Being worth more at the end than the start

[Hermit]

I ERed in late 2008 when the markets were crashing. Despite spending about $24,000 per year in my budget, my portfolio has risen about 40% since late 2008, 8 years ago.


I have run Fidelity's RIP program several times and each time it shows me, under pessimistic conditions, that by age 92 I will be far wealthier than I am today (adjusting for inflation). This is mainly due to the reinforcements which will arrive when I am in my 60s. Those include unfettered access to my IRA (which won't make me any wealthier), SS, and my frozen company pension. And that doesn't count a reduction in my health insurance costs when I become eligible for Medicare in 12 years.


Maybe I buy a house in 10 years once those reinforcement arrive?

That's what I did. Started getting SS in mid-2014, bought my dream home in mid 2015.

Actually I did not exactly plan my home purchase with SS in mind. I had been looking for my dream home for several years, and happened to find it in 2015. Still, getting SS helped a lot once I finally found the home I wanted.

There are so many expenses involved in purchase of another home, selling, moving, fixing up, and so on. It's frightfully expensive IMO, more than I had anticipated so I'm glad I didn't spend any more than I did.

I'm drawing SS, a pension, and on Medicare. I can withdraw a little bit from IRA/401k, but any more and my costs will go up quite a bit for Medicare. If I withdraw what I need to finish building my house, my Medicare costs will go up substantially. For me, withdrawing from tax deferred accounts is anything but "unfettered". W2R, did you run into this problem in purchasing your dream home?

 

[Hermit]

One thing I have decided is that I don't want my kids to have to wait until I die to get some help. For example, if I can pay for some education that will give my child significantly higher earnings for the next 20+ years until I pass on, Is that not better than giving them a big pile of money in 20+ years? I think so. It's all relative of course, and depends on one's values and the needs and values of one's potential heirs.

OTOH, I will not pay for them to live higher on the hog than they can with their earnings. LBYM is something they seemed to have learned and are putting into practice, albeit, not always in the ways I would have chosen. But, my father would have said the same about me.

DW and I made that same decision before DW passed away over 7 years ago. It worked for DD, but DS is half way through year 7 in his undergraduate degree. He has another couple of years to go. Its hard to renege on a commitment made with DW. I did change his free support to loans that I am backing in the hopes that it will encourage him to complete his degree. Hence the issues in my post above. Sometimes LBYM is not so easy.

 

[W2R]

I'm drawing SS, a pension, and on Medicare. I can withdraw a little bit from IRA/401k, but any more and my costs will go up quite a bit for Medicare. If I withdraw what I need to finish building my house, my Medicare costs will go up substantially. For me, withdrawing from tax deferred accounts is anything but "unfettered". W2R, did you run into this problem in purchasing your dream home?

I withdrew from taxable. My TSP is my only tax deferred account, and it has strict restrictions on withdrawal. Even withdrawing from taxable, I miscalculated and my AGI was $2K over the limit, so my Medicare costs are going up. That's OK, I'll just cut back on something else.

At first I was really upset about it but my insurance and property tax are much lower than I expected, so it all balances out, at least sort of. Life is short and I'll choose to focus on how happy I am to be living in my Dream Home, instead of beating myself up about making a mistake that means more of my spending is on Medicare now than previously.

 

[Hermit]

I withdrew from taxable. My TSP is my only tax deferred account, and it has strict restrictions on withdrawal. Even withdrawing from taxable, I miscalculated and my AGI was $2K over the limit, so my Medicare costs are going up. That's OK, I'll just cut back on something else.

At first I was really upset about it but my insurance and property tax are much lower than I expected, so it all balances out, at least sort of. Life is short and I'll choose to focus on how happy I am to be living in my Dream Home, instead of beating myself up about making a mistake that means more of my spending is on Medicare now than previously.

My assumption is that your (or my) Medicare costs would go back down when income goes back down in following years. Will you take your tax return into SS to show that your income went back down and hopefully get your Medicare costs lowered as soon as possible?

I have considered breaking the first tier, but it would only net me $20k or so before taxes plus a few $k for increased Medicaid for the year. That is not much income gain for the additional expense.

As you indicated, this is not that bad a problem to have in the grand scheme of things.

 

[W2R]

My assumption is that your (or my) Medicare costs would go back down when income goes back down in following years.

I don't think that assumption is valid. The change in income has to match one of the reasons listed in the letter they send you. These are:

marriage
divorce
became a widow
spouse stopped working or lost income from income producing property due to a disaster
spouse's pension plan was reorganized, terminated, etc
spouse received a settlement due to employer's bankruptcy etc

Since I have been single for 19 years, none of these apply to my situation.

Also, they specifically state, "We cannot make a new decision if your income has changed for a reason other than those listed above, such as receiving one time income from capital gains". So, I think I'm SOL.

