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Retiring in Europe

Question: My wife and I are 60 and plan to retire at 62. My question is this: We're considering selling our home upon retirement and basically pocketing that tax-free money to finance the first five or six years of retirement. We plan to rent during that period, perhaps in a European nation. We would not touch our 401K savings during that period, which currently total about $550,000 and would hopefully continue to grow at a healthy rate. We would both draw Social Security at 62 and I would also receive a pension of about $1.000 per month from my current employer. We would also be covered by a health insurance plan provided by my employer. Does this sound like a reasonable plan? Thank you. David

Answer: It's a great idea, assuming the numbers work. This kind of adventure has always made a lot of sense to me. You're still young. You'll have fun.

A couple of years ago a certified financial planner I know told me that a number of his clients had moved to France for the first 5 to 10 years of their retirement. (This was before the Euro soared and the dollar tanked). Although they lived comfortably, these weren't wealthy folks, either. They loved their time living and traveling abroad.

On a practical level, my one piece of advice would be to hire a certified financial planner (CFP) to runs some numbers and scenarios for you. This way you can be sure that you're comfortable with the financial side of the equation. Have fun.

01/07/08 by Chris Farrell

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Early Retirement and Health Insurance

Question: My husband and I are planning on retiring at age 50 (we have approx 13 years left)...meaning we hope to quit our 8-5 corporate jobs and find something more fun perhaps working part time at the local greenhouse or golf course. Many articles in magazines or stories on talk shows focus on how much to save but no one ever discusses healthcare options for those of us who want to retire early and will be without Medicare until age 65. We suspect healthcare will take a chunk of change but don't know how much or even where to find individual coverage. Can you please provide some guidance. Peggy, Minneapolis, MN.

Answer: You're right that the deal-breaker to early retirement is usually health insurance. It's expensive. Early retirement is probably out of the question for two groups of people: those who can't afford to absorb expensive annual health-insurance costs until Medicare kicks in at age 65 and anyone with a serious medical condition, such as diabetes or heart disease, that makes it next-to-impossible to get decent coverage.

Assuming you don't fall into those two categories, you should shop around and learn everything you can about deductibles, co-pays, networks, out-of-network costs, and other nuances of health-insurance policies.

I'd look into high-deductible plans. Basically, the higher the deductible, the lower the premium. The most popular high-deductible plans are those with preferred provider organizations that give price breaks for staying within a network. Still, coverage can range from bare-bones (read cheaper) to reasonably comprehensive (read expensive).

Better yet, consider a health savings account. You use these tax-advantaged savings plans in conjunction with a high-deductible policy. For a family in 2008, the catastrophic insurance policy has a minimum deductible of $2,200 and an out-of-pocket limit of $11,200. The maximum a family can contribute into the tax-sheltered account is $5,800. HSA contributions are made with pretax dollars, and any unused money in the savings account is rolled over for future use. Withdrawals are tax-free so long as the money goes toward qualified medical expenses.

You could also check out professional associations, trade groups, and even chambers of commerce offer group health plans to members, but they will probably be more expensive than an HSA or a high-deductible plan.

05/07/08 by Chris Farrell

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Immediate Annuity

Question: I am turning 70 in June and retiring as of July 1. I will be taking monthly disbursements from my IRA. I still have a balanced portfolio ranging from income producing to growth and income. My financial planner is recommending that I convert some of my IRA into annuities to protect my investment and to have a steady monthly income. Is this a wise move? Margaret, Fargo ND

Answer: I don't know the specifics, but in general I am a fan of buying a measure of financial safety and financial comfort with an immediate annuity. You get a predictable monthly income (or quarterly or annual depending on the chosen payout option) on the investment for the rest of your life. An immediate annuity can offer financial security and piece of mind. It's good advice.

There are a number of factors to consider. You should only do business with a highly rated insurance company, or an immediate annuity sold through a well-known mutual fund company. You want to work with a company with a blue chip balance sheet. You'll need to shop around since your stream of income depends on how much you invest, your age, the interest rate, and other factors.

Inflation is another critical factor. After all, what's one of the biggest risks you face with your savings? It's inflation. If you want another source of information, you could check out the website www.analyzenow.com. It offers a number of home-brewed financial planning programs that I like. One of them helps you tell whether it makes sense to buy an immediate annuity or keep managing your investment yourself.

05/16/08 by Chris Farrell

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