49, may have an option for a package. Is it Time?

[Poopycat]

Everyone is writing as if the ACA is sticking around. Don’t count on it. Believe me, I hope it does because I can’t retire unless I have a health insurance option. But it is in a precarious situation at the moment. I’d wait until the results of the lawsuit are clear, or see whether you can qualify for private health insurance not tied to the ACA market and hope you’re not kicked off due to any pre-existing conditions should the worst happen. Some states will protect pre-existing conditions even if the ACA is overturned but the subsidy may go away. Nobody really knows for sure what is going to happen.

 

[pb4uski]

The problem will start when they are drawing tax deferred income for regular living expenses. It's 100% taxable. I agree they are probably fine with ACA while using taxable monies.


But my question was, the lower the taxable income the higher the ACA subsidy. Is it worth doing a Roth conversion if it lowers your ACA subsidy? A subsidy with a four person household can be a big number.

He will likely have a lot of headroom for Roth conversions under 400% FPL. As RB mentioned, 400% FPL will be $104,800. He will have to look at various scenarios to determine where the sweet spot is but my guess is that depending on his income that he'll able to do significant Roth conversions and still get a very nice ACA subsidy. According to one ACA calculator, at at $84,800 of income the subsidy would be $17,088, at $94,800 the subsidy would be $16,104 and at $104,800 of income the subsidy would be $15,120.

And part of the reason for doing Roth conversions while living off of taxable account money is to have numerous layers of Roth conversions aging that can be withdrawn tax and penalty free after the taxable account money runs out in 7 years or so.

But he would have other options as that taxable account money is running out to carry him to 59 1/2... he could get some liquidity with a cash out refinance of his rentals and/or home and then start paying it off once he has penalty-free access.... or start liquiditating the rentals, 72(t), etc.

 

[Closet_Gamer]

I will be a voice of caution here.

It seems like you're very close on the numbers and a few things pop out at me:

1) Setting aside the recent article that low inflation may allow people to increase withdrawal rate, 4% is at the edge of what most people are comfortable with.

2) Firecalc is designed to catch this, but I think you have a fairly high sequence of returns risk right now. Interest rates are paltry, stocks are frothy, the economic runner is being pumped full of unsustainable steroids, and who know what happens with Covid. You my be looking at a local high on your assets for a while.

3) $24k of you income (25%?) is concentrated in some rental properties. That could introduce a lot of volatility to the income stream for any number of reasons.

If you can grab a great package out the door and that allows you to stiffen up all of the numbers, I'd grab it. But I would also have a realistic plan to knock down the spending and find a way to consult/bridge the income a few years.

I'm conservative by nature, so YMMV, but that's my $0.02.

Good luck!

 

[ivinsfan]

I will be a voice of caution here.

It seems like you're very close on the numbers and a few things pop out at me:

1) Setting aside the recent article that low inflation may allow people to increase withdrawal rate, 4% is at the edge of what most people are comfortable with.

2) Firecalc is designed to catch this, but I think you have a fairly high sequence of returns risk right now. Interest rates are paltry, stocks are frothy, the economic runner is being pumped full of unsustainable steroids, and who know what happens with Covid. You my be looking at a local high on your assets for a while.

3) $24k of you income (25%?) is concentrated in some rental properties. That could introduce a lot of volatility to the income stream for any number of reasons.

If you can grab a great package out the door and that allows you to stiffen up all of the numbers, I'd grab it. But I would also have a realistic plan to knock down the spending and find a way to consult/bridge the income a few years.

I'm conservative by nature, so YMMV, but that's my $0.02.

Good luck!

Agree with all and HI might be the real wild card here and not something you can do without. I'd also like to ask the OP, is your budget based on your actual spend in the last few years or on your wishing to stop work.

