Ep 7 - Mastering Early Retirement: Social Security, Health Insurance, and More

Voiceover: [: 00:00:00

Now your hosts.[00:00:30]

you boys doing? Doing good. [: 00:00:45

So we got the, after a long week of a snowstorm and all that, uh, we're ready for the weekend and. Uh, you know, we were talking and basically, uh, one of the things, a couple of things [00:01:00] we've been through this last few weeks is we've had a few clients coming in saying that they want to retire early. Um, you know, and I guess everyone can define what early retirement is to them.

years old? Um, but anyway, [: 00:01:15

Um, which was [00:01:30] surprising to me. I thought it would be later than that. You know, if you think about a full social security age for most people is going to be, uh, 67 years old. Um, and then when you talk about people that retire earlier than plan. So when you talk about early retirement, there's two.[00:01:45]

percent of retirees. [: 00:02:00

Okay. And then here's the big one, the desire versus the confidence to retire early while 59 percent of Americans wish to retire before the age of [00:02:15] 65, only 40 percent are confident and believe that they'll be able to do so according to the financial brand. So that's. You know, those statistics are, are out there.

we had that retired early a [: 00:02:30

They'd saved about 2 million. So they had a pretty [00:02:45] nice nest egg and they're basically, you know, kind of. Thinking about retiring earlier. And we figured out that there was four main things that really needed to be addressed when we started this conversation. Number one was how much money do you need to retire?

That's kind of [: 00:03:00

Ethan is going to hit on the different types of accounts. How do you access them? When can you access them? And then another big one is obviously social security. Uh, when do we, when do we take social security? When can you take social [00:03:30] security? What's the benefit of taking it early versus later. And then you have what I consider the biggest elephant in the room.

rance when you retire early. [: 00:03:45

So, so I think that's a [00:04:00] good one to start on there. Absolutely. I'm, I'm so glad

every single person wants to [: 00:04:15

Uh, but you know, we say the same thing with every individual that we meet. Everything starts with a financial plan. We are a planning based firm. First, we want to figure out [00:04:30] what it is that you're trying to accomplish, what it is that you're doing to accomplish that and where you're, where you're starting at.

nancial plan is what is your [: 00:04:45

And then we figure out where all the different income sources and where we're going to get that money. We're going to talk about that a little bit later here in the show. Um, but a general rule of thumb, and we probably, you guys [00:05:15] have probably seen this and a lot of it goes into, you know, A lot of it goes into this number, but generally speaking, you can take a withdrawal rate of about 4 percent off of your investments, uh, and that's a comfortable amount and, and, and how you get to that number is basically if [00:05:30] you're, you know, having a six or 7 percent rate of return overall, on average on your investments, you take out 4%, you got a little bit in there every year to continue to grow, um, to have a, you know, cause 4 to need a little bit of an [00:05:45] inflation factor in there as well.

So it's a great rule of thumb, you know, and we've mentioned before, if you're, if you're retiring early, probably you'd be a little bit lower than four percent.

re talking about too, is, is [: 00:06:00

And some of them say, Hey, I want to spend my last dollar. The day that I die, and maybe that's different for each one of them. So maybe the person that [00:06:15] wants to spend their last dollar, maybe they can actually spend six or seven or 8 percent of their portfolio, depending upon what age they are when they retire, right?

Absolutely.

be, you know, we're going to [: 00:06:30

Probably going to have a little bit more expenses in the beginning parts of your, [00:06:45] of your retirement versus later on in life. And, and, you know, the other thing consider is like your life. Again, that kind of goes into like lifestyle choices, location, you know, and all those. Some of those, even those unexpected expenses, we've talked about this [00:07:00] kind of joked about a little bit.

ant to redo this bathroom or [: 00:07:15

Ethan Hutchenson: a boat, a big assessment assessment of the country club that comes out of nowhere.

