2677: [Part 1] Conquer 3 Critical Early Retirement Challenges by Redefining Retirement by Chris Mamula of Can I Retire Yet

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[00:00:30] This is Optimal Finance Daily Episode 2677. Conquer three critical early retirement

[00:00:37] challenges by redefining retirement. Part one, by Chris Mammula of can I retire yet?com.

[00:00:44] And I'm your host and personal finance enthusiast, Diana Merriam.

[00:00:48] Now today I have a longer post for you so I'm going to split the article up,

[00:00:53] reading the first part today and finishing it up tomorrow. So with that let's get right to

[00:00:58] part one and start optimizing your life.

[00:01:04] Conquer three critical early retirement challenges by redefining retirement. Part one,

[00:01:10] by Chris Mammula of can I retire yet?com

[00:01:15] For the first decade of my adult life, I was saving diligently while coasting through life

[00:01:20] with vague ideas that someday I could retire early. As my wife and I reached our mid 30s,

[00:01:26] we paid off our home and saw our investment balance as building. We realized early retirement

[00:01:31] may actually be a possibility. I got more serious about planning and dove deeply into the world

[00:01:37] of early retirement blogs. Many of these blogs simplified retirement planning down to basic concepts

[00:01:43] and rules of thumb. These guidelines were extremely helpful in the early stages of planning.

[00:01:49] However, as we got closer to the retirement decision, we found ourselves with three big

[00:01:53] challenges that could not be answered with rules of thumb and oversimplifications. We needed to

[00:01:59] start making real decisions. Getting any of these decisions wrong could legitimately derail our

[00:02:06] retirements. It became obvious to us why pending retirees get stuck in one more year syndrome.

[00:02:13] The fear and anxiety of taking the leap into retirement is real.

[00:02:18] Challenge 1. Paying for medical insurance

[00:02:22] One challenge we faced when planning our early retirement was figuring out what to do about

[00:02:26] medical insurance, which we've always obtained through our employers. Many in the early retirement

[00:02:32] community are planning around the Affordable Care Act or ACA. I've written how the ACA is currently

[00:02:39] a viable option for early retirees with very generous subsidies available for those with low

[00:02:44] recognized incomes. However, we didn't feel comfortable planning around this system for 20

[00:02:50] plus years until Medicare eligibility. Considering the law is under constant political attack and it

[00:02:56] remains uncertain for even next year. Another popular option among early retirees is using healthcare

[00:03:03] sharing ministries. We would consider using a healthcare sharing ministry, but I learned they

[00:03:09] come with their own unique challenges and risks. Due to their religious origin and exclusion of

[00:03:15] others who do not share their beliefs, they're not an option for everyone. This may also make them

[00:03:20] a political target so there's no guarantee for their long-term viability. Planning for future

[00:03:26] health insurance costs while retiring in our early 40s requires predicting over two decades into

[00:03:32] the future with at least reasonable accuracy. Even that requires an assumption that Medicare will

[00:03:38] be available and similar to today when we reach age 65. At the same time, we can't confidently

[00:03:44] estimate our cost to within a few thousand dollars one year into the future due to political

[00:03:50] risks and personal health risks ultimately out of our control. Challenge 2. Uncertainty about having

[00:03:57] enough. We began our retirement planning around research that supports a 4% safe withdrawal rate

[00:04:03] also known as the 4% rule. Using the inverse of the 4% rule, we simply need to save 25 times

[00:04:11] our current annual expenses to determine our retirement needs. This is a great place to start

[00:04:17] planning. However, as we got closer to making the actual retirement decision, we found big problems

[00:04:22] with this rule. Even eliminating the uncertainty around healthcare, our spending is not constant

[00:04:29] as is assumed by the 4% rule. We've always saved roughly 50% of our income by living off of one

[00:04:35] of our salaries and saving the other. However, we never lived on a budget. Some years we were naturally

[00:04:41] more frugal than others and we saved more than 50%. Other years, we would splurge and spend

[00:04:46] thousands of dollars on a purchase or experience that we valued. We loved this feeling of living with

[00:04:52] an abundance mentality. Conversely, we tried to live our lives around a set budget as we got serious

[00:04:58] about retirement planning and we found that it made us much less happy. Our wealth grew faster

[00:05:03] than ever. Simultaneously, we started to feel stressed about money for the first time in our lives.

