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Retiring at 53
Old 03-21-2016, 01:12 PM   #1
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Retiring at 53

Iíve been saving until it hurts for the last 15 years, maxed out 401k and ROTH. I knew that the main barrier to early retirement would be housing cost, mortgage so I bought a rental property during the housing crisis at a very low price, 1/3rd of what it sold for before the downturn, and the payments are less than an apartment would be.I planned on taking my employerís early retirement at age 55 with 25 years of service but, as things go, life happened.The company went bankrupt in the housing crisis (related to the mortgage industry), and we languished in run-off for 2 years before being bought by a national firm.I took the pension payout of $120k and rolled it into an IRA along with my 401k.

Two years with the new company and increasingly unhappy with the atmosphere and culture. I prayed many, many times for a way to leave, for the strength to make a change, for a way to be closer to my children and grandchildren.The answer to my prayers came when there was a re-organization and many people were being let go.I wasnít being let go but, I said that I would simply quit instead of taking over responsibilities outside of my expertise that was being asked of me.That prompted the company to change their plans, someone elseís job would be saved and I would get the severance package.They were paying me to do what I wanted to do anyway!

I have $650k, selling my main residence and moving in with my daughter and her 4 children. Iím not selling the rental house yet as it generates $300 net income per month and it already has well over $100k equity.My daughter is a well compensated nurse and is currently selling her house and we plan on buying a larger home together.If we put $50k down each, the payments would be very affordable for her in the range we are looking at.She doesnít require that I contribute to bills as I will save her daycare costs.

I live very frugally (after saving so much of my income) and have absolutely no problem with living on $1500 per month. I have $180k in liquid investments and cash which will be my source of income after unemployment and severance pay.I wonít need to touch my IRA, ROTH or 401k.My SS at age 62 will be $1619 per month if I donít work again.I may work part time eventually, something that isnít high stress, 24/7 on-call as my current job.

Iím ready for the next adventure! Spending time with the grandkids, enjoying not being a slave to work which seems to have been my whole life until now.
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Old 03-21-2016, 01:49 PM   #2
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If you sell the rental property, and invest the proceeds, you will likely get a better return than $3,600 per month. The non-rental investment will have a much lower risk.

Just a thought.
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Old 03-21-2016, 02:04 PM   #3
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I've thought of the pros and cons of selling it now. $100k would have to generate at least 3.6% income and I would lose any increase in equity. I will keep an eye on prices in the area and would probably sell at $200k equity, which isn't unreasonable as it sold for about $75k more than that before.
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Old 03-21-2016, 02:29 PM   #4
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With your $18,000 per year ($1,500 /month) expenses, $650K is about 36 years of retirement. So, YES you can retire based on that expense.

Now, if you spend money for your grandkids, that's another matter. You living with your daughter, who has a couple of kids, will force you to probably spend extra. Even if you bump up expneses to $24,000, you still have about 27 years worth of savings. So, it's all good.
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Old 03-21-2016, 02:40 PM   #5
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Thanks. That doesn't include SS income of $19k per year if I start at age 62. I've run the numbers every which way with the Fidelity planner and it looks good to me. My first hurdle was the next 9-10 years but that's covered with the $180k and I can let the 3 retirement accounts grow as long as possible.
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Old 03-22-2016, 03:54 PM   #6
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Congratulations on your decision. How much of your budget of $1500 per month is for health insurance?
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Old 03-22-2016, 04:12 PM   #7
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Congratulations on your decision. How much of your budget of $1500 per month is for health insurance?
Hmm, at this point in time, OP's income of $18,000/yr will probably qualify for ACA Silver with Cost Sharing Reduction. 2016 FPL for one person is $11,770. Between 138% to 150% FPL ($16,243 to $17,655), you get the highest subsidies so gov't/insurance effectively pays 94% of medical care.

