Don’t Forget About Your Later Years // Planning for Early AND Traditional Retirement

We know as well as anyone how easy it is to get caught up in the excitement of early retirement — not just knowing that we’re nearing the end of our main careers, but also (I confess) a wee bit of smugness from feeling like we stumbled upon the secret sooner than most people do. I guarantee that when we get back from our final trip to our companies’ HQs in December, there will be some strutting and lots of high fiving in the ONL home. Probably some bad dancing (Mr. ONL) and bad singing (me) too.

And I will totally defend those celebrations, however goofy and embarrassing they will certainly be. But the excitement now, the celebration then, or even the thrill of those first few years of early retirement can’t be the main things we think about. Because life, if we’re lucky, still has many decades to have its way with us, and focusing only or mostly on the near-term decade or two increases our chances of facing challenges we could have pre-empted if we’d given them more attention earlier.

Put another way: It’s so much more fun to think about all the adventures that we’ll be able to go on in the next few years than it is to think about the waning years of our lives.

It’s also easy to think of early retirement as though it’s both distinct from traditional retirement and also totally enmeshed with it. Distinct in the sense of not having to worry as much about challenges that arise after a 30- or 40-year career, like higher divorce rates post retirement, struggles with finding a new identity, etc. (<– It’s debatable, by the way, whether early retirees truly dodge those challenges. I’m not so sure.) But enmeshed in the sense that we talk about the 4 percent rule as carrying us through both phases of retirement almost unquestionably, as though it’s a monolithic thing. (<– Also debatable whether this is sound logic. The Trinity Study that gave us the 4 percent “rule” only looked at whether money lasts 30 years, not 40+.) The truth could be entirely the opposite: that early retirement is not necessarily distinct when it comes to the challenges of leaving a career, but that it is distinct in terms of the type of financial and life planning that is required.

Bottom line: It’s crucial to ensure that your early retirement plan isn’t focused solely or primarily on the early part of your retirement, but instead encompasses both early retirement and traditional retirement. 

It’s no secret that I’m a rather fanatical planner, and have built a boatload of contingencies into our retirement plan. But even with all that thinking through of possible challenges that could arise, I have definitely been biased toward assuming that problems would pop up when we are still able-bodied and adaptable. (And before anyone scolds me for equating able-bodiedness and youth, I’m only talking about us specifically, and the health challenges we already know we have, as well as the bigger deal ones that could be on the horizon. We regularly get passed on trails by 70- and 80-somethings so firmly believe that age is just a number. But we are also realists about our own genes.)

For example: The contingency of selling our paid-off house to free up cash and moving into an RV? That’s great if we’re still spry, but a lot less so if we have any mobility challenges, can’t tolerate extreme temperatures or need in-home care. Realistically, that contingency plan has an expiration date, though we have no idea if that comes in a decade or five.

Realizing that much of our planning has a near-term and able-bodied bias was an important realization for us, and I suspect we’re far from alone in this. (How many folks have ever uttered the words, “If things don’t work out, I’ll just go back to work?” How about if you’re 80? Or disabled? Or society is just ageist as hell? Or it’s a recession with high unemployment, which is, oh yeah, when people are more likely to run out of money? Probably some early retirement bias in there.)

Fortunately, it’s easy to go through your retirement plan with an eye toward that early stage bias, once you know to look for it, and reassess whether you need to make some tweaks to ensure that future, older you can live as comfortably and worry-free as possible.

Considerations for the Traditional Part of Retirement That May Differ From Early Retirement

After you have that aha moment, and know to look for early phase bias in your retirement planning, there will be some things that jump out at you right away, and other pieces that are less intuitive. It’s worth spending time thinking about the particulars of your own plan, which will be heavily influenced by how long the early phase is. If your early retirement is at 55, you’re less likely to have as much of a bias in your plan as someone retiring at, say, 35.

Here are some considerations to get you started:

Reassess your contingencies — Like my RV example, take some time to consider whether all of your contingencies work at every age, or whether they only work in the early phase of your retirement. If it’s the latter, what contingencies will take their place? And are those contingencies guaranteed to be there when you get to age 65 or beyond, or do they require major help from the markets to achieve? In our case, we recognize the RV contingency is off the table at a certain point, but we’ll have other contingencies that don’t expire (downsizing our house, selling our rental, moving into the rental and renting our primary home, etc.), so we feel okay here.

If you want life insurance, buy it ASAP — Not everyone in PF blogland likes life insurance, but you know our mantra: do what’s right for you, not what strangers on the internet espouse. If you know that having life insurance will help you sleep at night, buy it as soon as you possibly can, because the price goes up with every year you add to your age. (And, of course, only buy term life insurance, not whole or universal.) We have term life insurance that expires when we’re in our 50s, and we plan to keep paying for it until then, and then not renew. But again, that’s just us.

