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April 28, 2011


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I'm glad they made point #4, re: Social Security. All of the melodramatic, hyperbolic rants about how people my age won't receive SS benefits drives me up a wall.

Social Security is arguably the single most popular piece of legislation ever enacted in this country, and while it certainly faces some major issues and requires some tweaking to remain as successful as it's been thus far, it's in NO DANGER of being eliminated entirely, because the only way that could possibly happen is if it were repealed. And THAT is a complete non-starter because there is absolutely NO political will on either side to make that happen.

Even if it is left exactly as is in perpetuity, every single person who pays into it in their lifetime WILL collect some benefits at some point, for the simple fact that there will always be more people behind them, paying in.

My $.02 :

1. Medicare doesn't cover everything. Thats true.
2. I think this one just depends on the situation. Generally I think over time retirees will spend less on average. How much you spend is up to you right? Not a 'rule' somewhere.
3. I think bonds are safer IN retirement. They have fairly good return and stability. I'd put the bulk of my retirement in bond style investments over stocks. Far too many people lost 25-50% of their retirement in 2008 due to having too much in stocks and are now returning to work or working longer because of it.
4. Social Society is not dead and won't die. Fear about it going away entirely or going bankrupt is way over blown and pretty unrealistic. It is likely to change in some way in the future, but they are not going to just abolish it and then not pay out anything. The assumption that people won't see ANY money is pretty unrealistic.
5. Usually true. Usually most people are in lower brackets due to lower incomes in retirement. Plus social security is entirely untaxed for many/most people. Of course everyone's tax situation and income situation is unique but I would bet that the majority of Americans are in the same or lower tax bracket after retirement compared to before.

As a young person, I had no idea medicare was given to everyone. I thought it was just for the poor. No wonder so many people don't give a second thought to their financial future. "The government will give me free money AND free healthcare when I retire! Why would I need to save anything on my own?"

It sure would help this country if people treated health insurance like they do car insurance - there for accidents and emergencies. Has anyone ever tried to bill their car insurance company for an oil change or a tune-up? I hope not. But they treat health insurance as an all-purpose payment plan, and then treat every health service as if it should be "free" (paid by insurance). Health costs (and particularly insurance costs) would go way down if people used it more intelligently.

People should budget in the cost of COBRA into their retirement fund, if they plan to retire before 65. If people realized how expensive healthcare is maybe they would think twice about the amount of money they need. My mom once said, I could retire at 62, if I had health care. Well she could, if she has another $600/month for it. Be aware early, what health care costs and how expensive it can be without insurance.

There are two issues tha can scuttle any "early" retirement plan. First let me define the word, early:

If you retire before you are eligible for age-based Social Security payments (62), you have retired early. But you have not retired if you continue to work for earned income. In that case, you have simply changed your work construct from the typical five-day, forty-hour workweek -- but you are not retired.

Now the two issues that can derail a minimum level of financial independence and true retirement (no earned income) are health care and inflation. If you are planning to really retire before Social Security kicks in, you had better think again; in particular if you do not have a substantial margin between the amount of your passive income and your expenses.

And you had better hope (at least, better to take some political action) that Social Security and Medicare are not gutted; if they are, you will probably have to work until the day you die at your desk or die on the street, homeless.

If you live in an urban area and are over 65 there's a good chance that there are Senior HMO's (Health Maintenance Organizations) available. If you are in a Senior HMO you don't need Medigap insurance to cover the 20% that Medicare doesn't pay. I am in a Senior HMO called Secure Horizons, that is part of United Healthcare. My particular plan is a group plan offered to retirees with 30+ years of service by my former employer. It does not cover Dental expenses and I chose to insure myself for dental work rather than paying a significant insurance premium. Visioncare is fully covered, I have had two cataract surgeries and one arthroscopic knee cleanout for which I never saw any bills.

We obtain our healthcare through the Palo Alto Medical Foundation in Mountain View in the San Francisco Bay Area. The clinic has about 95% of its facilities under one roof, including a surgi-center, and is in a very new, state of the art facility, surrounded by old oak trees, waterfalls, and attractive landscaping that provides a very peaceful, quiet experience in an environment with beautiful expensive artwork, most of which has been donated by grateful patients.

There are copayments which in our case are $20 for our primary care physician and $40 for a specialist.
My wife and I recently both had colonoscopies for which there was no charge.

Medicare covers the majority of drugs with the exception of new, experimental ones that are often extremely expensive. We pay $20 for a 3 month supply of any generic drug and $50 for a 3 month supply of any brand name drug. Drugs that are covered by Medicare but are not in our HMO's formulary are $100 for a 3 month supply.

Hospital services are provided at an affiliated, new, hospital with a co-pay of $250/day for the first four days. We are very satisfied indeed and sincerely hope that our government will somehow find a way to continue Medicare as we know it for coming generations.

