GoodbyeYellow
Recycles dryer sheets
- Joined
- Jun 23, 2021
- Messages
- 55
With me (62) having retired earlier this year, DW (59) and I are working on a plan for her exit by the end of this year. Which means that, before Medicare, I have a 3-year wait and she has 6, so we are working up a plan for ACA and minimization of income to leverage this.
We figure we will need up to $800K for these six years. Could be less but probably not more, unless weird stuff happens, for which we do have a back-up of simply drawing down tIRAs. Due to income levels while working (we often just missed the cutoff and frankly this wasn't even on our radar until recently), we don't have much in Roth but would like to work on strategies to do so.
The funding plan below is in broad strokes and will definitely need a frequent revisit and re-direction, but hopefully in small ways only. Thought I'd run it by y'all to see if you could find flaws in assumptions etc and/or find ways to improve it.
(All numbers are for six years total)
Dividends: $120K (counts towards MAGI)
Cash: $240K
tIRA drawdowns: $100K (counts towards MAGI)
Roth money, resulting from 'excess' paid into 401Ks over several years: $110K
Sale of equities in non-retirement accounts: $240K
Except as noted, none of these sources should hit MAGI. Average MAGI would be around $35K (div+tIRA)
The $800K includes about a $5K inflation factor yearly. In a mid-level scenario our spending will likely not exceed $770K or so (and maybe as low as $700K), so I've got some buffer in there. If we have large unforeseen expenses I guess further tIRA drawdowns are a safety net but of course at the cost of increase MAGI.
Some questions present themselves:
a. Which of the above sources, if any, should be used up first (frontloaded) and which later? Initially I thought we'd use the cash first in order to minimize inflation loss, but then there could be loss from equities as well. Another thought (and my Excel model) shows each source spread roughly evenly over the 6 years. But not sure if this is the best strategy.
b. The equities sale is intended to not hit AGI at all, or just minimally. This is because, from an old, bad investment, we have about $125K in loss carryforwards. So, rough plan is to sell $240K in equities at an average of 100% profit (which makes the basis $120K), thereby writing off all of the loss carryforward without it ever hitting AGI. But I haven't really run this by anyone but DW yet - does it make sense? Is there any IRS-related gotcha I haven't thought about?
c) In cash - we currently hold about $300K, so the plan leaves a $60K buffer. To alleviate the inflation effect, is it smart to put some of this to work in extremely low-risk ways? Of course, that also means extremely low return, so is there any point to doing that? I know next to nothing about bonds except their return lags inflation nowadays.
I know I also need to address out years (beyond 6). We have a good-sized nest egg (around $5M, about equally spread between brokerage and the two IRAs), so I don't anticipate there would be much bad news except possibly higher taxes. SS... haven't analyzed that deeply or even factored it in, but definitely after year 6. Probably FRA or close to it for each of us.
We figure we will need up to $800K for these six years. Could be less but probably not more, unless weird stuff happens, for which we do have a back-up of simply drawing down tIRAs. Due to income levels while working (we often just missed the cutoff and frankly this wasn't even on our radar until recently), we don't have much in Roth but would like to work on strategies to do so.
The funding plan below is in broad strokes and will definitely need a frequent revisit and re-direction, but hopefully in small ways only. Thought I'd run it by y'all to see if you could find flaws in assumptions etc and/or find ways to improve it.
(All numbers are for six years total)
Dividends: $120K (counts towards MAGI)
Cash: $240K
tIRA drawdowns: $100K (counts towards MAGI)
Roth money, resulting from 'excess' paid into 401Ks over several years: $110K
Sale of equities in non-retirement accounts: $240K
Except as noted, none of these sources should hit MAGI. Average MAGI would be around $35K (div+tIRA)
The $800K includes about a $5K inflation factor yearly. In a mid-level scenario our spending will likely not exceed $770K or so (and maybe as low as $700K), so I've got some buffer in there. If we have large unforeseen expenses I guess further tIRA drawdowns are a safety net but of course at the cost of increase MAGI.
Some questions present themselves:
a. Which of the above sources, if any, should be used up first (frontloaded) and which later? Initially I thought we'd use the cash first in order to minimize inflation loss, but then there could be loss from equities as well. Another thought (and my Excel model) shows each source spread roughly evenly over the 6 years. But not sure if this is the best strategy.
b. The equities sale is intended to not hit AGI at all, or just minimally. This is because, from an old, bad investment, we have about $125K in loss carryforwards. So, rough plan is to sell $240K in equities at an average of 100% profit (which makes the basis $120K), thereby writing off all of the loss carryforward without it ever hitting AGI. But I haven't really run this by anyone but DW yet - does it make sense? Is there any IRS-related gotcha I haven't thought about?
c) In cash - we currently hold about $300K, so the plan leaves a $60K buffer. To alleviate the inflation effect, is it smart to put some of this to work in extremely low-risk ways? Of course, that also means extremely low return, so is there any point to doing that? I know next to nothing about bonds except their return lags inflation nowadays.
I know I also need to address out years (beyond 6). We have a good-sized nest egg (around $5M, about equally spread between brokerage and the two IRAs), so I don't anticipate there would be much bad news except possibly higher taxes. SS... haven't analyzed that deeply or even factored it in, but definitely after year 6. Probably FRA or close to it for each of us.