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PSA for early-ish retirees in U.S.


LabDaddy

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Figured I'd throw this out there, someone may benefit.

If you retire early, you may wish to get to your pre-tax (e.g., 401(k), IRA) money before age 59 1/2 (the age when you don't incur a 10% early withdrawal penalty).

While there are a number of exceptions, probably the most widely known without restrictions is what's commonly known as a 72(t) "series of substantially equal payments" withdrawal plan.

The "72(t)" refers to the IRS Code section, and is a bit of a misnomer, as 72(t) is much more involved with that; it's actually a 72(t)(2)(A)(iv) plan. :D

Now that I've bored you, the good stuff.

Another part of 72(t) allows you to withdraw, penalty free, from a 401(k) plan that you have at your last employer if you separate from service during or after the year you reach age 55.

In the past, when I've left one company for another, I've always rolled the 401(k) into a (single) IRA. Since I'm about 11 months out from attaining age 59 1/2, I won't do that this time -- I'll keep it in my employer's plan until I reach age 59 1/2. It's important to note you must keep the money in the employer's plan, you can't roll it into an IRA.

I don't plan to tap into it, but it's a good way of maintaining flexibility.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

 

 

 

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19 minutes ago, Airehead said:

Does it apply to those of us who work for non-profits and have 401(3)(B)s?

It appears so.

Publication 575 states that 403(b) plans are considered qualified retirement plans, and the exception is for qualified retirement plans other than IRAs.

"You may wish to speak with your tax advisor." ;)

 

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Excellent.  Although, we have a significant amount in a taxable trading account.  We can draw down on that for a few years to bridge the gap, and we will only need to pay our capital gains tax.  Our plan is to work part time for a few years to help out with expenses. We should be fine without touching the deferred eggs.      

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A lot of retire earlies do what is called a back door Roth conversion. You retire. Your income is low. So you convert 401k money to Roth up to the 0% tax bracket. Or even the next bracket up (10%?) 

Most of ours is in taxable so I don't pay a lot of attention to this strategy. But might be helpful

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18 minutes ago, Dirtyhip said:

The key to early retirement is controlling your spending.  We have set ourselves up to have such low overhead expenses.  The numbers look very attainable.

It's not the known expenses that hurt.  It's the well failure, the cancer, the other medical stuff and other major repairs on the house that you didn't plan on.  Then of course you have to account for your millennial son moving back into the basement without a job.

 

;)

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No kids to ruin us, and we plan on having medical insurance.  Life is a crap shoot, of course.  

I refuse to focus on gloom and doom.  There are optimists and pessimists.  I am an optimist.  If we get very sick, we are ruined regardless of where we are.  Why worry about it?

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2 hours ago, Dirtyhip said:

Excellent.  Although, we have a significant amount in a taxable trading account.  We can draw down on that for a few years to bridge the gap, and we will only need to pay our capital gains tax.  Our plan is to work part time for a few years to help out with expenses. We should be fine without touching the deferred eggs.      

I'm similarly situated, and I did the part-time thing for several years (since age 50).

One thing to possibly consider (don't know your access to health care in early retirement): If your income is too low, the ACA marketplace kind of presumes you're in Medicaid. Too high and the subsidy goes away.

IIRC, for a single like me, the low end is ~$17,000 and the high end is ~$48,000. At income of $20,000, the credit is ~$850/month. At $30k, ~$728. At $40k, ~$610. 

In a nutshell, if you plan on utilizing the ACA, and you have the financial flexibility to do so, it makes sense to target getting enough income to jump over the Medicare hurdle, but not so much as to entirely lose the subsidy.

 

 

 

 

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2 hours ago, Scrapr said:

A lot of retire earlies do what is called a back door Roth conversion. You retire. Your income is low. So you convert 401k money to Roth up to the 0% tax bracket. Or even the next bracket up (10%?) 

Most of ours is in taxable so I don't pay a lot of attention to this strategy. But might be helpful

Yup.

