49, may have an option for a package. Is it Time?

[Time]

Quote:

Originally Posted by ivinsfan On your commercial property 100K and your private lending, you would either count the income or the value not both. Are you planning on selling the commercial property? How do you see yourself funding the income gap until 55, I think it's pretty tight. Say it takes all your taxable assets. From 55 until medicare you will have a heck of a time staying under the ACA cliff. Have you tried penciling that out? The minute you go over the cliff you lose all subsidies and pay rack rate. As you kids drop off your policy your cliff number will get smaller. Even with a subsidy, you have high deductibles, med costs, and dental costs so it's going to take cash. Don't count on having extra leftover money to fund private school for your kids. On your expenses side, I'm curious that you listed car replacement cost as an add on expense. How are you planning on paying for replacement vehicles? That has to get added to your number of 80K. You added the value of your rental homes to your portfolio and double dipped by adding back in the income. Or how did you figure it..I'm not clear on that. I know about this issue, we own farmland which jacks up our net worth considerably, but generate land rent, so we remove the land value and enter the rent as annual income for planning purposes. Good luck, but I'm not sure you are ready to quit work...

Regarding my commercial and rental investments, I’m only counting their property values in the total investments. I only mention the expected return for awareness. The returns are not double dipped. The return from the $2.21M investments will include those from the rental properties and need to cover all expenses which is $80K. Hope this helps clarify some of the questions.

Regarding the cars...we have two paid off cars that are 6 years old. We’re not looking to replace them any time soon. By saving an extra $300/month, we’ll be able to buy a replacement every 10-15 years. I agree that we’ll need to start these savings soon. Maybe not so much a discretionary expense and the $80K may need to be $84K.

I need to read a bit more about the ACA cliff to understand your question and be able to answer.

[Time]

Quote:

Originally Posted by Bamaman Your attention to detail is astounding. I don't know how you've done so well, and obviously you have very marketable job skills. We all know that so easy to get burned out in the high pressure jobs. But if you're offered a package, just say "Adios!' You don't have to put up with that job garbage any longer.

Thank you for your compliments Bamaman!

[RunningBum]

The ACA cliff for a family of four is $104,800 in 2021. When liquidating taxable assets, only the capital gain counts as MAGI. If they are only looking to spend $80K-$100K, income should be lower than that unless they generate more income than they need.

[ivinsfan]

Quote:

Originally Posted by RunningBum The ACA cliff for a family of four is $104,800 in 2021. When liquidating taxable assets, only the capital gain counts as MAGI. If they are only looking to spend $80K-$100K, income should be lower than that unless they generate more income than they need.

The problem will start when they are drawing tax deferred income for regular living expenses. It's 100% taxable. I agree they are probably fine with ACA while using taxable monies.


But my question was, the lower the taxable income the higher the ACA subsidy. Is it worth doing a Roth conversion if it lowers your ACA subsidy? A subsidy with a four person household can be a big number.

[RunningBum]

Quote:

Originally Posted by ivinsfan The problem will start when they are drawing tax deferred income for regular living expenses. It's 100% taxable. I agree they are probably fine with ACA while using taxable monies. But my question was, the lower the taxable income the higher the ACA subsidy. Is it worth doing a Roth conversion if it lowers your ACA subsidy? A subsidy with a four person household can be a big number.

That was a later question you asked in a different post. I was commenting on your question about the ACA cliff, which is a real and valid concern.

Regarding your question about Roth conversions vs. amount of subsidy, you lose something like 9.86% (that was my number in 2019) of your subsidy as you add income. So if you can later save 10% on taxes by converting now, doing the Roth conversion is better. It might also help them when kids start leaving, if they can withdraw the Roth for some living expenses at 0% taxes. Might not be able to do that until they are 59.5.

[Poopycat]

Everyone is writing as if the ACA is sticking around. Don’t count on it. Believe me, I hope it does because I can’t retire unless I have a health insurance option. But it is in a precarious situation at the moment. I’d wait until the results of the lawsuit are clear, or see whether you can qualify for private health insurance not tied to the ACA market and hope you’re not kicked off due to any pre-existing conditions should the worst happen. Some states will protect pre-existing conditions even if the ACA is overturned but the subsidy may go away. Nobody really knows for sure what is going to happen.