 

[ivinsfan]

He will likely have a lot of headroom for Roth conversions under 400% FPL. As RB mentioned, 400% FPL will be $104,800. He will have to look at various scenarios to determine where the sweet spot is but my guess is that depending on his income that he'll able to do significant Roth conversions and still get a very nice ACA subsidy. According to one ACA calculator, at at $84,800 of income the subsidy would be $17,088, at $94,800 the subsidy would be $16,104 and at $104,800 of income the subsidy would be $15,120.

And part of the reason for doing Roth conversions while living off of taxable account money is to have numerous layers of Roth conversions aging that can be withdrawn tax and penalty free after the taxable account money runs out in 7 years or so.

But he would have other options as that taxable account money is running out to carry him to 59 1/2... he could get some liquidity with a cash out refinance of his rentals and/or home and then start paying it off once he has penalty-free access.... or start liquiditating the rentals, 72(t), etc.

You did the OP a solid with this post and the caveat would be he will need to watch his income like a hawk if doing RC. Any misstep over the cliff would be fatal....those I bonds are little tax bombs. If he converts I would recommend a bronze HSA plan to give himself some breathing room on the cliff issue.

 

[OldShooter]

Thanks for the insight OldShooter! As a Chief Officer, I’m as senior as you can get but there may not be as much negotiating in regards to the health coverage. Definitely good to know and find out!

Well, you already know this but I'll remind anyway: A dollar is a dollar of expense to the corporation, but the value of that dollar to you is more if it isn't taxed (as our HI subsidy was not). So even trading the corporation a W-2 dollar for an HI dollar may be to your advantage while being a don't care to them. Check the tax issue with your CPA of course.

 

[LarryMelman]

You are the best judge of your spending, and you say you've tracked it. However I think you've missed several things.

You are missing monthly expense categories for:
1. Medical expenses. None listed. To be conservative, plan for your annual out-of-pocket limit divided by 12.
2. Hobbies or recreation.
3. Travel. $250/month or $3K a year is not much.

You are missing irregular non-discretionary expenses. Things that don't happen every year but must be dealt with. Major home items like kitchen appliances, water heaters, roof repair or replacement. I put cars in this category too. I budget $1000/mo or $12K/year here - some years it's more and some years it's less.

In retirement you only bump up your existing categories. And not by much. And you have not considered anything new.
1. Again, no hobbies or recreation.
2. If travel is going to be your main hobby, $15K/yr seems way low.
3. Eating out "a lot" only increasing your budget by $400 a month? What's that, once a week at Applebee's?
4. Major discretionary home expenses that many folks put off until retirement, i.e. remodeling.

Your spending level seems much too high to qualify for health insurance credits. Based on your spending, your income will probably be way over the line to qualify for credits. And even if ACA survives, I really doubt that the credit system will. I am shocked that it lasted this long.

Regarding your uncertainty over taxes. If you are concerned about future tax rates, indeed no one knows that. But it you are saying you don't know how to estimate taxes, that you don't know how brackets work... that's on you. Learn it inside and out.

To me it seems that your current spending (when you add in the missing items I've listed) is too high, or your savings are still too low. Maybe both.

I don't know how you set up Firecalc, but your success numbers between 90-100% do not impress me. I ran my numbers in Firecalc about a year ago, and it told me I was 100% success with triple my expected spending. I really didn't believe it, and the tremendous uncertainty with health insurance has me continuing to work.

If you see a package coming, I would start planning my next job now. I don't know what a "c-suite exec" is or if you are qualified to do that for another company, but I would definitely start looking.

 

[Time]

Thank you everyone for your thoughtful feedback, caution as well as the encouragement! Larry, I lumped some of the expenses under other categories when I consolidated them for this post. For example, medical expenses are included under health insurance especially considering the credits. In terms of hobbies, I don’t spend much on them right now. For example, I have an exercise room with all the equipment I need, so I don’t pay for a gym membership. We’ll definitely spend more on travel when we know we can. Regarding taxes, I know how to calculate them, just don’t know what the future holds.