There's a lot of different. Different factors in that

gs to spend money on, right? [: 00:07:30

Eric Wymore: Hey, we're recording on Friday. It's Friday, every day. Enjoy it. And that's stuff that you've got to plan for. And, and, and keep in mind if you're working and you know that you're going to want to, [00:07:45] uh, have that vacation home, you know, or if you're going to want to.

ng boat, whatever it is, you [: 00:08:00

Jeb Graham: I kind of like what you're saying there too, is really what you're we're doing is we're backing into the number, right? So, [00:08:15] so if we have somebody that's going to retire. Well, first of all, if they're going to retire at age 55, they've got a long time before they can take social security. So that's a whole nother thing that you're thinking about, but let's just say somebody's retiring when they're taking social security.

of social [: 00:08:30

And it's going to say either you can or you can't retire. And here's all the different scenarios of maybe you have. A ton of money at age 100, if that's when we're going to terminate the [00:09:00] plan. And maybe you run out of money at age 78 years old, which is a problem. And that's, that's the beauty of kind of putting together their financial plans for people.

know, echoed throughout this [: 00:09:15

Finances. And why don't you share a couple of, you know, suggestions or tips with us? Yeah.

eme is, is when can I access [: 00:09:45

Most people have those. Those are all pre tax. Um, and then if you roll that 401k anywhere outside of the 401k. Uh, it'll go to like a traditional IRA or a Roth IRA. So those are the, the three main qualified accounts, [00:10:15] um, that most people have buckets of money in a majority of people have a large sum or overwhelming amount of their overall nest egg in a pre tax account.

Jeb Graham: And that's just because they didn't meet us early enough, right?

ey didn't sit down and think [: 00:10:30

Does that 55 [00:10:45] number. Um, so traditional IRAs and 401ks are great. You get company matches, great investment options, tax deductions for contribution. There's all these fun things that come along with those accounts, but there's the big glaring 59 and a half number that's out there. [00:11:00] So if you retire at 55, how are you going to access that money?

e do work with a lot of, of, [: 00:11:15

Um, and they're kind of like, Hey, I've got, I'm 50 years old. I've got four or 5 million in my pre tax accounts. I [00:11:30] really think I can retire. How do I do that? Um, there's an IRS section out there called rule 72 T. It allows you to take. Premature distributions out of your IRA without having to pay that 10 percent early withdrawal penalty.

Now [: 00:11:45

Jeb Graham: I know we went through a client that we were working with [00:12:00] just a couple of weeks ago who, um, I can't remember what was the age.

a, an individual that works [: 00:12:15

And, uh, the reality is, is she wanted to be able to get as much out of that IRA early as possible at a low tax bracket. Right? So we were saying, Hey, maybe we want to take the maximum amount of that 72 T. So then we can build that [00:12:45] non retirement bucket that you're talking about, because even though she doesn't need all the money, we know we're getting it out at that 12 percent tax bracket.

in with people is not just, [: 00:13:00

Eric Wymore: all your working days just trying to squirrel away as much money as you can in this pre tax to lower your taxable income.

And then [: 00:13:15

Ethan Hutchenson: Yeah. Yeah. Pre tax isn't, isn't the worst bucket, right?

th IRAs are definitely a hot [: 00:13:45

401ks are becoming increasingly popular. Um, so that's one [00:14:00] version of a 401k you could have, but a Roth IRA. Let's say I am 45 years old. I know I want to retire at 55 and my income is such that I can do back to a Roth contributions, or I can just make simple standard Roth contributions. [00:14:15] You can actually pull your principal.

to [: 00:14:30

One of our favorite accounts. One of the most underlooked accounts that I think is out there is a non retirement account also known as a [00:14:45] trust account Brokerage account joint account TOD. I can run off more acronyms if we need to but at the end of the day It's it's a standard plain jane investment account that does not have that 59 and a half age limitation on it You could put a million dollars in there today [00:15:00] Take a million dollars out of there tomorrow.

tire. Let's start beefing up [: 00:15:15

Cut, uh, early penalties for withdrawal or any of that. We can just live off of our non retirement bucket of money, pull money out of our other [00:15:30] accounts, do some Roth conversions and be really efficient with our low income at that point in time. So never neglect and don't discount the, the, the long term effect of those non retirement accounts.

of what I'm hearing from you [: 00:15:45

Keeping their, their health insurance premiums low, uh, or whatever it is. When we've got that bucket of money, we have a lot, a lot of flexibility, uh, to be able to do a lot of things. So, you know, and that brings us into our next one, which is social security. You know, that's a [00:16:15] big, um, leg on the stool for people is social security.

talking about this earlier. [: 00:16:30

So we've got an account for that. And you basically, during that time, you're going to be taking money out of your investment. So to give you kind of a brief overview of social security. Uh, so the first time that you can [00:16:45] take social security is at age 62. Okay. And then. Basically, you can take it anytime between age 62 and age 70 for most people.

