Critique My 120k Per Year Plan

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printer86
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Critique My 120k Per Year Plan

Post by printer86 » Mon Aug 12, 2019 12:25 pm

I've been on Bogleheads.org for several years now, and have been an indexer and Vanguard client for much longer. I appreciate the knowledge of the folks on this forum.
So, with that in mind, I'd like to hear your feedback on my proposed retirement spending plan. I'm 55 and seriously thinking about ending my MegaCorp sales job at the end of the year. I may nibble in the job market after I leave MegaCorp, but I don't want to count on that money going forward.
We spend about 100k per year, mostly on discretionary things like travel. I am budgeting $120k per year to cover any additional things like healthcare and less frequent big ticket items.

Below are our stats, and below that, is my proposed spending plan thru 90+ years of age broken down by income source. Please take a look and tell me if I'm being too optimistic or missed something.

Thanks

Stats:

Married: MFJ
Age: 55DH, 56DW

Account Balances as of August 2019:

House: New in 2019, $800k - $900k, paid off
Taxable: $1,250,000 - 36% stocks (VSTAX, ESPP and 10 stocks) / 64% Cash (Includes proceeds from house sale. Future S/B %: TBD)
Tax-Deferred: $1,250,000 - 65% stocks / 35% Bonds (mostly sitting in the Vanguard Wellington fund)
Tax-Free $ 100,000 - 36k in Roth accounts (VTSAX), 64k HSA (65S/35B). Not planning on tapping the Roths.
DH Pension: $11k (Starts in July, 2029, no Cola)
DW SSA: $ 9k in July, 2029, going to $16k in July, 2034 (as per Open Social Security)
DH SSA: $ 43k in July, 2034

Proposed 120k Annual Spending Plan by DH Age Bracket and income source

55 - 60: $120k from taxable accounts.
60 - 65: $70k from taxable accounts, 50k from tax-deferred accounts
65 - 70: $50k from taxable accounts, 50k from tax-deferred accounts, 11k from DH pension, 9k from DW SSA
70 - 90: $3k from taxable accounts, 50k from tax-deferred accounts, 11k from DH pension, 16k from DW SSA, 43K from DH SSA
90+: SSA, Pension + residual from selling home

HomeStretch
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Re: Critique My 120k Per Year Plan

Post by HomeStretch » Mon Aug 12, 2019 12:40 pm

printer86 wrote:
Mon Aug 12, 2019 12:25 pm
We spend about 100k per year, mostly on discretionary things like travel. I am budgeting $120k per year to cover any additional things like healthcare and less frequent big ticket items.
Does the $120k cover income taxes for all age-scenarios?

Does “less frequent big ticket items” include new cars and big home maintenance/repairs like a roof, A/C, etc.?

Have you priced out retirement healthcare for the plan(s) you will use pre-Medicare? Premiums and deductibles for ACA exchange plans (without subsidy) are generally significantly higher than employer-subsidized group health plans.

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FiveK
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Re: Critique My 120k Per Year Plan

Post by FiveK » Mon Aug 12, 2019 12:45 pm

You may want to convert some traditional to Roth each year. Converting at least enough to reach the 27% federal marginal tax rate is likely correct.

Determining whether to "push through" that 27% zone and convert even more in the 22% bracket would take a sharper pencil, but may be worthwhile.

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Wiggums
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Re: Critique My 120k Per Year Plan

Post by Wiggums » Mon Aug 12, 2019 1:00 pm

HomeStretch wrote:
Mon Aug 12, 2019 12:40 pm
printer86 wrote:
Mon Aug 12, 2019 12:25 pm
We spend about 100k per year, mostly on discretionary things like travel. I am budgeting $120k per year to cover any additional things like healthcare and less frequent big ticket items.
Does the $120k cover income taxes for all age-scenarios?

Does “less frequent big ticket items” include new cars and big home maintenance/repairs like a roof, A/C, etc.?

