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It's Official + Some Retirement Ponderings

November 7th, 2014 at 05:23 am

**It's Official. Our health insurance is more than our mortgage.

(I am surprised it took this long...).

7% increase this year. Which is probably one of the smallest increases we have had in the last decade. But still enough to bump it up to more than our mortgage.

So, the budget is rejiggered. I will start with the new budget January 1.

Using a "no raise" assumption I am happy with the rejiggering. I am lowering our monthly (long-term) savings rate from 21% to 17.5%. (Which also factors bigger budget increases: property taxes and grocery spending). BUT, if you factor our new income tax savings, this will keep our long-term savings rate at 21%. We will just commit that tax savings to long-term investments. I could certainly change our withholding to get our monthly savings back to 21%, but since it will depend on how the year goes, we will just keep that as a tax refund every year (if we contribute to Traditional IRAs instead of ROTHs). Our taxes are still low enough I could see choosing the ROTHs in a year flush with cash.

I will finish rejiggering when I get my salary figure for 2015. Not sure what I will do exactly with my various monthly savings figures and how I will re-allocate.

I've had a LONG time to wrap my brain around this. So today my feelings are pretty "meh". Some days I am frustrated by how hard we have worked to significantly cut our housing costs, including picking up and moving solely for the cost of living, just to be slammed by the cost of health insurance. Most days though I am just grateful that we have managed our housing (and other) costs so well so that we can handle it. In addition, with my dh's brain tumor, there is no doubt that keeping the best insurance possible was the right choice for us. Having exceptional insurance is priceless, and there is no doubt that we are getting more out of the insurance than we pay in. If not, we would have switched to something cheap and crappy a long time ago.

--------------------------------------------------

Yesterday I took a retirement planning class for my continuing education. As it is with these investing classes, I tend to walk away feeling like I already knew everything. Which is a GOOD thing.

But I did enjoy the class from a "reality check" standpoint.

Lord knows we are very unique, but it is interesting how much of our personal retirement plans and our parents' retirement experiences are actually pretty universal.

I think this is also why I enjoy Money Mustache so much. He touches on most of this. Which can translate to a very unique and different retirement and worldview. But if you don't adopt 100% of what he says (lord knows we haven't) you can still learn a lot from him. I think he comes across as on the "fringes" but the reality is that his financial take is very sound.

Points of note?

--Start saving younger (in your 20s) and you don't have to save nearly as much as otherwise.

--About 50% of people retire before they plan to retire, due to health and job loss. Is true for both our parents. (Compounded with the current economy, this is happening at MUCH younger ages; both our dads ended up giving up finding work and retiring in their 50s. I think historically this is more people plan to work into their 60s and 70s but can't).

--Consumption and spending goes down in retirement. This is true across the board. This is not just a "frugal folk" phenomenon. (That this is fairly universal, I found that interesting).

--Most retirement calculators are focused on "replacing income" and are not particularly useful. Instructor used an example of a mid 30s person making $100,000 per year and needing to save $4.5 million for retirement. Which is crazy ridiculous. Especially in a time when the average retirement savings rate is like 4%. I mean, we are in BIG trouble here, right?

So the instructor did talk a lot about "replacing expenses" as a more useful metric for retirement planning.

--The topic of conversation did come up about how no one is saving anything and how that is panning out. My personal experience is that we have a lot of long-term family friends who have saved nothing for retirement, or who have significantly under-saved. None of them have ended up on the street or are lacking the basic necessities. But, what is obvious is that they lack choice in their life. Many will rely on family or government assistance. The instructor echoed this sentiment. Most are getting by, but it's not the retirement that they envisioned.

14 Responses to “It's Official + Some Retirement Ponderings”

  1. Jenn Says:

    Your post really resonates with me. I am also a MMM follower and it's unfortunate that his views are seen as 'on the fringes' because they lead to more contentment than the typical consumer culture that folks adopt by default.

    And those retirement calculators that ask for current income as input are my pet peeve. My current income has NO relation to what my retirement expenses will be! Maybe to my current savings rate, but not to my retirement.

  2. LivingAlmostLarge Says:

    It's true to look at expenses. I never thought we'd be where we are now, but it's turned into a better life than expected. Mostly because we spent our 20s poor and continued living that way. We haven't expanded our lifestyle as much as I would have expected considering our income has increased four fold. Most people would argue our lifestyle only went up mostly in housing expense (1 bd to 3 bd) and that's pretty much it.

