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Author: Kevin Lao

Should You Annuitize in Retirement?  4 Surprising Truths About Annuities

Let me start with complete transparency: I don’t sell annuities, I don’t receive commissions from them, and frankly, I dislike most annuity products on the market. They’re often complicated, expensive, and in many cases, they’re sold rather than planned.

My skepticism runs deep. Nearly 18 years ago, in my first financial role out of college, there was a veteran in my office who had one solution for everything: annuities. Client had an IRA rollover? Annuity. Extra money beyond their 401 (k)? Annuity. Worried about market volatility? You guessed it – annuity. This approach made me sick and shaped my career trajectory as a fee-only planner.

But this isn’t about bashing annuities like Ken Fisher does. When used correctly – specifically when used the way they were designed to be used – annuities can create outcomes that surprise even sophisticated investors and retirees. After 17-18 years of retirement planning, I’ve learned that bringing bias to the table and simply saying “annuities are bad” isn’t helpful.

Today, I want to walk you through four surprising benefits of annuitizing a portion of your fixed income and how this fits into well-designed retirement income planning.

The big takeaway? Retirement planning isn’t just about growing assets anymore – it’s about turning those assets into reliable, efficient, and sustainable income.

1. Lower Stress During Market Volatility: The Emotional Game-Changer

Here’s something most people don’t understand until they experience it firsthand: having an annuitized portion of your portfolio dramatically reduces stress during market downturns in retirement.

Consider this reality: if you retire at 60 and plan to live until 90, that’s a 30-year time horizon. Historically, there’s a 20% market downturn or bear market approximately once every five years. This means you could experience five or even six major bear markets during your retirement.

Bear markets hit differently when you’re retired.

When you’re accumulating wealth, you might even feel somewhat positive about a bear market – subconsciously, you know you’re buying shares at discounted prices. It’s uncomfortable, but manageable. When you’re withdrawing money for living expenses, volatility can feel nauseating.

I’ve been working with retirees for 18 years. In that time, I’ve witnessed very sophisticated retirees panic during downturns by bailing out of well-thought-out, diversified strategies right in the middle of a bear market. I’ve watched vacations get ruined, and couples argue over whether they should cut spending during market downturns.

But here’s what I’ve never seen:

I’ve never had a client with guaranteed lifetime income layered on top of other income sources – whether Social Security or a pension – say they regret securing that income stream. It’s always the opposite.

During COVID in 2020, during the 2022 downturn, and going back to 2008, when markets dropped 20% or more, clients with annuitized income consistently told me: “I’m so glad I have that guaranteed income check showing up every month.”

That predictability changes behavior, and in retirement, behavior matters infinitely more than spreadsheets.

Yes, you can hold bonds or cash for safety, but 2022 reminded us that bonds can fall double digits, and cash loses purchasing power over time. Your safe money isn’t about maximizing returns – it’s about minimizing emotional risk. And emotional risk in retirement is incredibly expensive.

2. Reduced Withdrawal Pressure: The Mathematical Advantage

This is where the math really shines, and it’s one of my favorite impacts of annuitization.

Most retirees follow traditional withdrawal frameworks. Let’s use the 4% rule as an example. Say you have $2 million invested and need $80,000 annually – that’s exactly 4%, which should theoretically work fine.

Now let’s see what happens with partial annuitization:

Instead of relying solely on systematic withdrawals, let’s say you annuitize $500,000 of your fixed income allocation. Using a conservative 7% payout rate (and I’ll explain why this is conservative in a moment), that $500,000 generates $35,000 annually in guaranteed income.

Your remaining portfolio balance is now $1.5 million, but it only needs to produce $45,000 because you’re receiving $35,000 from the lifetime income stream. Divide $45,000 by $1.5 million, and you get an effective 3% withdrawal rate on the remaining portfolio.  That reduced withdrawal rate on the invested balance could allow for better long-term growth, all because you maximized the cash flows from your ‘safe bucket.’ 

That difference matters enormously over the long term.

Why can annuities offer higher payout rates than bonds? Two reasons: mortality credits and longevity pooling. You’re not just earning bond-like returns – you’re benefiting from pooled longevity risk. Some people in the pool won’t live very long; others will live much longer. This pooling effect creates higher payout rates than you could achieve with individual bonds or CDs.

I broke down Marilyn’s real case study on YouTube: She was earning approximately 8.6% on her TIAA traditional annuity – well above the conservative 7% I used in the example above.

Surprisingly, partial annuitization increased the ending ‘legacy’ to her two adult children!  Despite dropping her liquidity after annuitizing that portion of her assets.

This higher payout rate reduces strain on your equity portfolio, which means:

  • Lower sequence of returns risk
  • Fewer forced sales during market downturns
  • More compounding potential for long-term growth

Annuities don’t just create income – they reduce selling pressure on everything else. This structural shift is often misunderstood but incredibly powerful.

The timing of this strategy matters significantly. We’ve had three consecutive years of bull market returns – double digits in the 20% range for two years, then 16% last year. But who knows how much longer this will continue?

We had about 11-12 years between 2008 and 2020 with minimal bear markets, but then just a two-year gap before the 2022 downturn. Markets are cyclical, and short-term, they’re driven by emotion and irrationality.

The question is:

  1. What’s your plan for the next bear market?
  2. Can partial annuitization help you navigate it emotionally while avoiding the need to sell riskier assets with better long-term growth potential?

3. Higher Legacy Potential: The Counterintuitive Truth

This surprises people more than anything else, and honestly, it shocked me initially, too. I spent considerable time manipulating financial planning software because I didn’t believe the results. But the math is sound and makes perfect sense once you understand it.

Annuitizing a portion of your assets can actually result in higher legacy amounts, not lower ones.

This shocks people because the common assumption is: “If I annuitize, my kids lose out because that money isn’t liquid anymore.” While liquidity does disappear with annuitization, if longevity plays out in your favor – which is the entire purpose of annuitization – the results can be dramatically different.

Here’s why: If you plan to live into your 80s or 90s, the annuity keeps paying throughout that entire period. Meanwhile, because you’ve reduced withdrawal pressure on your equity portfolio, those riskier assets with higher long-term growth potential can compound more efficiently.

In stress tests I’ve run with real case studies, including Marilyn’s situation, the numbers consistently support this outcome. For Marilyn, the breakeven point was approximately 81 years old. Beyond that point, the legacy outcome was significantly higher with partial annuitization than without it.

Legacy’s biggest threat

The biggest threat to legacy isn’t annuitization – it’s poor returns early in retirement. Poor sequence of returns risk combined with higher withdrawals damages portfolios far more than partial annuitization ever could.

If you retire into a bear market, the value of reduced withdrawal strain becomes even more powerful. I’ve seen this play out with clients who annuitized portions of their portfolios 10-15 years ago. They’ve been able to take full advantage of the bull run we’ve enjoyed since 2008, with their remaining investments growing much more efficiently because they weren’t forced to sell during downturns.