Have you priced out retirement healthcare for the plan(s) you will use pre-Medicare? Premiums and deductibles for ACA exchange plans (without subsidy) are generally significantly higher than employer-subsidized group health plans.
If you retire, it’s very important that you accurately project your retirement expenses. It looks like you have started to plan where the money would come from at each age segment. Well done.

Remember that you will end up with zeros for the years that you don’t work to fill out the remaining SS years.

Do you have any children? College expenses?

Good luck to you...

Topic Author
printer86
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Re: Critique My 120k Per Year Plan

Post by printer86 » Mon Aug 12, 2019 1:12 pm

HomeStretch wrote:
Mon Aug 12, 2019 12:40 pm
printer86 wrote:
Mon Aug 12, 2019 12:25 pm
We spend about 100k per year, mostly on discretionary things like travel. I am budgeting $120k per year to cover any additional things like healthcare and less frequent big ticket items.
Does the $120k cover income taxes for all age-scenarios?

Does “less frequent big ticket items” include new cars and big home maintenance/repairs like a roof, A/C, etc.?

Have you priced out retirement healthcare for the plan(s) you will use pre-Medicare? Premiums and deductibles for ACA exchange plans (without subsidy) are generally significantly higher than employer-subsidized group health plans.
Thanks for responding. I will try to answers your questions without being too defensive. I want to get this right and have made some assumptions on how things will play out.

1. With such a high percentage of spending cash coming from taxable accounts (cash reserves) over the next 10 years, I don't see that high of an income tax hit. With the jump in SSA, taxable income will definitely increase at 70 years old. I'm just not sure what rate to consider 15 years from now.

2. We're in the process of moving to a brand new house and both our cars have less than 25k miles. So, I don't foresee too many big ticket expenses for at least 5 years. Hopefully, that will allow me to stay under my 120k number for a while.

3. I'm planning on "managing" my taxable income up until 65 to gain some of the ACA discounts. My HSA also has about 65k if I need to dip into it along the way.

Topic Author
printer86
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Re: Critique My 120k Per Year Plan

Post by printer86 » Mon Aug 12, 2019 1:18 pm

Wiggums wrote:
Mon Aug 12, 2019 1:00 pm
HomeStretch wrote:
Mon Aug 12, 2019 12:40 pm
printer86 wrote:
Mon Aug 12, 2019 12:25 pm
We spend about 100k per year, mostly on discretionary things like travel. I am budgeting $120k per year to cover any additional things like healthcare and less frequent big ticket items.
Does the $120k cover income taxes for all age-scenarios?

Does “less frequent big ticket items” include new cars and big home maintenance/repairs like a roof, A/C, etc.?

Have you priced out retirement healthcare for the plan(s) you will use pre-Medicare? Premiums and deductibles for ACA exchange plans (without subsidy) are generally significantly higher than employer-subsidized group health plans.
If you retire, it’s very important that you accurately project your retirement expenses. It looks like you have started to plan where the money would come from at each age segment. Well done.

Remember that you will end up with zeros for the years that you don’t work to fill out the remaining SS years.

Do you have any children? College expenses?

Good luck to you...
I have been diligently tracking our expenses for the past 4 years. Our $100k in spending includes about 35k in over the top travel as we finally loosened the reigns lately. Travel spending can be managed if need be.

No kids for us, but we do like to help out the nieces and nephews once in a while. They can eventually fight over my 1970's baseball card collection.

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FiveK
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Re: Critique My 120k Per Year Plan

Post by FiveK » Mon Aug 12, 2019 1:19 pm

FiveK wrote:
Mon Aug 12, 2019 12:45 pm
You may want to convert some traditional to Roth each year. Converting at least enough to reach the 27% federal marginal tax rate is likely correct.
printer86 wrote:
Mon Aug 12, 2019 1:12 pm
3. I'm planning on "managing" my taxable income up until 65 to gain some of the ACA discounts. My HSA also has about 65k if I need to dip into it along the way.
ACA premium tax credits do complicate this question. You may want to put your situation into the personal finance toolbox Excel spreadsheet (see 2019 Tax Calculator With ACA/Obamacare Health Insurance Subsidy for some details) to see how everything fits together for your specific situation.

wolf359
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Re: Critique My 120k Per Year Plan

Post by wolf359 » Mon Aug 12, 2019 1:26 pm

Congratulations on being so close to retirement!

