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Early retire on $63K, support two houses, stay under ACA limits?
Old 04-19-2015, 11:09 AM   #1
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Early retire on $63K, support two houses, stay under ACA limits?

Hello, we are Orcas Island bound in the state of Washington. We hope to retire in April of 2017.

The stats:
Today 1.83M total, invested in 44/33/19/4 % stocks, intermediate bonds, long bonds, short term cash equiv.
Of the 1.83M about 530K is in "private money inheritance" belonging to DW. We'll be using only dividends from this portion. About 2/3 of the 1.83M is in pretax accounts the rest post tax. However, despite the sizeable post tax amount, we'll be living on mostly taxable withdrawals + taxable dividends with only a few thousand of income that won't count against ACA MAGI numbers. So, it will be a bit tricky to stay under the $63K max 400% fed poverty level for 2 people.

We're both 57 and have 1 teenager in junior college going to school about 3/4 time. This actually presents another challenge as he is not full time and therefore will not be a dependent on our taxes starting this year going forward. (There are reasons why he isn't full time, the good news is he has a part time job and is learning the meaning of saving and paying for his own expenses, car repairs, etc.)

We expect income of $47K/year for both of us from SS at age 65. I'll get a small non-cola pension of $6K/year when we retire at the age of 59 and a couple months.

Firecalc, Fidelity and Vanguard simulations all show 100% chance of success with income of $90K and firing one year earlier in April of 2016. However, to be conservative, we'll hold off until 2017.
We have monitored our expenses for years and they are not low enough yet. We're at $69K/year + taxes + medical ins. We have a ways to go down further to hit $63K including taxes and ins. (Really, $63K is like $51K + $6K taxes, WA has no state inc tax, plan on being there + $6K/year ACA payments).

We have two houses, one here in SoCal, worth about $450K, no mortgage, and our intended retirement house in WA worth about $420K, $200K mortgage.

We're creating a chunk of after tax money that will be used to pay the retirement house mortgage payments + college expense for the DS. This money, about $113K, wont count against ACA income limits and will be used up when we hit 65.

The DW is worried that, being from So Cal, well be miserable in the winter months in Orcas Island. So well be traveling back and forth, like snow birds, between the two houses.
I think we can use the Orcas house as a VRBO to make extra money during the summer if we have to as this island appears to be a popular vacation spot.

We are also creating a home equity line of credit that we can draw against until we are 67 years old solely for the purpose of having a way to generate sizable cash amounts during any emergencies that might arise while we have to follow the ACA rules on income limits. We would then begin paying this off when we are 65 as ACA will no longer apply then. (I hope it still applies when we retire in 2 years). If all goes well, we won't use any of this home equity at all.

So $63K is 3% safe withdrawal of $57K + $6K ret inc until were 65, then SS kicks in and we can be more comfortable with say $90K total (47SS + 43 safe withdrawal).

Maybe even one less year? Sorry for the long post.

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Old 04-19-2015, 11:14 AM   #2
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I forgot to show what the view looks like out the window on Orcas Island.
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Old 04-19-2015, 11:32 AM   #3
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Hi OrcasIslandBound

Nice view!

I like your two locations. I lived in Bellingham for a few years, but am a San Diego native and live here now. Both have appeal.

Have you spend any length of time up North during the winter. The rain/dreary weather is less of an issue - you just learn to go do stuff in the rain... want to hike? be willing to do it in the rain? Want to go mountain biking? be willing to go do it in the rain. The bigger issue in the winter is the shorter days. I remember going to work in the dark, leaving work in the dark - and the only daylight would be if I went out at lunch. (My desk and lab had no window.) That can be problematic for some folks... especially coming from the southern edge of the US.

As far as money: We're managing our income at $84k - with 2 middle schoolers. (This keeps us under the ACA limit.) Like you we've earmarked money outside of our "retirement nest egg" for some specific items. And like you, we took out a HELOC for 'just in case' - so we can smooth income (if needed) and stay below the 400% of poverty ACA threshold. No plans to tap the HELOC. It helps that we have no mortgage (outside of the untapped HELOC) and only have one set of expenses for home repair/taxes/insurance/etc.

Does your budget include ferry trips when you want to get off the island?
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Old 04-19-2015, 12:21 PM   #4
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Thank you Rodi, it helps to know that ideas, such as a heloc for emergencies, are being thought of by others as a method to manage ACA. I haven't spent much time up there in the winter yet, but very much want to leave SoCal because of the traffic and people as of late. Orcas has something called "island time" which seems to be much slower than normal time. I'm really looking forward to experiencing this for at least a full year before coming back to the San Diego County area again. But the DS will probably have us going back and forth more often as he'll be staying in SoCal.

I'm not too worried about the ferry expenses, more so about maintenance on two houses.

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Old 04-19-2015, 01:41 PM   #5
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OrcasIslandBound -
I hear you on the traffic. I worked in Sorrento Valley/Mesa, and my 6 mile commute (on Mira Mesa Blvd and 805) could take up to an hour. Traffic was a HUGE factor in my decision to retire 2 years earlier than the original plan.

