Personal finance shouldn’t be this complicated. It seems like every day I have a new lever to pull, another knob to twist.
After I retired early in 2023, it took many months to shed my corporate identity. I had to get comfortable with the notion that my days of doing stressful “big decision” work were over.
I also had to figure out what to do with a basket of financial changes. While working, things were mostly on autopilot. Employer-sponsored healthcare, life insurance, and 401(k) plans made it easier to keep focused on my PowerPoint slides.
It’s all a big, hairy mess. At least I was able to figure out a fitness routine without too much trouble. Wealth doesn’t do much good without health, and social health is part of that equation for retirees. So, I found a gym within walking distance of home. (Even better for the social scene: my new Pickleball habit!)
My main advice (if you want to TL;DR this post):
- Keep funding your HSA via a high-deductible ACA plan (if your health status allows it).
- Put as much into your Roth and/or Roth 401(k) as you can, favoring these over pre-tax 401(k)s
- Start building a brokerage (taxable) account as soon as you reasonably can for flexibility/income in your early retirement gap years (for us, it wasn’t until mid-career, after vehicles and student loans were paid off).
- If you’re about to retire early or just took the plunge, talk with an accountant to determine if a Roth conversion makes sense for you.
- Don’t quit your day job until you have determined how you’ll spend your newfound free time productively (physically, mentally, socially)
Healthcare Crap
The healthcare changes were very complicated. I had to enroll our family in the ACA marketplace and find a plan that covered our current doctors. Eventually, we got it all sorted out. After a few years with a crappy dental plan, we dropped dental altogether and are paying cash for cleanings.
Our kids get dental coverage as part of their medical plan, thanks to ACA rules.
It’s also nice that if you pick a high-deductible plan, no changes are required with your existing HSA bank. You just have to put the dollars in each year from your bank account instead of a paycheck deduction.
There was a brief period when we got ACA subsidies, and that led to a whole other set of complications. Sending in your financial life history to the state agencies is a royal pain in the butt. We now have Roth conversions in progress, so no more subsidies.
I suspect the best approach would be some flavor of Medicare for All and cut out the insurance middleman. Simplify the setup for EVERYONE and take a huge chunk of cost (waste) out of the system.
Life Insurance Approach
I just went with a basic term policy that runs out at around age 70 for me and the Mrs. No need to get into whole life products when you can invest your money directly instead.
Workplace Retirement Plans Gone Wild
The venerable 401(k) became a hot dog mess when I learned how big our RMDs would be (starting at age 73). A 401(k) is great for avoiding taxes upfront, and while it grows. But eventually that tax bill comes due. Either you pay it yourself in retirement, or your heirs will.
I hadn’t planned on Roth conversions while reading my Mr. Money Mustache blogs. I just figured I was smart by knocking my tax rate down with 401(k) contributions and getting that sweet employer match.
Imagine my surprise when staring at the spreadsheets, early retired, ready for a day of pickleball or handyman fun, and realizing I had to convert a huge chunk of 401(k) savings each year for like 10 years. ACK!
I felt dumb, but ultimately, less dumb. I, as a so-called “personal finance blogger”, was missing a huge flaw in our financial plan. See, converting pre-tax 401(k) dollars to Roth requires a source of money outside of the 401(k) to pay for the taxes due the year you convert.
(You can use 401(k) dollars to pay the taxes, but two bad things happen then: 1) You get penalized 10% for technically withdrawing retirement funds to pay the taxes, and 2) You’re taking away dollars that would otherwise grow tax-free in the new Roth destination account)
This shit is wayyyy too complicated. I had to seriously study up on Roth conversions and work with our accountant to make sure we were aligned. Sigh.
At the end of the day, I wonder if “we” (EVERYONE) should have strictly post-tax retirement accounts that work exclusively like Roth. You pay taxes when contributing, but no tax when withdrawing. And based on your income, you get a tax credit during your earning years for those contributions.
Why we common folk have to navigate the pre- and post-tax wilderness when it could be simplified is a confounded mystery to me.
Making Peace With Early Retirement
A wise YouTuber once said, “Retirement is not about not working. Retirement is having the choice about what to do with your time.” Or, something like that. I’m choosing to work part-time as a handyman because I like working with my hands and building walls, repairing fences, laying floors, etc.
I’m choosing to hit the gym and pickleball courts a few days each week to fill my social cup and stay healthy. The bonus is that I’m home for the kids when they go to school and most days when they come home.
There are still plenty of tough days and difficult periods. Life is life. Getting your health, wealth, and relationships in shape can keep the worst clouds away, but don’t expect it to always be smooth sailing. Suffice to say, early retirement, with those uncharted gap years*, is more complicated than those cozy cubicle years.
* The years between early retirement and ages 59.5 (when 401(k) can be tapped without gymnastics) to 65 (Medicare eligible)
XOXO,
Cubert