Will you take your tax return into SS to show that your income went back down and hopefully get your Medicare costs lowered as soon as possible?

Nope.

As you indicated, this is not that bad a problem to have in the grand scheme of things.

I think this is what my late father used to call a "character building experience". Oh well. I have survived worse I suppose. Besides, most people are spending a lot more than me on health insurance.

 

[nun]

If you can go into retirement with no debt and some income sources like a pension and/or a rental and are frugal then there's need to touch any savings or investments.

 

[NW-Bound]

My assumption is that your (or my) Medicare costs would go back down when income goes back down in following years. Will you take your tax return into SS to show that your income went back down and hopefully get your Medicare costs lowered as soon as possible?

I don't think that assumption is valid. The change in income has to match one of the reasons listed in the letter they send you. These are:

marriage
divorce
became a widow
spouse stopped working or lost income from income producing property due to a disaster
spouse's pension plan was reorganized, terminated, etc
spouse received a settlement due to employer's bankruptcy etc

Since I have been single for 19 years, none of these apply to my situation.

Also, they specifically state, "We cannot make a new decision if your income has changed for a reason other than those listed above, such as receiving one time income from capital gains". So, I think I'm SOL...

What?!? There's a cliff in Medicare too, and not just in ACA.

Whoa, there are cliffs everywhere. And some, once you fall down off, you can never climb back up. Once you are declared "rich" you get stigmatized forever.

Only in the US of A.

 

[NW-Bound]

Well, I just have to look although I still have a few years till Medicare.

It appears that when your income goes down in subsequent years, you will get readjusted when the lower income gets reflected in your tax return.

See: https://www.ssa.gov/pubs/EN-05-10536.pdf.

 

[W2R]

Well, I just have to look although I still have a few years till Medicare.

It appears that when your income goes down in subsequent years, you will get readjusted when the lower income gets reflected in your tax return.

See: https://www.ssa.gov/pubs/EN-05-10536.pdf.

See page 7, which I think lists the exact same original wording of the list of requirements I was summarizing above. It won't get readjusted unless you meet one of those requirements, right?

 

[NW-Bound]

Yes, but I think it is about getting an immediate reduction of Medicare premium when you have one of the listed life events.

For the case of capital gain income, maybe it has to be counted for the entire year before a readjustment downward.

I could be wrong, but was led to that thinking by the following statement. Note the word "monthly".

"you have new information and may need a new decision about your income-related monthly adjustment amount"

and

"If you filed a federal income tax return for the year in question, you need to show us your signed copy of the return..."

 

[W2R]

Yes, but I think it is about getting an immediate reduction of Medicare premium when you have one of the listed life events.

For the case of capital gain income, maybe it has to be counted for the entire year before a readjustment downward.

I could be wrong, but was led to that thinking by the following statement. Note the word "monthly".

"you have new information and may need a new decision about your income-related monthly adjustment amount".
and

"If you filed a federal income tax return for the year in question, you need to show us your signed copy of the return..."

Well, if they lower my Medicare premium when I report lower income, I would be extremely happy! That would be a VERY welcome outcome. Besides that, I think it would be very fair because my income truly will go down.

 

[Hermit]

I don't think that assumption is valid. The change in income has to match one of the reasons listed in the letter they send you. These are:

marriage
divorce
became a widow
spouse stopped working or lost income from income producing property due to a disaster
spouse's pension plan was reorganized, terminated, etc
spouse received a settlement due to employer's bankruptcy etc

Since I have been single for 19 years, none of these apply to my situation.

Also, they specifically state, "We cannot make a new decision if your income has changed for a reason other than those listed above, such as receiving one time income from capital gains". So, I think I'm SOL.


Nope.

I think this is what my late father used to call a "character building experience". Oh well. I have survived worse I suppose. Besides, most people are spending a lot more than me on health insurance.

I'm sorry I brought up what must be a somewhat painful reminder for you. Thanks for sharing though. I hope your experience will keep me (and others) from going down that path.

 

[W2R]

I'm sorry I brought up what must be a somewhat painful reminder for you. Thanks for sharing though. I hope your experience will keep me (and others) from going down that path.

Well, just don't cut it too close because one of your taxable funds might unexpectedly dump several thousand more in capital gains on you in December, than it usually provides in December. That was how I got pushed over the edge by just $2K. I cut it too close and then didn't keep tabs on things towards the end of the year.

 

[Hermit]

Well, just don't cut it too close because one of your taxable funds might unexpectedly dump several thousand more in capital gains on you in December, than it usually provides in December. That was how I got pushed over the edge by just $2K. I cut it too close and then didn't keep tabs on things towards the end of the year.

The good news is I don't have any taxable funds except cash which is rapidly dwindling. The bad news is all my funds are locked up in tax deferred accounts making it hard to get at without major dollar [-]penalties/taxes[/-] added fees. On the other hand, I have pension and SS to live on. RMDs will be interesting in the future. I am a few $k below the break point ($85K) so, hopefully, I will be OK this year.