Some considerations:

1) If you're thinking about it being next year, you don't need to ballpark your ACA expenses. You can get a quote now. It may be a different number next year, but it won't be that far off, and good enough for budgeting purposes.

2) Some 401-k plans allow you to access the funds prior to age 59 1/2 if you retire from the company after age 55. You may want to check if your company does so.

3) You may want to consider conducting Roth conversions after your income drops, and before the pensions and Social Security kick in. This reduces the amount in your traditional accounts and move them to tax-free status. Use the taxable accounts for the money to pay the taxes -- that allows you to move as much over as possible.

4) You may want to consider engaging a fee-only fiduciary financial planner and paying them to review your assets and review your plan. They may be able to get into specific elements beyond what you can achieve here. You may also want to run your numbers through I-orp (https://www.i-orp.com/DI/index.html) for a free version of a retirement planner.

5) Don't forget to schedule big ticket predictable expenses, such as buying a car, special trips, or home maintenance.

dbr
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Re: Critique My 120k Per Year Plan

Post by dbr » Mon Aug 12, 2019 1:26 pm

I ballparked your data in FireCalc for a 40 year retirement and got a success rate of 92% and effectively a 100% success rate for a 30 year retirement.

I would say you are in the "gray" zone where things could work out just fine or you could be on the edge.

You might want to take a look at VPW: https://www.bogleheads.org/wiki/Variabl ... withdrawal The offset with VPW to maximizing lifelong use of assets is more variability in spending.

Sometimes the suggestion is made that "grey" zone retirements consider eventually annuitizing some of the assets at some point although a strength for you is that about half already is annuitized in an inflation indexed annuity. If there is any risk to SS cutbacks, that would be a concern in your case.

In my planning I put in a 25% contingency in spending and a $100,000 unexpected lumpsum cost as a stress test. You have 20% contingency, so that is pretty decent.

delamer
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Re: Critique My 120k Per Year Plan

Post by delamer » Mon Aug 12, 2019 1:42 pm

I like that you broke out your income sources by year.

By my math, you’ll have spent down almost $1.5 million dollars by the time you reach age 70. Is that a number you feel comfortable with? I am not suggesting that it is unadvisable financially, just that it might be psychologically difficult.

Your plan should work, with one caution. It is virtually inevitable that one of you will outlive the other. The survivor’s expenses will go down somewhat, but so will her/his income. For instance, the survivor will essentially lose DW’s Social Security income. Income taxes, proportionally, will be higher for single survivor.

So you should look at the numbers in terms of both surviving, husband surviving, wife surviving.

I don’t think you are being too optimistic, especially given that travel is an expense easily reduced and it is a large one currently for you.

Good luck.

livesoft
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Re: Critique My 120k Per Year Plan

Post by livesoft » Mon Aug 12, 2019 1:50 pm

Since you have so much cash in taxable which will probably end up being invested, I think that you will be able to keep taxable income so low between 55-60 that you should have no tax issues and probably no federal income taxes. As for ACA credits, etc., I don't get them, but I read that people need to have enough adjusted gross income to qualify for them. I think you can create that income from Roth conversions, but that is something to research carefully.
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Topic Author
printer86
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Re: Critique My 120k Per Year Plan

Post by printer86 » Mon Aug 12, 2019 2:07 pm

delamer wrote:
Mon Aug 12, 2019 1:42 pm
I like that you broke out your income sources by year.