4. True Longevity Insurance: Beyond Social Security and Bonds

Most retirees over-allocate to bonds because they fear volatility. But bonds don’t solve longevity risk – they just reduce volatility temporarily.

If you live 25 or 30 years in retirement, how long will that safe bond allocation actually last?

Longevity risk is particularly real for people who take care of themselves, have good genetics, and access to excellent healthcare. As modern medicine continues to evolve and AI advances rapidly, life expectancies may increase significantly. Even if the most optimistic predictions don’t materialize, many people will still live well into their 90s or beyond.

Social Security provides powerful longevity insurance, but for many high-income retirees, it won’t cover enough expenses. This is where partial annuitization becomes valuable – it can convert part of that underutilized fixed income allocation into maximized income streams that protect against longevity risk.

The annuity will pay whether you live to 85 or 105.

I see the bond or fixed income bucket consistently underutilized by retirees. People are often afraid to commit large lump sums to annuities because liquidity disappears. This is exactly why having a comprehensive plan and strategy is crucial – this isn’t an all-or-nothing decision.

Liquidity matters. Health matters. Legacy goals matter. Interest rates, payout rates, specific annuity contracts, and terms all matter significantly.

This isn’t about annuitizing everything – it’s about intelligently designing the fixed income sleeve of your portfolio, building an income floor, creating emotional stability, and giving growth assets room to compound. That’s true retirement income planning.

Four Critical Questions to Ask Yourself

If you’re approaching retirement or recently retired and wondering whether partial annuitization makes sense, consider these four questions:

1. What is my true risk tolerance in retirement?

Really internalize this. How do you actually feel about risk – not today while you’re still working, but when you’re actually retired and watching your portfolio fluctuate? If you are retired, how do you feel when the market drops 10%, 20%, or even 30%?

2. Do I expect longevity in my family?

Consider both yourself and your spouse. Do you have good genetics, take care of your health, and have access to quality healthcare? Are you planning for the possibility of living 25, 30, or more years in retirement?

3. What percentage of my expenses are covered by guaranteed income sources?

If Social Security only covers 25% of your total expenses, that’s not substantial coverage. You could be much more subject to the sequence of returns risk than someone with higher guaranteed income coverage.

4. Am I reacting emotionally to the word “annuity,” or am I evaluating strategically?

Are you considering annuities as part of an overall retirement income plan, or are you dismissing them based on preconceived notions?

If your income stability ratio is low – meaning most expenses must come from portfolio withdrawals – you’re much more exposed to sequence risk. This doesn’t automatically mean you need annuities, but it absolutely means you should evaluate them objectively.

This is especially true if you have access to quality annuities, such as TIAA traditional products, where older vintages can offer very attractive payout rates. Before surrendering or transferring these products, understand the crediting rates, liquidity restrictions, income options, and payout rates.

The Bottom Line: Building Resilient Retirement Income

Retirement income planning isn’t about collecting the highest returns – it’s about building a resilient retirement income plan that can weather various economic storms while providing the lifestyle you want.

People who succeed in retirement aren’t those chasing performance; they’re the ones who design their plans intelligently, balancing growth potential with income security.

The mathematical advantages of partial annuitization – reduced withdrawal pressure, higher effective payout rates through mortality credits, potential legacy benefits, and true longevity protection – can create outcomes that surprise even sophisticated investors.

But remember: this strategy requires careful planning, appropriate product selection, and integration with your overall financial plan. The goal isn’t to annuitize everything, but to strategically design your fixed-income allocation to deliver maximum benefit across all your retirement objectives.

As we face potential market volatility ahead – with tariff uncertainties and the conflict in Iran – having a portion of your income guaranteed can provide the emotional stability needed to let your growth investments do what they do best: grow over time.

The question isn’t whether annuities are good or bad in isolation. The question is whether partial annuitization can help you build a more resilient, less stressful, and ultimately more successful retirement income plan.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Ep. 119: Social Security for Married Couples: The Survivor Benefit Mistake

If you’re married, your Social Security claiming strategy is not just about your benefit — it’s about protecting your spouse’s income for life. In this video, I’ll explain the most overlooked Social Security rule for married couples and how it can dramatically affect the surviving spouse’s financial security.

Many retirees don’t realize that when one spouse passes away, one Social Security check disappears. The surviving spouse only keeps the larger of the two benefits, which means the higher earner’s claiming decision may be the most important Social Security decision you make.

Using a real-life style example, we’ll walk through how delaying Social Security can significantly increase the survivor benefit, potentially adding thousands of dollars per month for the spouse who lives the longest. I’ll also explain why couples who claim too early may unintentionally reduce the surviving spouse’s income during the most financially vulnerable years of retirement.

However, this strategy doesn’t apply to everyone. I’ll also share three situations where it may actually make sense to ignore the typical advice to delay Social Security, including health considerations, investment strategies, and withdrawal rate concerns.

If you are within 5–10 years of retirement, married, and have saved $1M or more, this Social Security strategy could have a major impact on your long-term retirement income plan.

Enjoy the episode!

~Kevin

Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠You can start with our Retirement Readiness Questionnaire linked on our website so we can learn more about how we can help in your journey to and through retirement.

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Ep. 118: Should You Annuitize in Retirement?

Are annuities really that bad?

I’ve spent most of my career skeptical of annuities.  Especially the expensive, complicated products often sold to retirees. I don’t sell annuities. I don’t earn commissions from them. And in most cases, I still am skeptical of how they are ‘sold’and not planned for.

In this episode, I break down four surprising benefits of annuitizing part of your fixed income, especially if you’re approaching retirement with $1M+ saved and want a smarter retirement income strategy.

We’ll cover:

• Why everyone is a bull… until the market drops 10%
• How annuitization can reduce sequence of returns risk
• Why payout rates (like 6%–8%+) is hard to replicate with a ‘safe withdrawal rate’
• How annuities can actually improve legacy outcomes in certain scenarios
• The math behind lowering withdrawal pressure on your equity portfolio
• How to evaluate TIAA Traditional payout options and vintages

Retirement isn’t just about asset allocation.

It’s about income design.

And if you’re over 55, retiring soon, or already retired, understanding annuitization could materially impact your retirement income, stress level, and long-term legacy. Hope you find this useful.

-Kevin

Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠You can start with our Retirement Readiness Questionnaire linked on our website so we can learn more about how we can help in your journey to and through retirement.

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Retirement Planning Opportunities If You’re in the Top 20% of Savers (Ages 55–70)

If you’ve ever Googled “retirement savings by age,” you’ve probably seen those benchmark numbers that either made you panic or feel like you’re crushing it. But here’s the thing – both reactions might be completely wrong.

