New FI candidate RE is desired might need Part Time

[calfam]

Hello everyone,
I am a new member, recently laid off, getting ready for the next chapter and looking into early retirement with potential part time job for fun supplementing later.
50 y.o, California, have an adult child ( not tax depended)living with me.
My assets are as following:

• 
  Paid off primary residence
  Rental property generating ~7k/year after expenses
  ~650k in taxable accounts, would like to generate additional income in early retirement to bridge up to 59.5 and further?
  401k from prior employment ~700k mix of pre-tax/roth/match thinking to use pre-tax > Roth IRA conversion if it makes sense for my situation

Expected cost of living today $ is : 45-50k/year

Looking forward to learning more as I go and from your great feedbacks and tips.
Social Security estimated with 0$ further income ( before reduction to 79%) :
62- 21k
65- 30k
67- 37k

 

[madatrub]

Hello everyone,
I am a new member, recently laid off, getting ready for the next chapter and looking into early retirement with potential part time job for fun supplementing later.
50 y.o, California, have an adult child ( not tax depended)living with me.
My assets are as following:

• 
  Paid off primary residence
  Rental property generating ~7k/year after expenses
  ~650k in taxable accounts, would like to generate additional income in early retirement to bridge up to 59.5 and further?
  401k from prior employment ~700k mix of pre-tax/roth/match thinking to use pre-tax > Roth IRA conversion if it makes sense for my situation

Expected cost of living today $ is : 45-50k/year

Looking forward to learning more as I go and from your great feedbacks and tips.
Social Security estimated with 0$ further income ( before reduction to 79%) :
62- 21k
65- 30k
67- 37k

Welcome!

At first blush you're going to probably need your taxable account to do the heavy lifting in carrying you the next 15 years until Medicare kicks in.

Are you factoring health care coverage into your expenses? By utilizing after tax income in your early retirement years, you can keep your income low to try to maximize ACA subsidies.

Without diving too much into the math, it seems like its extremely tight to me. I get that you're looking to supplement with part time work, so that will help, as will the small amount of income from the rental. Does $7k profit on a rental make much sense? Whats your equity return on that kind of profit?

 

[calfam]

Welcome!

At first blush you're going to probably need your taxable account to do the heavy lifting in carrying you the next 15 years until Medicare kicks in.

Are you factoring health care coverage into your expenses? By utilizing after tax income in your early retirement years, you can keep your income low to try to maximize ACA subsidies.

Without diving too much into the math, it seems like its extremely tight to me. I get that you're looking to supplement with part time work, so that will help, as will the small amount of income from the rental. Does $7k profit on a rental make much sense? Whats your equity return on that kind of profit?

Thanks for the feedback, madatrub.
Yes, I am factoring the max OOP per year for healthcare CoveredCA -8200$/single + 3000$ for dental , although I hope not hitting max OOP every year.
Regarding the rental, it was purchased 12 years ago and almost half way trough depreciation schedule, selling it can raise the cash, however I'd like keeping it for time being with a possibility of buying out remaining 50%.
It is in nice area, appreciated ~200% as well.

I need to plan my investments in such way of generating income with a focus on taxes and ACA credits.

 

[Koolau]

Have you run FIRECalc yet? https://firecalc.com/


This should help you get an idea where you are in relation to early retirement. Good luck.

 

[Katiek]

Welcome. Being laid off, even from a job you may not love, is still emotionally difficult and it's natural to not want to step back into the work mix again. Luckily, you've done a good job of saving and don't have an urgency to look for a new job.


A quick look at firecalc suggests a high rate of success, but 50 is pretty young and a lot of unexpected things can happen. Does your spending estimate include taxes and amounts for one time expenses such as HVAC repair, car replacement, car breakdown that requires repair beyond normal maintenance, new roof/broken windows etc on the houses? Even if you figure inflation, some expenses may have higher than 'average" inflation such as insurance or medical costs.

Do you want to travel and is that in your budget?

Personally I think you could probably make it work, but some ongoing income would probably make the situation more comfortable and set you up better for unexpected things that might happen in the next 40 years. But you are lucky you're in no rush to accept the first job you can find or something you hate.

 

[LateToFIRE]

Welcome, I'm pretty new here too. As a r.e. investor myself, I'm looking at the $7K net income from your rental and wondering if you considered selling it instead of holding onto it? The $7K income doesn't seem like its adding that much to your bottom line, but is this a dependable cash stream with a lot of upside, or is it a volatile stream with potential downside surprises (like deferred maintenance and upgrade costs).

