Greetings!!!

[chad.sfds]

Hello everyone. I've been checking the site out here and there for a while, read the FAQ, run the FIRE calculator. I am 49 and paid my house off 3 months ago and am 100% debt free. Little background.....my father was a blue collar, hard working guy that got into the stock market in the 80s (I remember him VCR recording wall street weekly every friday nite) and made long term investments and was able to retire when he was 48 by being wise with his money and living below his means (still very comfortably). He also came from a different era where there were pensions and free/affordable health care extended after retirement to bridge him to Medicare.
I am still working a very stress free and enjoyable job and have 55 in my head, for whatever reason, for retirement. If not full retirement, a reduction in hours to part time with an option to maintain my health care. I will evaluate closer when the time comes, but I am starting to get my ducks in a row with transitioning my portfolio potentially in 5 years. With that comes a number of changes and questions.
Over the last 23 years, the bulk of my investments have been traditional 401k. In these last 5 years, I have started doing a backdoor roth, mega roth (roth dollars after max 401k) and an HSA strictly allocated to investing. Additionally, have been buying ibonds and also have a cash account earning some interest in fixed rate fund and money market. All my accounts are with Fidelity.
I really have three areas that I am going to need to either learn about on my own or engage with an advisor at some point. (1) Roth conversions, (2) income generating investments (portfolio diversifying) and (3) health insurance.
(1) I love the idea of having tax free growth for decades as well as ability to pass on tax free inheritance to my son. With that said, I don’t want to be foolish about the conversions and pay more taxes now than I would later. This does not seem to be straight forward. On one hand, it ostensibly seems like it should be. I am probably in my highest earning years presently. My gross income can/will drop pretty drastically and I'd still be able to have the same spending income with alot less taxable income. This makes me feel like if I begin conversions now (maxing the amount up to the 24% bracket limit), that I will be paying more taxes than waiting until later. With that said, i I have not really found an intuitive calculator to get a good perspective on this.
(2) The bulk of my investments are in large cap, index equity funds and company stock. I will need to adapt this to income generation and I am guessing less aggressive investments in the future to avoid the big down swings I experience now when the market is down. Atleast, that is how it feels. There's so many investment options, it seems daunting to even begin researching all the options. This is where an advisor seems attractive.
(3) I've been blessed to have led a healthy life so far and only go to the doctor for maintenance interval things (yearly checkups, blood work, skin checks etc). I'd intend to find a high deductible plan, but have no idea what the private premiums costs can/will be.
I know there's more, but this was long-winded enough so wanted to join the board, provide some background and post the three big topics I see trying to learn about over the next coming years. Cheers everyone....

 

[omni550]

Welcome aboard, Chad! Sounds like you were raised by a smart dad, and "the apple doesn't fall far from the tree".

There are tons of knowledgeable and helpful people on this forum. Post your questions and you'll get a lot of good information.

omni

 

[MRG]

Welcome to the forum. There's a wealth of information here many people who can help.

 

[38Chevy454]

Welcome to the forum. As stated, lot of good knowledge here. Sounds like you are preparing well, and you are right that paying tax on conversions now does hurt a bit more since it adds to your job income.

I suggest you start some Roth now, whether through payroll deduction or as conversion. Get that 5 year clock window started now if you do not already have a Roth account.

You can get some great advice if you ask specific questions and provide some detail. Plus just read a bunch on here and you will help educate yourself, which will pay off from now and rest of your life.

 

[Out-to-Lunch]

Welcome aboard!

 

[pacergal]

Welcome to the Forum.

 

[MarieIG]

Greetings Chad. Welcome to the Forum. We hope to hear more from you in the future.

 

[PointBreeze]

Welcome! The Affordable Care Act Insurance can have quite low premiums if you manage your taxable income appropriately. I’ve kept my taxable income in the mid-20s to mid-30s and use after-tax money for the rest of my spending, and my premiums have ranged from as low as $1.77/month to $225/month over the years, and this is for Gold plans, not high-deductible. Premiums are artificially low right now (have been since 2021) because of Covid, and may well rise again after 2025.

My main advice to you re: health insurance is plan to have adequate after-tax savings to ensure that your taxable income remains low enough so that you can ‘afford’ your premiums.

Good luck!

