Health insurance in the US isn't 'decent'. Chronic illness, long-term care, catastrophic events excluded from coverage - these are real things that daily wreck American families.
Of course one may be only a serious illness away from death, and I don't take that as flippant. But the far more common circumstance is that one is several illnesses and/or a long chronic medical decline away from death, with both circumstances likely to be hugely expensive in the US compared to other first world nations.
The economic fallout can mean that family members can't get a good education, can't move to take a better job...all the things that, sometimes, just a little more $$ can make possible.
The US hasn't prioritized its citizens' wellbeing to the extent they deserve. In that regard, OP is spot on: the US is not a place to retire.
It is really difficult to imagine someone who's in the top 5% of either income earners or net worth (they didn't specify) and still does not have access to quality healthcare. This is a trope, and it's not nearly as accurate as people want to believe, it seems.
Top 5% of US income earners are around $343k[1] and top 5% of net worth is over $1MM[2].
If you are in this bracket - by either measurement - and are actually fearing bankruptcy from a medical expense, then you are clearly screwing up somewhere in your financial life, and likely living well beyond your actual means.
Let us play this to the end. Let us say I retire today with $1MM and I am 50. Top 5% in the net worth bracket, right?
A safe 4% withdrawal limit gives me about $50K per year. Net taxes, it is around $43K or $3580 per month. A two-bedroom apartment in a city will cost around $1700. Medical insurance for me, my wife and one of our kids is around $650. Car expenses (one car paid off, insurance, gas, maintenance) is around $650. Food expenses are $500, utilities around $150 and I am already over the budget. Assuming I get tax credit for the insurance and it is free, I am still right at the edge where my car breaking down is a major disaster.
If you have a disaster, you just draw slightly more than 4% for that year. Ideally you have good and/or lean years, as well, but if you don't you might have to way to modestly supplement your income.
Also, it's very unusual for a married couple with kids to have a million dollars in retirement savings and no owned home. There's a lot going for owning a home, but in this toy model there's two main factors:
1) Your "housing cost" (mortgage payments) are fixed in nominal dollars, unlike rent, and unlike the 4% draw, which are both fixed in real dollars (and in places with artificially limited housing supply, rent may unfortunately grow much faster than inflation). So effectively, it shrinks over time. Plus you may finish paying off the mortgage at some point.
2) Tax efficiency. Your house can be viewed as an "income producing asset": it produces the value of the rent you'd pay to someone else to stay in it. But you don't pay any tax on that value.
Finally, this model disregards Social Security, which isn't insubstantial. If you're Top 5%, you'd probably be drawing pretty close to the max. So you could redline your withdrawals a little bit beyond 4%, knowing that at 67 or so you could juice your income with the SS payouts.
Thanks. Those are points I did not consider clearly, esp. the SS. While I do own a house, the mortgage, tax and insurance is more than $1700 and hence I moved it out of equation for this hypothetical scenario.
My point is that if I get dropped in US with a million dollars, it puts me in top 5% in the wealth category, but I would be living hand to mouth with the fear that the money can quickly disappear. That gives me PTSD :)
Your [1] link is “Average Annual Wages” for the entire bracket, not the minimum wage to reach that income bracket. Top 5% is around 187,000k in the US, and that’s not as high as it sounds due to recent inflation. https://dqydj.com/income-percentile-calculator/
However, that doesn’t necessarily include any benefits. It’s expensive and relatively uncommon to get long term disability insurance that will cover lost income if you’re an hourly 1099 contractor, which is necessary for any chronic condition that prevents you from being able to work. Think offshore oil workers for someone that’s most at risk while being in that income bracket.
If you're a 1099 Contractor, then you know the gig, and it's up to you to save/pay for things like medical. It's not a surprise - so if you're still worrying about bankruptcy, you are definitely living outside your means.
There's no way around it. $187k is a lot of money - no matter where you live in the US.
It’s a fuck of a lot of money per year before tax, as long as you can keep working.
Disability insurance can easily run more than 4% of your after tax income at that salary. Not such a big deal if your job’s secure, but many contractors making that salary however don’t have much job security and may expect long periods of unemployment when the oil sector does poorly etc. So perhaps you want to save 1/3 your after tax money for unemployment + 10% for retirement, and have disability, life, and health insurance…
Don’t get me wrong it’s still a lot of money, but the more you try and hedge the less money it actually is so many people end up taking risks.
Of course one may be only a serious illness away from death, and I don't take that as flippant. But the far more common circumstance is that one is several illnesses and/or a long chronic medical decline away from death, with both circumstances likely to be hugely expensive in the US compared to other first world nations.
The economic fallout can mean that family members can't get a good education, can't move to take a better job...all the things that, sometimes, just a little more $$ can make possible.
The US hasn't prioritized its citizens' wellbeing to the extent they deserve. In that regard, OP is spot on: the US is not a place to retire.