  3. Joe Says:

    Not sure what your salary is - but you are eligible for an insurance subsidy if your income is less than 4 times the poverty level - $95,400 for a family of 4. In general, employees who are offered insurance through work are not eligible for subsidized exchange coverage, so long as their insurance meets specified requirements. You would only be eligible for subsidized exchange coverage if your income is between 1 and 4 times the federal poverty level and you would have to pay more than 9.5% of your household income for your own coverage through the insurance offered by your employer.

  4. Bluebird Says:

    It also confirms you don't have an insane monthly mortgage payment! Smile I know quite a few people who have mortgage payments that are easily three times the amount of your monthly health insurance.

  5. monkeymama Says:

    The only thing that has saved our bacon is refinancing our mortgage + 30 years several times and taking advantage of lower interest rates as they drop. Is the only reason we can afford our *insane* health insurance. (The health insurance is insane, no matter how you look at it). In an ideal world, sure, we'd love to have a paid off mortgage. But we also would like good healthcare and that is the higher priority for us right now. Will we refinance again so we can lower our payment further? Another 30 year amortization? Maybe.

    There is some truth to the above (that our insurance is more because our mortgage payment is lower than average regionally), but it's also a slippery slope.

  6. monkeymama Says:

    P.S. I would probably never mention any of the above to any friends or family because they would all be imagining that our health insurance was $3,000/month or something. HA! Certainly everyone I know has a way crazy giant mortgage compared to us.

  7. frugaltexan75 Says:

    That's good that you can handle the rising costs with just a bit of rejiggering of the budget. Hopefully you'll get a good raise to help offset it a bit.

  8. PatientSaver Says:

    I agree with all your observations about retirement saving. Consumption does drop in later retirement years, though the earliest years can be pretty spendy with travel and new found hobbies. This is a beef i have with most retirement saving calculators; they don't allow you to finetune how much spending you'll be doing in early retirement vs later years.

    You also make an important point, widely reported in the media, that many people wind up being forced into retirement by health issues, family issues or simply not being able to find work. This is always in the back of my mind, so even as i continue to count my blessings in my new job, I am trying to save as much as possible, just in case the job ends before I'm ready for it to end.

  9. monkeymama Says:

    Patientsaver - The spending curve in retirement starts with a drop and then rises at the end with medical costs. They call it the "retirement spending smile".

    Which is more in line with our own experiences and that of anyone I know. & certainly what MMM talks about. But I am surprised how true that tends to be across the board. The general assumption is that one would tend to spend more in early retirement. Certainly most people on SA talk about traveling more, etc.

  10. PatientSaver Says:

    Well, that's true. I can see how it's called a smile since expenses will ratchet up again with "fun" expenses like travel, dipping a bit and then rising again with the unfortunate ravages of age.

  11. monkeymama Says:

    @Joe - I don't find Obamacare to be any more useful than any other option right now. Sure, it will be nice if we are ever unemployed or extremely low income (if we were on disability or something like that). But, mostly it would be more expensive for lesser coverage. (You don't get a higher subsidy because you want a better/pricier health plan). Which leaves us back to square one, where we have always been. My primary concern with our health insurance is not the cost; quality is important too. (We have always had cheaper options).

  12. Joe Says:

    I figured you were on top of that. I don't know anybody enrolled, but I follow a few early retirement blogs and it's a good deal for them. I've had a high deductible plan with a HSA for the last 5 years. This was the first year it didn't pay off - some unexpected health issues.

  13. monkeymama Says:

    Yes, it is a good deal for low income folk. My parents were paying $2,000/month for insurance and the exchange insurance costs about the same but their subsidy is something like $1600/month. So they are saving a small fortune on Obamacare.

    Puts health insurance costs in the realm of reason for early retires, and for the unemployed or disabled.

  14. monkeymama Says:

    Plus my dad keeps telling me that the lower his income is the better the insurance options are. ??? I was meaning to ask him the details on the 2015 plan they are choosing. I mean, like they have always had platinum level insurance and that is still what they are getting. Since he is retired and could control his income with taxable gains and so on he was kind of playing with that so he was offered the most ideal plan. I don't know - this is what he tells me. If I ever need Obamacare I will consult his expertise.

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