5) -sigh- I'm hoping politics won't come into this discussion, but anyway. At heart, however you feel about how we got here, it's pretty simple math: historically low tax rates+ historically high debt level= taxes will rise. You can never know for sure about future tax rates. But you can make an educated guess, in cases like this.

I'm so glad you said that it's 'pre-retirement spending' not 'income'. I've been annoyed with all these financial people who always use a percentage of pre-retirement income as the basis for the money you'll need in retirement. Maybe in accounting assets equals liabilities, but income does not equal expenses. It may be unfortunate that many people spend all their income, but that's no reason for them to use a percentage of income as a basis for retirement expenses.

I am 76 and have been retired since 1992. I agree with each of your points, particularly 3) since if you are a very experienced investor and have sufficient data to work with it's amazing just how many different kinds of bond funds there are. Many people don't realize this. For example, the proprietary fund database to which I subscribe contains the daily data records of 1,953 bond funds along with the tools to sort, analyze, compare, and graph them.

One thing I might add is that if you have built up a very significant IRA by the time you and your wife retire, at age 70 1/2 you are forced to start moving money out of your IRAs based upon a table where your age and IRA value are the primary inputs.

I have done everything I can to keep our investment income either tax deferred or tax exempt but the "free ride" in an IRA doesn't last forever and moving money from our IRAs into our taxable Trust account produces the majority of our substantial taxable income which increases every year.

One good thing however, if you end up leaving your IRAs to children or grandchildren they can stretch the tax payments out over many more years because of their age. This is usually called, "Creating a Stretch IRA".

We seniors are too vast a voting base for any government to seriously consider doing away with it. And - I heard one time, from a man who was on Roosevelt's commission to set up SSA, that they never assumed it would pay for itself forever. They assumed it would eventually come out of general revenue.

I have SSA & 2 small retirements. I am trying (and actually making it sometimes) to save my husband's pension. I own my home and my costs are fairly low, but going up. My insurance is from my state retirement and is $190 a month. No need for a Medigap policy, as this covers all, including my meds. My meds, right now, cost me about $240 a year(all generic) and my supplements are about $1200 a year (out of my pocket.) Each year the state lets us know if our medicine plan is as good or better than Part D. If it ever gets worse, we can get a Part D with no penalty. I cancelled dental insurance when I realized I could get dental care here in my small town for much less than even the payment of that insurance. The payments were $600 a year and I have never spent that in any one year since retirement.

All my savings are in a regular savings at .90% and my 503b which is now paying 2.25%. I'm satisfied, even though I remember the times when savings were at a high of 5.25-15%.

My expenses are much lower. I lived and worked 90 miles from home and had a place there to live. I was driving an average of 7-800 miles a week when I first got there and by retirement I was still doing 200 miles a week. I have given a lot of my clothes away, but still have plenty left and they should last me a number of years. I buy my food on sale mostly. I also have the Senior Citizen's, where I can get lunch for $3.50, when I feel like eating out, and there are plenty of activities to take part in. There is also the OATS bus system. I can leave my car at home, be picked up at my front door and taken to one of about 5 cities in our area to shop for a nominal fee. It is much cheaper on me, someone else drives, we are let out at each place we wish to shop, picked up same way and we have lots of people to visit with. Hooray for MO!

Jonathan said : ", I had no idea medicare was given to everyone. I thought it was just for the poor."

There are 2 programs that are easy to confuse. Medicare and Medicaid. In short Medicare is the retirement system for people over 65 and Medicaid is for poor people.

Medicare is NOT free handout from the govt. 2.9% of everyones pay checks goes to fund the system.

Eddie: "At heart, however you feel about how we got here, it's pretty simple math: historically low tax rates+ historically high debt level= taxes will rise."

You may be completely right and it seems like simple common sense. But let me argue devil's advocate...

We do not actually have historically low tax rates. Top marginal taxes are not at their low nor are individual effective taxes. Debt levels are high but as a % of GDP they are not at their record heights that we saw after WWII.

For middle class taxes rates haven't really dropped dramatically. Middle income people still have the 25% marginal rates that have been pretty typical for decades.

Which politician is arguing that we should raise taxes on low & middle class people? How likely do you think it is we'll get a majority of congress voting to do so when neither party supports it?

Democrats advocate for increased taxes on higher income earners. But we've seen how successful that has been lately.

Maybe taxes will go up a couple points in the next decade. Maybe not. But its not as if we're driving a car into a brick wall or anything. Taxes go up and down over the decades and will continue to do so.

"Medicare is NOT free handout from the govt. 2.9% of everyones pay checks goes to fund the system."

Jim, I do recognize that I pay into the system - it's on my checks too. I just never got that curious what the system promises in return, since it's not in the news as much as SS and it's 40 years off. I just don't plan on needing the help and didn't realize I'd get it anyway, and think the whole healthcare system is out of whack.

Jonathan, I pointed out that its not free because you seemed to be criticizing medicare for being free and/or criticizing medicare recipients for depending on a free healthcare in retirement. Its not free because we all pay for it. So I don't know what you were talking about "free healthcare".

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