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Chapter 15. Keep Your Life Portfolio Balanced
Splurge on What You Enjoy Most
Our advice is, figure out what you care about most in life and spend more freely in that area. For
us that means spending more on travel and less on material possessions (other than camping
equipment). If you feel you're depriving yourself of something you really love, you'll never be able to
stick to your plan over the long run.
Whatever your passion is, you shouldn’t have to give it up in order to retire early. We choose to
spend our extra money on travel, but perhaps that’s not your passion. If you feel about theater, or food
and wine, or fixing up antique automobiles the way we do about travel, then perhaps that is your
“splurge area” in life. Be sure to make a little extra room in your budget for it.
You should spend money on the things that matter most to you, but you should also spend less in
the areas that don’t. If you’re living a balanced life, then you should be able to have fun today and
save for tomorrow. It’s not an either/or proposition.
Live a Little!
If you don’t already have a bucket list of things you’d like to see and do before you die, we
suggest you start one. Pull out a map and begin thinking about where you’d like to go. Add to it
creative pursuits you’d like to try, experiences you’d like to have, and things you’d like to
accomplish. Then get started checking off a few of those boxes while you’re still fully employed. We
suggest you give special priority to activities that are close to home (since you can do them more
easily while still at work) and adventures that are physically demanding. Some of the most amazing
experiences in life – bungee jumping, mountain treks, walking safaris, whitewater rafting, skydiving,
and so forth – are most easily accomplished while you’re still young and fit (not to mention fearless).
Of course, the more fun you have along the way, the more fit you will remain and the younger at
heart you will be. We still hope to be having adventures even in our golden years, albeit of a more
subdued nature. Think river cruising in Europe, extended RV trips in North America, island living in
the South Pacific, and housesitting in a few of our favorite foreign countries like Italy and New
Now here’s a question: If you were to wait until you were 65 – “normal” retirement age – to get
started on your bucket list, how much of it do you realistically think you’d get done? Probably not as
much as you’d like, and maybe only a fraction of what you have listed. But if you get started now, you
can make real inroads while you’re still at work, then keep right on accelerating into early retirement
and have a decent chance of doing rather than just dreaming about all the wonderful things on your
Enjoying life to the fullest is not contradictory with saving for the future. It’s possible to do both if
you balance work with play and mix in plenty of fun along the way. It’s not necessary to sacrifice fun
on the altar of the future: it’s simply necessary to balance fun with funding.
Have Faith in Your Own Future
It’s undeniable saving for the future takes faith. You have to have faith you’ll still be alive and
“still you” 15 to 20 years from now. That life will still be worth living and you’ll still have your
health. That your retirement plan will actually work as planned. That saving small amounts of money
each month really can add up to big rewards later on. And that the markets will perform as expected
over the long term to get you to your goal.
That’s a lot of faith! It’s safe to say you have to be an optimist to plan a decade or two in advance
for early retirement.
Nevertheless, one of the reasons we like talking about retirement in 15 to 20 years is that, yes, it’s
a long way off, but at least it’s imaginable and worth thinking about. Talking about something 15
years down the road isn’t quite so elusive as talking about something 40 years down the road. (“Are
you kidding me? I could be dead in 40 years!”) At least a 30-year-old can measure 15 years as being
two halves of his own life thus far and picture himself as not being too radically different by the time
he reaches 45. But ask the average 20-something to picture himself at age 65 and he’ll simply shake
his head. It doesn’t bear thinking about.
We encourage you to have at least a mustard seed of faith in your own future. Retiring early is not
an impossible dream by any means. It is achievable by normal everyday people, as we ourselves can
attest. If anyone tries to tell you you’re missing out on life and wasting your time saving up for early
retirement, tell them to think again. They’re missing out on life if they don’t save up to make their
dreams come true.
Health Care in Retirement
What should I do about health care? This is the question every American who has ever thought
about retiring early wants an answer to, and up until now it has been one of the hardest answers to
provide. We say up until now because things are changing fast. New rules are coming into effect that
are much more favorable to early retirees. In fact the new regulations open doors to health care that
are closed to those currently covered by employee health plans.