Keep an eye on long-term care insurance options — Polls show that almost no one thinks they’ll end up needing long-term care, but then plenty of us do. And long-term care can be massively expensive. It’s not something you should assume your standard 25x retirement budget can cover (it currently costs $90,000+ per year), and it’s definitely important to know that Medicare in the U.S. does not cover long-term care, either nursing home care or in-home care. The only way to get help with long-term care expenses is to become so poor that you qualify for Medicaid, assuming it still exists down the road, which requires in most states spending down essentially all of your assets. That’s a pretty lousy option of last resort. The obvious answer — long-tere care insurance — is also not a perfect solution, at least not currently. It’s expensive, it’s not always inflation-indexed to ensure it covers expenses at future rates, and the price goes up over time. We haven’t done enough research to make a recommendation on long-term care insurance — or to say whether we’ll buy it or not — but it’s worth understanding how it works and keeping an eye on the options in your state to decide if you want to build it into your planning. Note that, unlike with health care as long as the ACA stays in place, long-term care insurance IS allowed to turn you down for or exclude pre-existing conditions. This primer from AARP is helpful and comprehensive.

Think social support systems — I think this one is especially tough for FIRE types to think about. We are self-sufficient to the max, and probably derive some pride for that. So we don’t want to consider that we may one day need some help from family or close friends — but it’s true. The problem of “elder orphans” — seniors with no family or friends who can take them in when they can no longer live independently — is worsening, and is the reason why there is a shortage of nursing home beds. If you have kids or a large family nearby, you probably have less cause for concern here than folks like us who are child-free and come from smallish families. If you’re like us, it’s important to acknowledge that you’ll likely be on your own should the need for nursing home arise (and assuming there is space available and you can afford it — big ifs), and that there is nothing but upside from making an effort at every stage of life to expand your friend base, especially making younger friends.

Consider whether you can age in place, or may need to move — Will your home still work for you if your mobility is limited? Will the climate in the place where you live work if you’re less able-bodied? When we bought our house, we purposely insisted on having a bathroom and bedroom on the ground floor so that we wouldn’t have to use the stairs, but we were really thinking in terms of short-term injuries, not long-term mobility challenges. Likewise with our snow — we’ll have no business shoveling feet of mountain snow if our bodies are weaker. So we’ve accepted that, if we’re lucky enough to make it to advanced age, we will likely leave our two-story house in the mountains at some point down the road for a single-story place in a more temperate climate. You might want to ensure that your finances will allow for you to do the same, if need be.

Budget for less DIY — While some costs may decline with advancing age, make sure that you’re leaving room to pay for more help out of pocket in your later years. I can’t imagine letting a 90-year-old Mr. ONL get up on a 30-foot ladder to restain our house, or get into the crawl space to inspect the furnace. And if our eyesight goes, and we can’t see dirt very well, I sure as heck will want to hire someone to make sure we’re not unknowingly living in squalor. Those are things we will happily shell out for once things get tougher for us to do ourselves — but doing that means budgeting more.

Keep learning, and understand down-the-road financial issues like annuities and RMDs — The early retirement community talks fairly little about traditional retirement financial products like annuities, but they are worth understanding before you get to traditional retirement. While we wouldn’t want our money locked up in a fixed income tool right now, because that limits our future growth potential, we’d absolutely consider forking over a chunk of cash for some income certainty in retirement. Required minimum distributions (RMDs) from tax-advantaged accounts are talked about much more, but most often in a fearful sense. We’re working on a more detailed post about them to come this fall, but perhaps a better way to think of all of this is: accept that you will likely never be able to put your finances entirely on autopilot. Some continual learning will always be necessary to ensure that you’re stretching your money as far as it can go, within reason.

Explore health care options — In writing about health care for early retirees, I have perhaps been too cavalier in portraying Medicare as this magical panacea that covers everything and keeps costs low. Sadly, this isn’t quite the case. While the prescription drug benefit added with Medicare Part D has helped a lot of seniors keep their costs down, the average couple will still spend $260,000 in health care costs from age 65 on, in today’s dollars. Costs are likely to be even higher for retirees whose portfolios do well, given that much of Medicare is income-adjusted. If you’re like us and you’re more than two decades away from qualifying for Medicare, there’s not much point in researching every detail of it, because a lot could change. But knowing the deal can help inspire you to set aside a bit more than you might otherwise think you need to cover those still-hefty health care costs in retirement. You might also take a look at other options like health care tourism, moving abroad entirely, or less drastic options like Medicare supplements and replacement plans. Plus, with so much in flux with the ACA, it’s just good sense to budget more for health care in your pre-Medicare years than you otherwise might. Those costs have the potential to be huge, too.

Leave a big financial cushion for all the stuff you can’t predict — No doubt a big reason that many of us focus on the near term retirement questions are that those factors are relatively knowable. We can know roughly what a car costs nowadays, what rent costs, what groceries cost, what health insurance costs. Now go a few decades down the road, and it’s essentially impossible to guess what things might cost or what might be different. Health care could be free to everyone — or it could cost a blinding sum to have even the most basic care. Food could stay cheap — or it could get outrageously expensive if climate change impacts agriculture as much as some predictions say it will. Talking about retirement several decades from now is an exercise in unknown unknowns, and that’s awfully hard to budget for. To be safe, it’s never a bad thing to allocate more of your assets for your later years, and to leave enough flexibility in your plan that you can move if you need to or otherwise change some things up to allow yourself to flourish as things change.

How are you thinking about your traditional retirement?

Do you have anything different in your plan for the latter part of your retirement as opposed to the early phase? We’d love to know! Anything here that you now want to go back and reassess? Anybody else out there who’s like us and wants to hoard as much as possible for those later years? Let’s discuss in the comments!