By my math, you’ll have spent down almost $1.5 million dollars by the time you reach age 70. Is that a number you feel comfortable with? I am not suggesting that it is unadvisable financially, just that it might be psychologically difficult.

Your plan should work, with one caution. It is virtually inevitable that one of you will outlive the other. The survivor’s expenses will go down somewhat, but so will her/his income. For instance, the survivor will essentially lose DW’s Social Security income. Income taxes, proportionally, will be higher for single survivor.

So you should look at the numbers in terms of both surviving, husband surviving, wife surviving.

I don’t think you are being too optimistic, especially given that travel is an expense easily reduced and it is a large one currently for you.

Good luck.
Replying to this note and the several others above (thanks for the questions and advice so far).

I am eligible for retirement, but there are no retiree benefits at my company. As for health insurance, I can either go ACA or Cobra for a while once I retire. I will run the ACA estimate, but with minimal taxable income for the next several years, I should qualify for a reasonable ACA rate.

Half of our Tax deferred money is in my 401k. I could tap into it at 55, but I don't see the need to right now. Since I have so much money in cash right now, I might as well leave the tax deferred money alone until age 60, then draw 50k per year for as long as I can.

I'm less concerned about drawing down my own assets as relying on projected SSA and my non cola'd pension that far down the road. I've already got 35 years of SSA earnings, but if they change the numbers 15 years down the road, I'm not sure how I can make it up at that time.

cherijoh
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Location: Charlotte NC

Re: Critique My 120k Per Year Plan

Post by cherijoh » Mon Aug 12, 2019 2:08 pm

printer86 wrote:
Mon Aug 12, 2019 12:25 pm
Below are our stats, and below that, is my proposed spending plan thru 90+ years of age broken down by income source. Please take a look and tell me if I'm being too optimistic or missed something.

Thanks

Stats:

Married: MFJ
Age: 55DH, 56DW

Account Balances as of August 2019:

House: New in 2019, $800k - $900k, paid off
Taxable: $1,250,000 - 36% stocks (VSTAX, ESPP and 10 stocks) / 64% Cash (Includes proceeds from house sale. Future S/B %: TBD)
Tax-Deferred: $1,250,000 - 65% stocks / 35% Bonds (mostly sitting in the Vanguard Wellington fund)
Tax-Free $ 100,000 - 36k in Roth accounts (VTSAX), 64k HSA (65S/35B). Not planning on tapping the Roths.
DH Pension: $11k (Starts in July, 2029, no Cola)
DW SSA: $ 9k in July, 2029, going to $16k in July, 2034 (as per Open Social Security)
DH SSA: $ 43k in July, 2034

Proposed 120k Annual Spending Plan by DH Age Bracket and income source

55 - 60: $120k from taxable accounts.
60 - 65: $70k from taxable accounts, 50k from tax-deferred accounts
65 - 70: $50k from taxable accounts, 50k from tax-deferred accounts, 11k from DH pension, 9k from DW SSA
70 - 90: $3k from taxable accounts, 50k from tax-deferred accounts, 11k from DH pension, 16k from DW SSA, 43K from DH SSA
90+: SSA, Pension + residual from selling home
Even if you want to ignore taxes as you spend down the taxable portion, you need to account for taxes when you start drawing out of your traditional accounts and start taking the pension. Those are both taxed as ordinary income by the IRS. What is your state tax situation? If you have a state income tax, does the state give favorable treatment to capital gains? SS? Pensions? You need to account for state taxes as well.

By the time you start drawing SS your taxable income will be at the point that I'm sure 85% of SS will also be taxable. I would also verify that you are using the correct numbers for SS and not the ones that assume you are working up until you start drawing it.

Also I think you need to discount the starting pension value since it is priced in 2019 dollars. If you assume 2% inflation, I'd discount it to ~$9K/year for 2029; with a 3% inflation rate I'd discount it to $8.1K/yr; with 4% inflation to $7.3K/yr. And of course it will fall further in purchasing power as your husband continues to draw it.

