33 Replies Latest reply on May 5, 2013 2:20 PM by jkom51

    Do you really need $1 Mil to retire if your house is paid & you have SS pay ?

    cyber888
      If you don't have kids staying with you, 
      If your house/mortgage is fully paid,
      If you are getting around $25,000/yr (today's money) from Social Security,  which is equivalent to a $500,000 annuity,
      Do you really need $1 Million to retire on? 
      I ask this because people over-save and think they can live to 120 years old.  But many of us will probably pass away between 75 - 92 years old.   
       Is this just a ploy to put the "fear god" in you.  And you'll die with a lot of money you have not used.  I mean, you could have enjoyed that money earlier in life ?
       
      I guess my question considers more about the issue of over-saving for the future (when you could die and not enjoy your money) or enjoying the present while you're still active and able to enjoy your life to the fullest. 
        • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
          smaneck
          I figure that realistically I need about half a million to retire. My house will not be paid and I intend to retire when I am 62 or 63. But mind you, I am a single person who invests aggressively and plan to continue doing so after I retire. I also expect that at some point I am likely to inherit a good portion of my mother's retirement accounts. 
            • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
              cyber888
              Thanks.  If my house paid in 3-4 years, I will need around $700K - $800K to retire at  58 - 59.   I don't know how long I can be happy working.  If I'm really happy with work, I think I can work till 62 but no more than 62. 
                • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                  jkom51

                  You need retirement savings of...whatever you're going to need in the future. And I honestly do not mean to be elliptical, sarcastic, or Zen. 

                  The two biggest issues for current retirees are: 1) healthcare costs and 2) inflation. Whatever Washington finally does to 'fix' SocSec and Medicare will almost certainly be a combination of lower payout from the government and higher costs to users. The CPI understates inflation for those who are on fixed incomes, a fact long established. 3%/yrly inflation cuts your buying power by 50% in about two decades.

                   

                  Consider my MIL, now 85. She has a small pension, a modest SocSec, and a portfolio of over half a million $$, from which she takes a 2.8% distribution. Her RMD amount is calculated as part of this, so it's actually a little less, more like 2.5% distribution. Unlike most people, she has retiree health benefits ($200/mo premium), so a broken elbow and an eye operation have cost her very little money, less than $500.

                   

                  But she also has dementia. It has gotten noticeably worse in the last six months. She has been living with us since 2006, but it is rapidly getting to the point where DH and I can see that she will be happier and better cared for in a good memory care facility. Our lifestyle is not social enough to give her sufficient stimulation. Fortunately there are several nearby us; we want her to be close.

                   

                  This is an urban, high cost labor area. Base price for a tiny studio in Assisted Living averages $4,675/month plus extra fees for special services (assistance dressing or bathing, for example). This will require a larger drawdown of her funds. When she goes into Memory Care – nobody ever recovers from dementia, they only get worse – the current cost is $6,000/month inclusive.

                   

                  These are today's prices (literally; we've just spent the past month visiting five facilities). Costs go up 3-5% annually for AL/full nursing facilities; they have never gone down.

                   

                  None of the well-rated, nicely maintained, good care facilities will accept Medicaid-only patients. Not a single one! I have been to facilities that take Medicaid-only patients and they are some of the most depressing places imaginable.

                   

                  So even if you have good health now, modest overhead and expectations, that doesn't mean you are "home free." The fastest growing segment of the GLOBAL population is the group age 80+. Every industrialized nation, national healthcare or not; Europe, North America, or Asia, is worried about how to pay for increasing eldercare costs.

                   

                  Money can't solve everything. What it can do is to give you options others who are less fortunate, don't have access to. We know we are far luckier than most. A lot of Boomers our age are terrified of old age infirmity because they realize they haven't planned for it financially.

                    • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                      smaneck
                      The best way to avoid this situation is to buy long term care insurance. My mother is nearly as old as your mother-in-law and her portfolio is about the same size, with no pension. Fortunately she was once a financial advisor and had the good sense to buy long term care insurance for herself. It won't cover all the expenses you name, but it covers a good portion of them plus gives me the flexibility to provide her home care if necessary. I now have long term care insurance myself and I will probably buy a longevity annuity as well. Then I can enjoy my retirement without having to worry about running out of money. 
                        • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                          jkom51
                          Yes, we also bought LTC insurance. But it is VERY expensive - we've been advised our premiums are increasing 5% in 2013, 5% in 2014, and (if we keep our policies with the same benefits, which we intend to do), an 85% increase in 2015.
                           