Understanding retirement savings by age is something many people get hung up on, but the reality is that these average numbers rarely tell the complete story. Today, we’ll dive into real data from major financial institutions and explain why, if you’re reading this, you’re probably already in the top tier of savers.  And if you’re in that top tier, we’ll discuss specific planning opportunities to help you optimize your retirement. 

What the Average Retirement Savings Data Really Shows

Let’s start by looking at what the major studies actually reveal about retirement account balances across different age groups.

401k Balance by Age: Fidelity’s Latest Numbers

Fidelity releases quarterly benchmarking studies that track average retirement account balances by age. Their data shows that for people in their peak earning years (55-70), the average 401(k) balance hovers around $250,000.

Financial planner in Chattanooga, TN

But here’s the problem with this data: it only includes accounts held at Fidelity. It completely excludes external accounts, creating a major blind spot. There are no taxable brokerage accounts, no HSAs, and no retirement accounts held at other institutions, such as Vanguard or Schwab. This means Fidelity’s numbers aren’t really representative of the entire U.S. retirement landscape – especially not for people who are serious about their financial planning.

The Federal Reserve’s Complete Picture

The Federal Reserve’s Survey of Consumer Finances, conducted every few years, gives us the closest thing to a national financial scoreboard. The 2022 data reveals some eye-opening statistics.

For households in the 55-64 age range:

  • About 8% have retirement account balances between $500,000 and $1 million
  • Roughly 9% have over $1 million in retirement accounts
  • This means approximately 17% of U.S. households in this age group have retirement savings exceeding $500,000

If you’re reading this article and have accumulated at least $500,000 in retirement accounts by your late 50s or early 60s, you’re already in the top 20% nationally. Many readers are likely in that top 10% tier with over a million dollars saved.

The Fed’s survey includes a broad sample of American households – from lower wealth to middle class to high net worth families. Many of the households surveyed may have very little, if any, assets in 401(k)s or IRAs, which skews the averages significantly lower.

Empower’s More Complete Data Set

Empower’s data provides both average and median retirement account balances, which matters because averages can be skewed by ultra-high savers with multiple seven-figure accounts.

For people in their 50s and 60s, Empower shows:

  • Average retirement account balance: roughly $1 million
  • Median balance: about 50% of that average

What makes Empower’s data more valuable is that it doesn’t just include accounts held directly with them. It also incorporates retirement accounts imported through their personal dashboard tool. If someone has accounts at Fidelity, Vanguard, or other institutions, those balances get aggregated into the study, making it more representative of people who actively manage their finances across multiple platforms.

However, even Empower’s data has limitations – it still doesn’t include other retirement assets like taxable brokerage accounts, business investments, or real estate.

Why You’re Probably Not Average

Here’s the reality: if you’re actively researching retirement savings by age and reading detailed financial content, you’re already demonstrating behavior that puts you in a completely different category than the “average” American saver.

The average retirement savings by age data includes everyone, including people who have never opened a 401(k), those who cash out their retirement accounts when changing jobs, and households that prioritize other financial goals over retirement savings.

But you’re different. You’re likely someone who:

  • Has built substantial retirement account balances
  • Maintains accounts across multiple institutions
  • Has diversified beyond just retirement accounts into taxable investments
  • Owns real estate or business assets not captured in these studies

Someone might have $400,000 in a 401(k), but another $1-2 million in taxable brokerage accounts or $3 million in real estate investments. If you’re only comparing retirement accounts, you’re missing half the picture.

This is the key point: if you’re consuming this type of content, you’re probably already in that top 20% of households. You’ve likely saved at least $500,000, and many readers have accumulated seven figures or even multiple seven figures for retirement. You’re playing a completely different retirement game than the average American.

Essential Retirement Planning Strategies for Top-Tier Savers

When you’re in the top tier of savers, your biggest risk isn’t running out of money – it’s retirement planning inefficiency. Here are the critical strategies you need to consider:

Tax Planning: Your Biggest Opportunity

Taxes can actually be one of your biggest expenses in retirement – often ranking as the number one, two, or three largest annual expenses for retirees.

Large pre-tax account balances mean large future required minimum distributions (RMDs). These large RMDs can potentially push you into higher income tax brackets, trigger higher taxes on Social Security income, increase capital gains rates, and activate other hidden taxes. These tax hits compound over time.

If you retire early, you may have lower income years before RMDs kick in at age 73 or 75. This window represents one of the best tax planning opportunities of your lifetime–what’s called the “Roth conversion window.”

Maximizing Roth Conversion Strategies in Early Retirement

During your early retirement years, before RMDs begin, you have the opportunity to strategically convert pre-tax retirement funds to Roth accounts. This means paying taxes now at potentially lower rates to minimize the impact of those ballooning RMDs later.

Roth conversion strategies can also help you:

  • Minimize IRMAA surcharges (hidden taxes on Medicare premiums based on income)
  • Make Social Security income more tax-efficient
  • Create tax-free legacy assets for your heirs

Once this conversion window closes, it shuts for good, making this timing critical for long-term tax efficiency.

Optimizing Your Retirement Withdrawal Strategies

When you have substantial assets across multiple account types–taxable accounts, tax-deferred accounts, and tax-free accounts–the order you withdraw money matters enormously for the longevity of your retirement plan.

The classic approach follows this sequence:

  1. Taxable accounts first
  2. Tax-deferred accounts second
  3. Tax-free accounts last

This default strategy makes sense for many people, but it’s not always optimal. Sometimes it makes more sense to tap Roth accounts first and let tax-deferred accounts continue compounding. Other times, a multi-pronged approach works best–taking baseline distributions from taxable accounts while filling remaining income needs from tax-deferred accounts, even before RMDs begin.

The key insight: retirement withdrawal strategies shouldn’t follow a one-size-fits-all approach. Each year brings a new tax situation that needs to be evaluated and optimized based on your specific circumstances.

Investment Strategy: Risk Capacity vs. Risk Tolerance

Most retirees and many financial advisors focus solely on risk tolerance–how aggressive you feel comfortable being emotionally. But for higher net worth households, we need to discuss something different: risk capacity.

Understanding the Difference

Risk tolerance is emotional and psychological. It’s about how you feel when the market drops 20%. Do you panic? Can you sleep well at night? Can you stay disciplined?

Risk capacity is different – it’s not about feelings, it’s about what your plan can mathematically survive. Can you afford to take on risk in retirement?

Here’s the counterintuitive part: a retiree with a smaller portfolio may actually have less risk capacity than someone with a larger balance.

A Real-World Example

Consider a retiree with $500,000 who needs $30,000 annually (6% withdrawal rate). If the market drops 25%, their portfolio becomes $375,000, but they still need that $30,000. Now their withdrawal rate jumps to 8% – entering the danger zone where retirement plans can fail due to the sequence of returns risk.

