Losing myself at the Lost Colony

[Proteus126]

Greetings! Based on my browsing this is a wonderful forum, full of information and goodwill.

I am 44 and live in the Maryland suburbs of Washington DC. I plan to retire in June of 2021 at age 50, and then move with my wife to Roanoke Island in the NC Outer Banks area. We have no children, just dogs.

I am a DOD civilian research engineer, and began my DOD employment in the FERS system in May of 2001. Therefore I will be performing a "deferred retirement" with 20 years of federal service, allowing me to begin receiving the pension at age 60 with no age reduction (rather than age 62 if under 20 years creditable service).

At retirement in 2021 our key financials are projected to be (today's dollars):
401ks: $1.0M
Roths: $0.2M
Equities: $0.7M
Home equity: $0.5M

The home equity will be used to pay for the retirement home in full.

Our eventual max retirement income (2037+) will be $60k in today's dollars. The no/lo income gap from 2021-2037 will initially be covered by equities and my wife's IRAs, but increasingly will be covered by first her SS, then my retirement, then my SS.

I expect we will spend $75k/year, but I use $90k/yr in my projections, and I use the constant expense model. Firecalc and ******** show 100% success rate with plenty of margin for error.

I'm not sure I'll be ready to go at age 50. The job and coworkers are great. The bureaucracy and IT oversight issues are onerous. I expect that I'll be a prime candidate for OMY syndrome. I don't plan on burning bridges, and will stay in contact in case I need or want to return to work.

 

[JoeWras]

Proteus: it might be a good sign that a lot of people are not responding about Roanoke island here or on a different thread. I.E. not everyone is crushing it yet. (Ironic, since it was one of the first places settlers landed.)

I don't live there, but I am in NC. I can say in the summer the traffic on the main drag through will be severe. Nags Head and Kitty Hawk are getting crazy busy. I don't like it then. Winters I've heard are pretty calm. But in any case, you are back a ways from the madness, so the island is kind of a hidden gem.

In case you didn't know, Andy Griffith quietly retired there.

I'll let other people talk about FERs. I don't know much about it, but my limited knowledge says your plan sounds decent.

 

[Katiek]

Welcome. I look forward to reading your posts.

 

[MBAustin]

Welcome, Proteus! I note you've already caught on to some of our lingo here .

If you haven't seen them yet, there are two excellent resources here

http://www.early-retirement.org/forums/f47/some-important-questions-to-answer-before-asking-can-i-retire-69999.html

and

Early Retirement FAQs - Early Retirement & Financial Independence Community

We'll do our best to answer your questions also and look forward to your contributions.

 

[MikeWillRetire]

Keep in mind that a FERS pension does not get a cola until you are 62, so if you retire at 50, the pension value will decrease due to 12 years of inflation. It also makes it a difficult pension to model in calculators.

 

[harley]

Proteus: it might be a good sign that a lot of people are not responding about Roanoke island here or on a different thread. I.E. not everyone is crushing it yet. (Ironic, since it was one of the first places settlers landed.)

Ghosts.

 

[JoeWras]

Ghosts.

And Andy may have added to it.

 

[Proteus126]

Keep in mind that a FERS pension does not get a cola until you are 62, so if you retire at 50, the pension value will decrease due to 12 years of inflation. It also makes it a difficult pension to model in calculators.

Thank you. I have so far used a 3% inflation rate to figure out FERS erosion from early retirement to age 62. I'll actually be very close to age 51 when I go out if I keep to my schedule. I agree that it isn't pretty. My formula for age 62 pension annuity (today's dollars) is:
(High-3 * 0.205) * 0.7

0.205 represents 20% for 20 years service, plus about half a year of sick leave.

0.7 represents inflation loss. At 3%, the inflation scale factor in 2021 is 19% above today's dollars. In 2032 it is 65%. (1.19/1.65) = 0.72. I rounded down to 0.7 and called it the best I could do.

It is less than my age 67 SS benefit, and comparable to my age 62 benefit.

SS benefit was not so hard to compute, but not entirely trivial. It looks like my age 62 benefit increases $30/mo ($360/yr) per year worked going forward. Age 67 is essentially Age 62 * (1.08^5). About 47% more if I hold off.

 

[MikeWillRetire]

Thank you. I have so far used a 3% inflation rate to figure out FERS erosion from early retirement to age 62. I'll actually be very close to age 51 when I go out if I keep to my schedule. I agree that it isn't pretty. My formula for age 62 pension annuity (today's dollars) is:
(High-3 * 0.205) * 0.7

0.205 represents 20% for 20 years service, plus about half a year of sick leave.

0.7 represents inflation loss. At 3%, the inflation scale factor in 2021 is 19% above today's dollars. In 2032 it is 65%. (1.19/1.65) = 0.72. I rounded down to 0.7 and called it the best I could do.

Glad to see that you are fully aware of the delayed cola. At age 50 with 20 years, you would qualify for an early retirement, if offered. Something to hope for.