If necessary, I highly suggest doing some Roth conversions to take advantage of ACA subsidies.
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Old 03-22-2016, 04:24 PM   #8
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Yes, it qualifies for the Silver coverage and I checked on the website. It will cost, I believe, $131 per month with Covered CA.

This year is covered as my severance includes paying half of my COBRA but I really need to look into this more and I now can't find the website where I figured out the above amount.
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Old 03-23-2016, 12:42 PM   #9
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Good for you, the younger the better. Welcome to your new life!

I was out at 59 and wondered why I waited so long. I even liked my job, but it was still just a job. What I really like is doing anything I want to. My sleep is no longer ended with the harsh sound of the alarm clock and I eat whenever I like, not at the assigned Co. "lunch time"

It's just wonderfully liberating. Have fun!
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Old 03-23-2016, 01:50 PM   #10
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Your need for $1500/mo is a 2.7% WR on the $650K so that is reasonable.
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Old 03-23-2016, 01:53 PM   #11
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We semi-retired at 53 and 58. I love not setting the alarm and having to be places at a certain time. I never set an appointment now before 10. I also like to eat when I feel like it. I have days where I stay in my pj's until noon if I feel like it.
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Old 03-23-2016, 02:26 PM   #12
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Congratulations, PamInCA!

I know someone who moved in with her daughter and their family and who bought a larger house to make it work better and they are all thrilled with it. If it's something that you and they are excited about, then how wonderful for everyone!

I would suggest that you do maintain some personal interests and activities outside the grandchildren, for everyone's benefit. My guess is that your total combined living costs will go down (economies of scale, don't need 2 internet connections, 2 cable tv subscriptions, etc.) so I think you have a good plan. Awesome that you got the severance - that's the icing on the cake!
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Old 03-23-2016, 04:45 PM   #13
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My hobby is quilting and I have so much fabric that I could probably never buy any again. I also have a longarm quilting machine and plan to explore making some money with that. That's my one requirement for a bigger house... I need a space large enough for the 10' long quilting machine and room to get around it.
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Old 03-23-2016, 07:27 PM   #14
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Hmm, at this point in time, OP's income of $18,000/yr will probably qualify for ACA Silver with Cost Sharing Reduction. 2016 FPL for one person is $11,770. Between 138% to 150% FPL ($16,243 to $17,655), you get the highest subsidies so gov't/insurance effectively pays 94% of medical care.

If necessary, I highly suggest doing some Roth conversions to take advantage of ACA subsidies.
Be careful about planning on the ACA subsidies especially if she moves in with the daughter. Household income including the daughters will likely be used to determine the ACA subsidy.

-gauss
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Old 03-23-2016, 07:34 PM   #15
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Be careful about planning on the ACA subsidies especially if she moves in with the daughter. Household income including the daughters will likely be used to determine the ACA subsidy.

-gauss
I looked it up... From what I found, ACA uses the IRS definition of household:
The taxpayer(s) and any individuals who are claimed as dependents on one federal income tax return. A tax household may include a spouse and/or dependents.
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Old 03-23-2016, 08:59 PM   #16
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#1) If your daughter can or does claim you as a dependent you will not be able to legally get an ACA subsidy under your own name because you will not be an "applicable taxpayer" (ref IRS Form 8962 instructions).

The big questions that will need to be addressed here are:
a) how much taxable income will you have in your own name after you stop working (ie what will IRS 1040 line 22 Total Income be if line 7 Wages is $0)?

b) Will your daughter pay more than 50% of your support?
Will you be paying any of the monthly mortgage or is that one of the bills that your daughter says that you do not have to pay? What about food costs?

#2) Assuming that your daughter cannot claim you as an exemption, then you may still have a problem getting an ACA policy if your Household income is less than 100% of FPL. Living on after-tax savings does not create household income by itself. The thing to check would be your 1040 tax return but set the line 7 wages to $0 and see what line 37 AGI comes out to be. I suspect that if your AGI without wages is under $10,000 you will qualify for Medicaid instead of an ACA supplement. Having Medicaid in-lieu of an ACA policy may not be a bad thing depending on your point of view.