Compare this to someone with $2 million who needs $80,000 annually (4% withdrawal rate). If their portfolio drops 25% to $1.5 million, their withdrawal rate only increases to 5.3%. They have margin for error. They can reduce withdrawals, skip inflation adjustments, rebalance, or even take advantage of the downturn.

This is risk capacity: how much volatility can your plan absorb before forcing you to make bad financial decisions?

Where You Hold Investments Matters

Asset location is different from asset allocation. Asset allocation is what you’re invested in. It’s your mix of stocks, bonds, real estate, and cash. Asset location is where you hold those investments.

When you have substantial balances across taxable, tax-deferred, and tax-free accounts, where you locate specific investments can significantly impact your after-tax returns.

The Tax Drag Problem

Taxable accounts face ongoing tax drag. Investments may pay quarterly dividends, generate interest income, or distribute capital gains even when you’re not selling anything. When you’re in higher tax brackets, this drag becomes significant and represents one of the most overlooked ways wealth gets eroded–not from market performance, but from unnecessary taxes.

If your taxable account holds high-yield bonds, REITs, and high-turnover funds, you might pay substantial taxes annually even if you’re not spending that income. Meanwhile, your IRA and Roth accounts might be better locations for these less tax-efficient investments.

The goal of asset location is simple: ensure your taxable accounts aren’t dragging down your net after-tax returns. You don’t just need good performance. You need good after-tax performance. It’s not about what you earn; it’s about what you keep.

Legacy Planning for High-Net-Worth Families

If you’re in the top tier of savers, there’s a good chance you won’t spend down all your assets, even if your goal is to “die with zero.” This means you’re optimizing not just for lifetime income, but also for legacy–specifically, tax-efficient legacy.

This becomes especially important if your heirs are high earners themselves: doctors, entrepreneurs, attorneys, or other professionals. What you leave behind matters significantly.

Leaving a pre-tax IRA or 401 (k) to high-income beneficiaries creates a different tax impact than leaving a Roth account or a taxable brokerage account. The most effective planning involves being strategic about which assets to spend aggressively during your lifetime versus which to preserve for beneficiaries.

The Real Takeaway for Top-Tier Savers

If you’ve built substantial wealth and find yourself in the top 20% of U.S. households, your retirement plan is no longer about chasing returns or worrying about having “enough” money. Instead, your focus should shift to:

  • Maximizing retirement plan efficiency
  • Controlling the timing and tax impact of distributions
  • Minimizing lifetime taxes through strategic planning
  • Managing Medicare thresholds and IRMAA surcharges
  • Optimizing Social Security income timing and taxation
  • Taking advantage of Roth conversion windows
  • Planning for tax-efficient legacy transfer

Once you’ve done the hard part–saving and investing to reach financial independence–the game becomes about keeping more of what you’ve built. The strategies that got you to this point aren’t necessarily the same ones that will optimize your wealth throughout retirement.

The Bottom Line

Stop comparing yourself to average retirement savings by age. If you’re actively planning and have accumulated substantial assets, you’re already playing in a different league. Your focus should be on advanced strategies that maximize the efficiency of the wealth you’ve built, not on whether you’re “keeping up” with benchmarks that don’t reflect your reality.

Remember, retirement planning for high-net-worth individuals isn’t about accumulating more. It’s about optimizing what you have for the best possible outcomes throughout your retirement years and beyond.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Ep. 117: TIAA Traditional Explained: How Much to Keep, When to Use It, and What to Do at Retirement

If you’re a TIAA participant, there’s a good chance you own TIAA Traditional—and it may be one of the most misunderstood “investments” in retirement plans.

In this episode, I’m breaking down TIAA Traditional, TIAA Real Estate and answering the biggest questions I hear from TIAA participants:

✅ Should I own TIAA Traditional?
✅ If so, how much should I keep there?
✅ Should I use the TIAA Real Estate Account?
✅ What should I do with TIAA Traditional after I retire?
✅ Bonus: How do I compare to other retirement savers?

We’ll talk about the real issue most people miss—liquidity and contract type—and how TIAA Traditional can be used as a bond alternative or even as a retirement income floor depending on your plan.

Resources mentioned:

TIAA Real Estate Account

Video, How to get money OUT of TIAA (contract breakdown)

Video, Retirement Savings Relative to Peers

⛳ PFR Nation (Who This Is For)

If you’re over 50, have saved seven figures (or multiple seven figures), love golf and travel, and you want to make work optional while minimizing taxes… welcome to the right place.

💬 Comment Below

What is your biggest TIAA question?

Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠You can start with our Retirement Readiness Questionnaire linked on our website so we can learn more about how we can help in your journey to and through retirement.

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Ep. 116: Are You Stuck in “One More Year Syndrome”?

Lately, I’ve been seeing a TON of retirement planning content telling people:

“Don’t work another year. Retire now. You’re wasting time.”

And honestly… as a retirement-focused financial planner, that message kind of rubs me the wrong way.

Not because it’s always wrong… but because I think there’s an angle behind it.

In today’s episode, we break down what One More Year Syndrome really is, why it’s become such a popular retirement planning trend on YouTube and podcasts, and why you may want to take this advice seriously… but also why you might need to take it with a grain of salt.

Because retirement isn’t just about sitting on the beach 7 days a week.

Retirement should be about purpose, meaning, freedom, and using your time, talents, and treasure in the way that matters most.

I also share a powerful story from a recent conversation with a prospective client who reached out after losing three of his closest friends last year, and how that kind of wake-up call can completely change the way you think about retirement timing.

At the end of this episode, I give you 3 questions to ask yourself to determine whether you’re truly delaying retirement for financial reasons… or if you’re simply afraid of stepping into the unknown.

If you’re in your 50s or early 60s, have saved $1M+ for retirement, and you’re wondering whether you should retire now or work longer, this episode is for you.

✅ Questions Covered In This Episode:

  • Should I retire now or work one more year?
  • Is One More Year Syndrome real?
  • How do I know if I’m financially ready to retire?
  • How do I find purpose after retirement?
  • What if I retire too early?
  • What if I wait too long and regret it?

⛳ PFR Nation (Who This Is For)

If you’re over 50, have saved seven figures (or multiple seven figures), love golf and travel, and you want to make work optional while minimizing taxes… welcome to the right place.

💬 Comment Below:

Are you stuck in “one more year syndrome”?

What’s holding you back from retiring today — taxes, market uncertainty, healthcare, or fear of the unknown?

I’d love to hear from real retirees and pre-retirees.

⁠⁠Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠You can start with our Retirement Readiness Questionnaire linked on our website, so we can learn more about how we can help in your journey to and through retirement.

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Retirement Planning for Longevity: What If You Live to 100?

What if you retired at 60 and lived to 100? That’s a 40-year time horizon in retirement – meaning you could be retired longer than you were in the workforce. While this sounds amazing on paper, it brings about an entirely different set of challenges that most people aren’t prepared for.