If you want to take the above tranche approach, I suggest you refine it and put it in a spreadsheet. You could either do everything in constant 2019 $$ or adjust your spending to account for inflation. I would also factor in federal and state taxes for each income stream. Also keep in mind that tax rates are scheduled to revert to 2017 levels in the future. (reminder: we are prohibited in speculating on future legislation).

You also have to worry about sequence of return risk - what happens if stocks take a beating and don't recover as quickly as in the last few recessions? You are most vulnerable in the early years of retirement

I think you can certainly retire, but I personally wouldn't feel comfortable with a draw of $120K/yr even if that amount did properly account for taxes. IMO it would have been prudent to do some in-depth retirement planning before you purchased your new house.
Last edited by cherijoh on Mon Aug 12, 2019 2:20 pm, edited 1 time in total.

HomeStretch
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Re: Critique My 120k Per Year Plan

Post by HomeStretch » Mon Aug 12, 2019 2:13 pm

printer86 wrote:
Mon Aug 12, 2019 1:12 pm
HomeStretch wrote:
Mon Aug 12, 2019 12:40 pm
printer86 wrote:
Mon Aug 12, 2019 12:25 pm
We spend about 100k per year, mostly on discretionary things like travel. I am budgeting $120k per year to cover any additional things like healthcare and less frequent big ticket items.
Does the $120k cover income taxes for all age-scenarios?

Does “less frequent big ticket items” include new cars and big home maintenance/repairs like a roof, A/C, etc.?

Have you priced out retirement healthcare for the plan(s) you will use pre-Medicare? Premiums and deductibles for ACA exchange plans (without subsidy) are generally significantly higher than employer-subsidized group health plans.
Thanks for responding. I will try to answers your questions without being too defensive. I want to get this right and have made some assumptions on how things will play out.

1. With such a high percentage of spending cash coming from taxable accounts (cash reserves) over the next 10 years, I don't see that high of an income tax hit. With the jump in SSA, taxable income will definitely increase at 70 years old. I'm just not sure what rate to consider 15 years from now.

2. We're in the process of moving to a brand new house and both our cars have less than 25k miles. So, I don't foresee too many big ticket expenses for at least 5 years. Hopefully, that will allow me to stay under my 120k number for a while.

3. I'm planning on "managing" my taxable income up until 65 to gain some of the ACA discounts. My HSA also has about 65k if I need to dip into it along the way.
Sounds reasonable (and not defensive :happy). I think your plan should work. Best of luck!

aristotelian
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Re: Critique My 120k Per Year Plan

Post by aristotelian » Mon Aug 12, 2019 2:30 pm

I think you are doing it backward in terms of pulling from mostly taxable first and pre-tax later. Your pre-tax account will be growing the whole time and you are just subjecting more and more money to RMDs later, with SS pushing you into a higher tax bracket. Better to pull aggressively now, IMO.

Topic Author
printer86
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Re: Critique My 120k Per Year Plan

Post by printer86 » Mon Aug 12, 2019 2:40 pm

cherijoh wrote:
Mon Aug 12, 2019 2:08 pm
IMO it would have been prudent to do some in-depth retirement planning before you purchased your new house.
I've been happily married for 26 years. The purchase of this house is meant to make the next 26 just as happy. :D

Seriously, thanks for the input. My numbers are close to the edge right now and any deviation on any individual component can have some significant impact. The only decision here is to determine whether I should keep working or if I can shut it down.

Also, My state has an income tax rate of 5.25% and no taxes on SS benefits. The pension is what it is, no cola. So, I will need to discount it.

