by Joe Hearn | Jul 11, 2012 | Pursuits, Retirement
We recently passed the halfway mark for the year. Six months to go before breaking out the bubbly and Auld Lang Syne. How are you doing with your plans for the year? Are you making progress toward your retirement goals?
Ray Bradbury, the vaunted science fiction writer (Fahrenheit 451), died a few weeks ago. Many of his stories and books involved envisioning or even predicting the future. In real life, though, he seemed to prefer a less futuristic way of forecasting what was to come.
Listening to an interview that was being rebroadcast after his death, I thought he had a great insight on how he “predicted” the future in his own life and how you and I can do the same thing—no time machine necessary. He said:
“I’ve learned that by doing things, things get done. I’m not an optimist; I’m an optimal behaviorist. We ensure the future by doing it.”
When I heard him say that, I thought of Babe Ruth pointing to the center field bleachers in Game 3 of the 1932 World Series and then hitting a homerun to those bleachers on the very next pitch. Oftentimes, when we think about the future, we frame it in terms of our “hopes and dreams.” Bradbury (and Ruth) seemed to have little patience for that because it was passive and outside his control. Rather than optimism, he favored optimal behaviors. “What do I need to do to achieve the outcome that I want?” That’s a good question to ask yourself as you enter the second half of the year. What do you really want out of life and retirement? What do you need to do to make that a reality?
Hope you’re having a great week. Don’t be a stranger. Touch base with me if I can ever help.
Joe
by Joe Hearn | Jul 9, 2012 | Insurance, Medicare
One of the biggest obstacles to retiring early is health care. If you want to retire at 62, but don’t become eligible for Medicare until 65, you have a three-year window where you need to bridge the gap between your employer’s coverage and Medicare. Traditionally, that has meant either going without insurance (not a good idea) or paying for an individual policy (mucho deniro or not available due to pre-existing conditions).
The new health care law has elements that could make it easier to bridge the gap between employer coverage and Medicare, thus making early retirement a more viable option. The law phases in over time, so I’ll discuss the options available to you between now and 2014 and those after 2014.
Between now and January 1, 2014
In the short term, the law makes $5 billion available to employers to spend on insurance for employees who decide to retire early (visit www.errp.gov for more info). The drawback here is that your employer needs to offer retirement insurance benefits, which most don’t.
If you’re willing to buy an individual policy to bridge the gap, but don’t qualify due to a pre-existing condition, the new law also has a pre-existing conditions insurance plan. Visit HealthCare.gov to get details for your state and information on how to apply.
After January 1, 2014
Both the early retiree and pre-existing conditions programs mentioned above expire at the end of 2013. What replaces them? Starting January 1, 2014 insurers will no longer be allowed to deny coverage based on pre-existing conditions, so you can shop around with private insurers regardless of your health. If you want to retire early and still can’t find affordable coverage with a private insurance company, states will have “exchanges” where anyone can buy health insurance.
So if you plan on retiring early, it looks like you’ll have a few more options for health coverage. Work with a trusted adviser to see if these options are right for you.
by Joe Hearn | Jul 2, 2012 | Pursuits, Retirement
I’m back! Sorry you haven’t heard from me for a bit. Every year my wife and I take a trip with three other couples and this year I decided to pretty much “unplug” so I could just relax and recharge.
Not posting for almost two weeks means that I have plenty of things in the hopper though, including a 30-Day Learning Challenge update, some thoughts on fixing problems before getting to retirement, life advice from Ray Bradbury (he passed away a few weeks ago), and an overview of how the Supreme Court’s recent ruling will likely affect your health care during retirement.
But first, a few quick ideas that occurred to me over the last few weeks on how to maximize fun and minimize stress.
Is this worth doing?
Everything we do in life takes some of our time and some of our money. Our activities also come with a built in “opportunity cost” because choosing one thing means forgoing something else.