Most people planning for retirement think they need their portfolio to last 15, 20, or maybe 25 years. Some conservative planners might even stretch it to 30 years. But here’s the reality: if current trends in technology and medicine continue, living to 100 might not be as far-fetched as it seems.

With AI and technology potentially helping us live longer, retirement planning for longevity becomes critical. You don’t need to save less because you might live longer – you need to be more thoughtful about how you set up your retirement plan. Longevity will be one of the biggest risks for people retiring in 2026 and beyond.

Let’s explore five specific retirement planning considerations if you’re planning for a 40-year retirement.

Building Retirement Income Planning That Lasts 40 Years

The foundation of any solid retirement plan is creating paychecks in retirement. Effective retirement income planning focuses on generating cash flow because assets that don’t generate income won’t help you pay your bills.

Your retirement plan isn’t just about your portfolio – it’s about building lifetime income that never runs out. Retirement becomes much easier when your baseline necessities and fixed expenses are covered by guaranteed income sources. People who have this foundation sleep well at night, especially when markets are volatile.

Maximizing Social Security Benefits

Social Security will likely be the biggest guaranteed lifetime income stream for most retirement plans. When considering retirement planning for longevity, delaying your benefits until age 70 becomes even more valuable. This is especially important for married couples: delaying the larger benefit maximizes the surviving spouse’s income.

Remember, when one spouse dies, the surviving spouse doesn’t receive both Social Security checks. They receive the larger of the two benefits. If you’re planning for one spouse to potentially live until 100, maximizing that larger benefit becomes critical.

Pension Survivor Benefits

If you have a pension, survivor benefit options require careful consideration. Many people want to maximize what they receive during their lifetime and select a 25% or 50% survivor benefit option.  Sometimes, NO survivor benefit is selected at all. But if one spouse passes away, not only does Social Security drop, but the pension could also drop by 50% or more.

This results in a significant reduction in income for the surviving spouse, who might live another 15-20 years. When planning for longevity, protecting the surviving spouse’s income becomes paramount.

The Role of Annuities in Guaranteed Retirement Income

Annuities have become a four-letter word for many people, but they deserve consideration in retirement planning for longevity. While there are bad products and bad salespeople in this space, the concept of guaranteed income has real value.

Here’s what’s interesting: clients who have annuities never say they wish they didn’t have that guaranteed paycheck coming in. It’s usually the opposite – during market volatility, people wish they had something safe and guaranteed that they could never outlive.

Consider breaking down your expenses into needs, wants, and wishes – or simply fixed expenses and discretionary expenses. Then figure out what percentage of your fixed expenses are covered by guaranteed income sources. If Social Security covers everything, you might not need additional guaranteed income. But if your guaranteed sources only cover 30-40% of your total expenses, that could be concerning during market downturns.

Optimizing Your Retirement Portfolio Allocation for Longevity

Traditional thinking pushes retirees into conservative portfolios because they’re “living on their portfolio.” But you’re not living on 100% of your portfolio in year one – you might be withdrawing 4-7% annually. Being too conservative creates other risks, particularly inflation and longevity risk.

The Inflation Challenge

The longer you live, the more inflation compounds. Over a 40-year retirement, inflation becomes a massive risk. The best hedge against inflation is equities – traditional stocks in your portfolio. If you trim your equity allocation too much, you might not keep pace with inflation, which could be a bigger risk than market volatility.

Rethinking the 60-40 Portfolio

The traditional 60% stocks, 40% bonds allocation has been popular for retirees, but you need to stress-test it for a 40-year retirement. Bill Bengen, the creator of the famous 4% rule, recommended a minimum of 50% in stocks, with as close to 75% stocks and 25% fixed income as possible for optimal results.

When stress testing retirement portfolio allocation strategies for extended retirements, a 60-40 portfolio sometimes carries more risk than a slightly more aggressive allocation. This isn’t about putting everything in AI stocks – it’s about a well-diversified pool of equities that can hedge against inflation and longevity concerns.

Implementing Guardrails

If you choose a more aggressive allocation, you face sequence of returns risk – the danger of a bear market in your first few years of retirement. Since nobody can time the market, guardrails become essential.

Guyton and Klinger developed four decision rules for portfolio management:

  1. The inflation rule
  2. The prosperity rule
  3. The portfolio rescue rule
  4. The portfolio management rule

Following these rules throughout retirement can dramatically increase your starting withdrawal rate while reducing the risk of running out of money. The most dangerous retirement portfolio might be the one that feels safe on paper but quietly lags behind inflation for 35-40 years.

Long Term Care Planning: Protecting Your Future

Nobody likes thinking about getting old and frail, but Father Time is undefeated. Some of us will need help with daily living activities at the end of life. Long-term care planning isn’t just about buying insurance – it’s about having a comprehensive plan.

The Reality of Care Needs

About 70% of people will need some sort of care, but the duration and type vary greatly. It might be cognitive or physical care lasting two years or ten years. This uncertainty makes planning challenging but necessary.

Beyond Just Insurance

Long-term care planning involves several strategies:

  • Dedicated pools of funds
  • Long-term care insurance
  • Home equity utilization
  • Self-funding approaches

Even Warren Buffett has long-term care insurance, despite having enough wealth to self-fund care for 100 years. Why? He doesn’t want his heirs to go through a fire sale of investments to pay for care. Insurance creates a dedicated pool of funds and allows caregivers to hire help.

The Burden Factor

One common concern among retirees is: “I never want to be a burden on my loved ones.” Many people have plenty of money for retirement and care expenses, but are afraid to spend because they worry about unexpected healthcare costs.

Long-term care insurance can give people the freedom to spend their assets and enjoy retirement, knowing they have protection against care expenses. It removes the financial and logistical burden from spouses and adult children who are also worried about their own financial security.

Understanding Retirement Spending Phases

If you’re retiring at 60 and living until 100, assuming your expenses will inflate at 3% annually for 40 years might cause you to retire too late or underspend in your Go-Go Years. Retirement actually has three distinct phases with different spending patterns.

The Go-Go Years

Early retirement represents the honeymoon phase when you’re still active and physically able to do what you want. This is when you hit those bucket list golf trips, travel the world, and experience things you wanted to do while working but didn’t have time for.

Expenses might actually increase during the go-go years due to pent-up demand for activities and experiences. This is when health is in your favor, and you can be most active.

The Slow-Go Years

After checking off major bucket list items, you enter the slow-go years. You’re still traveling and active, but maybe not as frequently. Lifestyle stabilizes, and spending typically moderates from the go-go years.

The No-Go Years

Later in retirement, you enter the no-go years when physical limitations increase. While healthcare costs might spike during this phase (hence the need for long-term care planning), studies show that retirees actually experience inflation that’s about 1% lower than general inflation over their entire retirement.