Topic Author
printer86
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Re: Critique My 120k Per Year Plan

Post by printer86 » Mon Aug 12, 2019 2:49 pm

aristotelian wrote:
Mon Aug 12, 2019 2:30 pm
I think you are doing it backward in terms of pulling from mostly taxable first and pre-tax later. Your pre-tax account will be growing the whole time and you are just subjecting more and more money to RMDs later, with SS pushing you into a higher tax bracket. Better to pull aggressively now, IMO.
I'm thinking of starting to draw from my tax deferred accounts at age 60. That's 10 years of draw downs before RMDs. At that rate, the 50k year drawdown may be more than the RMD amount for my whole 70+ retirement years.

aristotelian
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Re: Critique My 120k Per Year Plan

Post by aristotelian » Mon Aug 12, 2019 3:03 pm

printer86 wrote:
Mon Aug 12, 2019 2:49 pm
aristotelian wrote:
Mon Aug 12, 2019 2:30 pm
I think you are doing it backward in terms of pulling from mostly taxable first and pre-tax later. Your pre-tax account will be growing the whole time and you are just subjecting more and more money to RMDs later, with SS pushing you into a higher tax bracket. Better to pull aggressively now, IMO.
I'm thinking of starting to draw from my tax deferred accounts at age 60. That's 10 years of draw downs before RMDs. At that rate, the 50k year drawdown may be more than the RMD amount for my whole 70+ retirement years.
Your pre-tax account is 1.5M and you are giving it another 5 years of growth? $50k is barely going to cut into principal. Why not at least withdraw up to the standard deduction, or perhaps 10% bracket?

ivk5
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Re: Critique My 120k Per Year Plan

Post by ivk5 » Mon Aug 12, 2019 3:37 pm

I would do ballpark tax planning for each age range.

My goal would probably be taxable income smoothing; unused space in lower brackets is an opportunity lost forever, hence advice above for Roth conversions in first part of retirement.

Admittedly ACA subsidies, IRMAA thresholds, and other nonlinearities do complicate the calculus, hence the need to run the numbers.

SuzBanyan
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Re: Critique My 120k Per Year Plan

Post by SuzBanyan » Mon Aug 12, 2019 4:00 pm

ivk5 wrote:
Mon Aug 12, 2019 3:37 pm
I would do ballpark tax planning for each age range.

My goal would probably be taxable income smoothing; unused space in lower brackets is an opportunity lost forever, hence advice above for Roth conversions in first part of retirement.

Admittedly ACA subsidies, IRMAA thresholds, and other nonlinearities do complicate the calculus, hence the need to run the numbers.
For ages 60 to 65, I would suspect OP will have a hard time qualifying for an ACA subsidy with a MAGI limit of $62K in 2019 dollars while also realizing $50K in income from tax deferred accounts. Spreading the distributions from tax-deferred accounts over all the years OP is looking for an ACA subsidy should make it easier to qualify each year. As noted, tax planning for each age range can help with this.

bhsince87
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Re: Critique My 120k Per Year Plan

Post by bhsince87 » Mon Aug 12, 2019 4:08 pm

aristotelian wrote:
Mon Aug 12, 2019 3:03 pm
printer86 wrote:
Mon Aug 12, 2019 2:49 pm
aristotelian wrote:
Mon Aug 12, 2019 2:30 pm
I think you are doing it backward in terms of pulling from mostly taxable first and pre-tax later. Your pre-tax account will be growing the whole time and you are just subjecting more and more money to RMDs later, with SS pushing you into a higher tax bracket. Better to pull aggressively now, IMO.
I'm thinking of starting to draw from my tax deferred accounts at age 60. That's 10 years of draw downs before RMDs. At that rate, the 50k year drawdown may be more than the RMD amount for my whole 70+ retirement years.
Your pre-tax account is 1.5M and you are giving it another 5 years of growth? $50k is barely going to cut into principal. Why not at least withdraw up to the standard deduction, or perhaps 10% bracket?

ACA subsidies are a huge factor here.