 

[Proteus126]

My main concerns with trying to get out this early is health insurance.

By resigning rather than retiring I'll be dropping out of the Federal health plan (FEHB) permanently. We are BCBS members. Comparable to an Obamacare Gold Plan, I believe. The annual premium is $16k or so, of which I pay 32% and Uncle Sam pays the rest. That deal continues into retirement, if one makes it to minimum retirement age, which is 57. No way I'm working 6 years longer than I want to for the sake of health insurance.

So, I will be on Obamacare.

Now, currently the rules for the Obamacare subsidy eligibility seem nuts to me. From the Kaiser Family Foundation Marketplace Calculator:
1. Premiums are $16k/year for a Silver Plan in Manteo, NC with no subsidy.
2. The subsidy kicks in if income is under 400% of the poverty level, ~63k. And they kick in hard!
3. If your income is $63,000, the subsidy is $0 and you owe $1306/mo.
4. If your income is $62,900, the subsidy is $805 and you owe $501/mo.
5. If your income is $55,000, the subsidy is $868 and you owe $438/mo.

WOW. A $100 difference in income can translate to a $10k hike in premiums for the following year? WOW.

So, normally I'd say to the forum "I plan to adjust my income to get a subsidy" and make wise-sounding noises.

But frankly I don't believe that the current precipitous subsidy phase-in regime will be in place for very long. I expect that they will flatten the subsidy kick-in, and that I will have to have a far lower income than $62,900 to see even a 50% subsidy on premiums. Like maybe an income of $45,000.

In other words, I think medical costs on Obamacare are difficult for me to predict. I am running my current simulations assuming I pay the full freight of $16,000/year.

As a result of this uncertainty, I think planning to manage retirement income is also difficult.

Regardless, I am beginning to think of how I can minimize my income in those years for tax and Obamacare purposes, and I have questions/thoughts:

Q: Are there any kinds of income streams that don't count in the total for Obamacare purposes? Some kind of special bond dividends, for instance? Roth distributions (my wife can begin taking distributions in 2021, the year I retire)? I assume her Social Security (2024+) would count for income in the calculation for Obamacare subsidy.

Q: Should I plan on building up a fairly large cash pile by selling some equities (done while working so I can pay capital gains taxes comfortably) and draw from that so I don't have to derive "income" from selling stocks, or having a large bond portfolio spewing excessive dividends at me?

Q: Is income the only metric they use for subsidy calculation, or do they take a peek at net worth? If not, is this likely to remain the paradigm going forward or will it be tweaked to spread the wealth around some?

Yes, I clearly need to talk to a financial planner.

I bet a lot of this is covered in the forums here and I will start digging. SO HAPPY that I found this place.

 

[Proteus126]

Based on what I have been able to quickly find, the ObamaCare subsidy calculation is based on MAGI - modified adjusted gross income. Roth income is not included in that number.

In retirement before we draw from SS, my FERS pension, or any of our non-Roth IRAs, our MAGI-qualifying income will come from:
- Interest
- Ordinary Dividends
- Capital Gains (which I can control)

OK, so it isn't too hard to keep those sources of income down below whatever the desirable level is to obtain a solid subsidy (call it MAGI < $50k).

However, we'd like to spend quite a bit more than that annually. Call it $30k. It appears that our sources for extra funds will have to be:
- Cash
- my wife's Roth
- Equities sold in a combination such that net capital gains are small or negative

Seems to me that I'll want a fairly hefty cash pile to give myself flexibility.

This can get a bit complex.

 

[jim584672]

ACA MAGI

Include:
Wages, salaries, tips, etc.
Taxable interest
Taxable amount of pension, annuity or IRA distributions and Social Security benefits
Business income, farm income, capital gain, other gains (or loss)
Unemployment compensation
Ordinary dividends
Alimony received
Rental real estate, royalties, partnerships, S corporations, trusts, etc.
Taxable refunds, credits, or offsets of state and local income taxes
Other income

Deduct:
Certain self-employed expenses
Student loan interest deduction
IRA deduction (traditional IRAs)
Moving expenses
Penalty on early withdrawal of savings
Health savings account deduction
Alimony paid
Domestic production activities deduction
Certain business expenses of reservists, performing artists, and fee-basis government officials

Add back certain income:
Non-taxable Social Security benefits
Tax-exempt interest
Foreign earned income & housing expenses for Americans living abroad

For Medicaid subtract:
Scholarships, awards, or fellowship grants used for education purposes and not for living expenses
Certain American Indian and Alaska Native income derived from distributions, payments, ownership interests, real property usage rights, and student financial assistance
An amount received as a lump sum is counted as income only in the month received

 

[Accidental Retiree]

And make sure the ACA calculator you use for premiums you'll pay is accurate.

The calculator on the California exchange was not accurate, as recently as February of this year;
the real cost of my premiums, for example, was an additional $200+/month, payable at tax time.