                          We have had our policies for 13 years. Our premiums in 2012 were slightly over double what the original premiums were, 13 yrs ago. However, I've worked in insurance for years. I felt the premiums were way too low for the Boomer generation and told my DH to be prepared to budget for periodic price increases.
                           
                          Because our premiums were so low to begin with (we bought in our mid-40's), even the 2015 increase remains affordable for us. If we needed to, we could reduce our unlimited length benefit to 5 yrs; that would reduce the 2015 increase to 30%. But our medical history is iffy, and genetics are against us. We will keep the unlimited benefit (plus home healthcare and compound inflation rider) in force as long as possible.
                           
                          Underwriting is currently very "tight" for LTC. Few people in their mid-50's and older would qualify for Preferred or even Standard rates. There is no point to buying LTC insurance if you can't afford a premium cost that is rated for bad medical history (such as my DH, who suffered a stroke at 50).
                           
                          We have excellent policies through DH's pension fund, which is big enough to be able to negotiate with the LTC carrier. A decade ago they offered to allow anyone remotely related to a union employee to also buy LTC insurance.
                           
                          We suggested it to all our family members. Every one of them turned us down, saying it was "too expensive" and "we'll think about it later."
                           
                          WIthout exception, every single one of them encountered some sort of health issue in their late 50s/early 60s that would disqualify them from the best rates. The Great Recession hit their portfolios and now they REALLY can't afford LTC insurance.
                           
                          And without exception, they all envy us our having these policies, and wish they could afford it as well.
                      • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                        jkom51
                        Sorry, I did not properly coordinate my post about LTC with the OP's "Do you really need $1 Million to retire on?" question.
                         
                        $25,000/yr may sound just fine now. And depending on your budget, it may work with your SocSec to give a comfortable lifestyle.
                         
                        But medical expenses, especially long-term care, are the big ??? for everyone. Improvements in mortality continue; people now live years longer with serious medical conditions that formerly killed a person quickly. All of us know people who have had heart operations, or a stroke or severe diabetes, or cancer. Leukemia used to be an automatic death sentence when I was young, but no longer, for example.
                         
                        If Medicare shrinks, it is seniors who will deal with the consequences. You need to ask yourself, how long will my nest egg last under one or MORE of the following conditions:
                        - I live thirty years past retirement instead of just twenty
                        - I become disabled, and need either home care, universal access remodeling, or some type of facility care. How much would those alternatives cost now, and how long could I pay for them as ongoing costs?
                        - Even if I'm not disabled, I just get old. What happens when I can't drive? How can I get around without begging rides from friends/family?
                        - Inflation spikes, cutting the buying power of my distributions - how will I manage if my buying power gets cut in half? How do I manage big expenses, such as a new roof or needing a new/used car?
                        - If I buy LTC insurance, how will I afford the premiums? Can I manage a 100% increase over the next decade? Am I even insurable now? 
                         
                        Good financial planning has very little to do with ROI or even saving. It has a lot to do with asking yourself the unpleasant "what if?" scenarios, because life happens. Nothing is ever going to go the way we think it will, all the time. You have to be mentally prepared, or the light at the end of the tunnel may only be the painful impact of an oncoming train running you over.
                          • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                            cyber888
                            So how much that LTI cost you per year ? 

                            My wife and I don't probably need this, since we can go to the Philippines, where we have a family base.  I think we'll do this when we hit our 70s or late 60s. 
                             
                            My mom has dementia and she can't afford to retire here in the US with her social security. She's now in Philippines, where a maid cost P5,000 pesos/month or $120/month and so my Mom has two maids taking care of her - that's only $240/month.   One even sleeps with her inside her room to answer to her every need.   Her US social security income and savings is enough to support her there.
                             