 

[calfam]

Welcome. Being laid off, even from a job you may not love, is still emotionally difficult and it's natural to not want to step back into the work mix again. Luckily, you've done a good job of saving and don't have an urgency to look for a new job.


A quick look at firecalc suggests a high rate of success, but 50 is pretty young and a lot of unexpected things can happen. Does your spending estimate include taxes and amounts for one time expenses such as HVAC repair, car replacement, car breakdown that requires repair beyond normal maintenance, new roof/broken windows etc on the houses? Even if you figure inflation, some expenses may have higher than 'average" inflation such as insurance or medical costs.

Do you want to travel and is that in your budget?

Personally I think you could probably make it work, but some ongoing income would probably make the situation more comfortable and set you up better for unexpected things that might happen in the next 40 years. But you are lucky you're in no rush to accept the first job you can find or something you hate.

Appreciate your input, Katiek .
Taxes: I played with TurboTax and seems staying with an income of below 45k will result in ~2k /year Fed and CA, I am counting on that number.
Set aside ~2k for unexpected fixes, beyond on schedule replacement of big ticket items.
Travel on budget at least first 3-5 years, to see how things going.
I definitely need to look in part time job to offset the living cost and get some more buffer, you are right.

 

[pb4uski]

I think you are all set. If your SS is $37k at 67 then it would be $46k at 70. A side fund to provide $46k a year from 50 to 70 would be $920k, leaving $430k. At 3.8% WR that would provide $16k a year of inflation adjusted withdrawals.

$16k from the $430k plus $46k from the side fund initially and SS later plus $7k from the rental is $69k of safe spending... 138% of the top of your $45-50k expected spending.

You have 9-1/2 years until you can take penalty-free withdrawals from tax-deferred accounts but you have plenty of taxable to cover off that 9-1/2 years.

Congratulations.

ETA: Starting with $1,350k of retirement savings and $46k a year of SS starting in 2043, FIRECalc indicates safe spending of $60k a year... plus $7k from the rental is $67k... pretty close to the $69k using the back of the napkin approach.

You may want to consider using a 72t/SEPP plan to access tax-deferred money earlier and spread out the taxes on those tax-deferred withdraals.

 

[calfam]

I think you are all set. If your SS is $37k at 67 then it would be $46k at 70. A side fund to provide $46k a year from 50 to 70 would be $920k, leaving $430k. At 3.8% WR that would provide $16k a year of inflation adjusted withdrawals.

$16k from the $430k plus $46k from the side fund initially and SS later plus $7k from the rental is $69k of safe spending... 138% of the top of your $45-50k expected spending.

You have 9-1/2 years until you can take penalty-free withdrawals from tax-deferred accounts but you have plenty of taxable to cover off that 9-1/2 years.

Congratulations.

ETA: Starting with $1,350k of retirement savings and $46k a year of SS starting in 2043, FIRECalc indicates safe spending of $60k a year... plus $7k from the rental is $67k... pretty close to the $69k using the back of the napkin approach.

You may want to consider using a 72t/SEPP plan to access tax-deferred money earlier and spread out the taxes on those tax-deferred withdraals.

pb4uski, thank you!
Oh, I actually mistyped the SS numbers:
It is 67 - 30k
70- 37k
Maybe I will need to take a bit more pessimistic approach, taking in account l, social security currently projects 78% payments for the years I plan to use it.
Btw, there are more ways I thought possible to generate side income, like renting on room in the house, my area average room rent is about 800 $/month.
The part jobs I was thinking about won't be in my expertise area, since it belongs to corporate world, most likely looking into low pay entry position or could be a state job? I just really hope finding a part time one at this point.

 

[Katiek]

The good news is you likely don't "need" a part time job, but it may make things a bit more comfortable. So you can take your time to find something you enjoy and that fits with your schedule.

 

[calfam]

Thank you all forum members for the inputs and comments

I'm wondering what would you reccomend as a strategy to bright next ~10 years to 59.5 with a taxable accounts and I-bonds I have, while still having Covered California subsidy some level and staying in 12% Federal Tax brakets?

Should I consider Treasury Notes 10 years if it will get > 4%?
Or individual treasuries and CD's combinations for 10 years?
Tips ladder?

 

[pacergal]

Welcome to the forum.

Have you run firecalc?
Have you answered the questions in the Early Retirement FAQ section :Some important questions to answer before asking can I retire?
Those will give you some good feedback.

So many knowledgeable folks here, feel free to ask away.

 

[calfam]

Welcome to the forum.