I'm considering doing so. No RMDs and continued tax free growth.

It's a big jigsaw puzzle, with ACA subsidies, Social Security and its possible taxation, RMDs, etc.

/first world problem

 

 

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4 minutes ago, LabDaddy said:

I'm similarly situated, and I did the part-time thing for several years (since age 50).

One thing to possibly consider (don't know your access to health care in early retirement): If your income is too low, the ACA marketplace kind of presumes you're in Medicaid. Too high and the subsidy goes away.

IIRC, for a single like me, the low end is ~$17,000 and the high end is ~$48,000. At income of $20,000, the credit is ~$850/month. At $30k, ~$728. At $40k, ~$610. 

In a nutshell, if you plan on utilizing the ACA, and you have the financial flexibility to do so, it makes sense to target getting enough income to jump over the Medicare hurdle, but not so much as to entirely lose the subsidy.

Am so glad we don't live in the U.S. from the standpoint of retirement planning and savings re health care.  It makes me wonder for a few Canadians who I personally know (in my age bracket) who will be taking early retirement within the next 18 months, if they would have even considered it if we were on U.S.'s health care insurance system.

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Thanks for the information. I've cut and pasted it into a Word file and saved it in my tax folder.

I retired in 2006 at age 55 3/4 with bad legs (now mostly recovered!) and limited income for several years until excellent retirement income sources kicked-in.  I needed $7000+ I had in a 403b (non-profit version of a 401k) that was effectively severance-pay for unused sick days, for expenses and suddenly, in 2008, I was audited by the IRS and told I owed them $12,000!

When I met with the IRS, I saw on their table some documents about property sales in Florida, where I've never owned property. When they realized their mistake, they quickly removed and hid those documents.  I went over everything with them and claimed they owed me $2956 - I didn't owe them $12,000 - and asked them to show me where I was wrong.  We also went over my spending of the 403b money.

They said NOTHING and disagreed with NOTHING, saying they would have to review the documents, but the day after the meeting ended, the bastards froze my bank accounts - generating a $300+ fee from M&T - for just THREE days - generating another fee from M&T when they unfroze them.

I think they were trying to intimidate me with what they could do to me and wanted to avoid the audit backfiring on them. And it worked. They then sent me a bill for $1700, which I paid because I realized they were never going to agree to the $2956 and they could harass me - asking for proof of every deduction, freezing accounts, etc. - for years and years.

 

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1 minute ago, shootingstar said:

Am so glad we don't live in the U.S. from the standpoint of retirement planning and savings re health care.  It makes me wonder for a few Canadians who I personally know (in my age bracket) who will be taking early retirement within the next 18 months, if they would have even considered it if we were on U.S.'s health care insurance system.

My cost for a Silver Plan if I limit my income to $20,000 would be about $165/month.

And that includes prescription drug coverage.

 

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4 minutes ago, MickinMD said:

Thanks for the information. I've cut and pasted it into a Word file and saved it in my tax folder.

I retired in 2006 at age 55 3/4 with bad legs (now mostly recovered!) and limited income for several years until excellent retirement income sources kicked-in.  I needed $7000+ I had in a 403b (non-profit version of a 401k) that was effectively severance-pay for unused sick days, for expenses and suddenly, in 2008, I was audited by the IRS and told I owed them $12,000!

When I met with the IRS, I saw on their table some documents about property sales in Florida, where I've never owned property. When they realized their mistake, they quickly removed and hid those documents.  I went over everything with them and claimed they owed me $2956 - I didn't owe them $12,000 - and asked them to show me where I was wrong.  We also went over my spending of the 403b money.

They said NOTHING and disagreed with NOTHING, saying they would have to review the documents, but the day after the meeting ended, the bastards froze my bank accounts - generating a $300+ fee from M&T - for just THREE days - generating another fee from M&T when they unfroze them.