                            I think the cost of healthcare in the US is ridiculous and it pays to be really healthy physically and mentally when you're in your 70s and 80s.     
                             
                            However, Obamacare caps the cost of health insurance at 9.5% of income if you're 400% above the poverty income.  I just don't know how if Obamacare caps Long-term care insurance in some way.  
                              • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                jkom51
                                Yes, many seniors have, or are considering, moving out of the US. However, we have no desire to follow them. We love where we live - just came back from a great 3-day trip to the Napa Valley, only a 45-min drive home. Great food, beautiful countryside...lousy traffic, though [smile].
                                 
                                Next month, we do a week-long trip to Sonoma/Mendocino, two of my favorite places. We have a couple of friends who live in Sonoma Cty and will be visiting them to catch up on their lives.
                                 
                                We have friends and family here. As long as we can afford to live here, we will remain in the SF Bay Area. But frankly, referring to the OP, I'm not sure anyone with just $1M in assets and SocSec could retire here in the San Francisco Bay Area. That is, you could, but you would be scrimping pennies and cutting coupons. We don't like to live like that (been there and done that, LOL).
                                 
                                Our LTCi policies are our financial back-up. They help lessen the risk that one of us needing serious care, would end up impoverishing the other. The total annual premiums for both our policies, after the massive 85% increase in 2015, will be equal to:
                                - less than six weeks of Asst. Living care in a good senior community near our house, OR,
                                - less than 25 days of nursing home care.
                                 
                                That's why I tell people it is critical that they investigate what care costs are for both home care and facility care in their area. Costs vary widely from area to area. If we moved 75 miles away our costs for care would decrease at least 35%, simply because of labor and RE costs.
                                 
                                No one can budget for what retirement costs will be without considering healthcare. Obamacare has no cap on LTC because it isn't part of the legislation; the Class Act was abandoned as unworkable.
                                 
                                It is the downside of people being healthier and living longer. Your money may have to last for 30+ years, and it takes A LOT of money to do that, even without large healthcare costs.
                                  • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                    Glicker
                                    My Mother developed dementia after a couole of operations (knee and hip) and eventually had to be in an assisted living place. We found a nice one and within a year her assets were gone - $9,000 per month. She died a ward of the state on Medicaid so my sisters and I did not have to pay out of pocket, and the place was a nice mix of people and pay types (suburban Milwaukee). It can be a drain. My wife and I do not have LT care insurance and hope our own funds will suffice, but we worry about the consequences of one of us going bad and draining the savings for the other. In fact, that's our biggest worry. I told her if it's me, take me up to our place "up north" and send me out on a hike. We'll all be happier. 
                                    • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                      D1953
                                      LTC was a much better deal about 15 years ago, and we were fortunate enough to purchase policies in NY state (the toughest state for insurers to be licensed in, which is good for consumers) that have fixed premiums, and cost of living benefit increases.  It would be very difficult to find something like that now, but check the major insurers (if you're healthy, in your 50s, or a very healthy, slightly older person). By the way, jkom51, what is your 'DH'?  I guess that MIL is mother in law, but the abbreviations are a little distracting and confusing.
                                    • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                      Celsa
                                      All, all, all of these comments scare me to death.  I am 64 almost 65 and have been wanting to leave my full-time job and take on a part-time job and collect my SS.  I live alone and my house is paid for.  My monthly pension in retirement would be very, very low - So far, I have been very fortunate, health-wise, in fact I haven't been to a doctor since 1990.  (I try to doctor myself)  But, as was stated in prior comments, life happens.
                                       
                                      I guess the winning the lottery is the best bet.
                                       
                                       
                                        • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                          JerryD
                                          I would be very careful of "I try to doctor myself" as an approach to health care. We very recently had a friend who tried that and ended up with an advanced case of cancer over the course of a year or so. Actually there were several such friends and similar scenarios. I too a couple of years ago when we were on a $2,500 deductible plan shied away from a doctor who I characterized at the time as a "pill-pusher" and "referral expert". Turns out several years later he became my savior when he discovered a very serious condition that other doctors missed when he saw me during the holidays as a backup.
                                           