Not sure I understand this comment: “ Your spending level seems much too high to qualify for health insurance credits. Based on your spending, your income will probably be way over the line to qualify for credits. ”. Spending and income are two different things. I could spend money out of the savings accounts and have very little income after I stop working. My income will be limited to interest, capital gains, dividends and income from partnerships and rentals which will add up to something well below the ACA cliff. That is of course until I run out of $ in the the taxable accounts and need Roth conversions and/or 72(t). Am I missing something here?

 

[ivinsfan]

I think the comments about your spend are a concern you might be underestimating your annual spend due to your desire to er. That would have a lot of unpleasant consequences. From subsidies,to after tax issues,etc. If you have underestimated only you know if you can cut back as required..


They are just encouraging you to check and double check.

 

[Time]

I think the comments about your spend are a concern you might be underestimating your annual spend due to your desire to er. That would have a lot of unpleasant consequences. From subsidies,to after tax issues,etc. If you have underestimated only you know if you can cut back as required..


They are just encouraging you to check and double check.

Thank you and I agree with the concern. There is likely some of that and if I do lose my job in the short term without a package, I will start looking for another one. I might do the same even with a package so that I can double dip and ER sooner or be more prepared when I do.

 

[Finance Dave]

Your numbers are similar to what mine were when I left, but I was about 4 years older. A few points to think about:

1) We've been able to get the ACA subsidy by carefully managing income....you can probably do the same but I'm not sure how your taxable investments show up on your tax return such as the commercial property and P2P items.

2) You say you may not have the option to work longer...but if you are a C-suite person I'm sure you can find w*rk doing something for a couple years. Even if it only pays half or less of what you were making! If it comes with health benefits, add $15k/year to the salary they are paying you (that's about what your premiums would be). I started a handyman business and I am now making about $8k to $12k/year doing that. It doesn't sound like much, but I'm only working 4-8 hours/week and it's very flexible. You may be able to do some consulting or something like that. Remember that if you are self-employed (such as consulting), you can write off health insurance premiums against your income...another benefit.

3) If I were you, I'd be thinking of a strategy to keep AGI below the ACA limit for the next 15 years. Won't be easy if you want to live on $80k/year (we spend about $88k/year, not much different than you). In our case, I've used a HELOC loan to bring in money to allow us to spend without having it hit AGI. In addition, I selectively spend for upgrades on our 5 rental properties to minimize the rental profits. If you get into the October timeframe each year, and you think your income will be slightly over the ACA limit...do a bathroom upgrade on a rental or add new gutters and siding....the money will come back to you later in terms of higher rents or sale price, while reducing your income now!

I'd start building up your after-tax savings NOW so that you don't have to create AGI income once you're gone from MEGA-CORP and on the ACA.

Good luck and congrats!

 

[Finance Dave]

One other strategy you might consider is a "lumpy" AGI plan. What I mean is....

Oversimplified example to make a point...

Let's say your bank account is at $60k right now and you get laid off, and you know you'll need $80k next year to live on. Maybe you withdraw up to $171k from tax-deferred plans in 2021, which will put you at the top of the 22% bracket. That would disallow you from taking the ACA subsidy in 2021...BUT...then you could use the $231k ($60k you had in the bank plus the $171k you withdrew) to pay for living expenses for almost 3 years...and could get the ACA subsidy for those years....then you'd have to repeat. So periodically you'd have to pay the hefty premiums but in most years you'd get the subsidy.

Give that some thought and play with the tax brackets.

 

[ivinsfan]

One other strategy you might consider is a "lumpy" AGI plan. What I mean is....

Oversimplified example to make a point...

Let's say your bank account is at $60k right now and you get laid off, and you know you'll need $80k next year to live on. Maybe you withdraw up to $171k from tax-deferred plans in 2021, which will put you at the top of the 22% bracket. That would disallow you from taking the ACA subsidy in 2021...BUT...then you could use the $231k ($60k you had in the bank plus the $171k you withdrew) to pay for living expenses for almost 3 years...and could get the ACA subsidy for those years....then you'd have to repeat. So periodically you'd have to pay the hefty premiums but in most years you'd get the subsidy.

Give that some thought and play with the tax brackets.

