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Old 12-14-2014, 05:56 PM   #101
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I absolutely love this site. I just retired after selling my small business a few months ago. I still have so much more to learn. I read the different posts and even when they don't really pertain to my situation, I still can learn from them.

The biggest issue for me is when looking at a financial situation, portfolios, etc., there is a huge difference between those that have pensions and retiree health care and those of us that don't. I do not have any retiree Medical and no pension so I will be taking money from my savings until I start taking social security at 70. I am now 57.

I need to have much more in savings for a longer retirement time frame and also to cover medical costs and premiums. I would much rather have a pension, but unfortunately that is not the case.

Even after taking social security at 70, I will still be drawing down my savings. Also, being ultra conservative financially, it means that I have to have that much more stashed away.

For 40 plus years, I concentrated on trying to save and put money away for this time in my life. Now I am learning how not to "fritter it all away" as my father used to say!




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Old 12-14-2014, 09:07 PM   #102
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Originally Posted by harley View Post
Faulty logic. I have no pension and can't touch SS for at least 4 more years, so I have to live off my savings and investments until then (going back to 2006). I do have more than a million, but DW and I pay in the 5% range in taxes, and stay within the 15% bracket even doing hefty $30-$40K Roth conversions every year. It's not how much you have, it's how much you make in taxable income that puts you in the higher brackets. Minimizing taxes and fees is an ER hobby for me.

I plan to pay 0% so it doesn't seem faulty logic to me. Your 5% in taxes helps support my 0% lifestyle.

Somebody has to pay. Thanks!

$48,000 living expenses

$30,000 from cash (from CD ladder established after sale of house)

$10,000 from interest and dividends

$8,000 capital gains

Remainder up to 0% bracket for married couple filled in with IRA to Roth conversions.

0% tax, 140% of poverty level, enhanced silver ACA plan with cost sharing for married couple.
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Old 12-14-2014, 10:16 PM   #103
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Perhaps a better number to characterize financial readiness than simple net worth would be something like number of years of coverage of expected living expenses. Those with pension and/or social security income, paid healthcare, annuities, or what have you, can either deduct these from annual expenses or add their net present value to net worth, either way should make no difference to how long you can hold out without any wage or business income. Then if you deduct your estimated remaining life expectancy from this value and come up with a number more than zero, you're probably good to go. If this number is way above zero then your heirs are probably going to be very happy.

On this board you will find some people with modest retirement savings in dollars who are better situated by this metric than some who sport 8-figures in net-worth, for example imagine this--
http://www.nytimes.com/2010/11/26/bu...fall.html?_r=1
My guess is this kind of wipeout isn't extremely rare because what's called confidence on the way up becomes hubris on the way down. Same attribute, different outcome.
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Old 12-14-2014, 10:30 PM   #104
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Originally Posted by Fermion View Post
I plan to pay 0% so it doesn't seem faulty logic to me. Your 5% in taxes helps support my 0% lifestyle.

Somebody has to pay. Thanks!

$48,000 living expenses

$30,000 from cash (from CD ladder established after sale of house)

$10,000 from interest and dividends

$8,000 capital gains

Remainder up to 0% bracket for married couple filled in with IRA to Roth conversions.

0% tax, 140% of poverty level, enhanced silver ACA plan with cost sharing for married couple.
Well, with your numbers I'd say your retirement is being subsidized just as much by people that don't have two nickels to rub together. Just FICA puts them a couple of % higher than I, with my millions, pay. And I'm relatively sure that anyone with a pension worth mentioning is paying as much or more as I am. So while I agree that the still employed people are subsidizing your (and my) retirement, I don't think those millionaires in this forum are the only ones doing it, like your original post implied. More like anyone with an income above the 0% bracket, whether from pensions, larger costs of living, dividends, lack of deductions, or whatever.

Just out of curiosity, how much of a Roth conversion can you do and still be in the 0% bracket? $18K taxable income, $12K standard deduction, $18.5K top of the bracket, ~$12K conversion. Is that about right?
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Old 12-14-2014, 10:36 PM   #105
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Originally Posted by dunkelblau View Post
Perhaps a better number to characterize financial readiness than simple net worth would be something like number of years of coverage of expected living expenses. Those with pension and/or social security income, paid healthcare, annuities, or what have you, can either deduct these from annual expenses or add their net present value to net worth, either way should make no difference to how long you can hold out without any wage or business income. Then if you deduct your estimated remaining life expectancy from this value and come up with a number more than zero, you're probably good to go. If this number is way above zero then your heirs are probably going to be very happy.

