Retired in Key Largo but Wifey wants out...

[Vacation4us]

Where will the in laws go? Is the extra $500 a month worth making them move? Known renters may be a better guarantee than unknown strangers paying more.

IMHO

 

[Homeby5]

Where will the in laws go? Is the extra $500 a month worth making them move? Known renters may be a better guarantee than unknown strangers paying more.

IMHO

Their health is really bad. Looks like they will be going in a care facility soon. But wife won't retire until that happens.

 

[Homeby5]

Agree with kgtest that you need to consider healthcare options and costs.

My healthcare is covered because I am on Medicare. As far as wife's....glad you asked. W
We met with an Obamacare specialist (Basically in the Keys the only health care is BCBS Florida Blue) and she told us that my wife would get Obamacare for free if we keep our AGI under $25K and it will be $468 if our AGI is up to $67K.
Now..I think we can keep our AGI around $25K because for the first 7 or 8 years we can make our withdraws from our ROTH IRA's. This means none of that is considered taxable income. Sooo..the only taxable income until our age of 62 will be my SSDI. We won't claim rental income because we don't want to register with Monroe County.
So....the bottom line is that our health care should be covered until at least my wife can get Medicare.

 

[pb4uski]

...We won't claim rental income because we don't want to register with Monroe County. ...

So after saving and now being on the precipice of retirement you're going to risk it all going to jail for tax evasion?

 

[LiveBelowMeans]

You have a lot of your assets in Key Largo real estate. I would consider selling the condo and investing the $$ into something else to spread the risk. One hurricane in the area and you may be in trouble. How is your insurance?

 

[Homeby5]

You have a lot of your assets in Key Largo real estate. I would consider selling the condo and investing the $$ into something else to spread the risk. One hurricane in the area and you may be in trouble. How is your insurance?

It's not a condo. It's a home that has an attached separate 1000sf apartment. Remember...I am in the Keys where rental rates are sky high....
As far as insurance...I don't carry wind or flood. I built the home and it's engineered to withstand 180 mph sustained winds. And I am on stilts 15ft above mean high water. I'm pretty safe but you never know. It's a gamble but I made it through IRMA with absolutely no damage. Also...wind insurance carries a $25k deductible so even if my roof rips off...I wouldn't get a cent.

 

[Homeby5]

So after saving and now being on the precipice of retirement you're going to risk it all going to jail for tax evasion?

Nah...I would normally agree with you but not where I live. You would have to understand Monroe County and the Communistic real estate laws. Down here everyone rents out anything and everything. People even rent out 200sf tin sheds in their yard for $800 per month illegally.
Basically, I have a brand new 1000 sf apartment attached to my home with a kitchen that wasn't on the plans because Monroe County only allows one sink per residence. yes....I can register to rent it, pay income tax but I don't want a surprise inspection and have to rip out a $30,000 Kitchen. So I simply rent it and while I don't claim the income...I also don't claim the depreciation and expense for anything that cost me. Kinda a wash...
I may change though......not sure.

 

[pb4uski]

If you file a Schedule E for the rent (and expenses and depreciation) how is the county going to know?... the county is not privy to federal income tax returns.

 

[ncbill]

So after saving and now being on the precipice of retirement you're going to risk it all going to jail for tax evasion?

?

currently parents are gifting $1300/month to OP...that's not taxable income (no need to report for mAGI)

that's well below the annual gifting limit for two people.

nothing wrong with the above.

 

[pb4uski]

?

currently parents are gifting $1300/month to OP...that's not taxable income (no need to report for mAGI)

that's well below the annual gifting limit for two people.

nothing wrong with the above.

They might be able to get way with saying what the parents pay them for rent is a gift for now (I suspect that the IRS might not agree*) but the OP indicates that the parents won't be there for long and after that they will rent it out.... and that is what I was responding to.

Yeah....except it's $2500 + $2100 SSDI + $1800 rental income (parents will be gone when wife retires). Then another $1300 SS for wife at age 62 or so in todays dollars. ...

*ETA: I'm not sure if what you suggested really works... it gets pretty complicated pretty quick:

When a home is rented for fewer than 14 days during the tax year, the home is considered a personal residence. Mortgage interest and real estate taxes may be deducted as itemized deductions on Schedule A, and the owner is not required to report rental income.

