A few minor financial mishaps in my retirement ...

[robnplunder]

I retired about 9 years ago at age 54. I was never in trouble with my finances and DW and I are still living without money worries. That is, most of my finance plans worked out fine but I had a few minor hiccups.

1) One year, one of my mutual funds had a massive turnover in its portfolio, and I ended up with a huge capital gain. This disqualified me from the ACA subsidy and had to pay back over $17k when the tax filing came. I don't think I could have foreseen this.

2) Before inflation and interest rates went up, I tried to refinance my ARM. I stopped applying after four different mortgage companies rejected my application because I had no stable source of income (capital gain and dividends didn't count as stable income). Because of this, my current mortgage is 53% higher than what I started with 9 years ago. What I should have done was to get a 15 or 30-year fixed mortgage loan while I had a job and the interest rate was low. My bad.

 

[RetiredHappy]

Since you are at 63 yo, I assume that you have IRA money that you can manufacture income by having regular monthly distributions and then apply to re-finance your mortgage again. But the infterest rates are higher now and the ship has sailed.

 

[robnplunder]

That

Since you are at 63 yo, I assume that you have IRA money that you can manufacture income by having regular monthly distributions and then apply to re-finance your mortgage again.

I have 401k but it is non-Roth. Would it count as additional income which may put me over the ACA subsidy qualification line?

 

[RetiredHappy]

Withdrawal from 401K will count as additional income. After you get the mortgage approved, you can stop the withdrawal.

 

[rodi]

The capital gains /ACA things definitely sucks.

I've heard that if you do scheduled transfers from your brokerage to your checking that can be if l considered income for purposes of a mortgage. So maybe set up equal, monthly transfers to cover your cash flow... Then reapply in a year.

 

[USGrant1962]

I like your thread topic and think lots of others can contribute their "financial mishaps" so we all can learn.

Mine was that I retired from megacorp in 2017 at age 55 and didn't think about tax headroom space. I was delighted to only have a half year income for tax purposes in 2017. Then in 2018 I sold off my last single stock holding (a 10-banger) and that was basically all of my taxable income. I was happy to be taxed at LT capital gains rates. Though the state didn't care about LTCGs as my state income tax was about the same as my Federal. Anyway, the point is that I should have considered Roth conversions in those years to some reasonable tax bracket and I did not.

Then starting in 2019 I've had substantial 1099 consulting income from reasonable hours (generally 1/3 time), which generated other first world financial issues that I can't really complain about. But I do! Self employment tax mostly. So now I'm looking for tax headroom to do Roth conversions and am constrained by IRMAA, NIIT, additional Medicare tax, and the 24% tax bracket.

My tax diversification is poor with 75% of my portfolio in tax deferred. It was ~80% when I pulled the plug on megacorp. Looking back I probably overdid tax deferred contributions, at least in the sense that I put "after tax" contributions into my 401(k). They are trapped there now and have enough gains that even doing an in-plan conversion pushes me into the stealth taxes of IRMAA, NIIT, etc. (with consulting income).

 

[robnplunder]

Anyway, the point is that I should have considered Roth conversions in those years to some reasonable tax bracket and I did not.

Before I retired, I was convinced that I would not be in a high-income tax bracket in retirement. So, I didn't convert my 401k to Roth. However given my investment income and SS payments (in 2 years), I should have converted a good portion of my 401k into Roth along the way. It'd given me more flexibility in tax planning. As is, I need to figure out what to do when I am forced to cash out my 401k. A mishap? Maybe.

 

[luckydude]

I retired about 9 years ago at age 54. I was never in trouble with my finances and DW and I are still living without money worries. That is, most of my finance plans worked out fine but I had a few minor hiccups.

1) One year, one of my mutual funds had a massive turnover in its portfolio, and I ended up with a huge capital gain. This disqualified me from the ACA subsidy and had to pay back over $17k when the tax filing came. I don't think I could have foreseen this.

2) Before inflation and interest rates went up, I tried to refinance my ARM. I stopped applying after four different mortgage companies rejected my application because I had no stable source of income (capital gain and dividends didn't count as stable income). Because of this, my current mortgage is 53% higher than what I started with 9 years ago. What I should have done was to get a 15 or 30-year fixed mortgage loan while I had a job and the interest rate was low. My bad.