On this board you will find some people with modest retirement savings in dollars who are better situated by this metric than some who sport 8-figures in net-worth, for example imagine this--
http://www.nytimes.com/2010/11/26/bu...fall.html?_r=1
My guess is this kind of wipeout isn't extremely rare because what's called confidence on the way up becomes hubris on the way down. Same attribute, different outcome.
I'm proposed a way to align the social security variable... Uniform Way To Get Present Value of Future Social Security
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Old 12-14-2014, 10:41 PM   #106
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Just out of curiosity, how much of a Roth conversion can you do and still be in the 0% bracket? $18K taxable income, $12K standard deduction, $18.5K top of the bracket, ~$12K conversion. Is that about right?
ACA complicates things because one may want to stay very close to 140% of poverty level (which is a MAGI of around $22,000 for a married couple) to get the full benefits of cost sharing, which can be VERY significant (many thousands of dollars saved in medical costs).

So in my example during a year with $10k of interest and dividends plus $8k of capital gains, I may only want to convert around $4k to a Roth from IRA to bump MAGI up to $22k. It is very important to get above the cutoff for Medicaid if you want a super silver plan.

Maybe some year the market is down and we only have $10k of interest/dividends. I might then convert $12,000 to Roth. It will take some tweaking to figure out the best course.
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Old 12-14-2014, 11:45 PM   #107
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Originally Posted by Fermion View Post
I plan to pay 0% so it doesn't seem faulty logic to me. Your 5% in taxes helps support my 0% lifestyle.

Somebody has to pay. Thanks!

$48,000 living expenses

$30,000 from cash (from CD ladder established after sale of house)

$10,000 from interest and dividends

$8,000 capital gains

Remainder up to 0% bracket for married couple filled in with IRA to Roth conversions.

0% tax, 140% of poverty level, enhanced silver ACA plan with cost sharing for married couple.
Interesting idea. You are selling your house and living off the cash from the house in early retirement? Where will you be living and do you plan to buy a house again at some point in the future?
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Old 12-14-2014, 11:53 PM   #108
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Combining long term capital gains with qualified dividends someone can pay zero tax while making good money. Sell some shares to pay for expenses as needed.

I have 15 years to age 65. So I need to convert my Trad IRA to a Roth IRA over this period. So say someone has 450k to convert. 450k / 15 years = 30k a year. Every Jan do the conversion. Get a bronze plan for January. Then drop into Medicaid for the rest of the year. The dividends on a large cap growth fund are about 1.1% over four quarters. Example after tax money $475,000 * 1.1% = $5,225 / 4 payments = $1,306 per quarter. As long as the dividends are under $1343 a month (single person) you are good. This way someone can make 30k (conversion) + 16k (dividends and cap gains) = 46k (fill the 15% bracket) while getting free medical for 11 months.

The qualified dividends and long term capital gains will be tax free.

Medicaid enables one to make money and not be punished with loss of ACA subsidies, as long as all the gains are booked in a single month, since it is based on monthly income.

The problem of loosing ACA subsidies due to Roth conversions has puzzled me for some time. This method should basically solve the problem.
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Old 12-15-2014, 12:17 AM   #109
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... Every Jan do the conversion. Get a bronze plan for January. Then drop into Medicaid for the rest of the year... getting free medical for 11 months.
I have not had ACA, but understand from what I have read that at the end of the year, you have to reconcile the income on your tax return. The income the IRS uses to calculate the subsidy is the one annual income, not the income broken down to monthly. And it has been the same for income tax computation, federal, state, or FICA.

So, having a January income of 46K followed by 11 months of zero income is not going to work. What am I missing here?
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Old 12-15-2014, 01:39 AM   #110
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I have not had ACA, but understand from what I have read that at the end of the year, you have to reconcile the income on your tax return. The income the IRS uses to calculate the subsidy is the one annual income, not the income broken down to monthly. And it has been the same for income tax computation, federal, state, or FICA.

So, having a January income of 46K followed by 11 months of zero income is not going to work. What am I missing here?
I had to look this up myself, but at least in California, Medicaid seems to be based on monthly, not annual income:

"Another difference: The subsidy calculation is based on a household's projected annual income for the benefit year, whereas Medi-Cal eligibility is based on the applicant's current actual monthly household income, says Anne Gonzales, a spokeswoman for Covered California.

Managing poverty income to get a health subsidy - SFGate
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Old 12-15-2014, 07:31 AM   #111
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Interesting idea. You are selling your house and living off the cash from the house in early retirement? Where will you be living and do you plan to buy a house again at some point in the future?
We will be traveling in an RV and so do not need the expenses or worry of owning a house in a location we may not revisit for years.

Our plan though could work for someone who wanted to downsize and cash out their home equity, then perhaps rent a small apartment and do travel. Or just rent to avoid the headaches of home ownership.
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Old 12-15-2014, 07:34 AM   #112
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I have thought about Medicaid vs a subsidized and cost shared silver ACA plan. I am unsure how Medicaid works if you are traveling in other states? Do you always have to return to your home state for non-emergency medical problems? Can you be balance billed if on Medicaid and you seek services out of state?

