5 ms·

Will that cover health insurance & expenses? That stuff gets pricey fast.

JMTQp8lwXL 7y ago
I went to my state's health insurance site. It took me about 3 minutes to pull a quote. If my income was $40k/year, I could get a gold plan ($0 deductible) for $4,300/year in premiums (about $350/mo). Bronze plans had $3,200/year premiums but a $6,300 annual deductible. To keep costs predictable, I'd choose the gold plan. If I chose to live fully off investments in early retirement, my taxable income would be lower since than $40k since I would be spending some from after-tax accounts (which doesn't count as income). The lower income could mean higher subsidies, and lower health care costs.
- pertymcpert 7y ago
  I see this all the time, trying to live off dividends or low returns off something like $1m or so. The thing is if you retire early in 30 years time you’ve spent all of your returns and now inflation has eroded your principal. I don’t see why you wouldn’t just keep working in a low stress easy job, part time or something, and continue to build savings.
  - JMTQp8lwXL 7y ago
    The withdrawal rate isn't a fixed $40k. It's $40k, adjusted for inflation, annually. Year 1 is $40k, Year 2 is $41.2k (assuming 3% inflation). Purchasing power stays constant over time. Though I didn't specify the portfolio composition, most of my holding are US Large Cap, which are the 2nd best performing asset class below small cap: https://www.compoundvalue.com/wp-content/uploads/2013/10/IR_1.jpg https://www.compoundvalue.com/wp-content/uploads/2013/10/IR_..., but both classes are significantly above the others (Bonds & T bills), so I'm not sure what's meant by low returns. If you mean sequence of returns risk, most people use a bond tent to mitigate the risk.
    - alecbenzer 7y ago
      Taking out more than $40k/year erodes your principal though, I thought that was pertymcpert's point? Like, if you've got $800k and can reliably earn 5%, as long as you're withdrawing only $40k you're good. But if you withdraw $41k one year, your principal is now only $799k. Next year if you need $42k, the return from your $799k is only $39,950, so your principal goes down to $796,950, etc. From a quick spreadsheet, if inflation is 2% annually and you can get 5% on your principal, you deplete your $800k in ~32 years. Doesn't seem too hard to fix with some supplemental income here and there?
      - w-ll 7y ago
        Not taking a piss, could you share your spreadsheet?
        alecbenzer 7y ago
        https://docs.google.com/spreadsheets/d/1RTa0rnMdk8VSPpK7qgklfUEEuLMcWnrFkIafOYQVjeQ/edit?usp=sharing https://docs.google.com/spreadsheets/d/1RTa0rnMdk8VSPpK7qgkl...
      - josalhor 7y ago
        He is not trying to live off the dividend (as far as I understand), he is trying to live off the principal and the dividend. At the end of the day, if his expected life span is something like 85 years and he accounts for 110 years in savings he would be left with very little principal, but who cares at that point. It is true however that getting that right may be very tricky, because if you miscalculate you have no savings left.
        alecbenzer 7y ago
        Yeah I guess this is fine as long as you account for it. Starting with $800k, $40k expenses, 2% inflation and 5% return, retiring at 35 you end deplete your money at 67, but starting with $1M takes you to 83.
  - PopeDotNinja 7y ago
    One thing to keep in mind is the cost of healthcare dramatically outpaces inflation, too. It's not ridiculous to think that healthcare premiums alone could eat up most of the principal. And this is assuming that taxes stay low & good health.

I went to my state's health insurance site. It took me about 3 minutes to pull a quote. If my income was $40k/year, I could get a gold plan ($0 deductible) for $4,300/year in premiums (about $350/mo). Bronze plans had $3,200/year premiums but a $6,300 annual deductible. To keep costs predictable, I'd choose the gold plan. If I chose to live fully off investments in early retirement, my taxable income would be lower since than $40k since I would be spending some from after-tax accounts (which doesn't count as income). The lower income could mean higher subsidies, and lower health care costs.

pertymcpert 7y ago
I see this all the time, trying to live off dividends or low returns off something like $1m or so. The thing is if you retire early in 30 years time you’ve spent all of your returns and now inflation has eroded your principal. I don’t see why you wouldn’t just keep working in a low stress easy job, part time or something, and continue to build savings.
- JMTQp8lwXL 7y ago
  The withdrawal rate isn't a fixed $40k. It's $40k, adjusted for inflation, annually. Year 1 is $40k, Year 2 is $41.2k (assuming 3% inflation). Purchasing power stays constant over time. Though I didn't specify the portfolio composition, most of my holding are US Large Cap, which are the 2nd best performing asset class below small cap: https://www.compoundvalue.com/wp-content/uploads/2013/10/IR_1.jpg https://www.compoundvalue.com/wp-content/uploads/2013/10/IR_..., but both classes are significantly above the others (Bonds & T bills), so I'm not sure what's meant by low returns. If you mean sequence of returns risk, most people use a bond tent to mitigate the risk.
  - alecbenzer 7y ago
    Taking out more than $40k/year erodes your principal though, I thought that was pertymcpert's point? Like, if you've got $800k and can reliably earn 5%, as long as you're withdrawing only $40k you're good. But if you withdraw $41k one year, your principal is now only $799k. Next year if you need $42k, the return from your $799k is only $39,950, so your principal goes down to $796,950, etc. From a quick spreadsheet, if inflation is 2% annually and you can get 5% on your principal, you deplete your $800k in ~32 years. Doesn't seem too hard to fix with some supplemental income here and there?
    - w-ll 7y ago
      Not taking a piss, could you share your spreadsheet?
      - alecbenzer 7y ago
        https://docs.google.com/spreadsheets/d/1RTa0rnMdk8VSPpK7qgklfUEEuLMcWnrFkIafOYQVjeQ/edit?usp=sharing https://docs.google.com/spreadsheets/d/1RTa0rnMdk8VSPpK7qgkl...
    - josalhor 7y ago
      He is not trying to live off the dividend (as far as I understand), he is trying to live off the principal and the dividend. At the end of the day, if his expected life span is something like 85 years and he accounts for 110 years in savings he would be left with very little principal, but who cares at that point. It is true however that getting that right may be very tricky, because if you miscalculate you have no savings left.
      - alecbenzer 7y ago
        Yeah I guess this is fine as long as you account for it. Starting with $800k, $40k expenses, 2% inflation and 5% return, retiring at 35 you end deplete your money at 67, but starting with $1M takes you to 83.
- PopeDotNinja 7y ago
  One thing to keep in mind is the cost of healthcare dramatically outpaces inflation, too. It's not ridiculous to think that healthcare premiums alone could eat up most of the principal. And this is assuming that taxes stay low & good health.