I think they were trying to intimidate me with what they could do to me and wanted to avoid the audit backfiring on them. And it worked. They then sent me a bill for $1700, which I paid because I realized they were never going to agree to the $2956 and they could harass me - asking for proof of every deduction, freezing accounts, etc. - for years and years.

 

Good grief.

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22 minutes ago, LabDaddy said:

My cost for a Silver Plan if I limit my income to $20,000 would be about $165/month.

And that includes prescription drug coverage.

 

Sounds good. You sound like someone like me...living pretty tight.  And for me, at that income budget, that's tight living. I don't have children either. 

The complicated factor for some of us living anywhere, is longer life expectancy and worrying about outliving our savings.  The average life expectancy for Canadian women is several years more than men these days. I actually thought gap would close because more women have entered the workforce and are subjected now to more/same stress, etc. I believe life expectancy is something in mid to late 80's for women in Canada. Of course, slight variations in each province.  British Columbians have the highest life expectancy at this time.

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7 minutes ago, shootingstar said:

And for me, at that income budget, that's tight living.

Recognize that the $20k was income, not cash flow. If you draw down on after-tax money, you have cash flow with minimal taxes (Example: you put $20k into an investment that rose to $30k over time. You cash it out. You have cash flow of $30k (net of capital gains taxes, which are preferentially low, maybe even zero) but income of $10k.)

Some of my money is (well, will be) pure cash flow with no income (gain on sale of primary house).

 

10 minutes ago, shootingstar said:

The complicated factor for some of us living anywhere, is longer life expectancy and worrying about outliving our savings. 

Yup.

That's a benefit of waiting to draw Social Security until as late as you can.

In my planning, I've used an age of 90. Dad died before 80, Mom at 91.

 

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25 minutes ago, LabDaddy said:

Recognize that the $20k was income, not cash flow. If you draw down on after-tax money, you have cash flow with minimal taxes (Example: you put $20k into an investment that rose to $30k over time. You cash it out. You have cash flow of $30k (net of capital gains taxes, which are preferentially low, maybe even zero) but income of $10k.)

Some of my money is (well, will be) pure cash flow with no income (gain on sale of primary house).

 

Yup.

That's a benefit of waiting to draw Social Security until as late as you can.

In my planning, I've used an age of 90. Dad died before 80, Mom at 91.

 

In Canada the longer to wait to draw Canadian Pension Plan until 71 yrs., can be advantage because a Canadian (who has worked in Canada) can get a slightly higher pension. It's not a lot more...more money annually for groceries or a minor house repair.  It just gets complicated one is also drawing upon a corporate defined pension also AND mandatory withdrawals from RRIF (after RRSP conversion).  There needs to be more careful thought and planning.

This comment is more for the few Canadians on this forum..unless for some reason there are Americans who care to even understand these Canadian mumblings.

Father died at 85 (cancer which was diagnosed 7 years before). Mother still alive at 84. She's not mobile in an active way at all.  But she does eat healthy and has for several decades. We know this based simply on groceries she buys, knowing her cooking style....and how she feeds anyone who visits her.

It's hard to envision 90 for each of ourselves. How different the world may be. I look forward for myself what I would hope to do but what how the world would be like for next few generations, I'm not as optimistic unless us adults step up, to be useful, consistent mentors and contribute to community building at large.

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10 minutes ago, shootingstar said:

In Canada the longer to wait to draw Canadian Pension Plan until 71 yrs., can be advantage because a Canadian (who has worked in Canada) can get a slightly higher pension.

In the US Social Security system, it's pretty substantial.

For someone born when I was, here's how things change (presuming a $2,000 monthly benefit at full retirement) if you vary the age at which you start drawing benefits.

Age 62: $1,420 ($17,040 per year)

Full retirement: $2,000 ($24,000 per year)

Age 70: $2,640 ($31,680 per year)

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2 hours ago, MickinMD said:

Thanks for the information. I've cut and pasted it into a Word file and saved it in my tax folder.