When I lived in Bellingham I had to deal with home expenses I didn't have in SoCal - stuff like moss building up on the roof and slippery moss needing to be scrubbed off my porch decks for safety reasons. Also had to mow my lawn more frequently.
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Old 04-19-2015, 01:52 PM   #6
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Over 30 years ago, when I was a newly married Navy submariner, I was stationed out in Bremerton for a while. My young wife commuted by ferry to a job in Seattle. We really enjoyed our time out there, and if New England didn't exist, we would gladly go back to the Seattle area to live.
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Old 04-19-2015, 03:06 PM   #7
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Thank you Rodi,

We live in Poway and commute to ... Poway. So, I'm very grateful that at least, my commute is only about 12 minutes on non-traffic roads.

I'm born and raised in San Diego, the Serra Mesa area. Been here all my life and I'm really ready for a change. I think Bellingham would have been equally good, tons of cross-country skiing nearby. Perhaps even better.

Thank you Gumby, I've already noticed that "island time" starts the moment you are on board a ferry. The world just mysteriously slows down around you. Being from the west coast, I'm slightly prejudiced towards the west coast but I would expect New England to be beautiful as well.
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Old 04-19-2015, 03:38 PM   #8
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Do you like sailing? Orcas Island is about perfect for sailing...everything is within range of a day sail, even going to have tea in Victoria, BC. We took our very tiny 17 foot sailboat from Anacortes, over to the marina on Orcas Island, and then to Friday Harbor in a short three day weekend...just have to know the tides and currents. While walking around Orcas, we saw a bald eagle come within inches of picking up a small dog (we had previously warned the owner that an eagle was eyeing their dog but she didn't believe us).

I even like sailing in the winter here in Puget Sound...it isn't like the water is any warmer in the summer.
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Old 04-19-2015, 03:50 PM   #9
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I would love sailing, have already joined a PNW sailing club with the hopes of being a deckhand upon occasion in someone else's boat.

I thought I'd share a bit more about our budget since that is the area where I think I need the most help:
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Old 04-19-2015, 04:25 PM   #10
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As far as budget -
Your home owners insurance for the Poway house seem high. I assume this is due to being in a fire area but it still strikes me as high. We're paying $1200/year - and are also in a designated fire area (got kicked off AAA insurance when we tried to upgrade for an umbrella policy because of the fire zone issue.) I know parts of Poway are VERY hard to get any carrier to cover, though. (I have several friends and former coworkers who live over there.)

Also a place that looks like you could trim is the auto expenses. I assume your son drives one of the 4 trucks. Is there are reason you have 3 more cars with only 2 more drivers?

I also notice that you have the travel associated with the Orcas house broken out separate. Are you currently renting it out? It might be at least partially deductible if you rent it out part of the year (as you mentioned in your OP).

There are things along the edges that can be trimmed - cell phones (switch away from verizon or ATT to see a drop), cable (threaten to cut the video portion of your bill and Time Warner starts being reasonable... I got our internet and standard def video down to $35/month by threatening to pull back to internet only... sure beats the $120 I was paying. I get broadcast channels over the air and can live with TNT, AMC and HGTV in standard def to save that much money.)
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Old 04-19-2015, 04:39 PM   #11
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Thank you Rodi for looking at this.

The Poway house insurance is with state farm and includes a 3M umbrella policy. We actually have a Prius, F350 (which I wanted to sell, but DW wants to keep), a Highlander and the DS has a Mustang. DS is contributing a bit to the ins cost and the fact that he is a teen has impacted us probably to the tune of $2K a year which will disappear when he comes off the policy. It hits us in the umbrella as well. The fire area hasn't impacted us despite the Cedar fire burning a few houses down only 4 houses away from us. The DS is paying his own repairs and those aren't listed in our expenses. The 2006 Prius has been high lately and promises to continue on that path. Last hybrid I'll own for a while.

The Orcas house is rented at the moment to a long term renter who will be moving out sometime this summer. We haven't ever even spent a single night in it. Unfortunately, (or fortunately, depending on how you look at it) our income is just high enough to keep us from taking advantage of the full rental deduction on it. This will change slightly as the DW is just now retiring. We use t-mobile $30/month for each of two cells + consumer cellular for the third $22 month. Cable is $105 month and includes TV internet and house phone. Basic tv only.

I'm an engineer also, could you tell?
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Old 04-20-2015, 06:50 PM   #12
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Have you spent any time on Orcas? I grew up in Southern California but moved to Orcas during the summer of 1972, then to Lopez Island for the next 10 years. It is beautiful, and I enjoyed the slow pace. BUT, it is very much like living in a very small town where everyone knows everyone else's business, which I had a harder time getting used to than the weather. I think Orcas might be a little less like this than Lopez as it is bigger.


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Old 04-21-2015, 08:18 AM   #13
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Thank you tuckred. I've only spent a few weeks there during several trips. I've met the neighbors where we bought our house and I can easily imagine your concern. The DW and I talked about how we'll have to be extra polite up there and just go out of our way to try to be a little helpful to the residents there for just the reasons you talked about. Hopefully, it won't be a big deal.

Spokane would be nice as well. I expect we'll rent a cabin every now and then in Eastern Washington to go cross country skiing in the winter.
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