Introduction

I recently turned 54 years old and at this point in my life it is most likely, but not totally certain that my status will be retired. There are many factors that went into how this all happened however, surprisingly it did happen. Just be open to it when you get to the same place.

It is in my nature to be very cautious and the number of spreadsheets and investment calculations completed attest to the care taken in making sure that my required lifestyle is possible.

Life Expectancy

Budgeted number of years left: 30 years

Expected number of remaining years: 36 years

Expected lifespan is low to mid-eighties but planned out to ninety just incase. At 54 that means 36 years of life. Your numbers will have to be tailored to your specifics. Mine was based on my current health, the age my father, and grandparents passed away, looking at the health of my still vibrant mother and using life expectancy calculators online. One can use many websites to get estimates. Insurance companies usually have a calculator but they are trying to sell you insurance so look at several sources.

The United Kingdom does good job of showing that while the likely expire time is 84 years it is not 100% so make sure to have a sufficient margin in your budget!

That all said, be realistic about your life span and remember a few important things.

• It is possible to live longer or shorter than you expect
• Genetics has a tremendous role to play in how long and well you will live so look at your parents, aunts and uncles
• Taking care of your health plays a tremendous role in how long and well you will live
• Front load activities you want to do most

How much money do I need?

Most of life is mundane which means you don’t have to spend money all day long every day of the week. If you can live with less you can retire earlier on the same money and live happily for many years. 

Serious thought needs to be put into what you really need to be happy. As an example, I went from a fully furnished 2000 sq ft house, 2 motorcycles, 1 car to one full sized and one carry-on set of suitcases. No exaggeration, that is the level of change that allowed me to do much of this. Well that and selling the house in the Seattle at a good price and a IRA that I had built up over the years working in high tech jobs.

It is possible to live with less and not feel like anything is missing. Typical tech workers make between $100k and $160k. It is very possible to live on $50K and try to stay at $30-40k per year. Location matters and also mindset.

How much money do I need?

$1.25M is the short answer based on the expenses presented in this scenario.

With $1.25M you can make $62,500 @ 5% return. Don’t forget that you still have to pay taxes. Consider that it’s likely your money is bifurcated into both retirement accounts and regular brokerage/savings accounts. Meaning part of your money is only accessible at 59.5 years old. Managing cash flow in this situation is extremely important.

5% return is easily obtainable today but may not be in the future. Some portion of the money is not accessible and living totally off the returns can’t be assumed. If expenses exceed your accessible returns there is a draw down of principal. This then means that my next year’s returns will be less since the base that is earning money is now also less. You are going to see your savings draw down unless you can spend less than you earn. Pretty simple math. Remember managing cash flow is imperative or you will run out of money before you reach 59.5.

However, remember that the amount that cannot be accessed because of retirement account regulations sees the full advantages of compound interest and will see exciting increases in value by the time it is necessary to utilize.

Risk and return

Most of the information so far regarding money is based on interest return from investments in CD’s and  bonds. This is important because they hold very little risk of loss. The risk is not completely zero but, depending on which investments are utilized pretty close to zero risk. The returns at this point is ~5% but as interest rates fluctuate so will returns on CD’s and bonds. If you looked back 3 years the returns on CD’s would have been dismal and made for some very tough decisions.

Currently my whole portfolio is in CD’s and US Treasuries or savings that have zero risk factor. If we go back to the nonsense of near zero interest rates it changes things significantly and then more risk is injected by playing the market as it will again become one of the only investment opportunities. As we have seen over the last couple decades, tremendous amounts of money can be made. The downside is lots of money can be lost as seen in the great recession and at the beginning of covid. If you had exited you would have lost a lot of money. It is nerve racking and not conducive to carefree retirement.

As a matter of budgeting my target return rate is actually set at 4.75% and I’m still okay at 4.5% returns. Just be sure to have margin in your numbers because one thing is certain is that things will change.

After 6 months and careful spending/investing no reduction in principal is realized. This happened because of some good fortune related to living expenses and a few good investment decisions. Don’t count of this happening but, enjoy when it does.

Retirement accounts

Before you turn 59.5 years old 401K, IRA, and Roth IRA accounts are off limits without significant penalty. Accessing these accounts ahead of schedule would be an abject failure and necessitate finding work or living on my mom’s couch.

Additionally be prepared for RMD (Required Monthly Distributions) these can be calculate ahead of time and any model must include this draw down of your retirement accounts.

Taxes

Federal taxes

Yes you have to pay taxes still and there will no longer be any itemizing since you will not have enough deductions to do so. It is the standard deduction from here on out. One thing to keep an eye on is if there is room to convert money into a ROTH IRA. Basically if there is room in the tax bracket to convert from a traditional IRA to a Roth IRA it may be advantageous to do so. This is dependent on your individual situation and needs to be done carefully and only when there is no penalty to doing so. 

With that all said your tax rate on ~30K of income is pretty low at around 11%. Since it is all capital gains there is a federal tax exclusion that will effectively make your federal tax rate 0%. If you are a resident of an income tax free state then that is the full tax burden you will have to absorb.

State taxes

If you can get residency in a state that has no state income tax and also has good health insurance options via the ACA or as I affectionately call it ObamaCare. Get it. Seriously save a few percent every year over other places you would have to pay state income taxes. That said, it is important to measure insurance costs and options of states that have income tax. It is possible that paying a couple percent of income tax in California might be worth it to access health insurance premiums that are better than what you might get elsewhere.

Insurance

Health insurance

Thank you President Obama, Speaker Emerita Nancy Pelosi and Harry Reid (McCain maybe should get more credit from the senate side). Truly the ACA or Obama care makes re:Traveled life easier. One you can actually get insurance with preexisting conditions and cannot have health insurance policy canceled.

Costs are subject to how much income you have. This is not the amount of money in your savings account it is the amount of income and in this situation investment income is used to calculate the subsidy amount related to health insurance.

Because half of my savings is in retirement accounts that is not considered income even though it is making money. Only the income from my accessible savings and brokerage accounts count towards subsidies on health care.

At $30K of income you’re health insurance costs will be minimal if not zero because of the “affordable” in the Affordable Care Act. Even for a silver plan PPO the costs are workable in a budget that stretches out your $1.25M until your late 80’s.

As we age, things change and as a US citizen you will eventually move to Medicare which is a different kettle of fish with its own costs. However, it is safe to assume that the costs you have now will be sufficient for your Medicaid costs plus which ever supplement plans you will purchase. 

Dental Insurance

It is mostly a scam. Get your dental work done in foreign countries. Cleanings are cheap and easy in other countries so you really can just do that stuff while you are traveling. Even a filling in Japan was like $35. Try finding that in the land of the free.

Travel health insurance

Get it! There are a few suggestions in a couple blog posts on this site. (coming soon)

Rental car insurance

I don’t like renting a car in foreign countries, especially since thought goes into choosing locations with great transit options. However, sometimes it is necessary and AMEX has a great option that allows for the single cost price of $20 for great insurance per rental period. Just make sure to use your AMEX when you want this option and that the rental period justifies the expense.