Final review

[ikubak]

For all you folks who like to review other ER plans, I would appreciate any input. I was thinking of meeting with a guy I work out with to review my plan since my departure from the working world is getting close. He’s a financial planner, but I really can’t think of a better place to have my plan picked apart than right here in the ER forums.

Briefly, I’m 54 and DW is 59. We have no debt. The house and cars are paid for.

Below is a summary of liquid assets:
Cash 40K
Non-retirement ETFs 135K
IRA/401K (invested 70/30) 900K
Roth IRA 380K
SS and Pensions: currently not collecting anything but over the next 10 yrs, ss and pensions will rise to 50K/yr

Last year we spent about 45K and I consider that to be spending wildly. DW takes several trips a year with friends and together we made trips to San Diego, upstate NY, Napa/Sonoma County, and the Yucatan peninsula in the last twelve months. We could live off 30K/year or less if need be. So the way I look at it, our lifestyle will be close to fully funded by SS and pensions in 5-10 years.

DW has been retired for a few years and is loving life. I am semi-retired, and that gives us some spending $ and health insurance. If I fully retire, the biggest uncertainty is buying health insurance.

Here is the plan…RE at the end of this year. Since DW will be 59 ½ in July, we will move some funds out of her IRA up to the max of the 15% tax bracket. This will give us additional nonretirement funds to work with. Next year, if the current healthcare model is still an option, we could get a silver plan for $100/mo or less. We do this by living off a blend of 401k distributions and nonretirement funds so our MAGI is about 25K. We could keep doing this until DW is 65 and eligible for Medicare and then I would buy a health insurance policy for myself. The real question is what will happen with the US healthcare. If we paid full price from the healthcare marketplace, we would be looking at 15-18k/year. We could swing it but it wouldn’t be pleasant. Fortunately we are both in good health, need no medication, and get plenty of exercise.

Our plan is to stay put since we live in a low cost area of the US with lots to do and the house is paid for. If the health insurance issue in the US is unacceptable to us, we could rent our house out and expat south of the border for a few years. I am bilingual and have lived there before. I don’t expect us to do this, but it’s always good to have a plan B.

Anyone see any glaring errors in the plan or ideas for improvement?

 

[W2R]

ikubak, you are a long time member here and it put a big smile on my face to read this post! Congratulations on getting this close to ER.

Maybe others will come up with more intelligent analyses, but as for mine, well, I don't see anything wrong with your plans. I assume your spending includes taxes and insurance. I like the fact that you have a "plan B" if health insurance (or other) issues arise. Looks to me like you are "good to go".

 

[MBAustin]

It's key that your spending plan accounts for "lumpy" expenses (car replacement, major home repairs, high deductible for health insurance, etc.). Also it helps that you are comfortable cutting back if needed. Are you planning to keep a 70/30 AA in all of your retirement accounts? I personally worked ours back to 60/40 around the time I REd.

 

[ikubak]

It's key that your spending plan accounts for "lumpy" expenses (car replacement, major home repairs, high deductible for health insurance, etc.). Also it helps that you are comfortable cutting back if needed. Are you planning to keep a 70/30 AA in all of your retirement accounts? I personally worked ours back to 60/40 around the time I REd.

Thanks for the comments. DW's IRA/401K accounts, which are the ones we will use first, are 60/40. My accounts, which we don't plan to use for 5-10 years or more are tilted more toward equities. We should probably look at increasing our bond allocation at some point. I sleep better knowing the funds we are drawing from first are 60/40. Our "lumpy" expenses we are planning on pulling from Roth accounts since it won't affect MAGI.

 

[RobLJ]

Thanks for the comments. DW's IRA/401K accounts, which are the ones we will use first, are 60/40. My accounts, which we don't plan to use for 5-10 years or more are tilted more toward equities. We should probably look at increasing our bond allocation at some point. I sleep better knowing the funds we are drawing from first are 60/40. Our "lumpy" expenses we are planning on pulling from Roth accounts since it won't affect MAGI.

I think you look fine, but the availability of "silver" health at 100/month, after this/next year is very much up in the air. Just to be Captain Obvious.

I think healthcare costs for those counting on ACA (rather than an employer plan before qualifying for Medicare) is a wildcard--I absolutely have no clue, so take the above with a huge grain of salt. You're aware of this, so I don't think my post has any value-added.

