalc.
I agree that very few people want to live on $20k a year, but $40k provides a very reasonable middle-class lifestyle.
Thanks for providing a link to firecalc.com, I wasn’t familiar with that website before. It reminds me of the Monte Carlo simulations used for retirement analysis, where it gives a probability of success. For example, saying you have a 80% chance of reaching X give the data you input.
I think $40K without doing a lot of research sounds more comfortable for sure. I wondered about the articles and postings I read where people claim to be doing this on $20K a year. Because before I heard from people who were kind enough to share their personal stories here, I was wondering if $20K a year would make someone homeless. I don’t know if someone could live on $40K a year in New York City, but many other areas of the US have affordable places to live.
The other thing I didn’t realize that if your retirement planning works out, you don’t have the “expense” of saving money for retirement each year. You don’t have to put aside money for the IRA or 401(K). Of course there are many other costs you won’t have that are associated with working full-time, but for us saving money each year is a large part of it.
I have to admit, there is a psychology part of this that I will have to “get over” or adjust to, that when you stop working you won’t have a paycheck coming in any longer. I know there is social security, pension and savings, but that there isn’t an earned income just feels funny to me after having worked for so many years. I guess once I put a spreadsheet in front of me and I can see how cash flow will work with actual numbers I will get over this quickly enough.
I have a friend who took early retirement from his company at age 62 and at the same time started social security, even though he didn’t have to take social security. I asked him why he didn’t wait until 65 years of age or 70. He said he was uncomfortable taking money out of savings to live even though he had it along with a pension. He’s 77 years of age now, and I think he wishes he waited until age 70 to take social security because the benefit pays higher than it did at 62. Going from age 62 to 70 sounds like a long time, but it’s only 8 years. There are people who must take it because of their circumstances and health concerns.
In the US you get medicare over age 65.
For people who retire overseas you can get cheap health insurance in latin america or southeast asia. A good plan is $100/month or less because health care costs less there.
Ideally many expenses will be lower in retirement:
No more kids to support
Mortgage is paid off
Taxes are lower (income tax is lower, no FICA tax)
medicare premiums are likely lower than your part of employer sponsored private insurance premiums.
As far as your friend who took SS at 62, he gets less per month but he earned it for more months. Around age 80 he will break even.
http://g.foolcdn.com/editorial/images/156698/social-security-benefits-by-year_large.PNG
You no longer have expenses for working (commuting costs, business clothing…).
You have a lot of spare time so you no longer need to go to restaurants, buy prepared foods–you can cook from scratch, grow a garden.
With this spare time you can fix things around the house–instead of hire it done.
I’m planning on there not being any social security or Medicare available when I retire. I don’t anticipate my quality of living to change. I don’t expect to retire for another 15 years. If there happens to be SS and Medicare, then that’s just extra in the pot.
LOL, the joke is that medicare only covers the parking at the doctor’s office, everything else you pay for, albeit, they call it a “deductible.”
Usually happens well before you retire.
Depends on when you last moved or refinanced. In the old model where people stayed put for 30 years true, but seldom true today. With luck you have equity.
True, but it hardly makes up for lower income.
True. Not true if you retire before 65.
You mean he will start to get behind. Taking it early is a bet you die before 79. Bad bet for our families.
My business clothing doesn’t cost any more than what my retirement clothing will. Jeans are actually more expensive than Dockers.
We cook from scratch already and have a garden. And I fix most small things myself already also.
The retirement planning sites seem to assume you need about 80% of your salary to retire on, which seems high to me. It depends strongly on circumstances. If you are saving a lot now for retirement you don’t need to any more. When you’ve just retired you might spend more on trips since you have more time (probably not on $20k a year though) - when you hit 80 it might not be worth the effort.
I’ve seen recommendations that before people retire they try to live on their expected retirement income and save the rest. (I guess you can take out things like commute costs.) Seems like a good experiment to do.
About 90% of men are alive at 62, by age 80 only about 50% are alive. So almost half of all men alive at 62 will be dead before the break even point.
Of the ones who do live past it, they only make about $700 a month on average more than they would otherwise. And many of them die within a few years. I think only 20% of men are alive at 90.
If you plan on living to 90 I can see taking SS at 70. But it isn’t like you are guaranteed to come out ahead if you wait and collect SS at a later date.
Also when you factor in FICA taxes, income taxes and savings for retirement while working those can take up 40% of your gross income. I’d assume in retirement that is closer to 10% of gross income since savings & FICA taxes are gone and income taxes are lower. So it is a difference.
Regardless of how long you live, you are going to leave money on the table with social security. If you lived to 90 instead of 99, then that’s 9 years you “left on the table”. So that’s not really my concern to try to come out ahead. The concern is avoiding locking in a lower payment rate from social security when it might not be necessary and the additional income might be badly needed at age 70 and beyond. If we can live with needing it, our current plan is to wait until age 70.
Having said that I learned recently about the half of spouse benefit. From how it was explained to me, a spouse can start receiving half of their spouses social security. This doesn’t impact the benefit for either of them:
http://www.ssa.gov/retire2/yourspouse.htm#a0=0