My Retirement Plan

Dennis Friedman

I RECEIVED A LETTER from the Social Security Administration telling me I need to apply for benefits immediately. I turn age 70 this year and there’s no advantage to delaying my benefits any longer.

How does reaching 70 feel? I know I get cold easily and don’t move as fast when I’m exercising. I’m also not as sharp mentally. But I’m actually looking forward to my 70s. It will be a decade more about living and with less thinking about money.

My Social Security will be the last significant piece in my financial puzzle. Maybe I’ll do a few more Roth conversions and tweak my asset allocation as I grow older. But there’s really no major money decision that’ll fundamentally change my finances going forward.

My wife and I will rely on our investment portfolio of 35% stocks, 60% bonds and 5% cash, as well as Social Security, Medicare Part A and Part B for basic health insurance, United Healthcare Medicare Supplemental Insurance Plan G and United Healthcare Medicare Prescription Drug Plan.

This is our blue-collar financial and health care retirement plan built on sweat, sacrifices, endurance and hard work. There was no knockout punch, such as a hot stock or a large financial windfall. Instead, it came down to a steady stream of jabs, in the form of regular automatic investments over many years, primarily into low-cost broad market index funds.

Here are five questions I asked myself while creating our retirement plan:

1. Why not buy annuities for additional income? The one thing I’ve learned is that bad things happen and they can’t always be prevented. For instance, chronic health issues can be very costly. According to a 2020 survey by Genworth, the median annual cost of a private nursing home room is $105,852, while a semi-private room is $93,072.

The problem with buying an annuity is that it takes away the flexibility to respond to these types of changes in your retirement plan. With an annuity, you hand over control of your money to an insurance company in an exchange for guaranteed income. I’d rather hang on to the lump sum in case there’s an expensive unexpected event, especially in the earlier phase of our retirement.

2. How am I going to create income? We’ll use a total return approach, focusing on generating both income and capital gains. We’ll spend the interest, capital gains, dividends and fund distributions generated by our stocks, bonds and cash holdings. We’ll also have our Social Security, with my benefits as of age 70 and my wife’s as of her full retirement age. We feel confident we have sufficient savings that, if necessary, we can spend down part of our investment portfolio and not run out of money, no matter how long we live.

3. Why not choose a Medicare Advantage plan, with its lower premium? I chose federal-run Medicare over Medicare Advantage, the private insurance alternative that can have different rules for how you get medical services. For instance, under Medicare Advantage, you usually need a referral to see a specialist and for certain medical procedures. I didn’t want to be limited to a network of doctors and I wanted to make sure I can get immediate medical coverage anywhere in the U.S. I wanted more control over my health care and was willing to pay for it.

4. Why not buy a long-term-care insurance policy? The inability to forecast the true cost of a long-term-care policy over a long time horizon was a major concern for me. Policyholders have faced steep rate hikes over the years. It probably comes down to a lack of trust: I worry that an insurance company would try to price us out of coverage we’d bought years earlier.

I’ve also heard stories of insurers denying coverage to policyholders who felt they met the eligibility requirements. Eligibility is usually based on whether you need assistance in performing two of the six activities of daily living, such as bathing, dressing, eating, transferring (moving from bed to chair) and toileting. I was also aware the best time to buy long-term-care insurance is before your 60th birthday, because rates are lower, and felt it was probably too late to purchase coverage, even if I thought it was a good idea.

5. Will we run out of money? I believe the biggest threat to our retirement is our health. Large out-of-pocket health care expenses can deplete even a well-funded investment portfolio. Since we didn’t buy long-term-care insurance, the best way for us to guard against this financial threat is by protecting our mind and body. My wife and I try to live a healthy lifestyle by exercising, eating a healthy diet and getting enough sleep.

I’m the first to admit my decisions about our retirement plan haven’t always been based on sound financial principles. Instead, those decisions were sometimes predicated on experience. For instance, I remember a late friend—who was battling hepatitis—once telling me he was denied a medical procedure by his insurance carrier that he felt was vital for his well-being. As a last resort, he sat down on the floor in the lobby of that medical provider and refused to move until his request was granted. That image will always be etched in my brain. I can’t help but think of him when I make decisions about our health care in retirement.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on Twitter @DMFrie.

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