This poster doesn't have that option,he's too young. I encourage a bronze ACA .with a HSA option to avoid the ACA cliff

 

[Retireby45ish]

This poster doesn't have that option,he's too young. I encourage a bronze ACA .with a HSA option to avoid the ACA cliff

I don’t quite understand this comment. How does his age have anything to do with him trying the above strategy? I’ve often pondered if this lumpy scheme would work too (though I haven’t run the numbers).

 

[ivinsfan]

I don’t quite understand this comment. How does his age have anything to do with him trying the above strategy? I’ve often pondered if this lumpy scheme would work too (though I haven’t run the numbers).

He can get the money out but will owe taxes plus a 10% penalty for early withdrawal from a retirement account.

 

[pb4uski]

+1 OP is 49 so is 10 1/2 years away from penalty free withdrawals from tax-deferred plans.

But, as previously mentioned, he could withdraw roth contributions penalty free as well as Roth conversions that are over 5 years old (really over 4 years old the way they measure years).... see post #17 and link to Kitces article.

 

[zekeboz]

Welcome. We have similar scenarios outside of the asset mix and DW place of work. I feel I am at 'FI' but have not done the 'RE'.

For myself when confirming our "number" I found FIRECalc useful but not necessarily reassuring given the various scenarios that I wanted to run.

I came across this program a few years ago and love it - https://www.flexibleretirementplanner.com/wp/

It provided the level of detail that I needed to have confidence in what we have saved but also the illustration for my DW that we accounted for all the knowns / costs (at least that we know about - like costs for kid's weddings. yeah I went that deep). I used the downloaded version vs. the online one.

As for your scenario the only pause that I would have is the amount of non-retirement assets that you have tied up in RE, seems heavy to me especially for the rate of return and associated risks for the asset class. Also not crazy about P2P lending either - as mentioned the $$ is tied up and can not be freed easily without cost. I am probably feeling my past pain when I owned some but if I were in your 'shoes' I would look to reduce both in general.

Good luck!

 

[lhamo]

One note about future college funding options -- if you can keep your MFJ income below $150k or so, the interest from I-bonds can be tax free if you use it for higher education expenses:

https://www.treasurydirect.gov/indiv/planning/plan_education.htm

 

[npage]

Your numbers are similar to mine in terms of investments and expenses. I am 46 and wife is 40. I am ready to pull plug everyday and after February bonuses are paid I think I will. Due to Covid we are work from home and I may milk it as long as that lasts, but no desire to return to office.

Wife has no problem working another 5 years or more. She loves her job, we get great health insurance and can live off her take home.

Our spread is about 50/50 taxable vs 401K at this point. Plan would be to draw any money we need above her take home next five years from taxable and then 100% from taxable when she ultimately quits until I am 59.5. At which point it will be nearing zero and then we hit my IRA a portion of which would likely have already been roth converted to manage ACA income levels once she stops working.

Long story short, I think you can do it. You have some assumptions that must continue, ACA, rates of return etc. No major health calamaties but I don't think that is any different for anyone who is not in the $10MM plus category and even then.

Good luck, I am excited to be this close but also get cold sweats thinking about pulling plug so I feel for you. Of course I get cold sweats thinking about playing mega corp games one more day.

 

[LarryMelman]

Not sure I understand this comment: “ Your spending level seems much too high to qualify for health insurance credits. Based on your spending, your income will probably be way over the line to qualify for credits. ”. Spending and income are two different things. I could spend money out of the savings accounts and have very little income after I stop working. My income will be limited to interest, capital gains, dividends and income from partnerships and rentals which will add up to something well below the ACA cliff. That is of course until I run out of $ in the the taxable accounts and need Roth conversions and/or 72(t). Am I missing something here?

No. As long as you manage your taxable income and know where the cliffs are.

 

[FargoI]

additional considerations

Good evening.