Hindsight is always 20-20. Both hiccups were outside your control and you couldn't have foreseen them. Life is full of shouda, coulda, woulda unfortunately. Personally, I would just move on and not ruminate about what might have been.

 

[Koolau]

Before I retired, I was convinced that I would not be in a high-income tax bracket in retirement. So, I didn't convert my 401k to Roth. However given my investment income and SS payments (in 2 years), I should have converted a good portion of my 401k into Roth along the way. It'd given me more flexibility in tax planning. As is, I need to figure out what to do when I am forced to cash out my 401k. A mishap? Maybe.

By the way, and going back to your mortgage issues in post 1, we got a mortgage after retirement because we could show "income" that was due to converting tIRAs to Roths! Bizarre but true.

 

[pjigar]

Not exactly a mishap but a lost "opportunity benefit". As I have said in some other threads, I was anticipating inflation almost 8 -10 years before it finally happened and I leveraged this possibility then by buying several rental properties at a fixed 30 years mortgage. I couldn't get a mortgage on the most expensive property (our current homestead) at the time because the house was inhabitable. I had a plan to get a mortgage as soon as I rehab the house (which took years because of DIY). I finished house construction 2021 but I got lazy and I didn't get a mortgage. I could have made a lot of money from the unlocked capital. But the hindsight in 20:20.

 

[Golden Mean]

I retired about 9 years ago at age 54. I was never in trouble with my finances and DW and I are still living without money worries. That is, most of my finance plans worked out fine but I had a few minor hiccups.

1) One year, one of my mutual funds had a massive turnover in its portfolio, and I ended up with a huge capital gain. This disqualified me from the ACA subsidy and had to pay back over $17k when the tax filing came. I don't think I could have foreseen this.

Was this an index fund or an actively manged fund?

 

[ERD50]

... What I should have done was to get a 15 or 30-year fixed mortgage loan while I had a job and the interest rate was low. My bad.

As others said, you just need to show "income" to qualify. And what counts as "income" is weird. All I had to do was show automatic withdrawals from my brokerage account to my checking account - that counted as 'income' (thought it was just a transfer from one account to another). And that brokerage account had to be able to support those WD for (IIRC) 2.5 years. That really makes no sense, but I guess they figure they've covered themselves on average by that time? I was able to lock in a 3% fixed, 30 year mortgage w/o a job, no pension, or SS.

What I wish I had done differently was to ask what they needed FIRST. The mortgage application would have gone smother if I only disclosed the minimum I needed to qualify. Every account that I listed raised another question from them, and complicated the process. We took out the mortgage under my wife's trust name, so any account that wasn't under that trust raised questions. It's all a silly game of the rules they need to follow. It wasn't all that much work to resolve, but had I known upfront it would have been easier.

 

[Dash man]

I like your thread topic and think lots of others can contribute their "financial mishaps" so we all can learn.

Mine was that I retired from megacorp in 2017 at age 55 and didn't think about tax headroom space. I was delighted to only have a half year income for tax purposes in 2017. Then in 2018 I sold off my last single stock holding (a 10-banger) and that was basically all of my taxable income. I was happy to be taxed at LT capital gains rates. Though the state didn't care about LTCGs as my state income tax was about the same as my Federal. Anyway, the point is that I should have considered Roth conversions in those years to some reasonable tax bracket and I did not.

Then starting in 2019 I've had substantial 1099 consulting income from reasonable hours (generally 1/3 time), which generated other first world financial issues that I can't really complain about. But I do! Self employment tax mostly. So now I'm looking for tax headroom to do Roth conversions and am constrained by IRMAA, NIIT, additional Medicare tax, and the 24% tax bracket.

My tax diversification is poor with 75% of my portfolio in tax deferred. It was ~80% when I pulled the plug on megacorp. Looking back I probably overdid tax deferred contributions, at least in the sense that I put "after tax" contributions into my 401(k). They are trapped there now and have enough gains that even doing an in-plan conversion pushes me into the stealth taxes of IRMAA, NIIT, etc. (with consulting income).

Can you roll your 401k into IRAs with the after tax portion going into a Roth IRA? That’s what I did back in 2013.

 

[USGrant1962]

Can you roll your 401k into IRAs with the after tax portion going into a Roth IRA? That’s what I did back in 2013.