Planning for Spending Changes

This spending pattern – higher in go-go years, moderate in slow-go years, and potentially lower but different in no-go years – should influence your retirement planning for longevity. Don’t assume linear expense growth for 40 years, as this might cause you to retire later than necessary.

However, if you plan to spend aggressively in your go-go years, those portfolio guardrails become critical. You need flexibility to adjust your withdrawal rate based on market performance, especially if you retire during a downturn.

Retirement Legacy Planning and Gifting Strategies

When planning for longevity, consider that if you live until 100, your adult children might be 70-80 years old when they inherit. This reality should influence your thinking about legacy and the utility of money.

The Concept of Diminishing Utility

Money has diminishing returns as you age. If you don’t enjoy money during your go-go years, you lose the utility of those dollars. The same applies to legacy. There’s a difference between giving money when your children are struggling with mortgages, private school costs, or starting businesses versus when they’re already retired.

Giving with a Warm Hand

Consider the benefits of lifetime giving versus leaving everything as an inheritance. Wouldn’t it be meaningful to see what your beneficiaries do with gifts during your lifetime? This also helps you understand their money management skills, which can inform your estate planning decisions.

If you’re gifting money and your children are using it wisely – contributing to retirement accounts, buying homes, funding education – that validates leaving them more when you’re gone. If they’re making poor financial decisions, you might want to restructure your estate plan with more protections.  Or better yet, have some meaningful conversations with those beneficiaries while you’re still alive.

Current Gifting Opportunities

The annual exclusion allows each taxpayer to give $19,000 per recipient in 2026 without filing gift tax returns. For married couples with married children, this can add up to substantial annual gifts. These gifts also remove future growth from your estate, which is particularly valuable if you face potential estate tax issues.

The key question is: when does your legacy have the greatest utility? During your lifetime, when you can see its impact, after you’re gone, or some combination of both?

Taking Action on Your Longevity Plan

Living longer can be a blessing, but it creates significant challenges for people retiring today. With technology and medicine evolving rapidly, longevity planning becomes essential for anyone approaching retirement.

Review Your Foundation

Start by reviewing your guaranteed income sources. Look at your Social Security strategy and make sure you’re maximizing not only lifetime benefits but also surviving spouse benefits. If you have a pension, carefully consider survivor benefit options.

Stress Test Your Plan

Run scenarios assuming you live until 100. Would your current plan hold up? Does a traditional 60-40 portfolio work, or do you need 75-25 or even 80-20? Test different allocations considering both your risk tolerance and risk capacity.

Address Long-Term Care

Regardless of your wealth level, you need a long-term care plan. This includes communication about who will do what, where funds will come from, and how you’ll pay for care. The goal is to remove financial and logistical burdens from your loved ones.

Plan Your Spending Strategy

Don’t assume linear expense growth for 40 years. Plan for the realities of retirement spending phases, and if you want to spend more aggressively in your go-go years, implement guardrails to protect against sequence-of-returns risk.

Consider Your Legacy Impact

Think about when your legacy will be most useful. Consider lifetime giving strategies that allow you to see the impact of your generosity while potentially providing valuable teaching opportunities for your beneficiaries.

Retirement planning for longevity requires a different approach than traditional retirement planning. The stakes are higher, the time horizon is longer, and the strategies need to be more sophisticated. But with proper planning, a 40-year retirement can be not just financially sustainable, but truly fulfilling.

If you’re looking for help creating a retirement plan that accounts for longevity, consider working with a financial advisor who specializes in retirement income planning. The complexity of planning for a 40-year retirement makes professional guidance more valuable than ever.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Ep. 115: “The 40-Year Retirement Test: Why the 4% Rule Might Be Making You Work Too Long”

Is the 4% rule actually causing people to work 5 to 10 years longer than they need to?

In this episode of The Planning for Retirement Podcast, Kevin Lao breaks down a series of real historical 40 year retirement backtests using withdrawal rates of 4%, 5%, 6%, and even 7%, and the results are shocking.

Using Portfolio Visualizer, Kevin tests how different withdrawal rates would have performed starting in 1986 through 2025, and then compares those results to what happens when you retire into a tougher market environment like the lost decade (starting in 2000).

This episode is all about the real retirement planning lesson most people miss:

👉 The market you retire into matters more than the rule you follow.

And having a flexible withdrawal strategy beats blindly following any one “safe withdrawal rate.”

In this episode, you’ll learn:

• Why the 4% rule was never meant to be personalized

• How a higher withdrawal rate can work in some retirement scenarios

• Why sequence of returns risk can destroy even a “safe” retirement plan

• How Social Security timing can reduce long-term portfolio risk

• Why spending often declines in retirement (go-go, slow-go, no-go years)

• How taxes and account types (taxable vs IRA vs Roth) impact retirement withdrawals

• Why guardrails and flexible income planning are the key to retiring confidently

If you’re approaching retirement and trying to determine your safe withdrawal rate, this episode will help you understand what really matters, and why retirement planning isn’t about following one rule of thumb, it’s about building a plan that adapts.

Resources:

  • Guardrails, 4 Decision Rules

⁠⁠Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠You can start with our Retirement Readiness Questionnaire linked on our website so we can learn more about how we can help in your journey to and through retirement.

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

Ep. 114: Retirement Planning If You Live to 100: 5 Moves You Can’t Ignore

What if you live to be 100 years old?

A lot of retirement plans assume your portfolio needs to last 15–25 years… maybe 30 if you’re being conservative. But if you retire at 60 (or earlier) and live to 100, that’s a 40-year time horizon in retirement — and it changes everything.

In this episode, I walk through five retirement planning considerations to address longevity risk for retirees in 2026 and beyond, including:

• How to build paychecks in retirement (not just a portfolio)

• Why getting too conservative can quietly increase risk over a long retirement

• How to think about Social Security, pensions, and annuities as guaranteed income tools

• Why long-term care planning is a logistics problem (that can become a money problem)

• Spending phases: go-go, slow-go, no-go

• And a legacy concept I love: giving with a warm hand instead of a cold one

📌 Free resource: I’m including a PDF in the show notes on the Guyton-Klinger “guardrails” decision rules (inflation rule, prosperity rule, portfolio rescue rule, portfolio management rule).

Guyton and Klinger Decision Rules

👍 If this was helpful, subscribe and leave a 5-star review on Spotify/Apple Podcasts — it helps us reach and impact more people.

Kevin Lao

Links:

Guyton and Klinger Decision Rules

⁠⁠Are you interested in working with me 1 on 1?⁠⁠⁠⁠⁠⁠⁠⁠ 

⁠⁠⁠⁠⁠⁠⁠⁠You can start with our Retirement Readiness Questionnaire linked on our website so we can learn more about how we can help in your journey to and through retirement.

Connect with me here:

Or, ⁠⁠⁠⁠⁠⁠⁠⁠visit my website

This is for general education purposes only and should not be considered as tax, legal, or investment advice.