                                          I appreciate the need to be careful when funds are tight. I just wanted to show another side of being "blind" to conditions that need to be addressed by the doctors. 
                                        • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                          It depends.  If you are planning for a couple who are both 65 and in good health, there is a 50/50 chance that at least one of them will live into his or her 90s.  If you are single and in good health then there is a 50/50 chance that you will live into your 80s and a 25% chance that you will go past 90.  So you have to plan for a longer time horizon than you think. Second it depends on what your spend rate is likely to be.  Early in retirement it might be more on consumption, and later on more on health care.  Fid*lity's Retirement Income Planner is a great tool for estimating your expenses in retirement and then determining how long your money (and house equity if you want to tap into that) will last against that expense plan.  And, no,  I do not work for Fid*lity; I just like their tool for its thoroughness.
                                          • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                            Glicker
                                            There is no "one size fits all" answer to the question. The plain facts are that people are living longer and while Social Security is a lifetime annuity, many people no longer have any lifetime pensions, so you need to determine what you think your expenses will be in retirement, which itself has lots of factors, again, personal to the individual or couple. Once you know what you might need - and I'd encourage you to overestimate rather than underestimate - you will have a better idea of how much you will need. I have used a calculator from a competitor whose name begins with F that allows you to put in expenses by category. Remember that Medicare Supplemental insurance will cost about $200/month per person, and remember that inflation, even low inflation, will erode the purchasing power of what you have. SS will not keep up, especially if the chain cpi change is made, but even at present - it doesn't include things like food and gas - so you want to be comfy. A $1million IRA or qualified asset will provide about $40,000 a year and has a good chance of lasting your lifetime, however long that is, if prudently invested. Hope this is useful.
                                            • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                              canthony
                                              Best spend and enjoy, keep a bit in your retirement.  The govt. has plans to raid your retirement anyway.  If you can find a safe place for it away from the politicians hungry hands put it there.Don't plan on leaving anything to your children plus the Govt will take 55% of it anyway.  Sorry to be so sarcastic but it is the real world today.
                                              • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                I would add to all the excellent input above that a whole lot depends on where you live. My husband and I are moving from one of the most expensive urban areas in the US to a state with no state income tax or sales tax when we retire at the end of the year which will help us save some. But I half-jokingly say to him that we can only afford for one of us to come down with a catastrophic illness. 
                                                • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                  smaneck
                                                  At 57 I'm paying about $1800 a year for long term car insurance. It only covers about $130 a day but I should be able to pay the rest out of my regular income. The best bet if you can afford it is to pay $6000 a year for ten years. That buys you a permanent policy with no further payments. 
                                                  I couldn't afford it, though.  
                                                  • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                    smaneck
                                                    If you wait until you are 70 buy long term care insurance you may find the premiums way too high. Besides, your health could decline so you are no longer eligible. ObamaCare does not have a long-term care provision that I know of. I was hoping . . . 
                                                    • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                      D1953
                                                      Ques - how is healthcare in the Phillipines, particularly with age related illnesses, such as dementia, heart problems, stroke, etc.?  We had once moved from NY to a less expensive state (with no income tax), but the healthcare was poor, and we ended up spending more in the long run due to mis-diagnoses, excessive testing and long drives to decent health care facilities.  We've since returned to NY and our annual health care costs have been cut by over 50% (even though we are now older) due to a higher quality of health care providers and facilities.  Something to consider.
                                                        • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                          smaneck
                                                          Yeah, my LTC premiums have only gone up when I increased my coverage which they let me do about every third year. 
                                                          • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                            jkom51
                                                            D1953 said...
                                                            >>By the way, jkom51, what is your \'DH\'? I guess that MIL is mother in law, but the abbreviations are a little distracting and confusing.>>
                                                            Sorry for the confusion. These are standard abbreviations on most discussion forums.
                                                            MIL: Mother in law
                                                            FIL: Father in law
                                                            DH: Darling (or Dearest) husband
                                                            DS: " son
                                                            DD: " daughter
                                                              • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                                Sharon
                                                                I am glad your MIL has $ to live on.
                                                                Many 90's and older people do not.
                                                                You are right about Medicaid and Medical and good nursing homes not accepting the patient.
                                                                I understand everyone pushing Long Term Health Insurance.
                                                                But it really is up to the individual if you need it or not.
                                                                In my family the "relatives" are still alive in their own homes in their late 90's. They have daily caretakers who feed them and dress them and clean the house but only pop in and out...not full time.
                                                                They continue to live in their own homes paid for.
                                                                So if at age 100 they need to go to a nursing home for awhile, selling their homes will pay for what care they need.
                                                                The average person living in a nursing home is less than 2 years since you dont' get there if you are well.
                                                                Dementia is another story.. Perhaps Altzheimers and Dementia patients need longer care.
                                                                Still, if you are in a $6000 a month facility, money disappears quickly.  And in the future, nursing homes might be above $10,000 a month. Never earned that much even in my best working years!