[pb4uski]

Quote:

Originally Posted by ivinsfan The problem will start when they are drawing tax deferred income for regular living expenses. It's 100% taxable. I agree they are probably fine with ACA while using taxable monies. But my question was, the lower the taxable income the higher the ACA subsidy. Is it worth doing a Roth conversion if it lowers your ACA subsidy? A subsidy with a four person household can be a big number.

He will likely have a lot of headroom for Roth conversions under 400% FPL. As RB mentioned, 400% FPL will be $104,800. He will have to look at various scenarios to determine where the sweet spot is but my guess is that depending on his income that he'll able to do significant Roth conversions and still get a very nice ACA subsidy. According to one ACA calculator, at at $84,800 of income the subsidy would be $17,088, at $94,800 the subsidy would be $16,104 and at $104,800 of income the subsidy would be $15,120.

And part of the reason for doing Roth conversions while living off of taxable account money is to have numerous layers of Roth conversions aging that can be withdrawn tax and penalty free after the taxable account money runs out in 7 years or so.

But he would have other options as that taxable account money is running out to carry him to 59 1/2... he could get some liquidity with a cash out refinance of his rentals and/or home and then start paying it off once he has penalty-free access.... or start liquiditating the rentals, 72(t), etc.

[Closet_Gamer]

I will be a voice of caution here.

It seems like you're very close on the numbers and a few things pop out at me:

1) Setting aside the recent article that low inflation may allow people to increase withdrawal rate, 4% is at the edge of what most people are comfortable with.

2) Firecalc is designed to catch this, but I think you have a fairly high sequence of returns risk right now. Interest rates are paltry, stocks are frothy, the economic runner is being pumped full of unsustainable steroids, and who know what happens with Covid. You my be looking at a local high on your assets for a while.

3) $24k of you income (25%?) is concentrated in some rental properties. That could introduce a lot of volatility to the income stream for any number of reasons.

If you can grab a great package out the door and that allows you to stiffen up all of the numbers, I'd grab it. But I would also have a realistic plan to knock down the spending and find a way to consult/bridge the income a few years.

I'm conservative by nature, so YMMV, but that's my $0.02.

Good luck!

[ivinsfan]

Quote:

Originally Posted by Closet_Gamer I will be a voice of caution here. It seems like you're very close on the numbers and a few things pop out at me: 1) Setting aside the recent article that low inflation may allow people to increase withdrawal rate, 4% is at the edge of what most people are comfortable with. 2) Firecalc is designed to catch this, but I think you have a fairly high sequence of returns risk right now. Interest rates are paltry, stocks are frothy, the economic runner is being pumped full of unsustainable steroids, and who know what happens with Covid. You my be looking at a local high on your assets for a while. 3) $24k of you income (25%?) is concentrated in some rental properties. That could introduce a lot of volatility to the income stream for any number of reasons. If you can grab a great package out the door and that allows you to stiffen up all of the numbers, I'd grab it. But I would also have a realistic plan to knock down the spending and find a way to consult/bridge the income a few years. I'm conservative by nature, so YMMV, but that's my $0.02. Good luck!

Agree with all and HI might be the real wild card here and not something you can do without. I'd also like to ask the OP, is your budget based on your actual spend in the last few years or on your wishing to stop work.

[ivinsfan]

Quote:

Originally Posted by pb4uski He will likely have a lot of headroom for Roth conversions under 400% FPL. As RB mentioned, 400% FPL will be $104,800. He will have to look at various scenarios to determine where the sweet spot is but my guess is that depending on his income that he'll able to do significant Roth conversions and still get a very nice ACA subsidy. According to one ACA calculator, at at $84,800 of income the subsidy would be $17,088, at $94,800 the subsidy would be $16,104 and at $104,800 of income the subsidy would be $15,120. And part of the reason for doing Roth conversions while living off of taxable account money is to have numerous layers of Roth conversions aging that can be withdrawn tax and penalty free after the taxable account money runs out in 7 years or so. But he would have other options as that taxable account money is running out to carry him to 59 1/2... he could get some liquidity with a cash out refinance of his rentals and/or home and then start paying it off once he has penalty-free access.... or start liquiditating the rentals, 72(t), etc.