6 Essential Coverage Options Before Medicare for Early Retirees

If you’re planning to retire before you turn 65 and you’re not yet eligible for Medicare, one of the biggest questions on your mind is probably: What am I going to do about health insurance? Planning for early retirement health insurance requires careful consideration of multiple coverage options. The decisions you make can significantly impact both your health and your finances.

The biggest challenge with early retirement health insurance is bridging the gap until Medicare eligibility. This gap can last several years, and without proper planning, it can become one of your largest retirement expenses. Understanding your options can save thousands in premium costs and ensure you maintain the coverage you need.

The reality is that health insurance before Medicare has become increasingly expensive. Many early retirees are experiencing premium increases of 20-40%, with some seeing jumps as high as 70%. For example, one early retiree saw their premium skyrocket from $2,200 to $3,700 per month starting in January – a staggering increase that forced them to explore alternatives.

Let’s explore six potential paths to healthcare coverage that can help you navigate this challenging period before Medicare becomes available.

COBRA Health Insurance: Extending Your Employer Coverage

COBRA (Consolidated Omnibus Budget Reconciliation Act) health insurance allows you to keep your exact employer plan for up to 18 months after leaving your job. It’s a federal law that provides this continuation coverage for individuals who were laid off, voluntarily left, or had their hours reduced below the threshold for benefits eligibility.

The main advantage of COBRA health insurance is continuity. You can keep your exact health insurance policy, which means no disruption to your doctors, your network, or your coverage. This stability can be invaluable during the already stressful transition into retirement.

However, there’s a significant catch with COBRA health insurance: you’ll be responsible for the full premium cost. While you were employed, your employer likely subsidized a large portion of your health insurance costs. For instance, if your policy costs $1,000 per month, your employer might pay $750, leaving your out-of-pocket premium at $250/month. Under COBRA, you’ll pay the full $1,000 per month.

COBRA coverage can extend beyond 18 months in certain circumstances. If you become sick or disabled, or in cases of divorce where you were covered under your spouse’s plan, COBRA health insurance can continue for up to 36 months. This extended coverage can be crucial if you’re dealing with ongoing health issues or major life changes.

COBRA health insurance serves as an excellent bridge option during career transitions. You’re not obligated to keep it for the full 18 months. This makes it a great option for temporary coverage while you research and transition to a longer-term solution. This flexibility makes it particularly valuable for early retirees who need time to evaluate their options.

Employment-Based Health Insurance Options

Before exploring more complex alternatives, consider some straightforward employment-based solutions for health insurance before Medicare. These options might be simpler than you think and could provide the coverage you need while maintaining some income.

Part-time employment with health benefits is becoming more common. Many companies now offer health insurance coverage to employees working as little as 20 hours per week. This could be an ideal solution if you’re not ready to fully retire and want to stay active while securing health coverage.

The beauty of part-time work for early retirement health insurance is that it can provide multiple benefits.

  • Maintaining some income
  • Staying engaged and active
  • Potentially enjoying less stressful work than your previous career
  • Securing health insurance coverage

Many retirees find part-time work in completely different fields. Perhaps something outdoors, in retail, or in areas they’re passionate about but never had time to pursue during their primary career.

If you’re married, spousal coverage represents another straightforward option. If your spouse continues working while you retire, you can typically join their employer’s health insurance plan. This arrangement is common in households where one spouse retires earlier than the other, providing a natural bridge to Medicare eligibility.

These employment-based health insurance options are the first to consider for early retirees. They often offer the most comprehensive coverage at reasonable costs thanks to employer subsidies.

ACA Health Insurance Early Retirement: Affordable Care Act Options

Early retirement health insurance under the ACA has been the default choice for many people seeking coverage before Medicare. The Affordable Care Act marketplace, accessible through healthcare.gov, offers several advantages that make it attractive to early retirees.

The most significant benefit of ACA health insurance is the potential for premium tax credits. These credits can be substantial – some couples receive thousands in monthly premium subsidies. The key is keeping your modified adjusted gross income under 400% of the federal poverty line.

Upcoming Changes

However, there’s a critical change starting in 2026 that affects ACA health insurance early retirement planning. The “cliff” is returning. This means that if your income exceeds 400% of the federal poverty line, by even one dollar, you lose all premium tax credits. From 2021 to 2025, there was a gradual slope where credits decreased slowly. The hard cutoff is back starting this year. 

This change is particularly important for early retirees who might have multiple income sources. Social Security, pension payments, investment income, and distributions from retirement accounts can all push you over the 400% threshold.

Example:

A couple receiving $3,000 in monthly premium tax credits could suddenly receive $0 if they underestimate their income by just a few hundred dollars.  If you want to learn more about how these premium tax credits work, check out this YouTube video (The ACA Premium Tax Credits Are Changing In 2026).

ACA policies are guaranteed issue, meaning they cannot deny you coverage regardless of pre-existing conditions. This protection is valuable, but it’s also why premiums are increasing dramatically. The insurance pools include many people with chronic illnesses and high medical costs, driving up costs for everyone.

The policies available through ACA health insurance early retirement are typically high-deductible plans, often with deductibles of $3,000 or more. While the coverage is comprehensive once you meet the deductible, the high upfront costs mean you’ll pay significant out-of-pocket expenses for routine care.

Open enrollment for ACA health insurance early retirement runs from November 1st through January 15th each year. Missing this window means you’ll need a qualifying life event to enroll, making timing crucial for your retirement planning.

Direct Purchase Health Insurance Options Retirees Should Consider

Direct purchase health insurance options involve buying policies directly from insurance companies rather than through the ACA marketplace. This approach can offer significant savings for healthy individuals willing to go through medical underwriting.

Some options for direct purchase insurance include

  • UnitedHealthcare
  • Blue Cross Blue Shield
  • Cigna
  • Ambetter

When you go directly to insurance companies, you can access both on-exchange and off-exchange policies. Off-exchange policies, sometimes called private policies, don’t have to comply with all ACA regulations and can offer greater flexibility and lower costs.

The key difference with direct purchase health insurance options that retirees should understand is the underwriting process. Unlike ACA policies that are guaranteed issue, these private policies require you to complete a health questionnaire. If you’re healthy and have no major pre-existing conditions, this works in your favor and can lower your premiums.

Example

A family policy with a $10,000 deductible through direct purchase might cost around $850 per month, compared to $3,700 for a similar ACA policy. This dramatic difference reflects the healthier risk pool in underwritten policies versus the guaranteed issue ACA marketplace.

However, direct purchase policies do have limitations. Pre-existing conditions are typically excluded for 6-12 months after your policy starts. If you need ongoing treatment for a chronic condition, you may need to pay out of pocket during this waiting period.