When you rent a home to a relative, such as a spouse, child, grandchild, parent, grandparent, or sibling, any day rented at less than the fair rental price is considered a personal use day. To avoid having the rental days considered personal days, the property must be rented at fair market rates and be the renter's principal residence.

The issue, in this case, is that the parents want to offer dear daughter a bargain, charging her less than fair rental value. If they go this route, they will have to allocate expenses between personal and rental expenses. All of the days the home is rented to the daughter at less than fair rental value are considered personal days, so the rental portion is zero. They would have to include all of the rental income received from their daughter in taxable income, but none of the rental expenses would be deductible, other than mortgage interest and real estate taxes, which would be deductible as itemized deductions on Schedule A.

 

[bolt]

Nah...I would normally agree with you but not where I live. You would have to understand Monroe County and the Communistic real estate laws. Down here everyone rents out anything and everything. People even rent out 200sf tin sheds in their yard for $800 per month illegally.
Basically, I have a brand new 1000 sf apartment attached to my home with a kitchen that wasn't on the plans because Monroe County only allows one sink per residence. yes....I can register to rent it, pay income tax but I don't want a surprise inspection and have to rip out a $30,000 Kitchen. So I simply rent it and while I don't claim the income...I also don't claim the depreciation and expense for anything that cost me. Kinda a wash...
I may change though......not sure.

Monroe County has a law going into effect in 2023 effectually stating no new* footprinted building allowed. Numerous hotels went up in the last 5 yrs. As far as I understand it. I was chatting w/2 properly licensed Monroe County builders-contractors just yesterday.

More than one complaint filed by X*, on anything shady, is usually reviewed.
If your coloring outside the lines and its working for you I'd keep it quiet! But that's just me.

 

[StuckinCT]

I'm pulling about $2100 a month from SSDI. And yes the parents are kicking in 1300/month now.

I've plugged in the numbers in two calculators and talked to a "professional" money planner and all agreed that I was more than OK. Now...I won't be worth millions at age 85 but who cares?
I think the kicker is I should only be taking out $30,000/year or 6% WR of my base for about 6 years. This is when we are young enough to enjoy retirement by travelling. In six years...at age 62, I will reduce it to about $15,000/year or 3% WR of my base. Plus...my fail safe is my homes value (right now $800,000) that I can dip into the equity if I absolutely need to. I don't plan on leaving a million plus to my kids all the while having my wife to work longer. If I can use the equity in my home and leave my kids less....so be it.
Finally....I don't need $6k a month to live. That's giving me about $2000 a month to spend on travel. As I get older and/or things turn south....I can live on my income stream (both my wifes and my SS and my rental property) without pulling any money out of my retirement funds if I had to to get through down years.

Am I missing something obvious? I want to pick your brains.

I agree with other comments, a 6% WR is over the speed limit. Unless you have health issues and can't work, I would keep the WR at 4% until you claim SS.

 

[pb4uski]

I agree with other comments, a 6% WR is over the speed limit. Unless you have health issues and can't work, I would keep the WR at 4% until you claim SS.

WADR, the 6% initial WR isn't relevant... it is the OP's ultimate WR that is most relevant. See post#6... the OP states that the $30k in withdrawals (6% of $500k) will decline to $15k after 6 years.

So if you start with $500k and reduce it for the excess withdrawals (($30k-15k)*6 years=$90k) you have $410k left. A $15k annual withdrawal on $410k is only a 3.66% WR.... well within bounds.

 

[Dtail]

WADR, the 6% initial WR isn't relevant... it is the OP's ultimate WR that is most relevant. See post#6... the OP states that the $30k in withdrawals (6% of $500k) will decline to $15k after 6 years.

So if you start with $500k and reduce it for the excess withdrawals (($30k-15k)*6 years=$90k) you have $410k left. A $15k annual withdrawal on $410k is only a 3.66% WR.... well within bounds.

Big +1
I am waiting at least until 66 for SS, but will have a 4.6%WR for at least 3 years. Not quite 6%, but still.....
However my ultimate WR is 2.89%. I wouldn't be comfortable right now with a lifetime of 4.6%WR planned.