You did the OP a solid with this post and the caveat would be he will need to watch his income like a hawk if doing RC. Any misstep over the cliff would be fatal....those I bonds are little tax bombs. If he converts I would recommend a bronze HSA plan to give himself some breathing room on the cliff issue.

[OldShooter]

Quote:

Originally Posted by Time Thanks for the insight OldShooter! As a Chief Officer, I’m as senior as you can get but there may not be as much negotiating in regards to the health coverage. Definitely good to know and find out!

Well, you already know this but I'll remind anyway: A dollar is a dollar of expense to the corporation, but the value of that dollar to you is more if it isn't taxed (as our HI subsidy was not). So even trading the corporation a W-2 dollar for an HI dollar may be to your advantage while being a don't care to them. Check the tax issue with your CPA of course.

[LarryMelman]

You are the best judge of your spending, and you say you've tracked it. However I think you've missed several things.

You are missing monthly expense categories for:
1. Medical expenses. None listed. To be conservative, plan for your annual out-of-pocket limit divided by 12.
2. Hobbies or recreation.
3. Travel. $250/month or $3K a year is not much.

You are missing irregular non-discretionary expenses. Things that don't happen every year but must be dealt with. Major home items like kitchen appliances, water heaters, roof repair or replacement. I put cars in this category too. I budget $1000/mo or $12K/year here - some years it's more and some years it's less.

In retirement you only bump up your existing categories. And not by much. And you have not considered anything new.
1. Again, no hobbies or recreation.
2. If travel is going to be your main hobby, $15K/yr seems way low.
3. Eating out "a lot" only increasing your budget by $400 a month? What's that, once a week at Applebee's?
4. Major discretionary home expenses that many folks put off until retirement, i.e. remodeling.

Your spending level seems much too high to qualify for health insurance credits. Based on your spending, your income will probably be way over the line to qualify for credits. And even if ACA survives, I really doubt that the credit system will. I am shocked that it lasted this long.

Regarding your uncertainty over taxes. If you are concerned about future tax rates, indeed no one knows that. But it you are saying you don't know how to estimate taxes, that you don't know how brackets work... that's on you. Learn it inside and out.

To me it seems that your current spending (when you add in the missing items I've listed) is too high, or your savings are still too low. Maybe both.

I don't know how you set up Firecalc, but your success numbers between 90-100% do not impress me. I ran my numbers in Firecalc about a year ago, and it told me I was 100% success with triple my expected spending. I really didn't believe it, and the tremendous uncertainty with health insurance has me continuing to work.

If you see a package coming, I would start planning my next job now. I don't know what a "c-suite exec" is or if you are qualified to do that for another company, but I would definitely start looking.

[Time]

Thank you everyone for your thoughtful feedback, caution as well as the encouragement! Larry, I lumped some of the expenses under other categories when I consolidated them for this post. For example, medical expenses are included under health insurance especially considering the credits. In terms of hobbies, I don’t spend much on them right now. For example, I have an exercise room with all the equipment I need, so I don’t pay for a gym membership. We’ll definitely spend more on travel when we know we can. Regarding taxes, I know how to calculate them, just don’t know what the future holds.

Not sure I understand this comment: “ Your spending level seems much too high to qualify for health insurance credits. Based on your spending, your income will probably be way over the line to qualify for credits. ”. Spending and income are two different things. I could spend money out of the savings accounts and have very little income after I stop working. My income will be limited to interest, capital gains, dividends and income from partnerships and rentals which will add up to something well below the ACA cliff. That is of course until I run out of $ in the the taxable accounts and need Roth conversions and/or 72(t). Am I missing something here?

[ivinsfan]

I think the comments about your spend are a concern you might be underestimating your annual spend due to your desire to er. That would have a lot of unpleasant consequences. From subsidies,to after tax issues,etc. If you have underestimated only you know if you can cut back as required..


They are just encouraging you to check and double check.