. Okay. So there is [: 00:17:00

So, um, so when you think about that, if your full retirement age is age 67 and you turn it on at age 62, you're taking about a [00:17:30] 35 ish percent discount of what the, your full retirement age benefit is. And if you wait until age 70, You're getting a little over 30 percent more than you would have gotten at your full retirement age.

hen to take it's a big deal. [: 00:17:45

Uh, because if you take social security at age 62 or 63 or 64 or 65, whatever it is early, you have an earnings limit. Okay. And what that means in 2024, if you made [00:18:15] 22 more than 22, 320. In 2024, and you were pulling social security for every dollar that you made over that it lowered your social security benefit by 2.

's only during the period of [: 00:18:30

And then [00:18:45] you're also eating into that lower benefit for those few years in early retirement. So you gotta be pretty careful there. Um, the other thing with social security that we get a lot is people always want to know when am I breaking even? Okay. When I say breaking even, they want to [00:19:00] know, you know, if they take it, whether they take it at 62 67.

Okay. Meaning if you take it [: 00:19:15

What what we tell people and what we're big on is we're not as worried about making sure that people. [00:19:30] Take the most money out of social security, because there's so many variables there that we can't control. We don't control. We don't have that, that crystal ball that we're going to know when somebody is going to die.

What you were talking about [: 00:19:45

And a lot of times that break even. So, so for instance, this client [00:20:00] that's going to retire at age. 62, if they're going to wait to take Social Security at age 67, well, that's five years that they're drawing out of their accounts, right? And so, so really they're now, once they take that higher amount of [00:20:15] Social Security, they have to catch it.

different factors into, into [: 00:20:30

Uh, you know, how much money do you have saved and how much you're going to have to dig into it into during those years? And when are you going to break even? So, um,

Ethan Hutchenson: Definitely not

's not, and that's where the [: 00:20:45

And I,

s a good time to pop to wait [: 00:21:00

You just, you don't know in that first few years, if you retire, if you, you know, it's like, okay, kind of miss it or whatever. And you want to go [00:21:15] back or you get offered a really good job and you know, I can't really shut it off.

Jeb Graham: And we have the perfect example right here in our office, right? We have an employee that retired.

's people do that, you know? [: 00:21:30

But that's, you know, to me, that's a, that's a huge deal. I don't know if you guys have other than what. What Matt had to offer. Um, I think the big thing that a lot of us took from it is we want, [00:22:00] we need to make sure we have, you know, the health insurance professional that our clients seeing to make them understand that.

Well, I think when

, [: 00:22:15

So the Medicare looks back last two years for your, for your income. And that's how they set some of your prices. Again, as he mentioned, it is different for every single person. So we're not going to get into deep into those weeds. [00:22:45] But the point is when you're 63 years old, that's. When they'll start looking at your income for when you're at 65 to draw, to start Medicare.

not manipulate, but if you, [: 00:23:00

Ethan Hutchenson: expense.

eah. It's one of the biggest [: 00:23:15

They're the only account out there that's triple tax exempt. So you get a tax deduction for putting money into the HSA. It grows tax free. When you pull it out for qualified. Medical expenses. It's also tax free. So adding [00:23:45] that HSA prior to retirement, I think is a really nice strategy as well. For some of those unknown health things that might pop up.

can and let it grow. They're [: 00:24:00

You can go and use those funds to kind of get that stuff taken care of and not really worry about, man, my [00:24:15] premiums are going to go up or I need to hit my deductible. You've got some, some backstop there, I would say.

Jeb Graham: I'll tell you too, to, to add onto that, HSAs have come a long ways in the last few years.

ere's, um, You know, there's [: 00:24:30

And to your point, there's a lot of people out [00:24:45] there playing pickleball, hurting themselves. And, uh, you gotta, you gotta have, have all that stuff. And I tell you one other thing I really took from that, that last podcast with Matt and Phil was, was what Phil was saying is when you're getting ready to think about Medicare, it's, it's, Two years before you [00:25:00] retire and you know, not everybody knows they're going to retire two years before they're going to retire.

onal that's involved in the, [: 00:25:15

Ethan Hutchenson: so to kind of sum things up, Jeb, how, what, you know, kind of run through the bullets or a quick checklists and just, uh, yeah, quick recap of.

this, um, one last time, but [: 00:25:30

What's that number? What's my retirement number? Uh, and then we've got, uh, [00:25:45] when can you access your retirement accounts? So you have all these accounts out here. You want to know when to access them. You got to figure out social security. You got to figure out Medicare or you got to figure out how health healthcare.

se are it. And guys, so, uh, [: 00:26:00

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sentatives with insecurities [: 00:26:45

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