We're in a similar situation as the OP, and our ACA subsidy would be around $22k per year. 10 years of that can swamp future RMD concerns.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

cherijoh
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Location: Charlotte NC

Re: Critique My 120k Per Year Plan

Post by cherijoh » Mon Aug 12, 2019 7:43 pm

printer86 wrote:
Mon Aug 12, 2019 2:40 pm
cherijoh wrote:
Mon Aug 12, 2019 2:08 pm
IMO it would have been prudent to do some in-depth retirement planning before you purchased your new house.
I've been happily married for 26 years. The purchase of this house is meant to make the next 26 just as happy. :D

Seriously, thanks for the input. My numbers are close to the edge right now and any deviation on any individual component can have some significant impact. The only decision here is to determine whether I should keep working or if I can shut it down.

Also, My state has an income tax rate of 5.25% and no taxes on SS benefits. The pension is what it is, no cola. So, I will need to discount it.

It is of course your perogative to spend your money on whatever you want. :happy

But it struck me as odd to start thinking about how much you can afford to spend if you retire NOW only a few months after you sunk a lot of money into a new house. The opportunity cost of buying a house that expensive is that you will have less money to spend in retirement. But if you rein in your spending a bit (relative to targetted $120K/yr) you should be fine.

Topic Author
printer86
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Re: Critique My 120k Per Year Plan

Post by printer86 » Mon Aug 12, 2019 8:03 pm

aristotelian wrote:
Mon Aug 12, 2019 3:03 pm
Your pre-tax account is 1.5M and you are giving it another 5 years of growth? $50k is barely going to cut into principal. Why not at least withdraw up to the standard deduction, or perhaps 10% bracket?
Rereading all the comments tonight. Catching a lot of things I missed the first time around. Thanks for your efforts to help me out.

Our tax deferred accounts are only about $1,250,000 right now. I was hoping to let it grow until 2024 before I start drawing from it so as to get closer to a 4% withdraw rate. However, with the need for some taxable income for ACA discount, I will look into some level of withdraw until age 65. That being said, I'll probably start with a Cobra policy and then look into the math at some point during the transition period.

livesoft
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Re: Critique My 120k Per Year Plan

Post by livesoft » Mon Aug 12, 2019 8:07 pm

You don't need to withdraw to get taxable income. Roth conversion will give you taxable income and reduce future RMDs at the same time. :)
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Topic Author
printer86
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Re: Critique My 120k Per Year Plan

Post by printer86 » Mon Aug 12, 2019 8:21 pm

cherijoh wrote:
Mon Aug 12, 2019 7:43 pm
It is of course your perogative to spend your money on whatever you want. :happy

But it struck me as odd to start thinking about how much you can afford to spend if you retire NOW only a few months after you sunk a lot of money into a new house. The opportunity cost of buying a house that expensive is that you will have less money to spend in retirement. But if you rein in your spending a bit (relative to targetted $120K/yr) you should be fine.
Well, this is our long desired retirement house (I say retirement, but I may do some kind of local work once I leave MegaCorp). We plan to live in this house as long as the two of us are alive or until we grow old and move to the nearby Continuing Care Community.

As stated earlier, with no kids of our own or close family nearby, we need to plan ahead. If one of us passes before the CCC move, the survivor will most likely sell the house and downsize, thus freeing up at least half the house value for late stage expenses.

bhsince87
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Re: Critique My 120k Per Year Plan

Post by bhsince87 » Mon Aug 12, 2019 8:21 pm

livesoft wrote:
Mon Aug 12, 2019 8:07 pm
You don't need to withdraw to get taxable income. Roth conversion will give you taxable income and reduce future RMDs at the same time. :)
The OP should have enough income to exceed Medicaid levels just from interest and dividends from the taxable account.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

Topic Author
printer86
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Joined: Mon Apr 25, 2016 8:45 am

Re: Critique My 120k Per Year Plan

Post by printer86 » Mon Aug 12, 2019 8:22 pm

livesoft wrote:
Mon Aug 12, 2019 8:07 pm
You don't need to withdraw to get taxable income. Roth conversion will give you taxable income and reduce future RMDs at the same time. :)
Thanks for the info. :beer . I will look into it.