I retired in 2006 at age 55 3/4 with bad legs (now mostly recovered!) and limited income for several years until excellent retirement income sources kicked-in.  I needed $7000+ I had in a 403b (non-profit version of a 401k) that was effectively severance-pay for unused sick days, for expenses and suddenly, in 2008, I was audited by the IRS and told I owed them $12,000!

When I met with the IRS, I saw on their table some documents about property sales in Florida, where I've never owned property. When they realized their mistake, they quickly removed and hid those documents.  I went over everything with them and claimed they owed me $2956 - I didn't owe them $12,000 - and asked them to show me where I was wrong.  We also went over my spending of the 403b money.

They said NOTHING and disagreed with NOTHING, saying they would have to review the documents, but the day after the meeting ended, the bastards froze my bank accounts - generating a $300+ fee from M&T - for just THREE days - generating another fee from M&T when they unfroze them.

I think they were trying to intimidate me with what they could do to me and wanted to avoid the audit backfiring on them. And it worked. They then sent me a bill for $1700, which I paid because I realized they were never going to agree to the $2956 and they could harass me - asking for proof of every deduction, freezing accounts, etc. - for years and years.

 

...I got handcuffed in the local IRS office here a few years back.  No really.:)

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57 minutes ago, LabDaddy said:

In the US Social Security system, it's pretty substantial.

For someone born when I was, here's how things change (presuming a $2,000 monthly benefit at full retirement) if you vary the age at which you start drawing benefits.

Age 62: $1,420 ($17,040 per year)

Full retirement: $2,000 ($24,000 per year)

Age 70: $2,640 ($31,680 per year)

...if you're working and enjoy what you're doing, by all means continue as long as you can.

But when you do the computation for this, you need to add up all the monthly amounts you could have received had you elected to start benefits earlier, then compare that amount to the length of time it will take you to get that money back at the difference between your now unreduced benefit amount and the reduced one you could have been receiving for several years.

 

For most people, that turns out to be somewhere between 12-15 years.

 

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One option for people worried about outliving their savings (at least in the US) is a QLAC - quallified life annuity contract.  It's basically an annuity that starts later in life (80 or 85).  You purchase it upfront with a chunk of money, and if you don't live until you are able to collect - you lose the money.  So it's best viewed as insurance rather than an investment.  But if you purchase it with money from your 40(k) you can defer RMDs on that money until you receive the payments.  Some people are considering these as an alternative to long term care insurance - another way to self insure - or to protect a regular pension from the impacts of inflation.

Annuities tend to have high fees, so you're paying for the "insurance" but they can be a useful tool for a part of your savings (not all of it!) in the right circumstances.

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2 hours ago, Page Turner said:

...if you're working and enjoy what you're doing, by all means continue as long as you can.

But when you do the computation for this, you need to add up all the monthly amounts you could have received had you elected to start benefits earlier, then compare that amount to the length of time it will take you to get that money back at the difference between your now unreduced benefit amount and the reduced one you could have been receiving for several years.

 

For most people, that turns out to be somewhere between 12-15 years.

 

Good point, and that's probably the way many people look at it.

I suspect a greater number of people take it early as they simply need it.

However, for those who can, it may be better to view it as longevity insurance. In other words, the point isn't to contribute to early years consumption but rather to create as much income in late years as possible.

 

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5 hours ago, Page Turner said:

"There are known knowns. These are things we know that we know.

There are known unknowns. That is to say, there are things that we know we don't know.

But there are also unknown unknowns. There are things we don't know we don't know. " ---Donald Rumsfeld

I sure miss Don. He was full of wisdom

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2 hours ago, Kirby said:

One option for people worried about outliving their savings (at least in the US) is a QLAC - quallified life annuity contract.  It's basically an annuity that starts later in life (80 or 85).  You purchase it upfront with a chunk of money, and if you don't live until you are able to collect - you lose the money.  So it's best viewed as insurance rather than an investment.  But if you purchase it with money from your 40(k) you can defer RMDs on that money until you receive the payments.  Some people are considering these as an alternative to long term care insurance - another way to self insure - or to protect a regular pension from the impacts of inflation.

