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Old 05-26-2020, 11:11 PM   #41
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.... So if I generate $20k income a year (from dividends + conversions to a Roth IRA) then when I file my taxes, I would have to pay the FICA tax, right?...
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Ah, didn't know that.

I used an online calculator which was estimating $2477 in income taxes on the $20k income: $780 federal, $167 state, $1530 FICA. I was accounting for the $2477 taxes within my $25k/annual expenses, but now realize that was a mistake, so this frees up quite a bit of cash.

I was hoping to be able to pay FICA in order to maintain SS disability eligibility. ...
Someone else can weigh in but I don't think you have to pay FICA taxes to maintain SSDI eligibility.... it doesn't make much sense... if you are disabled and can't work how would you be paying FICA taxes. Can you elaborate?

To be clear though, in order to get the 0% tax rate the dividends need to be "qualified" dividends... which are dividends from US corporations or US equity funds or ETFs... dividends from a money market or bond fund don't qualify. If the $7k in dividends were not qualified, then the $780 in federal tax that you came up with seems about right... but the $1,530 in FICA doesn't make sense since there is no FICA on dividends or Roth conversions.

If your $7k in current taxable account income doesn't qualify for the 0% tax rate, you could sell non-qualifying assets and buy qualifying assets in your taxable account and sell qualifying assets and buy non-qualifying assets in your tax-deferred account... your asset allocation ends up the same but your portfolio is more tax-efficient because it takes advantage of the 0% rate for qualified dividends.... so in your case you would save $700 a year.

This is why many of us here hold US equities in our taxable accounts and fixed income in our tax-deferred accounts.

Also see: https://www.bogleheads.org/wiki/Tax-...fund_placement
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Old 05-27-2020, 04:48 AM   #42
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Someone else can weigh in but I don't think you have to pay FICA taxes to maintain SSDI eligibility.... it doesn't make much sense... if you are disabled and can't work how would you be paying FICA taxes. Can you elaborate?

To be clear though, in order to get the 0% tax rate the dividends need to be "qualified" dividends... which are dividends from US corporations or US equity funds or ETFs... dividends from a money market or bond fund don't qualify. If the $7k in dividends were not qualified, then the $780 in federal tax that you came up with seems about right... but the $1,530 in FICA doesn't make sense since there is no FICA on dividends or Roth conversions.

If your $7k in current taxable account income doesn't qualify for the 0% tax rate, you could sell non-qualifying assets and buy qualifying assets in your taxable account and sell qualifying assets and buy non-qualifying assets in your tax-deferred account... your asset allocation ends up the same but your portfolio is more tax-efficient because it takes advantage of the 0% rate for qualified dividends.... so in your case you would save $700 a year.

This is why many of us here hold US equities in our taxable accounts and fixed income in our tax-deferred accounts.

Also see: https://www.bogleheads.org/wiki/Tax-...fund_placement
That is correct that one doesn't have to pay FICA taxes to maintain SSDI eligibility. My DGF does not work and continues to receive SSDI.
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Old 05-27-2020, 09:50 AM   #43
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I didn't do that on my projects. Maybe I'm just not an optimist, but it wasn't too hard to put projects in on time and on budget if the initial estimates weren't unrealistic. I wanted to spend my weekends outside, not working overtime to meet some unrealistic deadlines in a dreary office building.
My projects ranged up to a max of about $150M in 2020 dollars and a couple of hundred people. My working weekends wasn't much help when big problems arose. Though I did plenty of it from time to time.

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... That's scary. Thanks for the dose of reality. ... This is interesting. Just read some things about TIPS, and will read more on the rising equity glidepath.
Yes. Inflation is scary and IMO almost all retirees, including me, do not adequately consider it when looking ahead. In your case, the actuaries would probably give you a planning horizon of maybe 35 years. Over that period using 3% inflation, your 2020 dollar will be worth about 35 cents. At 4%? 24 cents.

A real crime, IMO, is selling naive people "fixed" annuities which could easily have deteriorated in purchasing power by 50% at the time the annuitant really needs the money.

Re TIPS, I am pretty much the outlier here I think, but 90% of our fixed income AA is in TIPS. High inflation is really the only financial event that could seriously wreck our retirement. Probability is arguably low; no body knows for sure. But impact is high, so it is worth worrying about. Maybe even a little paranoia.
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Old 05-27-2020, 11:12 AM   #44
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Once you get ssdi you don’t need to continue to work but to qualify you need a certain number of recent work credits ( obtained by working in a job where you pay into the system). The number of credits varies by age but a rule of thumb unless quite young is 5 out of the last 10 years. So when you have been not contributing for 5 years once that 6 th year starts you would get no new ssdi nor would you qualify for early medicare

My sister stayed home with her daughter and although she had lots of work credits from before did not have enough current when she was diagnosed with ALS ( otherwise an automatic qualifying illness)
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Old 05-27-2020, 03:03 PM   #45
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....