Topic Author
printer86
Posts: 120
Joined: Mon Apr 25, 2016 8:45 am

Re: Critique My 120k Per Year Plan

Post by printer86 » Mon Aug 12, 2019 8:28 pm

bhsince87 wrote:
Mon Aug 12, 2019 8:21 pm
livesoft wrote:
Mon Aug 12, 2019 8:07 pm
You don't need to withdraw to get taxable income. Roth conversion will give you taxable income and reduce future RMDs at the same time. :)
The OP should have enough income to exceed Medicaid levels just from interest and dividends from the taxable account.
I'm estimating about $25k- $30k in dividends, interest and a small RMD from DW's inherited IRA for the near future.

BarbK
Posts: 254
Joined: Sun Nov 22, 2009 11:27 am

Re: Critique My 120k Per Year Plan

Post by BarbK » Tue Aug 13, 2019 7:50 am

printer86 wrote:
Mon Aug 12, 2019 8:28 pm
bhsince87 wrote:
Mon Aug 12, 2019 8:21 pm
livesoft wrote:
Mon Aug 12, 2019 8:07 pm
You don't need to withdraw to get taxable income. Roth conversion will give you taxable income and reduce future RMDs at the same time. :)
The OP should have enough income to exceed Medicaid levels just from interest and dividends from the taxable account.
I'm estimating about $25k- $30k in dividends, interest and a small RMD from DW's inherited IRA for the near future.

-----
ACA - my husband stopped working in 2015 (age 58); we didn't qualify for an ACA subsidy but when I looked into it, I think you could have about 62K of AGI to get a subsidy. I think at the time, it would have been about 9K of subsidy for us.

If you choose a plan that is HSA compliant, you have another deduction from AGI.

Divs 30K (if qualified, these won't be taxed if you stay in the 12% bracket - which you need to be even less for an ACA subsidy)

Wife's RMD - $4K (total guess)

Roth Conversion - $30K

HSA Deduction - $7K

====
Total Income 64K
Less deduction: 7K

Total Income for ACA : $57K -

Total taxable income for Federal Tax = $27K (Roth Conversion, RMD, less HSA deduction)

less Standard deduction $24.4K (for 2019)

Federal Taxable Amount : $2600

Topic Author
printer86
Posts: 120
Joined: Mon Apr 25, 2016 8:45 am

Re: Critique My 120k Per Year Plan

Post by printer86 » Thu Aug 15, 2019 8:16 pm

BarbK wrote:
Tue Aug 13, 2019 7:50 am

ACA - my husband stopped working in 2015 (age 58); we didn't qualify for an ACA subsidy but when I looked into it, I think you could have about 62K of AGI to get a subsidy. I think at the time, it would have been about 9K of subsidy for us.

If you choose a plan that is HSA compliant, you have another deduction from AGI.

Divs 30K (if qualified, these won't be taxed if you stay in the 12% bracket - which you need to be even less for an ACA subsidy)

Wife's RMD - $4K (total guess)

Roth Conversion - $30K

HSA Deduction - $7K

====
Total Income 64K
Less deduction: 7K

Total Income for ACA : $57K -

Total taxable income for Federal Tax = $27K (Roth Conversion, RMD, less HSA deduction)

less Standard deduction $24.4K (for 2019)

Federal Taxable Amount : $2600
Your "Wife's RMD" guess was pretty darn close. Last year was about $4,600.

I also ran an ACA estimate on our state's BCBS website and plugged in your proposed $57K taxable income. The most expensive plan (Gold 2500) costs $494/mo. The cost for the same plan is $1,744/mo. when I plug in an annual income of $64,841 and above.

Managing taxable income until age 65, and thus healthcare costs, will be critical to a successful early retirement if, and when, I pull the work plug.

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