 

[ivinsfan]

My healthcare is covered because I am on Medicare. As far as wife's....glad you asked. W
We met with an Obamacare specialist (Basically in the Keys the only health care is BCBS Florida Blue) and she told us that my wife would get Obamacare for free if we keep our AGI under $25K and it will be $468 if our AGI is up to $67K.
Now..I think we can keep our AGI around $25K because for the first 7 or 8 years we can make our withdraws from our ROTH IRA's. This means none of that is considered taxable income. Sooo..the only taxable income until our age of 62 will be my SSDI. We won't claim rental income because we don't want to register with Monroe County.
So....the bottom line is that our health care should be covered until at least my wife can get Medicare.

One from column A and one from column B..or you want to have your cake and eat it too. pretty it up how ever you like you call it rental income that you don't want to pay taxes on and then blame it on the county you live in. That fact you don't claim deductions on it doesn't mean it isn't income. In your shoes wanting ACA for your spouse for 10 years I'd clean all that up now. Not only could you owe back taxes and penalties it can decrease your ACA subsidies a double whammy.

If you need to do all these things for your spouse to stop working, you guys are not ready to stop working. Keep working your numbers but keep them above board.

 

[WyomingLife]

One from column A and one from column B..or you want to have your cake and eat it too. pretty it up how ever you like you call it rental income that you don't want to pay taxes on and then blame it on the county you live in. That fact you don't claim deductions on it doesn't mean it isn't income. In your shoes wanting ACA for your spouse for 10 years I'd clean all that up now. Not only could you owe back taxes and penalties it can decrease your ACA subsidies a double whammy.

If you need to do all these things for your spouse to stop working, you guys are not ready to stop working. Keep working your numbers but keep them above board.

+1

Additionally, nobody is anonymous on the internet. I'd assume tax authorities read boards like this. They probably also have investigators, at least I hope they do.

 

[Gumby]

My impression from the OP's explanation is that it is not a tax issue. Rather, it appears that he has an illegal rental unit. If discovered, he faces penalties for doing that and could be forced to remove the kitchen in the rental. Apparently, water supply and wastewater treatment is a huge issue in the Florida Keys, and the local government is strict about putting increased burdens on the system. OP please correct me if I misunderstood.

+1

Additionally, nobody is anonymous on the internet. I'd assume tax authorities read boards like this. They probably also have investigators, at least I hope they do.

 

[ivinsfan]

My impression from the OP's explanation is that it is not a tax issue. Rather, it appears that he has an illegal rental unit. If discovered, he faces penalties for doing that and could be forced to remove the kitchen in the rental. Apparently, water supply and wastewater treatment is a huge issue in the Florida Keys, and the local government is strict about putting increased burdens on the system. OP please correct me if I misunderstood.

It seems like both... it was a illegal rental issue that has bloomed into a tax issue... but the OP knew from the get go, he was doing a work around.

 

[Gumby]

Just went back and re-read. You're right. He's got both problems.

 

[SeanPizzle]

Havent seen a single mention of health insurance yet. For us, that's going to be about 2k a month until Medicare at 65

 

[RunningBum]

Havent seen a single mention of health insurance yet. For us, that's going to be about 2k a month until Medicare at 65

I guess you didn't read page 2. The OP was asked, and answered the question in post #28.

 

[RobLJ]

I'm planning to draw between 4.5-5.5% for the next 4 years, before full SS kicks in. After DW draws, the WR goes down to 3-3.5% so I'm not worrying about the temporary withdraw. There is also quite a bit of slack in the budget; excess withdrawals go into the taxable brokerage account for lagniappe. We could make it on 3.5% for the next 4 years if we needed to, but I'd prefer not to--travel while I can. We're also sending the AgedP about 800$/month, but that won't last forever (she's 85).

 

[Bryan Barnfellow]

One thing that may be missing, Homeby5, is a source of funds for long term maintenance of your home, automobile replacement, and so on. This might be something to try to quantify.

But, that said, I am wishing you all the best with your plan. There is a certain "Key West" character to your optimism and openness for adventure that fits well with your locale.

-BB