With so many things to choose from, how do we pick those things that will result in the most fun, fulfillment, and satisfaction? A good place to start is to ask yourself this question:
“Will I remember this in 50 years?” (Or however long you happen to live)
If something passes the “50 year” test, there’s a pretty good chance that I’ll add it to my to-do list. Those things usually cost money, take some planning and get you out of your comfort zone, but they are also the things that give you a full life and a rich abundance of memories with family and friends.
I don’t have a very clear memory of what I did yesterday afternoon, but I will never forget teaching our daughter to ride her bike, scuba diving with my friends in Anguilla, hiking The Great Wall or having lunch with my wife at the Eiffel Tower. When I think about the story of my life, those are the things that will stand out.
Is this worth stressing about?
For many of us, stress is a constant. It’s like white noise in the background of life. Stress can be a useful motivator, but it’s not really healthy or worthwhile to constantly be worrying.
As I was scrambling to finish things up before heading out of town, I could feel my anxiety level rising. To counter the stress, I asked myself this question:
“Will this matter in five years?”
For most of the projects on my desk, the answer was no. It was stuff my assistant could handle while I was gone or something that I could finish when I got back. It wasn’t the kind of stuff that was going to alter the course of my life, it was just a bunch of work that needed to get done. Once things were in perspective, my anxiety melted away. If it’s not going to matter in the long-run, it’s not worth worrying about in the short-run. Just do your best to come up with a “rip off the band-aid” solution (quick and painless) and then move on.
How about you? What are you contemplating doing? Does it pass the “50 Year” test? How about stress? Anything keeping you up at night? Does it pass the “5 Year” test? You can craft a pretty satisfying life if you’re intentional about your choices and selective about your worries.
Have a great week!
Joe
by Joe Hearn | Jun 14, 2012 | Housing, Retirement
Raise your hand if you’ve ever made it through a particularly stressful day at the office by doing a Google image search for “Tropical Island.” Me too. In fact, if I type the letter “a” in the search bar, Google automatically thinks I’m looking for “Aruba” (B is Belize, C is Curaçao, etc.). While I’m partial to the tropics, you can also practice this desk-top-escapism by Googling London, Paris, Sydney or any other destination that suits your fancy.
There’s just something about our fast paced lives that makes a simple life in an exotic locale sound pretty appealing. Which raises the question: Should you retire overseas? Before packing the snorkel and sun block and buying a one way ticket to retirement paradise, it’s important to do your homework and determine if the expat life is right for you.
Retirement Budget
No matter if you retire in the States or abroad, much of your planning will revolve around your retirement budget. It will influence how much you need to save, when you can afford to retire and what types of things you can afford to do.
One of the appeals of retiring overseas is finding a location with a lower cost of living than the U.S. This is particularly true recently as the poor economy has battered retirement portfolios. If you’re ready to retire, but your nest egg isn’t, one option is to delay retirement and give your portfolio a chance to recover. Another option would be to move to a location where your dollar will go further. The website Xpatulator.com will help you analyze how far your dollar will take you in hundreds of different locations.
Healthcare
Most retirees in the U.S. rely on Medicare to cover a majority of their health related expenses. Unfortunately, Medicare will not provide coverage for U.S. citizens living abroad. That can seem like a deal breaker to many, but there are alternatives to Medicare.
The most obvious option would be to self-insure. Healthcare costs can be significantly less in some countries and it could make sense for a healthy individual to pay for care out of pocket on an as needed basis.
Another option is to purchase local coverage (which can be very reasonable, if available) or buy an international health policy through a company like Aetna International or ihi Bupa.
If quality of care is a concern, visit Joint Commission International to learn about internationally accredited and certified health care organizations in the country that you are considering. Keep in mind that if you eventually move back to the United States and want to sign up for Medicare, you will pay stiff penalties for waiting past age 65 to enroll.
Social Security
Unlike Medicare, your Social Security check can follow you beyond U.S. borders (assuming you don’t decide to retire to sunny North Korea or some other restricted country). Practically speaking, it may be easier to have your check deposited into a U.S. bank account and then access your funds using your ATM card abroad. This can help you avoid certain delays and fees if you try to have the check deposited directly into your foreign bank account. For more information, read Social Security Administration Publication 05-10137.