 

[travelover]

It might help if you broke down your proposed budget year by year, so you can see expected income as a line item. Ditto for your expected costs for that year. An on line Fidelity planner will do this automatically, I believe, in what used to be called their retirement income planner (RIP).

Back of napkin estimate looks like you are good to go. I find myself in a position where our pensions cover everything and SS and portfolio withdrawals are just gravy for luxuries, inflation and unexpected large expenses like a new roof, new car or large medical expenses. You may find you are there, too, on close examination.

 

[ikubak]

I think you look fine, but the availability of "silver" health at 100/month, after this/next year is very much up in the air. Just to be Captain Obvious.

I think healthcare costs for those counting on ACA (rather than an employer plan before qualifying for Medicare) is a wildcard--I absolutely have no clue, so take the above with a huge grain of salt. You're aware of this, so I don't think my post has any value-added.

Thanks for the input Rob. I love Captain Obvious. I realize the "silver" plan with subsidy is very much up in the air. For the past several years, with the implementation of the ACA, I have been trying to work out a plan where I can draw from various accounts in retirement to keep my MAGI in a range that would offer a comfortable lifestyle but still get a very large subsidy. I thought I had it pretty much figured out but like everything else, the only thing you can count on is change.

 

[ikubak]

It might help if you broke down your proposed budget year by year, so you can see expected income as a line item. Ditto for your expected costs for that year. An on line Fidelity planner will do this automatically, I believe, in what used to be called their retirement income planner (RIP).

Back of napkin estimate looks like you are good to go. I find myself in a position where our pensions cover everything and SS and portfolio withdrawals are just gravy for luxuries, inflation and unexpected large expenses like a new roof, new car or large medical expenses. You may find you are there, too, on close examination.

Thanks travelover. I actually have done a year by year breakdown of spending and sources of funds but it's on an excel spreadsheet and probably wouldn't be of much interest to anyone but myself. I'll have to check out the Fidelity RIP. The year by year spending analysis is a good suggestion everyone should try for themselves before RE. Basically our spending is pretty consistent at $40-45K/year. I've used Quicken for 20 years so I know how much $ it takes support our extravagant lifestyle. I also underestimated our SS and pensions by 10-15K/year in my original post, so this has been a good little exercise. My main issues are where to pull the funds from and healthcare. The ACA added a layer of complexity to my RE plans and now the rules will probably change again.

 

[broadway]

Next year, if the current healthcare model is still an option, we could get a silver plan for $100/month or less.

I don't know where you live, but even with ACA, which will likely be scrapped in 2018, I highly doubt that you will be paying $100/month or less for a silver plan.

I am paying $250/month now, and I am about your age. I am in NJ. I estimated my 2017 AGI at 200% of FPL to get that premium; of course, no sure what it will turn out to be.

 

[ikubak]

I don't know where you live, but even with ACA, which will likely be scrapped in 2018, I highly doubt that you will be paying $100/month or less for a silver plan.

I am paying $250/month now, and I am about your age. I am in NJ. I estimated my 2017 AGI at 200% of FPL to get that premium; of course, no sure what it will turn out to be.

Thanks for the input broadway. DW is from NJ and I know everything costs more up there. It's a high price to pay for great subs and pizza. My NJ relatives are always amazed at my property tax bill which is less than $900/year. They pay more than that per month.

I ran the numbers again just to be sure and a silver plan after the subsidy would be $90.93/mo with a $800 deductible and $2,000 out of pocket maximum. If you have funds in IRAs, Roths, and non-retirement funds and pull your $ from appropriate accounts, you can manage the amount of MAGI you recognize each year. We plan to keep MAGI at 25K if the ACA is still in place. If it's not in place, I'll have to take a look at what the new rules are and figure out the best course of action. I'm sure when changes are announced, some people a lot smarter than me will figure out some good strategies for early retirees.

 

[Dawg52]

When I retired(age 52) I was paying $140/mo for health insurance. At 62 I'm now paying $390/mo with a high high ded plan. I might could shave off a little with an ACA plan but not much. Poor choices for my area. So as you already stated, health ins is the wild card.

 

[nun]

You are in good shape, the only real uncertainty is healthcare, but that's true for many early retirees.

One thing I'd point out is that you have enough non-retirement funds to live off so you could avoid IRA etc withdrawals and arrange things so that your income is below FPL qualifying you for Medicaid.

Until my pension started at age 55 my 1040 income was below FPL and when I applied for ACA I was put on Medicaid. I had access to excellent ex-employer health insurance at the full premium of $500/month, and the state Medicaid administration gave me a choice of paying 0$ for Medicaid or getting a $475/month subsidy check for the employer plan.....I went with the subsidy.