Some additional considerations pertaining to college expenses. From experience, anticipating a child will go to a state university is a logical thought from a parent's perspective, until your S/D applies to and is accepted into a prestigious school (not simply named sake, quality) that perhaps the parents could only have dreamed of attending. The costs of attending upper echelon has risen to 70k/yr; excluding student health fees, travel home expenses during normal times, and unexpected costs such as lost, broken, stolen electronic equipment. A week where a parent does not hear from a child who is away in these uncertain times is often justification to shell out additional money for replacement phones, bumped up mobile plans, etc.

Regarding Student health plans, it is not unusual for schools to *not* accept many parental paid plans...insisting that students enroll in the school's sponsored plans that cover services provided at the student health center (ancillary testing, clinician's fees, prescriptions, etc.). These plans can cost upwards of 2.5k year.

Local, municipal, state and Federal taxes each look to take their share of one's budget.

Unexpected repairs to automobiles, *exercise* equipment, garden tractors/snow blowers, plumbing....you get the idea.

Utilities, potable water, sewer, electric, natural gas, home phone, internet, netflix, lawn service, municipal waste services, NYT...if you didn't scrutinize your last 12 months of bills and try hard to avoid using the miscellanies category.

Dental, optical, insurance barely covers most procedures other than routine exams. Most optical plans only pay for one set of eye glasses per year...young adults may need more frequent replacements for a variety of reasons.

Food... I recollect a time when my parents would come home from the deli with a couple of loaves of Italian bread and a couple of pounds of sliced meats...it amazed my parents what the two "boys" could put down in a matter of minutes (fortunately the oldest was away at college or I might have starved).

I'm not trying to pop you balloon as I know all too well what it feels like to walk in shoes similar to your. I also understand that having *sufficient* money vs. healthy time is an equation that is impossible to solve. If you can temporarily remove your children from the equation (BTW...little children little problems...older children....bigger problems), you and your spouse need to be more than like like minded for retirement planning, you need to be well aligned.

Apologies for the long post. I hope you derive some value from this feedback from a grey haired 60+ husband and father of two very different and precious girls.

 

[HuskerChica]

Just Do It!

I’m 48, took a package about a year ago, very similar numbers to you-and LIFE works out, it’s all good, and has been the best year of my life. I can not express how grateful I am to have traded time for money. So I would give you this advice-all my friends are busy working during the day, and my brain has not challenged at all. As a former Sr Exec VP, the brain challenge had to be addressed, so I did pick up a consulting gig which has been great! Best of luck to you, congrats, and just do it!

 

[Brat]

I will let others run the numbers here so will share my many years in HR experience.

The first round of severance offerings are usually the most generous.

You are young, as stressful as your job is you are likely to want to do something after ‘retirement’. Your former employer may ask for help in the transition. Remember that work is not just an economic activity, it is social. There will be a huge hole in your daily activities, consider how you would like to spend that time.

My DD, who is a CFO, told me that the departure of a person in that role often is a red flag unless it is a retirement associated with age or illness. The same could be said about division heads. You and members of the Board need to script communication about your departure.

Your family has been functioning based on your focus on work responsibilities. Consider the impact on previously established ‘territories’. The fact that your children are likely going to school on line and the family has been in some form of lock down because of Covid19 asking ‘how can I help’ would be a good first step.

My first retirement was at age 48 so I have been there, done that. It wasn’t long before I was consulting, then back working for a high profile corporation. It was rewarding to know that my knowledge was valuable.

Take the severance if offered.

 

[tb001]

I left a senior position at the start of the year. I’ve never understood the brain drain/getting bored comments, but I’ve always had a ton of outside interests and can’t fathom being bored. I have spent more on hobbies, but that was in the budget.

We were willing to pull the plug at similar success rates, but I think our budget was a lot more padded than yours. Even so, we’ve had a much bigger increase in health insurance than I expected, as well as an unexpected vehicle purchase. Thankfully we’ve been able to easily flex other spend.

FWIW, I would imagine at c level that you could find 1-2 consulting projects pretty easily that would bring in another 20+k/yr which could bridge the gap on the discretionary spending.