We’ve saved $8 million for retirement, are in our early 50s and want to retire early, but worry about health care costs – what can we do?

My wife and I are 50 and 52 and live in Boston. Our current combined annual income is about $400,000. We have approximately $6 million in non-retirement investments (stocks, bonds, cash). Another $2 million will be invested in 401(k) plans. Our house is paid for in full and we have no other responsibilities.

Our annual expenses are between $100,000 – $150,000 depending on the type of vacation we take.

1. Based on these figures, can we retire early (eg in the coming years) and reach our age?

2. A great unknown is the cost of health insurance. We currently get our health insurance through my employer which is a very generous PPO plan that allows us to see any specialist without a referral. I’m not sure if there are any insurance plans we can buy that can offer a similar kind of flexibility. How can I find out more about it?


See: I am 56, my husband is 57 and retired. We saved about $750,000 and a military pension. I am ‘tired of working in America’. Can I retire in three years?

Dear SP,

Congratulations on collecting such a robust retirement nest egg – $8 million is a real achievement.

Often, when I respond to letters like yours, in which the person has saved millions of dollars, I get feedback from other readers who are frustrated because they think all that money will make retirement an absolute breeze. The truth is that money certainly helps – no doubt about it – but if you don’t have the right plans and protections, or if you don’t stick to a reasonable budget that allows you to live within your means, you also run the risk to fall short in your pension. There are also plenty of surprises that can derail your goals, just like everyone else.

There are a few things you should think about before you retire early, even though based on the numbers you’ve provided and the fact that your annual expenses match up well with your total savings, you’d be “in pretty good shape.” should be,” said Leyla Morgillo, a certified financial planner at Madison Financial Planning Group.

“Retiring early requires careful monitoring, as there are a number of variables that can throw them off the track – market volatility, lower return on investment, higher inflation or higher taxes, to name a few,” she said.

Because you rely heavily on investment markets for your income, make sure your portfolios meet your goals and needs, and respond accordingly when they don’t, she said. For example, if the markets drop significantly in a year, try to cut back on your discretionary spending so that you don’t dive too low in your investments – they will already be rolled back because of the volatility, and you want to keep as much of it in for as the markets bounce back.

In addition, “retirement is not a one-time event,” said James Guarino, a certified financial planner and director of Baker Newman Noyes. Your annual expenses should be calculated and evaluated every year anyway.

You didn’t say whether you expect other sources of income after you retire, but that’s something to keep in mind, Morgillo said. Having multiple sources of income is always safer than one, but especially when the main source is in investment portfolios.

Of course, this does not mean that you are in danger if you retire now. Far from. Edward Jastrem, a certified financial planner and director of financial planning at Heritage Financial, ran a very simple test in his financial planning software with a few assumptions: that you are now retiring and no longer receiving earned income, take the tab for out of pocket health care costs, a “balanced” portfolio of investment returns, a headline inflation rate of about 1.92% and a health care cost inflation rate of 6%, receive modest estimates for Social Security benefits at full retirement age, and he has your life expectancy at age 95. He did not consider other one-time expenses or specific income tax information. This scenario was just plain to see, with very basic information, what you might look at in early retirement.

Jastrem found that the plan looks healthy, as most people would have assumed. But there’s a lot more to analyze, he and other financial advisors said. Take, for example, the actual investments themselves.

“The biggest risk to this couple is the lack of productivity in their assets,” said Alex Klingelhoeffer, a certified financial planner and wealth advisor at Exencial Wealth Advisors. “I often see people who are too conservative with their investments versus those who are too aggressive. In fact, I would say that on average 90% of the clients who come to me with this situation are underinvested.”

There are plenty of investment strategies that an advisor could suggest that will allow you to continue spending what you need during early retirement for decades to come, with the money working for you. Keep in mind that these points are just the beginning here. With so much wealth and the goal of retiring more than ten years before your full retirement age, there are so many ways a financial planner can make a difference to your particular situation. If you don’t want to work with a financial advisor on a regular basis, you can find someone who charges on an hourly basis or plan to meet only annually or semi-annually. They will be much more versed in what your next steps should be.

Klingelhoeffer suggests reviewing your asset allocation, the actual location of your investments and the tax implications this may have. For example, traditional 401(k) plans are not taxed until revoked. “As we have growth in our retirement accounts, we also increase our future tax liabilities at regular income tax rates,” he said. “If we grow assets in taxable accounts, we have growth at capital gains tax rates, which are currently 10-15% lower than regular income tax rates.”

“Ultimately, investing is about both what you earn and what you have left over,” he said. “Having a better asset location allows us to increase the what-we-keep side of the ledger and not let Uncle Sam get as much of our hard-earned income.”

Tax diversification is just as important as asset diversification. When withdrawing, try to avoid jumping into a higher tax bracket than necessary and use Roth conversions if and when appropriate, Guarino said.

View MarketWatch’s column “Pension Hacks” for useful advice for your own retirement savings journey

You said health insurance was a major concern, and I understand why. Healthcare costs rise every year and only get more expensive as a person gets older. You can check your state health insurance marketplace for insurance options.

“The good news is that with the exchange, health care coverage today is more a matter of additional spending in retirement and not a matter of whether someone can get coverage at all,” said John Scherer, a certified financial planner. and founder of Trinity Financial Planning. Based on a quick look at what was available in the best priced premiums (the platinum coverage) in the Boston area, the cost of health insurance for two would be about $2,500 a month, or about $30,000 a year.

The good news: you can afford that without having to worry about taking too much money in early retirement, says Klingelhoeffer. “Given their comfortable level of spending, there is certainly room in their budget for a premium health plan if they choose to buy one,” he said.

You should also carefully consider what insurance you need, such as long-term care coverage, as well as home, car and umbrella policies you’ll need before you retire, Jastrem said. Not everyone is a fan of long-term care insurance as it can get expensive and not everyone will eventually need it in their old age, but if you’re confident it might be worth a look – if only at the schedule – . And don’t forget to prepare an estate plan, complete with important documents such as a power of attorney and will, and to make sure your estate goes the way you want it to.

Be prepared to be flexible in the future and understand that what you want or where can change and that this will affect both your retirement and your financial picture, Guarino said.

“Will they be able to maintain their home or will they want or need to move into a retirement home?” he said.

The last consideration I leave with you (there are so many things to talk about when you talk about retirement planning) is something I tell everyone: think carefully about what you will do with your time after retirement. Early retirement isn’t for everyone – some people absolutely love it, while others are bored and will be back at work in a few years. If you’re retiring together, you’ll need to make some daily adjustments if you’re not used to spending so much time together in the house. One of my favorite pieces of advice for couples who are retiring together is to create an “activity jar” in which each person suggests different things they would like to do on a given day, such as going to the museum, trying a new restaurant, discovering the next state about and so on. You may also want to take a look at volunteering or consultancy work, which makes many retirees happy.

“If they retire at a very young age, most of their friends will still be working, so they risk ‘nobody to play with’ when they retire,” Scherer said. “That’s not a reason not to retire, but something people don’t often think about when planning their lives.”

Readers: Do you have any suggestions for SP? Add them in the comments below.

Do you have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com