Have you run firecalc?
Have you answered the questions in the Early Retirement FAQ section :Some important questions to answer before asking can I retire?
Those will give you some good feedback.

So many knowledgeable folks here, feel free to ask away.

I was running firecalc in the past, using default bonds allocation, but I feel I need to look closer to fixed income aspect.

 

[Alex The Great]

I'm wondering what would you reccomend as a strategy to bright next ~10 years to 59.5 with a taxable accounts and I-bonds I have, while still having Covered California subsidy some level and staying in 12% Federal Tax brakets?

Should I consider Treasury Notes 10 years if it will get > 4%?
Or individual treasuries and CD's combinations for 10 years?
Tips ladder?

I believe you should be OK with your portfolio.
For taxable part, you may consider CD ladder for the next 5 years. Beyond that, it is hard to say TIPs or treasuries since it depends on a lot of factors and inflation is the major one. May be 50:50 split between TIPs and treasuries as long term CD rates are not that attractive now.

 

[Surewhitey]

Maybe clarify your details. I'm assuming just you in the equation (no mention of spouse) & adult child is self sufficient.

Rental value as it may make a big impact on future needed sale proceeds.

First glance looks fine for 1 person & keeping income low, maximize your ACA subsidies. If you want to w*rk, fine. Probably don't need to. Take a year and see how it goes. We took 3 years off & returned to the w*rkforce @ 45 & 51 with no problems. Then I started a small biz & 5 years later I'm good.

 

[calfam]

Maybe clarify your details. I'm assuming just you in the equation (no mention of spouse) & adult child is self sufficient.

Rental value as it may make a big impact on future needed sale proceeds.

First glance looks fine for 1 person & keeping income low, maximize your ACA subsidies. If you want to w*rk, fine. Probably don't need to. Take a year and see how it goes. We took 3 years off & returned to the w*rkforce @ 45 & 51 with no problems. Then I started a small biz & 5 years later I'm good.

Thanks Surewhitey.
I am planning for myself, my adult child is probably chooses to live with me, at least meanwhile, while working side jobs and taking care of own expenses, while I cover housing/utilities which is reflected in my annual estimation.
Yes, planning to work part time in low paying jobs, like school bus driver, transfer driver, school yard attendant or grocery store employee? Something low stress, low pay and part time.
It won't generate much income, looks like about 12-14k/year.

 

[pb4uski]

Thank you all forum members for the inputs and comments

I'm wondering what would you reccomend as a strategy to bright next ~10 years to 59.5 with a taxable accounts and I-bonds I have, while still having Covered California subsidy some level and staying in 12% Federal Tax brakets?

Should I consider Treasury Notes 10 years if it will get > 4%?
Or individual treasuries and CD's combinations for 10 years?
Tips ladder?

The top of the 12% federal tax bracket for a single is $44,725. The standard deduction for a single is $13,850. So you could have as much as $58,575 of income and still be in the 12% tax bracket.

What we don't know is what the cost basis and unrealized gains are for your $650k in taxable accounts.

IF you earn 4% on the taxable accounts you could withdraw as much as $80k a year for the next 10 years. =PMT(4%,10,-650000,0) = $80,139. Since your planned wthdrawals are so much lower than $80k you don't realistically have to worry about exhausting your taxable account before you are 59-1/2 and have penalty free access to tax-deferred accounts.

So if you even withdrew the top of your spending level of $50k less $7k of income from the rental that would be $43k of withdrawal... if half of that was basis then the gain would only be $22k, plus $7k from the rental would be $29k of income.

You could easily build a CD or UST ladder with $43k rungs tht mature annually over the next 10 years.

 

[calfam]

The top of the 12% federal tax bracket for a single is $44,725. The standard deduction for a single is $13,850. So you could have as much as $58,575 of income and still be in the 12% tax bracket.

What we don't know is what the cost basis and unrealized gains are for your $650k in taxable accounts.

IF you earn 4% on the taxable accounts you could withdraw as much as $80k a year for the next 10 years. =PMT(4%,10,-650000,0) = $80,139. Since your planned wthdrawals are so much lower than $80k you don't realistically have to worry about exhausting your taxable account before you are 59-1/2 and have penalty free access to tax-deferred accounts.

So if you even withdrew the top of your spending level of $50k less $7k of income from the rental that would be $43k of withdrawal... if half of that was basis then the gain would only be $22k, plus $7k from the rental would be $29k of income.

You could easily build a CD or UST ladder with $43k rungs tht mature annually over the next 10 years.