I am a detail guy -- I just want to make sure you don't get any bad surprises about this down the road.

-gauss
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Old 03-23-2016, 09:33 PM   #17
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#2) Assuming that your daughter cannot claim you as an exemption, then you may still have a problem getting an ACA policy if your Household income is less than 100% of FPL. Living on after-tax savings does not create household income by itself. The thing to check would be your 1040 tax return but set the line 7 wages to $0 and see what line 37 AGI comes out to be. I suspect that if your AGI without wages is under $10,000 you will qualify for Medicaid instead of an ACA supplement. Having Medicaid in-lieu of an ACA policy may not be a bad thing depending on your point of view.

I am a detail guy -- I just want to make sure you don't get any bad surprises about this down the road.
You can't claim a person with gross income greater than the exemption amount ($4,000 in 2016, iirc) as dependent even if you provide more than 50% of support. Also, there's always Roth conversions to get income beyond Medicaid level. For states with expanded Medicaid, that's 138% of FPL or $16,243 for a single person household. That said, I'm not sure if social security benefits get counted as income for ACA purposes.

Folks just slightly above 138% may also be covered by Medicaid so I recommend trying to get close to 150% to qualify for ACA and maximize subsidies. When we immigrated, my parents and brother were on Medicaid (Medi-Cal/CHIP) and it was harder to find a provider that accepted it compared to regular insurance.
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Old 03-23-2016, 09:39 PM   #18
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You can't claim a person with gross income greater than the exemption amount ($4,000 in 2016, iirc) as dependent even if you provide more than 50% of support.
Agreed, that's why I mentioned both income level and support as areas that need to be looked at. I think we are saying the same thing here.

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That said, I'm not sure if social security benefits get counted as income for ACA purposes.
This depends on which ACA/MAGI that we are talking about (there are at least two different definitions). For PTC subsidies, which we are talking about here, both taxable and non-taxable social security is included in the PTC calculation (ie form 8962)

In the other ACA/MAGI used in penalty calculations or ACA exemptions, only the taxable SS is usually counted. (ie form 8965)

-gauss
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Old 03-24-2016, 01:16 AM   #19
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#1) If your daughter can or does claim you as a dependent you will not be able to legally get an ACA subsidy under your own name because you will not be an "applicable taxpayer" (ref IRS Form 8962 instructions).

The big questions that will need to be addressed here are:
a) how much taxable income will you have in your own name after you stop working (ie what will IRS 1040 line 22 Total Income be if line 7 Wages is $0)?

b) Will your daughter pay more than 50% of your support?
Will you be paying any of the monthly mortgage or is that one of the bills that your daughter says that you do not have to pay? What about food costs?

#2) Assuming that your daughter cannot claim you as an exemption, then you may still have a problem getting an ACA policy if your Household income is less than 100% of FPL. Living on after-tax savings does not create household income by itself. The thing to check would be your 1040 tax return but set the line 7 wages to $0 and see what line 37 AGI comes out to be. I suspect that if your AGI without wages is under $10,000 you will qualify for Medicaid instead of an ACA supplement. Having Medicaid in-lieu of an ACA policy may not be a bad thing depending on your point of view.

I am a detail guy -- I just want to make sure you don't get any bad surprises about this down the road.

-gauss
No, my daughter won't be claiming me, she has 4 children.

I will do ROTH conversions likely in the range of $20k per year. That combined with dividend income should put me in the ACA category.

We are looking at houses in a range that she is very comfortable with and wouldn't require that I pay anything towards it, just a few hundred for other bills. I'm sure I would buy food sometimes but not the main grocery cost for her family of 5. I will also be saving her daycare costs for the youngest, 4 years old, and after school costs for the next two older. The eldest is 16.
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Old 03-24-2016, 07:45 AM   #20
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Congratulations! You should be very proud of your decision to stand firm and end up getting the severance. Was that a calculated move or just fortunate?
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