 

[NW-Bound]

Anyway, I was curious about the step-up in Medicare premium. So I searched and found the following:

Income for Singles	Premium
$85,000 or less	$121.80
$85,001 up to $107,000	$170.50
$107,001 up to $160,000	$243.60
$160,001 up to $214,000	$316.70
Over $214,000	$389.80

So, if you bounce from the 1st to the last bracket, you are talking about an increase of (389.80-121.80) x 12 = $3,216/year max.

That is a nice sum of money, but compared to my ACA cliff, it's just a staircase step.

For me, if my next year MAGI goes from $64,000 to $64,100, my premium would go up $1,628 x 12 = $19,536/year. Now, that's a CLIFF!

And that MAGI is for joint income!!! And I have been spending WAY above that level.

 

[kgtest]

= $19,536/year. Now, that's a CLIFF!

And that MAGI is for joint income!!!

Wowsa. I'm going to go out on a limb and assume the quality of care you are receiving is not 4x as good as Medicare.

 

[Senator]

My children graduated with no student loans, and are now making a good living. Barring some catastrophe, they will do well without my help, the same way I did without parental help.

I can spend a lot more now, but I am so used to having a decent stash, just to look at for that feeling of security. Call me Scrooge, but a lifetime habit is hard to change.

I 100% agree. I plan on ramping up spending in future years, but it is hard to do. So far, no investment account WD, and I am still adding to it.

At some point, I suspect that a stripper who has not even been born yet may wind up with a large portion of it, although as I age, it is more and more likely she has already been born...

 

[NW-Bound]

Wowsa. I'm going to go out on a limb and assume the quality of care you are receiving is not 4x as good as Medicare.

Hell no!

There's only one insurer in my large metropolitan area of 4 million people. Its network does not have my existing doctor and specialist. And yet, both still take Medicare. I don't know if the doctors reject the insurer or more likely it's the other way around.

I am getting scr**** big time!

 

[Hermit]

This Medicare cost subject probably deserves its own thread, but if I understand this publication, the IRMAA will change with your annual income. It just takes a couple of years.

https://www.ssa.gov/pubs/EN-05-10507.pdf

 

[NW-Bound]

It's off-topic, but I'll just have to vent here.

Look at the Medicare premium increase of $3,216/year for a SINGLE income increase of $129K (from $84K to $214K). That's not even a step, but a shallow ramp.

ACA subsidy on the other hand drops off to 0, when your JOINT income goes a mere $1 above $64,080! A mere $1 and you pay $19,536 more.

And that's the law of the land!

PS. Note that this step-up in premium varies from place to place. The above applies at my location. Some other places may be worse.

 

[Danmar]

We've finally reached normal retirement age. We worked very hard, saved hard and want to enjoy our remaining years without everyone spending our retirement money. We'd like a little less drama and looking forward to be a little bored. The kids will have real estate to liquidate, and they'll be okay.

I certainly agree with your sentiment, especially given the background you provided about your kids. How will you "spend your nestegg down" or is that something you have decided on in theory rather than developing an actual plan?

Although, I am more inclined to help my daughter (who luckily has turned out remarkably well),I still need to develop a spend down strategy. Next year, for the first time, I intend to liquidate a portion of my portfolio and increase spending. Up to this point we have generally only spent dividends. Liquidations will start small, maybe only .5-1% of the portfolio and maybe only in "market up" years. 66 retired 10 years.

 

[DrRoy]

In one sense, it is just straight math. You spend less than your return over time and your investments are worth more. You also have to decide if you mean before or after inflation.

 

[traineeinvestor]

If you expect/hope your retirement will last for a long period of time, you almost have to plan on a basis that will result in your net worth ending up higher at the end than at the beginning. Anything else is a recipe for potential poverty and lot of worry.

In my case, DW was 40 when I retired, is healthy and, based on family history, has a good chance of living to 90 or beyond. Fifty+ years is a very long time for inflation and other events to have an effect - if I don't put myself in the position where income>expenses by enough to offset inflation then it is very likely that I will end up broke. If I do put myself in a position where income>expenses by enough to offset inflation then there is a very good chance that net worth will grow over time, possibly by a lot.

Just over three years in, our net worth has grown by 13.3% (slightly flattered by having two part time incomes).

 

[6miths]

One of the retirement tipping points for me was when FIRECalc went from 100% success to all of the end-values being equal or greater than the amount I was going to have when I pulled the plug. I'll be gone so it's not really critical to me but I'm hoping that this will be a good buffer.

 

[Toocold]

For me, if my next year MAGI goes from $64,000 to $64,100, my premium would go up $1,628 x 12 = $19,536/year. Now, that's a CLIFF!

Wow. No wonder there are so many threads here on how to reduce MAGI.