Annuities tend to have high fees, so you're paying for the "insurance" but they can be a useful tool for a part of your savings (not all of it!) in the right circumstances.

Yeah, annuities are an interesting beast.

Tough sell in today's interest rate market.

A 60 year old male today, if investing $100,000 in one, would get about $3,700 per month at age 85. Sounds nice. But realize that's in today's dollars (i.e., not adjusted for inflation). If inflation is 3% for those 25 years, that $3,700 is equivalent to about $1,800 today.

But they absolutely can be, as you say, a 'useful tool for a part of your savings in the right circumstances'.

 

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43 minutes ago, Scrapr said:

I sure miss Don. He was full of wisdom

That quote can be a very good quote in the right circumstances.  Circumstances were not good to Rumsfeld.  He was most unfortunate in being the wrong man in the wrong place at the wrong time with the wrong qualifications to rectify the situation.

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Taken from info. page for the Canadian federal govn't site :https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html  The original source, not other secondary info. sources).

The disability benefit, includes Canada Pension Plan monthly payment.  

If a person chooses to draw upon CPP at 71, Canadian eligible folks will get more on a monthly basis  --approx. $300.00 more in 5 yrs.  

There is Old Age Security monthly which is another different type of payout for Canadians at approx. $400.00 month if start at 65.  However by 71, it could be clawbacked if one has a defined/corporate pension, etc. 

In the end, all  requires careful thought and planning several years in advance (if possible and one can predicts one's health).  Sure, we have option to purchase annuity from a private sector provider of our choice.

There are other govn't mechanisms, which Canadians can use to build up their personal finances...that is if a person has saved some money and has some basic financial literacy. If someone still in heavy debt by their 60's, it's not good...it doesn't matter how financially literate you are.

Canada Pension Plan pensions and benefits - Monthly and maximum payment amounts January to December 2018
Type of pension or benefit Average amount for new beneficiaries (October 2017) Maximum payment amount (2018)
Retirement pension (at age 65) 641.63 $1,134.17
Post-retirement benefit (at age 65) $9.92 $28.35
Disability benefit $954.30 $1,335.83
     
     
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6 hours ago, LabDaddy said:

In the US Social Security system, it's pretty substantial.

For someone born when I was, here's how things change (presuming a $2,000 monthly benefit at full retirement) if you vary the age at which you start drawing benefits.

Age 62: $1,420 ($17,040 per year)

Full retirement: $2,000 ($24,000 per year)

Age 70: $2,640 ($31,680 per year)

It's pretty good in the USA, but note you can expect to spend over $250,000 on healthcare in retirement, where it's virtually nothing in most other high income nations.

Personally, when I retired, at 56 in 2006, I was collecting a Soc.Sec-sized pension with near-Cadillac health, prescription, dental and vision insurance to which I contributed just $120/month.

I owned a mortgage-free home, was renovating a second mortgage-free home to sell, and had a paid-off car and no debts. Still, it required taking several hundred a month from my savings and retirement accounts each month to live frugally.

Since a little above-avg. Soc.Sec. kicked-in, I've been living very comfortably and spending $7500/yr. less than my income from those two sources minus vacation expenses.

A meteor could come down from the heavens, smash my house and the insurance company not pay, and my stocks and bonds all go bankrupt, and I'd still be able to live comfortably thanks to those two income sources.

But I would NOT be able to live comfortably with just my pension or just my Soc.Sec.

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5 hours ago, Page Turner said:

...I got handcuffed in the local IRS office here a few years back.  No really.:)

...it's OK really. I lawyered up and beat the rap.  And by my calculations I came out about 3 or 4000 bucks ahead on the deal.

But I can tell you that at the time it was going on I was simmering on slow boil.  I hate being abused by stupid people.:angry:

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2 hours ago, maddmaxx said:

That quote can be a very good quote in the right circumstances.  Circumstances were not good to Rumsfeld.  He was most unfortunate in being the wrong man in the wrong place at the wrong time with the wrong qualifications to rectify the situation.