Yea, I may do that now that I'm past the Rule of 55 period. Or do an in-plan Roth conversion of the after-tax monies, which my plan allows. But that part of the account has over doubled so that would eat up a lot of tax headroom and likely push me into NIIT, IRMAA, etc. I plan to look into options in early December after I do my first draft 2024 taxes. This is my last tax year before IRMAA and my consulting income is down a little bit from prior years. Next year I can see my consulting drop off quite a bit, but I will be exposed to IRMAA.

My 401(k) is actually pretty good, which I put down to megacorp being a private company. So the partners have their money in it too.

 

[robnplunder]

Was this an index fund or an actively manged fund?

Actively managed fund.

 

[gcgang]

Sheesh. You’d think there would be a mortgage company that takes assets into account.

Have you considered paying it off?

 

[robnplunder]

Sheesh. You’d think there would be a mortgage company that takes assets into account.

Have you considered paying it off?

Yes, I did. But in two years, I will draw from SS. This should give me more flexibility on what to do with my mortgage.

 

[sengsational]

Thanks for posting the gotchas. Your courage with specifics will help others who might get similarly stung. Glad to hear it's still a sound plan going forward.

 

[joesxm3]

My mistakes:

Drastically lowering equity percentage before retiring in 2016.

When assets were at a peak in November one year I wanted to wait until January to take profits due to ACA and things tanked before January.

Having managed TRP funds when they blew off that huge distribution.

Not keeping cash in a treasury only MM or T-Bills to avoid state income tax.

 

[orbops]

When I retired early, my wife and I used an Asset Based Mortgage AKA Asset Depletion Mortgage. The only stipulation from the lenders is that we needed to keep the mortgage open for 6 months so that the interest would cover all internal fees.

 

[imnontrad]

One thing you could consider is if any of your mutual funds have the option to transition to the ETF version of the fund without triggering a sell/buy scenario. This would stop the problem with the capital gains in the portfolio in the future.
One "advantage" with your current ARM is that you have an incentive to start paying it off completely.

 

[rmcelwee]

Then in 2018 I sold off my last single stock holding (a 10-banger) and that was basically all of my taxable income. I was happy to be taxed at LT capital gains rates.

The first $100K or so of LTCG is tax free. Doesn't sound like a bad thing to me. Not sure what a 10 banger is?

 

[USGrant1962]

The first $100K or so of LTCG is tax free. Doesn't sound like a bad thing to me. Not sure what a 10 banger is?

Yea I know, I paid very little tax that year. My point was I should have done Roth conversion that year and didn't. And a 10-banger or 10-bagger is a stock that is sold at 10 times its purchase price. In my case it was Lowes which I had held for about 20 years.

 

[FedRetired50]

The first $100K or so of LTCG is tax free.

For married, filed jointly. Half that for single.

 

[FIREd]

I think that it is a great idea to post one's mishaps.

One thing I didn't plan for sure was to get divorced 8 years into FIRE. I was planning for a comfortable retirement for 2 people sharing expenses. But when you divorce the economies of scale go away and even if you split assets 50/50 your individual WR automatically go up. In my case I went from a fairly conservative sub 3% WR to around 4%, which started to ring alarm bells for the long-term (I was only 45 years old when I divorced and was planning for a 50-year retirement). In the end, I decided that remaining retired was important enough for me to make some adjustments to my lifestyle and bring my WR back closer to 3%. One of the moves I had to make was to reduce my housing expenses. I paid cash for a 1-bedroom, derelict condo in a nice residence and I completely remodeled it (down to the plumbing and electric). Today it only costs me about $350 a month (including HOA fees, insurance, property taxes, and insurance) to live in a beautiful condo. That's a bargain for this area.

Another mishap perhaps, though it is too early to tell whether it is truly a mishap, was investing in a private REIT. Real Estate is the investment of choice where I live now and it is heavily favored by the tax code, which isn't the case for stocks. The commercial property REIT I chose had a long track record. It didn't use leverage at all (it owns the properties outright and simply distributes the rents it collects to investors). And it was highly diversified. So it seemed safe enough. However, I invested in February 2020, a month before Covid and right before interest rates started to rise. The income generated by the REIT has kept up with inflation since 2020 but the share price has dropped 20% so far (reflecting the fall in price for commercial properties). I'm not looking to sell. The idea behind investing in that REIT was to have a "forever" investment generating a lightly-taxed base income to fund my retirement and, in that regard, it is doing what it is supposed to do. But it still hurts to see the capital loss when updating my net worth spreadsheet.