I haven't set up a Roth IRA yet: I was planning to do that once I FIRE and then do conversions from my Traditional IRA --> Roth IRA to generate $20k ordinary income to qualify for ACA subsidies.

(A question was raised about being more aggressive in the conversion to Roth IRA, so that is something I'd have to think about once the time came.)

I need to look more into the benefits of starting a Roth IRA now, rather than later, along with better understanding the distribution rules. But this year my income will -- unexpectedly -- exceed the max $137k for a single person, so I don't think I can fund it outright AFAIK apart from doing a conversion.

....
I'm a BIG fan of ROTH's (in Canada it would be TFSA and is even better) and the importance of getting the clock going on both types of accounts. Because nobody can predict the future, and maybe you will need/want it sooner than expected.

OP - you can set up a ROTH with zero dollars, and then as long as you have an IRA, do a conversion of $2.00 to put money into it right away.

Do this conversion each year of $2.00 to be sure the account is active, or if your earnings are low actually contribute instead.
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Old 05-27-2020, 04:25 PM   #46
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Thanks everyone for all the helpful advice and comments!

SS Disability Eligibility:

Regarding my question about SS disability:

I'm not collecting SSDI right now, but if I were to become disabled today, then I would be able to collect $3136/month payments since I have enough accumulated work credits.

However, if I were to quit working today (and so stop paying FICA taxes) then my eligibility for SSDI -- should I become disabled at a future date -- would eventually cease since I would have stopped accumulating work credits. I didn't know this.

From the SS website:

In addition to meeting our definition of disability, you must have worked long enough and recently enough under Social Security to qualify for disability benefits.

..etc.etc..

Remember that whatever your age, you must have earned the required number of work credits within a certain period ending with the time you become disabled. If you qualify now but you stop working under Social Security, you may not continue to meet the disability work requirement in the future.

https://www.ssa.gov/planners/disability/qualify.html

This is also what Sarah sadly pointed out:

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...snip... So when you have been not contributing for 5 years once that 6th year starts you would get no new ssdi nor would you qualify for early medicare

My sister stayed home with her daughter and although she had lots of work credits from before did not have enough current when she was diagnosed with ALS (otherwise an automatic qualifying illness)
Summary:

I'm going to continue working for as long as I can until shown the door. If it comes this year, then I'll have to seek other employment opportunities, which is rough in my industry at 51 years old. Failing that, I'll try to "retire" on a $25k to $30k annual spend as discussed in this thread and hope for the best.

In the mean time I'll try to work on a less riskier AA but one that isn't too risky. I know so little about finances, and there is so much to learn.
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Old 05-27-2020, 05:33 PM   #47
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I guess that I'm confused. I thought you were planning to retire.

You never really disclosed how much you spend now.

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.... I'm in the software industry and the writing is on the wall that my career is unlikely to last much longer, so I've been in the severe savings mode for many years now. I'm ready to retire, especially since I have several low-cost hobbies and other interests to pursue. Travel doesn't interest me since I love the mountains where I live where life and history is affordable and rich!

Here is my plan for funding retirement for the next 11 years before I can take SS & pension at age 62. ....
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Old 05-27-2020, 06:02 PM   #48
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I guess that I'm confused. I thought you were planning to retire.
Me too. It sounds like he's now saying "but if I stay working and become disabled I'll get paid more" vs. retire now, become disabled and no longer qualify for SSDI? Well ok yeah but if you can retire then lack of SSDI potential is not a factor (I've literally never read anyone with that in the "reasons not to retire" column")
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Old 05-27-2020, 06:06 PM   #49
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Well, comments from the past few days has helped me think of things I hadn't considered.

Although some comments + firecalc suggests otherwise, it seems too risky to proactively quit my job while there is still money on the table. Better to wait to be laid off, which seems most likely this year, if not next.

I need time to think about risks involved in formally retiring: i.e. points made about inflation severely eating away at my savings & unknown risks of ACA / medical & risks of losing SSDI eligibility due to lack of work credits (should I become disabled). These are pretty serious considerations.

Hope this is clear!
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Old 05-27-2020, 07:27 PM   #50
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$25k/yr spending, are you sure what is correct? What if you don't stay single?
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Old 05-27-2020, 09:13 PM   #51
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Seems like you're trying to game SSDI because you don't think you have enough to retire.