...I tried to watch that documentary that's out on Netflix, but I kept wanting to grab him through the TV and slap the shit out of him.:angry:

He's still smug about everything from Nixon to Vietnam to Iraq, which is as far as I got before  I turned it off.  At least McNamara expressed some remorse.

 

 

 

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1 hour ago, MickinMD said:

you can expect to spend over $250,000 on healthcare in retirement

[Sorry for above; don't know how to delete.]

I believe that's for a couple (based upon a Fidelity survey/study). 25 years x 2 people is about $5k per year.

 

1 hour ago, MickinMD said:

where it's virtually nothing in most other high income nations.

Well, that's not true. There are a lot of things not covered by those other nations' plans. For example, medical issues are one of the top five reasons for bankruptcy in Canada.

And you're not considering taxes: how much are they paying in taxes for the 'free' care?

 

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8 hours ago, LabDaddy said:

[Sorry for above; don't know how to delete.]

I believe that's for a couple (based upon a Fidelity survey/study). 25 years x 2 people is about $5k per year.

 

Well, that's not true. There are a lot of things not covered by those other nations' plans. For example, medical issues are one of the top five reasons for bankruptcy in Canada.

And you're not considering taxes: how much are they paying in taxes for the 'free' care?

 

Not sure if medical issues for what you read LabDaddy covers nursing home care. Are people including nursing home care in all this?  If it's private /not subsidized, sure that's your own money. Just like the U.S.  

I don't agree for Canada so far in terms of bankruptcy in retirement for medical care matters (outside of nursing home care) if the person paid off their home and didn't have any other debts,....not based on who I personally know in my own extended family when they were/are in retirement. Physiotherapy and other allied health services (optometry eye checks) are not covered 100% when one doesn't have employer benefits (if provided), counselling  and dental care. 

1. I've said this before months ago, about my father who had prostate cancer.  He was diagnosed 7 years early.  He had treatments, etc. by urologist, etc. and other specialists. He went to Canada's top cancer hospital (meaning this hospital leads in cancer research) in Toronto because that's the city he lived in.  Then in remaining 3 months of his life he was in palliative care full time at another acute care hospital before he died.  No cost issues here. If there were drug payments, it was not much required. 

My father's funeral was expensive because he asked for it. (wish he had more sense at the time of the wish.)

2. Then there's my mother which I won't get into list of daily drugs, occasional specialists. Nope.  Then my partner's mother who had some heart issues controlled by drugs, no cost issues at all. I think there is a list of prescription drugs which are subsidized when one is of a certain age, etc.  

3.  3 years ago,  my own case if I wasn't working, didn't have employer benefit and had my concussion.  I would have had to pay for ambulance because I was in another province where accident occurred. So that would have been several hundred dollars.  Less physiotherapy sessions. I would have had to pay for my drugs for sleep. So I guess physio sessions beyond the minimum, drugs and ambulance would have been in total under $900.00CAN.  Is that horrible?  No, not in my opinion. I can take high medical care costs for tax exemption when I file following year.

But for neurologist at emergency critical care in hospital, overnight hospital stay in semi-private rm. with others before I was released, all family doctor visits to monitor me for progress (approx. 10 visits), plus 2 visits to sleep doctor and MRI, I didn't have to pay for any of this.  

4.  I just had my general annual physical checkup, blood lab tests and will be having mammogram +ultrasound, I will not be required to pay for this..regardless of whether or not I have employer benefit.

Some Canadians don't appreciate the real problems of cost in U.S. health care system on patient's wallet and bitch over stuff that isn't life-threatening. Honest, horrible as it seems, I'm glad the whole health insurance cost problems in the U.S. has been highlighted heavily in the international media over the past few years.