[Time]

Quote:

Originally Posted by ivinsfan I think the comments about your spend are a concern you might be underestimating your annual spend due to your desire to er. That would have a lot of unpleasant consequences. From subsidies,to after tax issues,etc. If you have underestimated only you know if you can cut back as required.. They are just encouraging you to check and double check.

Thank you and I agree with the concern. There is likely some of that and if I do lose my job in the short term without a package, I will start looking for another one. I might do the same even with a package so that I can double dip and ER sooner or be more prepared when I do.

[Finance Dave]

Your numbers are similar to what mine were when I left, but I was about 4 years older. A few points to think about:

1) We've been able to get the ACA subsidy by carefully managing income....you can probably do the same but I'm not sure how your taxable investments show up on your tax return such as the commercial property and P2P items.

2) You say you may not have the option to work longer...but if you are a C-suite person I'm sure you can find w*rk doing something for a couple years. Even if it only pays half or less of what you were making! If it comes with health benefits, add $15k/year to the salary they are paying you (that's about what your premiums would be). I started a handyman business and I am now making about $8k to $12k/year doing that. It doesn't sound like much, but I'm only working 4-8 hours/week and it's very flexible. You may be able to do some consulting or something like that. Remember that if you are self-employed (such as consulting), you can write off health insurance premiums against your income...another benefit.

3) If I were you, I'd be thinking of a strategy to keep AGI below the ACA limit for the next 15 years. Won't be easy if you want to live on $80k/year (we spend about $88k/year, not much different than you). In our case, I've used a HELOC loan to bring in money to allow us to spend without having it hit AGI. In addition, I selectively spend for upgrades on our 5 rental properties to minimize the rental profits. If you get into the October timeframe each year, and you think your income will be slightly over the ACA limit...do a bathroom upgrade on a rental or add new gutters and siding....the money will come back to you later in terms of higher rents or sale price, while reducing your income now!

I'd start building up your after-tax savings NOW so that you don't have to create AGI income once you're gone from MEGA-CORP and on the ACA.

Good luck and congrats!

[Finance Dave]

One other strategy you might consider is a "lumpy" AGI plan. What I mean is....

Oversimplified example to make a point...

Let's say your bank account is at $60k right now and you get laid off, and you know you'll need $80k next year to live on. Maybe you withdraw up to $171k from tax-deferred plans in 2021, which will put you at the top of the 22% bracket. That would disallow you from taking the ACA subsidy in 2021...BUT...then you could use the $231k ($60k you had in the bank plus the $171k you withdrew) to pay for living expenses for almost 3 years...and could get the ACA subsidy for those years....then you'd have to repeat. So periodically you'd have to pay the hefty premiums but in most years you'd get the subsidy.

Give that some thought and play with the tax brackets.

[ivinsfan]

Quote:

Originally Posted by Finance Dave One other strategy you might consider is a "lumpy" AGI plan. What I mean is.... Oversimplified example to make a point... Let's say your bank account is at $60k right now and you get laid off, and you know you'll need $80k next year to live on. Maybe you withdraw up to $171k from tax-deferred plans in 2021, which will put you at the top of the 22% bracket. That would disallow you from taking the ACA subsidy in 2021...BUT...then you could use the $231k ($60k you had in the bank plus the $171k you withdrew) to pay for living expenses for almost 3 years...and could get the ACA subsidy for those years....then you'd have to repeat. So periodically you'd have to pay the hefty premiums but in most years you'd get the subsidy. Give that some thought and play with the tax brackets.

This poster doesn't have that option,he's too young. I encourage a bronze ACA .with a HSA option to avoid the ACA cliff

[Retireby45ish]

Quote:

Originally Posted by ivinsfan This poster doesn't have that option,he's too young. I encourage a bronze ACA .with a HSA option to avoid the ACA cliff

I don’t quite understand this comment. How does his age have anything to do with him trying the above strategy? I’ve often pondered if this lumpy scheme would work too (though I haven’t run the numbers).

[ivinsfan]

Quote:

Originally Posted by Retireby45ish I don’t quite understand this comment. How does his age have anything to do with him trying the above strategy? I’ve often pondered if this lumpy scheme would work too (though I haven’t run the numbers).

He can get the money out but will owe taxes plus a 10% penalty for early withdrawal from a retirement account.