Lifetime Benefit Limits

Another important consideration is lifetime benefit limits. While ACA policies offer unlimited lifetime benefits, many direct purchase policies cap benefits at $1-2 million per person. For most people, this is adequate, but if someone in your family develops a serious chronic illness requiring years of expensive treatment, you could reach this limit.

The solution for lifetime benefit limits is to remove the affected family member from the group policy and enroll them in an ACA policy (during the open enrollment period), which offers unlimited benefits and guaranteed issue coverage. The rest of the family can remain on the lower-cost direct purchase plan.

Many direct purchase policies and ACA-issued policies are HSA-eligible, which is a significant advantage for tax planning. If you’ve been unable to contribute to an HSA due to low-deductible employer coverage, returning to HSA eligibility can provide valuable tax benefits and retirement healthcare savings.  Of course, you must be eligible to contribute to an HSA!

Medishare: Christian Health Sharing Alternative

Medishare represents a unique alternative to traditional health insurance before Medicare. As a Christian health-sharing organization operating since 1995, Medishare has paid out significant lifetime claims and offers a faith-based approach to healthcare coverage.

It’s important to understand that Medishare is not health insurance. They operate as a nonprofit organization in which members share healthcare costs according to biblical principles. Instead of paying premiums, you pay a “monthly share amount,” and instead of deductibles, there’s an “annual household portion.”

Medishare’s cost structure can be more attractive than traditional insurance. They offer four annual household portions ranging from $3,000 to $12,000, with monthly share amounts typically lower than comparable insurance premiums.

Unlike direct purchase policies, Medishare requires adherence to certain lifestyle principles.  Similar to direct purchase plans, Medishare does have waiting periods for pre-existing conditions. The organization will exclude or limit coverage for pre-existing conditions for 6-12 months, depending on the specific condition and whether it involves prescriptions or medical treatments.

Medishare’s claims approval process can be more stringent than traditional insurance. The organization strictly enforces its biblical principles, which means claims related to activities like drunk driving, tobacco use, or other lifestyle choices that violate their stated principles can be denied. This strict adherence to principles has led to negative experiences for members whose claims were unexpectedly denied.

Medishare’s network differs from traditional insurance networks. They use the PHCS (Private Healthcare Systems) network, so you’ll need to verify that your preferred doctors and hospitals participate before enrolling.

Tax Disadvantages of Medishare

Two significant tax disadvantages of Medishare are worth noting. First, because it’s not technically health insurance, you cannot use it with an HSA. Second, the monthly share amounts are not deductible as medical expenses, even for self-employed individuals who can typically deduct health insurance premiums.

Despite these limitations, many Medishare members report positive experiences, particularly those who appreciate the faith-based community aspect and find the cost savings significant enough to outweigh the restrictions.

Farm Bureau Health Insurance: An Unexpected Option

Farm Bureau health insurance represents one of the most surprising health insurance options retirees can access, even if you’re not involved in farming. The Farm Bureau is a nationwide network of state farm bureaus that serves as the unified voice for farmers and ranchers, but its insurance options are available to non-farmers in many states.

What makes Farm Bureau particularly interesting is that its health insurance policies are underwritten by major insurers like UnitedHealthcare. However, when you call UnitedHealthcare directly, their agents may not even know about the Farm Bureau option, making this a hidden alternative worth exploring.

The underwriting process for Farm Bureau health insurance is more thorough than direct purchase policies. If you’re over 40, they typically require medical records from your most recent physical and prescription records from the last 12 months. This additional scrutiny allows them to offer competitive pricing for qualified applicants.

Like other underwritten policies, Farm Bureau can rate you based on your health profile, meaning you could qualify for their lowest premium category if you’re healthy. You could also potentially be denied coverage if you have significant health issues. The policies are not guaranteed issue.

The premium structure for Farm Bureau health insurance is typically comparable to direct purchase policies, offering significant savings compared to ACA marketplace plans for healthy individuals. They offer both low and high-deductible options, with many policies being HSA-eligible.

One potential advantage of Farm Bureau policies is unlimited lifetime benefits per insured person, compared to the $1-2 million caps common in direct purchase policies. However, this benefit needs verification, as policy details can vary by state and specific plan.

The network and coverage options through Farm Bureau health insurance are typically robust, backed by major insurance companies with established provider networks and claims processing systems.

Medicare Gap Coverage: Planning Your Transition

Understanding health insurance before Medicare requires planning for the eventual transition to Medicare coverage. The gap between early retirement and Medicare eligibility at 65 can span several years, making it crucial to choose coverage that provides both adequate protection and financial sustainability.

Early retiree health plans should be evaluated not just on current costs, but on their sustainability over multiple years. Premium increases are common across all types of coverage. It’s essential to build some inflation buffer into your healthcare budget.

Consider the total cost of ownership for each option, including premiums, deductibles, out-of-pocket maximums, and any excluded services. A lower premium plan might cost more overall if it has high deductibles and limited coverage.

Making Your Early Retirement Health Insurance Decision

Choosing the right health insurance option for early retirement depends on several key factors:

  1. Your health status
  2. Risk tolerance
  3. Budget
  4. Personal preferences

Here’s how to evaluate your options:

If you’re in excellent health with no ongoing medical needs, direct purchase policies or Farm Bureau options might offer the best value. The underwriting process works in your favor, and the premium savings can be substantial.

If you have pre-existing conditions or prefer guaranteed coverage, ACA marketplace plans provide the security of guaranteed issue coverage, though at higher costs. The premium tax credits can make these plans affordable if your income qualifies.

If you value continuity during your transition to retirement, COBRA health insurance provides the least disruption while you evaluate longer-term options.

For those with strong faith-based preferences and healthy lifestyles, Medishare offers a community-oriented alternative with potential cost savings.

Remember that you’re not permanently locked into any single option. You can use COBRA as a bridge while researching other alternatives, or switch between different types of coverage as your circumstances change.

Taking Action on Your Early Retirement Health Insurance Plan

Health insurance before Medicare requires proactive planning and regular evaluation. Premium increases, changing health needs, and evolving regulations mean your optimal choice today might not be your best choice next year.

Start by getting quotes from multiple sources:

  • ACA marketplace plans
  • Direct purchase policies from major insurers
  • Medishare
  • Your state’s Farm Bureau

Compare not just premiums, but total potential costs including deductibles and out-of-pocket maximums.

Consider working with a financial advisor who specializes in retirement planning to ensure your health insurance choices align with your overall retirement and tax strategies. Healthcare costs are often one of the largest expenses in retirement, making proper planning essential for your financial security.

The key to successful early retirement health insurance planning is

  • Understanding all your options
  • Evaluating them based on your specific situation
  • Remaining flexible as circumstances change

With proper planning, you can bridge the gap to Medicare while protecting both your health and your retirement savings.

At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to

  • Maximize your retirement spending
  • Minimize your lifetime tax bill
  • Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only

info@imaginefinancialsecurity.com
(904) 323-2069

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