I will add also:  To live in certain areas of Canada, where are more medical specialists, research partnerships in big cities with universities that have medical schools, it may be better in terms of diagnosis, treatment options (Of course, there's more people) 

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20 minutes ago, shootingstar said:

Not sure if medical issues for what you read LabDaddy covers nursing home care. Are people including nursing home care in all this?  If it's private /not subsidized, sure that's your own money. Just like the U.S.  

The issue raised was care costs in other wealthy countries, so I'm just pointing this out. One often hears about medical related bankruptcies in the US, while medical related bankruptcies are a top cause in wealthy countries with socialized health care.

Re: your first two examples.

This thread surrounds retirement. Accordingly, what should be considered is our Medicare system, which is there for all those over age 65. (Some are arguing for 'Medicare for All' as a way for us to get health coverage for all.) Both my father and mother and numerous, otherwise expensive issues, and none of them ended up being a cause for financial concern due to Medicare. 

One of my points is simply this: to indicate that your services are 'free' or "I will not be required to pay for this" is not fair or accurate.

The US certainly has its issues. But many of the comparisons made by outsiders are just faulty narratives.

 

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17 hours ago, LabDaddy said:

Yeah, annuities are an interesting beast.

Tough sell in today's interest rate market.

A 60 year old male today, if investing $100,000 in one, would get about $3,700 per month at age 85. Sounds nice. But realize that's in today's dollars (i.e., not adjusted for inflation). If inflation is 3% for those 25 years, that $3,700 is equivalent to about $1,800 today.

But they absolutely can be, as you say, a 'useful tool for a part of your savings in the right circumstances'.

 

I don't understand why or how an annuity ever makes sense, unless you are incapable of managing your money.  In this example above, the insurance co that sold you the annuity keeps the $100,000 when you die, correct?  There is no death benefit, is there?

So, to model the above facts, if you invest 100,000 today and earn 7%, start pulling out $3,700 per month at age 85, you won't exhaust the balance until age 109.  I just googled a life expectancy table, and a 60 year old male is expected to die at age 84.  So nothing would be paid out on the annuity.

Help me understand a simple scenario where an annuity makes sense.

Thanks.

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2 hours ago, Goat Geddah said:

I don't understand why or how an annuity ever makes sense, unless you are incapable of managing your money. 

Well, that's harsh. ;) Besides not being knowledgeable enough, you may simply want to take a piece of your portfolio and eliminate risk from it and guaranteeing payments.

The most aggressive investment my mother ever made was a CD. If a person is risk averse and they can live the way they want that way, more power to them.

I, on the other hand, am reasonably aggressive. I *might* get a QLAC because that could give me the freedom to be even more aggressive in the portion of my portfolio that remains. I might get one to simply carve out a fixed, known amount for nursing care. {shrug}

Remember: the max you can put in is $130,000 of 25% of your portfolio, whichever is *smaller*.

 

2 hours ago, Goat Geddah said:

In this example above, the insurance co that sold you the annuity keeps the $100,000 when you die, correct?  There is no death benefit, is there?

I'm no expert, but I believe they return the investment if you die before the payout start date. If it's not standard, you can also get a rider to pay out the difference between in/out if you die "soon" after payouts begin.

 

2 hours ago, Goat Geddah said:

So, to model the above facts, if you invest 100,000 today and earn 7%, start pulling out $3,700 per month at age 85, you won't exhaust the balance until age 109.  I just googled a life expectancy table, and a 60 year old male is expected to die at age 84.  So nothing would be paid out on the annuity.

And the average human has one testicle and one ovary.

The issue with the "earn 7%" is that no one earns 7% year in, year out. It's choppy. Numerous studies have been done that show wildly different ending balances with an average return of "x%" based upon how choppy the earnings were. One of the worst things that can happen would be for a large scale market correction immediately upon retirement.

In your scenario, what happens if at age 84 1/2 there is a 30% market correction? 

Similar with age. A 60 year old male may have a life expectancy of 24 years, but that includes those who die at 61, 62, etc. I presume those with end-of-life issues at age 60 wouldn't buy a QLAC with a pay out start date of 85 years old.