                                                                  • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                                    jkom51
                                                                    "Everybody" is NOT pushing LTC insurance. In fact, I sincerely doubt 80% of the Boomers who don't have it, would either (1) be able to qualify for an unrated policy, or (2) be able to afford it.
                                                                     
                                                                    We just feel fortunate we did buy it long ago, because we certainly couldn't afford what the new premiums are.
                                                                     
                                                                    My MIL's relatives in Canada cannot believe how poor our system is at taking care of the elderly. All her relatives as they age are happy to go into safe, well-maintained, pleasant senior housing that is easily affordable by middle-class and lower-middle-class income seniors - even those with dementia and Alzheimer's.
                                                                  • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                                    D1953
                                                                    Thanks for the info.  It was the "D--" abbreviations I couldn't figure out!
                                                                      • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                                        cyber888
                                                                        D1953 said...
                                                                        Ques - how is healthcare in the Phillipines, particularly with age related illnesses, such as dementia, heart problems, stroke, etc.?  We had once moved from NY to a less expensive state (with no income tax), but the healthcare was poor, and we ended up spending more in the long run due to mis-diagnoses, excessive testing and long drives to decent health care facilities.  We\'ve since returned to NY and our annual health care costs have been cut by over 50% (even though we are now older) due to a higher quality of health care providers and facilities.  Something to consider.
                                                                        Healthcare in the Philippines is excellent.  I got my eyes lasered there for about 20% of what it would cost here.   Many Philippine doctors are trained in the US and update their knowledge by attending seminars and conferences in the US and Europe.  
                                                          • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                            rpatton3

                                                            I guess it depends on your lifestyle and a myriad of variables.

                                                            At age 94, a friend had to replace engine in an eight-year-old car and put a new roof on her house.  At 94, do you buy 20, 25, or 30 year shingles?  Do you buy a new car or fix the old one.

                                                            This was a real set if decisions she had to do at 94.  She had bypass surgery a few years earlier and was not sure she even wanted to do that.  She did.  She died at 96.  I think she repaired her car and bought cheaper shingles.

                                                              • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                                smaneck
                                                                Actually, I think we are talking about three different things. 
                                                                 
                                                                Long Term Care Insurance
                                                                 
                                                                Guaranteed Annuity
                                                                 
                                                                Longevity Annuity
                                                                 
                                                                I currently have LTC Insurance. I attend to purchase Longevity Insurance before I retire. I *don't* intend to purchase a guaranteed annuity. As far as I'm concerned Social Security is my guaranteed annuity. I do intend to buy a longevity annuity because it will insure that my money doesn't run out before I die. Unlike Guaranteed Annuities, they don't cost that much and the payout is really good for the simple reason that the insurance company is banking on the fact that most people will die before the payout begins at age 85. I don't mind paying an insurance company 30-50K to make sure I don't outlive my assets. But I sure don't want to leave then a 500K portfolio!
                                                                Right now TIAA-CREF doesn't have any longevity annuities but I noticed they've been studying them. I found a letter from TIAA-CREF to the department of labor regarding IRA rules in regards to  these annuities. I'm hoping they have these available by the time I'm ready buy one and that I can buy one using my retirement funds without it coming into conflict the minimum distribution rules. 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                 
                                                                • Re: Do you really need $1 Mil to retire if your house is paid & you have SS pay ?
                                                                  smaneck
                                                                  At 94 I was planning to give up my license. Insert thewinkingemoticon.