Thank you pb4uski, you are right about it, I also need to see if it makes sense keeping lower income for Covered California limits, 400% FPL for single person is $54,360. From what I was reading the income calculated is gross there, for example rental gross would be just the rent income itself without deduction like say 1800x12 months and standard deduction doesn't play any part in FPL income if I understand it right?
If this is correct, then I have to start from maybe 54,359$ as my top target for earning and minus standard deduction 13,850$ would leave me with all total gross incomes of 40,509$? Am I right with that?
How would you recommend to approach it if this is the way?
Thanks

 

[pb4uski]

Usually Obmacare subsidies are based on modified AGI, and for rental properties what is included in AGI is rent received less expenses less depreciation... essentially the bottom line of Schedule E. In fact, while there are adjustments to federal tax return AGI for Obamacare, the adjustment are fairly unusual.

The Affordable Care Act (ACA) uses a modified version of adjusted gross income (MAGI) to determine eligibility for premium subsidies. MAGI is calculated by adding certain items to adjusted gross income (AGI) and subtracting others.

The following are the adjustments to AGI that are used for ACA subsidies:

• Tax-exempt Social Security benefits
• Tax-exempt interest income
• Foreign-earned income
• Housing expenses for Americans living abroad
• Health savings account (HSA) contributions
• Archer medical savings account (MSA) contributions
• Coverdell education savings account (ESA) contributions
• Qualified tuition and related expenses
• Tuition and fees deduction
• Student loan interest deduction
• Educator expenses deduction
• Retirement savings contributions deduction
• Alimony paid
• Domestic production activities deduction

It is important to note that not all of these adjustments will apply to everyone. For example, if you do not have any tax-exempt Social Security benefits, you will not need to add that amount to your AGI.

The adjustments to AGI can have a significant impact on the amount of premium subsidy that you receive. For example, if you add $1,000 to your AGI, you could lose $250 in premium subsidy.

If you are applying for premium subsidies, it is important to be aware of the adjustments to AGI that will apply to you. You can find more information on the ACA website.

Here are some additional resources that you may find helpful:

• IRS Publication 519: https://www.irs.gov/forms-pubs/about-publication-519
• Healthcare.gov: https://www.healthcare.gov/
• ACA Subsidies Calculator: https://www.kff.org/interactive/subsidy-calculator/

 

[Katiek]

Thanks Surewhitey.

Yes, planning to work part time in low paying jobs, like school bus driver, transfer driver, school yard attendant or grocery store employee? Something low stress, low pay and part time.
It won't generate much income, looks like about 12-14k/year.

Actually, I can think of few jobs that would be more stressful to me than school bus driver! I know a guy who did it part time and liked the job, but dealing with the safety of lots of kids, bad weather, traffic etc. would not be my idea of low stress.

 

[calfam]

Actually, I can think of few jobs that would be more stressful to me than school bus driver! I know a guy who did it part time and liked the job, but dealing with the safety of lots of kids, bad weather, traffic etc. would not be my idea of low stress.

Actually, Katiek, you have a very valid point, recently, I am as well thinking about it, maybe not a school bus driver , although weather is ok year round around here, unruled kids and liability attached to the job might be "no go".
Well, luckily, in low paying jobs there are variety of options...at least today.

 

[pb4uski]

Actually, I can think of few jobs that would be more stressful to me than school bus driver! I know a guy who did it part time and liked the job, but dealing with the safety of lots of kids, bad weather, traffic etc. would not be my idea of low stress.

I have a friend who did a job as a school buss driver for a few years after he retired and he enjoyed it. If you don't enjoy it you can always resign.

 

[calfam]

I have a friend who did had a job as a school buss driver for a few years after he retired and he enjoyed it. If you don't enjoy it you can always resign.

Definitely will look into jobs that I can enjoy doing, since the pay is not a priority finally.

 

[Koolau]

Thanks Surewhitey.
I am planning for myself, my adult child is probably chooses to live with me, at least meanwhile, while working side jobs and taking care of own expenses, while I cover housing/utilities which is reflected in my annual estimation.
Yes, planning to work part time in low paying jobs, like school bus driver, transfer driver, school yard attendant or grocery store employee? Something low stress, low pay and part time.
It won't generate much income, looks like about 12-14k/year.

And then, AND THEN - (wait for it) FUND ROTH IRAs with your earnings!)

 

[calfam]

And then, AND THEN - (wait for it) FUND ROTH IRAs with your earnings!)

Right on
Help yourself and help society paying a bit more taxes