Taxes
Calculating your tax liability can be difficult under the best of circumstances. Add foreign residency into the mix and things can get downright complicated. Generally speaking, you will be subject to the same income taxes abroad that you would be within the U.S. You may also be subject to state taxes if you are still considered a resident of a state because you maintain a house or bank account there.
If you get a job overseas to supplement your retirement income, you may be able to exclude up to $95,100 of that income from your U.S. tax bill by claiming the Foreign Earned Income Exclusion (FEIE). This can help you avoid paying taxes to both the U.S. and your new country of residence on the same income. Before moving overseas, meet with a trusted tax advisor who is experienced in foreign tax issues so you can minimize your tax bill and stay within the good graces of the IRS.
Working
Many countries require you to obtain some form of work permit or visa before you will be able to legally work in that country. Keep that in mind as you consider where to retire. If possible, design your retirement budget so that it is not dependent on income from working. If you do decide to work, consider jobs where expats have a competitive advantage such as teaching English as a second language (ESL).
Buying Property
Buying property in a foreign country can be complicated. Some countries prohibit ownership by a foreigner altogether. Because of this, renting may be a better option. Either way, you should work with a local real estate agent and local attorney to make sure that any contracts are in order and that the transaction goes smoothly.
Retiring overseas isn’t for everyone, but it can be a great fit for some. If your dream retirement includes Panama instead of Pennsylvania or Uruguay instead of Utah, just make sure to do your homework and work closely with your advisers to ensure a seamless transition.
And don’t forget to send me a postcard!
Joe
I originally published a version of this article at www.fpanet.org.
by Joe Hearn | Jun 11, 2012 | Income, Retirement
How much is enough (a.k.a. How much do I need to have saved to fund my retirement)? When it comes to retirement, that’s the question I get asked the most. The answer is (not surprisingly) different for everyone. Some can live like kings on $50,000 per year. Others would have a hard time scraping by on ten times that amount. It all depends on the type of lifestyle you want to live.
Because there is no hard and fast rule, people often end up saving randomly and then hoping that it will be enough. This is a little like traveling without knowing where you’re going: Great if your only criteria is to get “somewhere,” but less than ideal if you have a particular destination in mind.
So how do you figure out how much you’ll need? Here’s a quick and easy calculation that will give you a track to run on:
Step 1: If you were to retire today, what would you want your annual income to be?
That’s a much easier question to answer than “How much is enough.” Think about your plans for retirement. Are you on track to have your house paid off? Do you want to travel more? Planning on moving to the beach? Imagine that today is your last day at work (Hooray!). Retirement starts tomorrow. What kind of annual income do you need? This Retirement Budget Worksheet can help.
Step 2: Subtract pension and Social Security income.
Take the number you came up with in Step 1 and subtract any income you expect to receive from a pension or Social Security.
Step 3: Multiply the answer from Step 2 by 25.
Research shows that if you want your retirement portfolio to last for 30 years, you should limit initial withdrawals to about 4 percent per year and then give yourself a “raise” each year based on the inflation rate. Multiply your answer from Step 2 by 25 and you’ll have a portfolio big enough to generate the income you need assuming 4 percent withdrawals.
Step 4: Adjust the answer from Step 3 for inflation.
The answer you came up with in Step 3 is the portfolio you would need if you planned on retiring today. If you plan on waiting awhile, you’ll need more money because things get more expensive over time. If you’re not retiring for another five years, multiply the answer from Step 3 by 1.22. Ten years to go? Multiply by 1.48. For 15 years and 20 years, multiply by 1.80 or 2.19 respectively.*
That’s it! You now have a rough idea of how much you’ll need to fund your retirement. And as G.I. Joe would say, “Knowing is half the battle.” The other half is saving! Touch base if you have any questions or if there’s anything I can do to help. Have a great week.
Joe
* These numbers assume an annual inflation rate of 4 percent.
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