 

[broadway]

If you have funds in IRAs, Roths, and non-retirement funds and pull your $ from appropriate accounts, you can manage the amount of MAGI you recognize each year. We plan to keep MAGI at 25K if the ACA is still in place. If it's not in place, I'll have to take a look at what the new rules are and figure out the best course of action. I'm sure when changes are announced, some people a lot smarter than me will figure out some good strategies for early retirees.

I am not quite ready to fully retire.
I have been bored sitting at home.
When I do early retire, I do plan on converting some of the tIRA to Roth.

My fear is that the new rules will look at assets and not income.

 

[ikubak]

I am not quite ready to fully retire.
I have been bored sitting at home.
When I do early retire, I do plan on converting some of the tIRA to Roth.

My fear is that the new rules will look at assets and not income.

I have been moving funds from tIRA to Roth for a few years now, since DW retired. I do it up to the max of the 15% tax bracket. I would like to do more but don't want to convert at the 25% level. I also harvest LT gains while in the 15% tax bracket since the gains are taxed at 0% federal although there is some state tax to pay on that.

From what I have read, there is some talk of making the new healthcare rules based on age, not assets or income. If that were the case, I would keep converting tIRA to Roth to reduce RMDs that will come later.

 

[ikubak]

You are in good shape, the only real uncertainty is healthcare, but that's true for many early retirees.

One thing I'd point out is that you have enough non-retirement funds to live off so you could avoid IRA etc withdrawals and arrange things so that your income is below FPL qualifying you for Medicaid.

Until my pension started at age 55 my 1040 income was below FPL and when I applied for ACA I was put on Medicaid. I had access to excellent ex-employer health insurance at the full premium of $500/month, and the state Medicaid administration gave me a choice of paying 0$ for Medicaid or getting a $475/month subsidy check for the employer plan.....I went with the subsidy.

Thanks for the input nun. We could spend non-retirement funds and have MAGI low enough for medicaid but I want to spend down some tIRA and 401k funds so RMD aren't too high later. My goal is not to spend much of the Roth $ and just let it grow. It's there in case of emergencies and "lumpy" expenses like large house repair, new car, travel, etc. I like your avatar .

 

[nun]

Thanks for the input nun. We could spend non-retirement funds and have MAGI low enough for medicaid but I want to spend down some tIRA and 401k funds so RMD aren't too high later. My goal is not to spend much of the Roth $ and just let it grow. It's there in case of emergencies and "lumpy" expenses like large house repair, new car, travel, etc. I like your avatar .

I was going to do IRA to ROTH rollovers, but decided not to when I realized that two years of the health subsidies would be worth $10k. I figured that the extra cash and paying almost no tax today was better than reducing the RMDs in 15 years time.

 

[ikubak]

I was going to do IRA to ROTH rollovers, but decided not to when I realized that two years of the health subsidies would be worth $10k. I figured that the extra cash and paying almost no tax today was better than reducing the RMDs in 15 years time.

Exactly! If you are retired and getting the ACA subsidy or on Medicaid, converting tIRA to Roth can be very expensive. That's why I am converting now, while I am still on my employer's health insurance. The only other way I have thought of to move money from tIRA to Roth when retired is to expat and be out of the country for 330 days out of the year. In that case, you aren't required to buy health insurance and aren't penalized. I talked to a Brit expat in Merida, Mexico who said he could buy into the Mexican healthcare system and it would be about 1,500/year but he doesn't because he prefers to pay as he goes. He said medical care there is very inexpensive compared to the US. His office visits are about what copays are for us.

 

[nun]

Exactly! If you are retired and getting the ACA subsidy or on Medicaid, converting tIRA to Roth can be very expensive. That's why I am converting now, while I am still on my employer's health insurance. The only other way I have thought of to move money from tIRA to Roth when retired is to expat and be out of the country for 330 days out of the year. In that case, you aren't required to buy health insurance and aren't penalized. I talked to a Brit expat in Merida, Mexico who said he could buy into the Mexican healthcare system and it would be about 1,500/year but he doesn't because he prefers to pay as he goes. He said medical care there is very inexpensive compared to the US. His office visits are about what copays are for us.

You can avoid the ACA penalty if you are outside the US for 330 days. However, the income used to calculate your marginal tax rate for any rollovers will have any FEIE added back to it.