Don't want to hijack this thread but it brings up a point we are considering now. We are currently in the 15% tax bracket. We are looking to get a ACA subsidy if BCBS doesn't renew our non-ACA compliant policy so we were thinking of converting some of our IRA into a Roth this year. We were thinking of using the conversion to reduce RMDs in the future. Anyone have a way to determine how much makes it worthwhile if it pushes you to the 25% or greater tax bracket? We are both 59.
CorporateORphan:
Very good to see your post on this subject. My wife and I are both 59 and have a similar situation. Our spreadsheet maps the route well. Yes, some things will surely change, but even if they do I see that we're in nice shape.
We FIRE both of our employers at the end of 2017. We'll have 70% of our assets in tax deferred accounts ( taxable IRAs). We will be maxing out the 15% tax bracket in staying as tax-efficient as possible. Age 70 and later, as new revenue sources enter (MRDS, small non-COLA pensions and Social Security), we see 15% tax bracket headroom during IRA draw down almost go away. THEN the 2033 (or whatever year this happens) Social Security REDUCTION to 75 cents on the dollar comes to the rescue and allows us much new room to:
a. Stay in the 15% tax bracket
b. Chip away and continue the draw down of the remaining $313k in taxable IRAs
c. Watch the MRDS go DOWN each year due to reduced tax deferred $$
Who would have thought that we would benefit from the Social Security 75% reduction? Cool!
Our current FIRE timeframe is EOY 2017. We've been holding off retiring due to our only child (son) still in college. He graduates in May of 2017. We want to make sure he gets a good launch.
We may decide to FIRE our employers at the same time our son graduates. If so, it would be a double graduation party! Our son graduates from college and we graduate to life after working or retirement!
Feel free to contact me directly if you feel that I could help you. Things that we share:
a. Ages, 59, for us and spouses
b. Desire for ACA subsidized healthcare before Medicare happens
c. Need to drawdown and/or convert taxable IRAs
d. Desire to remain as tax efficient as possible. For us this means staying in the 15% tax bracket during the draw down period.
e. I was a corporate orphan twice. A non-profit job currently keeps me busy.
Oh, the information that comes with being about to project your financial situation into the future. Yes, there are risks involved with this and again, yes, things will surely change. Understood.
However, there is nothing more powerful and comforting when answering that haunting question for yourself: "Will we have enough to retire on". I can say with certainty that YES, we will!
So, anyone who hasn't already started your own spreadsheet, don't put it off any longer. It provides VERY powerful information and real peace of mind. Get started today!
P.S. During MRD calculations don't forget that Soc Sec is taxed at a MAXIMUM of 75%. Don't have it in your spreadsheet as 100% taxable as I did initially. Also MRDs, year one, start at 3.7% of your taxable IRA balance, increment by .2 per year, so 10 years later are 5.5%...
Good luck and go speadsheeting! They truly become a labor of love.
- Gary