By January 1, 2014, most provisions of the Patient Protection and Affordable Care Act will be in
full effect, and at that point the health care outlook for early retirees on a budget will have improved
dramatically. Affordable health care will no longer be tied inextricably to holding down a full-time
job with benefits. What that means for those still working is more flexibility in deciding when to
retire. For those already retired, it means a much better deal when it comes to paying premiums and
receiving affordable health care benefits in return.
Over the past six years of early retirement, we estimate we’ve paid $23,000 in health care
premiums while receiving no meaningful health care benefits in return. Our existing catastrophic
policy’s high deductible limits mean that in effect we’ve had to pay the full cost of every office visit
to every doctor, dentist, or optometrist, every test or screening received, every filling filled and tooth
crowned, and every prescription drug purchased. Our insurance provides us with financial protection
more than true health care, but since one serious illness could wipe out our entire savings, we’ve felt
we had little choice but to cover ourselves with some kind of policy, no matter how rudimentary.
Needless to say, we’ve tried to keep our health care visits to a minimum. It’s virtually impossible
to walk into a doctor’s or dentist’s office without walking out with a bill for $300 or more. We
estimate we’ve spent $6,000 over the past six years on medical and dental services, and of course
that number could have been dramatically higher if we hadn’t been in reasonably good health.
But starting next year, for the first time in six years, we expect to receive actual benefits in return
for the health care premiums we pay. Perhaps equally importantly, we can count on our premiums
staying relatively stable over the years to come. Our premiums won’t be much lower than they are
now, but our deductibles will be significantly lower, and we’ll only have to pay a co-pay instead of
the entire bill if we make a visit to the doctor. We’ll also have to pay less out of pocket if we should
ever face a serious illness. In short, our health care coverage will feel a lot more like it did back in
the days when we were covered under our old employee health care plans at work. That’s no
coincidence, since the new legislation is essentially designed to mimic the levels of coverage
provided under most employee health care plans.
Key Aspects of the Affordable Care Act
Without question the Affordable Care Act is a game changer for early retirees on a budget.
Practically speaking, it means one of the main roadblocks to early retirement – the lack of affordable
health care – has finally been cleared away. Here’s a summary of some of the key benefits of the act:
– Guaranteed issue: you cannot be denied coverage because of a preexisting condition or
charged higher rates if you have a medical condition.
– Subsidized premiums: monthly premiums stay reasonable as you age (assuming annual
income falls within certain limits, as discussed below).
– Subsidized out-of-pocket expenses: annual expenses for deductibles and coinsurance
stay manageable (assuming income falls within certain limits).
– Free preventive health services: free services are offered for regular blood pressure and
cholesterol checks, screenings for colon cancer and diabetes, well woman exams, and many
other preventive tests.
– Health care exchanges: a single online marketplace for each state makes it easier to
compare plan costs and benefits.
The act requires insurers to spend between 80% and 85% of every premium dollar on medical
care (as opposed to administration, advertising, etc.). If insurers exceed this threshold, they have to
rebate any excess to their customers. This aspect of the new law is already in effect, and the nation's
health insurance companies have already refunded over $1 billion to their customers.
The information in this section is based primarily on data provided on the government’s health
care website, HealthCare.gov, and the Kaiser Family Foundation’s Summary of New Health Reform
Law. We’ve made every effort to be as accurate as possible in our description of how the new
regulations affect early retirees, but any errors are wholly our own and we can only say we did our
best to explain in a straightforward fashion a rather complicated piece of legislation.
Under the Affordable Care Act all discrimination against pre-existing conditions is prohibited.
You cannot be denied affordable coverage due to your health, and your insurance will actually have
to cover you should a medical need arise, without concern that some paperwork error might result in
a cancellation of coverage. Most would agree this is a significant improvement over the previous
state of affairs.
According to the Kaiser Family Foundation, over one-fifth of people who applied for health
insurance on their own in the past got turned down, or were charged a higher price, or were offered a
plan that excluded coverage for their pre-existing condition. But the days of cherry-picking only the
healthiest customers are past. Insurance companies can no longer put annual limits on essential health
benefits such as hospital stays, nor can they put a lifetime cap on the amount of care they are willing
Differences in premiums based on gender are also prohibited. Gender discrimination, something
that was only proscribed by law in one-fifth of the states, is now banned in all fifty states. That means
women will no longer have to pay premiums that were sometimes 50% to 100% higher than men’s.