 

[chad.sfds]

Welcome! The Affordable Care Act Insurance can have quite low premiums if you manage your taxable income appropriately. I’ve kept my taxable income in the mid-20s to mid-30s and use after-tax money for the rest of my spending, and my premiums have ranged from as low as $1.77/month to $225/month over the years, and this is for Gold plans, not high-deductible. Premiums are artificially low right now (have been since 2021) because of Covid, and may well rise again after 2025.

My main advice to you re: health insurance is plan to have adequate after-tax savings to ensure that your taxable income remains low enough so that you can ‘afford’ your premiums.

Good luck!

Hi - thanks for that. I think I am aware what your talking about via a friend from work that retired and utilizes this. You receive credits from the gov as long as your taxable income is below a certain amount (not to dare go a penny over). I do intend to look into this as time gets closer.

I assume by after tax savings, you mean Roth? I do wish in hindsight I had started roth younger, but I am looking at starting conversions this year to add to that. I will ask about conversions in its own thread in the correct forum. thank you.

 

[PointBreeze]

Doesn’t have to be Roth. Could just be a brokerage account. In fact, a brokerage account is preferable to a Roth account, because you want to leave $$ in your Roth as long as possible, since all the growth is tax-free.

So I strongly suggest saving a chunk of money outside of tIRAs and outside of Roths. If you don’t have one, open a brokerage account at Fidelity, Vanguard, or Schwab and put money in every month. Then plan to use that $$ plus some tIRA $$ in the years before you start Medicare, to titrate your income to make the ACA premiums affordable.

 

[chad.sfds]

yes I have had an individual/brokerage acct with fidelity for some time. I shuffle my bank account cash into a floating rate fund that is flat, but pays dividends to earn something (vs 0.05% from credit union) and recently the MM has been paying 4%. You're suggesting putting idle cash in this acct to sit and do minimal interest/nothing but sit there to supplement IRA income? I get that up to a certain $$ amount and then you're just leaving money on the table if its sitting there for next year/year after/after/after to take from a cash acct. I'd need to see an analysis on pre medicare health care costs (12k a year) vs leaving low interest earning cash in a brokerage acct to see that comparison.

You said you are in the 20s and 30's for taxable income. Lets assume you are supplementing that with after tax cash at 50k a year to reach the average retired income expenses of ~ 70k. That's alot of cash sitting in a minimal interest bearing acct to supplement 12k a year of health care costs, that could be earning money. Maybe I am missing something.

 

[PointBreeze]

You can invest in just about anything in a brokerage account. CDs, bonds, mutual funds, ETFs. I don’t have any money in a ‘minimal interest bearing acct’ in my brokerage account. It’s all invested. The money I expect to spend in the next five years is in bonds and CDs, now earning 4%-5%. Longer term money is primarily in equities.

All I’m saying is that having money in after tax accounts has been very beneficial to me in my ‘gap’ years before Medicare, and I wish I had known to have more.

 

[Aerides]

That's alot of cash sitting in a minimal interest bearing acct to supplement 12k a year of health care costs, that could be earning money. Maybe I am missing something.

Nothing about sitting idle.

When we retired about 1/3 of our assets were in taxable brokerage accounts. Invested mostly similarly to our non-taxable 401ks - ie, index funds, other investments. We had 13 years ahead of us before 59.9, with no option to use the rule of 55.

So for many years as part of our planning, after we maxed our 401ks we made contributions to our taxable savings brokerage accounts, and invested there. Roths can apply to some of this as well.

Point being, too many folks get to their "number" a few years earlier than 59 and go...hmm... how do I get at my money when I need it now. There are many ways, and few of them mean your money sits idle - though of course many of us keep a couple of years of expenses in cash/CD's/liquid so we don't have to sell equities at a non-ideal time.

 

[chad.sfds]

OK. Thank you. I am starting to see the strategy now. Am I correct to understand that, in good market years, you'd be selling long term investments for a gain to generate required income at 0% capital gains and then in down years use the cash/CDs/liquid so as to not have to sell, as you said, at non-ideal times?

pointbreeze the confusing part for me still when you say - The money I expect to spend in the next five years is in bonds and CDs, now earning 4%-5%.

Aren't you paying taxes on the earnings? Confused how this would be your supplemental after tax $$ to the 20-30k taxable you mentioned. Or, are the earnings part of the taxable and you're using the principal as the non-taxable? Thanks for the insight from all.

 

[PointBreeze]

Yes, the earnings are taxable, but since my AGI is so low, my tax rate is low as well. My feeling is guaranteed 4-5% return with no chance of loss of principal is great for this portion of my portfolio. And I sleep really well at night