If Medicaid does indeed avoid balance billing, it might be a better alternative than a silver ACA plan. The question of states reclaiming money when you die is moot if you have no heirs.
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Old 12-15-2014, 07:39 AM   #113
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Medicaid is a program run by states, so a California resident qualifies for Medi-Cal. That program is unlikely to include a network of health care providers in other states, although it may cover emergency medical needs out of state.
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Old 12-15-2014, 07:48 AM   #114
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Originally Posted by jim584672 View Post
Combining long term capital gains with qualified dividends someone can pay zero tax while making good money. Sell some shares to pay for expenses as needed.

I have 15 years to age 65. So I need to convert my Trad IRA to a Roth IRA over this period. So say someone has 450k to convert. 450k / 15 years = 30k a year. Every Jan do the conversion. Get a bronze plan for January. Then drop into Medicaid for the rest of the year. The dividends on a large cap growth fund are about 1.1% over four quarters. Example after tax money $475,000 * 1.1% = $5,225 / 4 payments = $1,306 per quarter. As long as the dividends are under $1343 a month (single person) you are good. This way someone can make 30k (conversion) + 16k (dividends and cap gains) = 46k (fill the 15% bracket) while getting free medical for 11 months.

The qualified dividends and long term capital gains will be tax free.

Medicaid enables one to make money and not be punished with loss of ACA subsidies, as long as all the gains are booked in a single month, since it is based on monthly income.

The problem of loosing ACA subsidies due to Roth conversions has puzzled me for some time. This method should basically solve the problem.
The majority of states don't have Medicaid anymore. In my state and many others, if I make under a certain $ amount(around $13,000) I get no subsidy and since there is no Medicaid I have to pay the full HI premium or go without insurance. Your plan does work well for the few states that do have medicaid.
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Old 12-15-2014, 07:51 AM   #115
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I have not had ACA, but understand from what I have read that at the end of the year, you have to reconcile the income on your tax return. The income the IRS uses to calculate the subsidy is the one annual income, not the income broken down to monthly. And it has been the same for income tax computation, federal, state, or FICA.

So, having a January income of 46K followed by 11 months of zero income is not going to work. What am I missing here?
You accurately estimate your income as 46k when signing up. You won't get much of a subsidy, but this is not a big deal since you only need to pay full price for one month. Your income would be:

Jan 30k conversion + 1.3k dividends
Feb 0k
Mar 0k
Apr 1.3k dividends ..etc till the end of the year

APTC credits are yearly based, Medicaid is monthly.
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Old 12-15-2014, 07:56 AM   #116
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I have thought about Medicaid vs a subsidized and cost shared silver ACA plan. I am unsure how Medicaid works if you are traveling in other states? Do you always have to return to your home state for non-emergency medical problems? Can you be balance billed if on Medicaid and you seek services out of state?

If Medicaid does indeed avoid balance billing, it might be a better alternative than a silver ACA plan. The question of states reclaiming money when you die is moot if you have no heirs.
Estate recovery can apply once you get to 55 or older and get benefits from Medicaid. Make sure to put any real estate into a Life Estate Deed so when you die the property passes directly to your beneficiary. Also any accounts need to have a beneficiary named. Avoiding Probate eliminates Estate Recovery, at least in my state.
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Old 12-15-2014, 08:07 AM   #117
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By doing a Roth conversion ladder (convert every year for 15 years) the 30k basis is available without a 10% penalty after 5 years. You need to have enough after tax money to live on for the first 5 years. Once the 5 years has passed, you have a constant 30k stream available to live on. This is better than a 72t which is very inflexible and too small.
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Old 12-15-2014, 08:15 AM   #118
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The majority of state don't have Medicaid anymore. In my state and many others, if I make under a certain $ amount(around $13,000) I get no subsidy and since there is no Medicaid I have to pay the full HI premium or go without insurance. Your plan does work well for the few states that do have medicaid.
If your state did not expand Medicaid then the plan will not work. The new MAGI based Medicaid in the expansion is based solely on income, with no resource test. Non expanded states have the old Medicaid, which only kicks in once almost all resources have been spent down, and your income is minimal. You basically have to be destitute to get it.
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Old 12-15-2014, 08:15 AM   #119
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So which offers more protection from balance billing? Medicaid or a silver ACA plan?

IE, I have Medicaid in Washington state and I am tooling around Alaska and get my leg chewed on by a bear. I get treated at a hospital in Alaska who tries to bill me for charges other than the emergency center stabilization.

If in the above I had a silver ACA plan with a poor network and unlimited out of pocket expenses for out of network treatments, I may get balance billed for several thousand dollars.

It may be that with Medicaid, they don't bother billing you because they think you have no money? Or maybe it is not legal to bill someone who is on Medicaid?
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Old 12-15-2014, 08:21 AM   #120
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Medicaid offers more protection from balance billing. I think the most someone pays with Medicaid is $300 a year.

I don't know what happens if you are out of your state and something happens.
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