And you still haven't disclosed how much you spend. Are you a troll?
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Old 05-28-2020, 04:00 AM   #52
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Why are you so concerned about SSDI?
Do you feel like you will become disabled?
Most retirement plans don't center around concerns of SSDI, unless one is already or expects to be in that status.
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Old 05-28-2020, 08:28 AM   #53
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... I know so little about finances, and there is so much to learn.
No worries. One of the reason investing looks complicated is that it is in the industry's best interest to intimidate and confuse its customers. Most of us here have broken away from that, but for all the complicated blather we love to post and argue about, successful investing is quite simple. Here is my standard recommended reading list:

First, two mandatory reads.

  • "If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download) This one is really aimed at younger people but it is free, it's an easy read, it has reading recommendations, and it will give you a taste of how easy this really is.
  • "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ Bill is about life balance. Its an easy and very worthwhile read. He even gives you a recipe for pumpkin pie. Hard to go wrong with that.

These next books are classics. Read the samples at Amazon and pick one or two of them that feel comfortable for you.


When you finish this list, you will know more about investing than many registered reps, including some stuff that they do know but would never tell you.
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Old 05-28-2020, 10:32 AM   #54
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Well, comments from the past few days has helped me think of things I hadn't considered.

Although some comments + firecalc suggests otherwise, it seems too risky to proactively quit my job while there is still money on the table. Better to wait to be laid off, which seems most likely this year, if not next.

I need time to think about risks involved in formally retiring: i.e. points made about inflation severely eating away at my savings & unknown risks of ACA / medical & risks of losing SSDI eligibility due to lack of work credits (should I become disabled). These are pretty serious considerations.

Hope this is clear!
SSDI is long process and hard to get approved. Only those truly disabled should consider SSDI. I don't know your status on this matter
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Old 05-28-2020, 12:51 PM   #55
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Thanks OldShooter for the references! Your advice has been extremely helpful and is much appreciated.

Regarding SSDI: hoping to not need it -- especially if I retire and eventually lose eligibility -- but my uncle was recently diagnosed with Parkinson's, though no one else in the family has it yet. His symptoms aren't severe enough to qualify for SSDI.

Thanks again...
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Old 05-29-2020, 04:10 PM   #56
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You qualify as an accredited investor so could more easily get into Private Equity and get better interest rates with loans. I'm getting 10%-13% interest on loans and have built up interest/dividends to cover expenses, though not drawing from that yet.

I'd put your cash to work rather than burn through it.
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Old 05-29-2020, 04:50 PM   #57
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You qualify as an accredited investor so could more easily get into Private Equity and get better interest rates with loans. I'm getting 10%-13% interest on loans and have built up interest/dividends to cover expenses, though not drawing from that yet.

I'd put your cash to work rather than burn through it.
Yes, OP. Not only can you get rates that ring alarm bells, the risk is not diversified. Just sign on the dotted line.

You have to ask yourself why anyone would pay this kind of interest unless they were completely frozen out of not only the regular loan market but also out of the asset-based loan market. Teeth-grinding risk and no assets, maybe?
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Old 05-29-2020, 06:12 PM   #58
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How much liquidity does one need to become an accredited investor?
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Old 05-30-2020, 01:59 AM   #59
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^Requirements here...
https://www.investopedia.com/terms/a...edinvestor.asp

I've been doing private equity since 2014 with pool of other experienced PE investors who vet the opportunities. Started small with $50K case investment, last few years have been converting 401K/IRAs to Self-Directed IRAs, allowing IRAs to get into PE.

Now spread about 18 active PE investments/loans and 3 previous loans that have exited. Loans are generating more than enough interest to cover expenses though not drawing from yet, currently re-investing. Am no longer in stock market, no plans to get back in. More about my path here. Many PE opportunities require accredited investor status, some do not.
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Old 05-30-2020, 08:19 AM   #60
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^Requirements here...
https://www.investopedia.com/terms/a...edinvestor.asp

I've been doing private equity since 2014 with pool of other experienced PE investors who vet the opportunities. Started small with $50K case investment, last few years have been converting 401K/IRAs to Self-Directed IRAs, allowing IRAs to get into PE.

Now spread about 18 active PE investments/loans and 3 previous loans that have exited. Loans are generating more than enough interest to cover expenses though not drawing from yet, currently re-investing. Am no longer in stock market, no plans to get back in. More about my path here. Many PE opportunities require accredited investor status, some do not.
So ... I will ask you my question:

Why would anyone pay this kind of interest unless they were completely frozen out of not only the regular loan market but also out of the asset-based loan market? Teeth-grinding risk and no assets, maybe?"

Also, what is the average size of these loans?

If I understand you correctly, you are not doing private equity. You are making or buying private loans. The difference is that a loan has no real upside potential; your return is simply the payments.

I have been accredited for maybe 35 years and have made a number of private equity investments, all but one reasonably successful. There was a period around 1980 when interest rates were crazy where I did buy and make money on a few residential financing loans, but nothing very big. Sub-$100K kind of numbers. But that was then and this was now.
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