Again, it's longevity insurance. Based on a person's needs/desires/risk level/etc., there can be a place for it as part of an overall strategy.

 

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2 hours ago, Goat Geddah said:

I don't understand why or how an annuity ever makes sense, unless you are incapable of managing your money.  In this example above, the insurance co that sold you the annuity keeps the $100,000 when you die, correct?  There is no death benefit, is there?

So, to model the above facts, if you invest 100,000 today and earn 7%, start pulling out $3,700 per month at age 85, you won't exhaust the balance until age 109.  I just googled a life expectancy table, and a 60 year old male is expected to die at age 84.  So nothing would be paid out on the annuity.

Help me understand a simple scenario where an annuity makes sense.

Thanks.

...there were a lot of salesmen for insurance companies selling "tax free" or "tax deferred" annuities back in the 80's.

My mom ended up buying one.  It still never made sense to me, but there was a death benefit in the sum of the remaining principle paid out to me at her death.

It was not tax free to me.  

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6 minutes ago, Goat Geddah said:

Well that was a pretty severe correction, and there was no provision for recovery, which would be unprecedented.  But still, at 97 Medicaid can have me.;)

Sure. Point is corrections are frequent (relatively speaking). Black Monday (1987), the early 1990s recession, Dot-com bubble, the 2007-2009 bear market, along with smaller corrections.

Again, studies have shown significant sensitivity to the timing of the ups and downs.

But also again, if you're comfortable with your strategy, more power to you. :)

 

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10 hours ago, LabDaddy said:

The issue raised was care costs in other wealthy countries, so I'm just pointing this out. One often hears about medical related bankruptcies in the US, while medical related bankruptcies are a top cause in wealthy countries with socialized health care.

Re: your first two examples.

This thread surrounds retirement. Accordingly, what should be considered is our Medicare system, which is there for all those over age 65. (Some are arguing for 'Medicare for All' as a way for us to get health coverage for all.) Both my father and mother and numerous, otherwise expensive issues, and none of them ended up being a cause for financial concern due to Medicare. 

One of my points is simply this: to indicate that your services are 'free' or "I will not be required to pay for this" is not fair or accurate.

The US certainly has its issues. But many of the comparisons made by outsiders are just faulty narratives.

 

I said I didn't have to pay out of pocket directly for certain treatments. 

That's great your parents lived to the end, without financial worry re their health care.

*****But I pay as a Canadian, in my income tax to govn't.  The federal govn't collects the federal income tax and $$$$$$$$$ to each provincial govn't to manage health care in their province.  I know it's not free, LabDaddy:  I have several siblings who work in health care.  

I'd rather have a flatter system with govn't oversight to equalize where feasible, for eligible Canadians.  I pay my annual income tax to govn't and yes, show up at the doctor's office with preferably an appointment when I need it and not worry about cost. It's a different mindset and less stressful as one gets older.

Sure, some people say they don't want to contribute to a public health care insurance system, because some people are willfully irresponsible about their own safety/health.  My reaction, as a fairly healthy 59 yr old :   EVERYONE, even the most fit/healthy will have a major medical problem at some point in their life/near end of life, that will require medical and allied health care expertise and use of health care system.  I don't begrudge my tax dollars to support a more equitable health care system for all Canadians, from birth to death. 

Every single person I personally know who has been very healthy for several decades, exercises, no diseases, no allergies at mid-life....ends up breaking a leg, screwing up their back for several months, etc. Or later in life, they will become bedridden/ disabled because of age.  Or maybe they had complications during pregnancy or post-natal.

 

 

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1 hour ago, shootingstar said:

I said I didn't have to pay out of pocket directly for certain treatments. 

It was a direct quote.

I'm just not going to address the rest as it's hijacking even the intent of the initial thread, which was retirement. We have universal care for those over 65.

Not trying to be curt; just not interested in discussing overall health care policy in this thread.

 

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