[00:05:09] Also, the 4% rule is a generic guideline that assumes that we're all blindly starting our

[00:05:14] retirements at the same time and under the same economic circumstances. However, as we approach

[00:05:20] our desired retirement date and financial goals, we can eliminate these assumptions. Our goal was

[00:05:26] to retire by a specific time, no later than 2018. We know what economic conditions are right now.

[00:05:33] Unfortunately for us, those conditions are not favorable for investors looking to start drawing

[00:05:38] down investments. Challenge 3. Figuring out how to be happy. The financial issues of early

[00:05:46] retirement were substantial. However, the biggest challenge of retirement planning was more existential.

[00:05:52] What do I really want out of life? What will make me truly happy and fulfilled?

[00:05:57] Early on in my planning process, I got caught up in the fallacy that early retirement was the

[00:06:01] solution to all of life's problems. I simplistically assumed that a lack of time was making

[00:06:07] me unhappy, so retiring would create more time and thus make me happy. The reality of going through

[00:06:13] the retirement planning process made me realize that quitting work could simply mean trading

[00:06:18] the devil I know, working dominating my time for new devils. Without carefully planning,

[00:06:24] I could be introducing potential financial stress I had not previously experienced combined with lack

[00:06:30] of day to day purpose. Asking more and better questions. Like most people hearing this,

[00:06:36] I originally found my way to this website looking to answer the question, can I retire yet?

[00:06:42] While that question is valid and important, it's not the only one. Solving our challenges required

[00:06:48] first asking more and better questions. Here are just a few of the additional questions I began

[00:06:54] asking myself and discussing with my wife. Just because I can retire early, doesn't mean I should.

[00:07:00] Why do I want to retire? Why does anyone retire? Where did the concept of retirement even come from?

[00:07:06] How will my life be better if I retire? How will it be worse? And what are the positive aspects

[00:07:12] of my work? What will I miss about my job? How can I throw out the bath water without tossing the baby?

[00:07:20] To be continued.

[00:07:25] You just listened to part one of the post titled, Conquer Three Critical Early Retirement Challenges

[00:07:31] by redefining retirement by Chris Mammula of Can I Retire yet?com and I'll be right back with my

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[00:08:35] I think Chris had the nail on the head when it comes to some of the uncertainty around financial

[00:08:40] planning. When I was quitting my job three years ago, health insurance was definitely one of my

[00:08:45] concerns. There are a ton of factors to consider and it's incredibly challenging to write size

[00:08:51] or assumptions when attempting to estimate costs. I was at a campfire then a while back where

[00:08:56] some attendees came up with a fairly complex formula to estimate health care costs that considered

[00:09:02] premiums, deductibles, out-of-pocket max, health care inflation, subsidies and more.

[00:09:09] The way I see it, health care costs are a risk whether you retire early or not,

[00:09:13] whether you have health insurance or not and especially if you live in the US.

[00:09:18] I think you need to evaluate this risk as you would evaluate any other risk and recognize that

[00:09:23] you'll have to make decisions without fully knowing the future. I found myself at this crossroads

[00:09:29] when I was deciding to quit my corporate job and looking at my health insurance options.

[00:09:34] I ended up buying an ACA plan for much cheaper than I expected. Without any subsidies,

[00:09:40] I'm now paying $350 per month for a high deductible plan. While I'm sure that cost is going to continue

[00:09:46] to increase, I decided the cost was worth it for me for the opportunity to pursue self-employment.

[00:09:53] But we're just halfway through this article so I'll stop there for now, have a great rest of your day

[00:09:58] and I'll see you tomorrow where we'll finish up this post and where your optimal life awaits.