Thoughts on final 6 months of paid employment

[ArmchairMillionaire]

I retired 6 years ago, married in the 12% tax bracket and pulled mostly from after tax accounts during the first year. I pulled $15K or $20K from 401k the first year, with 20% federal withholding. During years 2-6 I did mostly the same, but also did RothIRA conversions of $30K-$40K with 10% federal withholding. My wife is also a retired teacher and collects a small pension with federal and state withholding. I am happy paying 1/2 the federal and state taxes compared to when I was working.

Since you will have income during your first year of retirement, you and your wife can make a RothIRA contribution, paying no taxes.

We'll just have to keep an eye on what is considered total (MAGI) income for the year so we can stay under the earnings limit for the insurance. I know there will be room in our tax bracket to make the conversions, but if we convert too much, that might push our income up too much, and then the insurance subsidies will decrease and the cost of insurance will go up. So, that's the Catch-22 I mentioned previously.

 

[Al18]

As I mentioned, I did no conversions the first year, but did a RothIRA contribution

 

[ArmchairMillionaire]

As I mentioned, I did no conversions the first year, but did a Roth IRA contribution

Update:
I've decided to just keep my investment strategy the same as if we weren't retiring next year. That way, if insurance ends up being too unaffordable to retire early, at least we'll be on track to still meet our contribution goals for the year. Here's our personal contribution plan for 2025:

2025 IRS Contribution limits:

401(k): $23,500.00 + Catch-up: $7,500.00 = $31,000.00
My Roth IRA: $7,000.00 + Catch-up: $1,000.00 = $8,000.00
DW's IRA: $7,000.00
HSA: $4,300

$31,000.00/52 weeks = $596.00/week (604.00 first week)
$8,000.00/12 months = $666.67 /month (My IRA)
$7,000.00/12 months = $583.33 /month (DW's IRA)
HSA: Not available?
$4,300.00/52 weeks = $82.69/week ($82.81 first week)?

Transfer $350/week from checking into savings for IRA contributions, taxes, and insurance

Total 2025 Contributions:
$31,000.00 401(k)
+$8,000.00 Roth IRA
+$7,000.00 DW's IRA
+$0 HSA
=$46,000.00 Total Contributions ($38,000.00 tax deferred)

Weekly Contributions:
401(k): $596.00
+IRAs: (transfer to savings) $350.00
+HSA: $0
=$946.00 Total Weekly Contributions

At $30/hr., a 40-hour week would equal $1200. Subtract the $946 for investments, and another $176.10 for taxes and my insurance and I'm down to $77.90 to be deposited into our checking account for the week.

I don't like to count on it, but I usually get at least 1 hour of OT per week. After taxes, that will bump me up to $112.95/week. (putting in an extra 15 minutes per day amounts to a 45% raise in my take-home pay - which is kind of amazing)

 

[Out of Steam]

I think I’d try to get as much cash together as I could, to give yourself flexibility and stay within the $60k for subsidies

Tootally agree. We didn't have ACA subsidies to deal with, but lack of savings outside of pre-tax accounts has been a problem for us in the first five years of retirement. It makes every financial action a taxable event, even a medium-sized home repair or going on vacation.

IMHO, it has led to some unnecessary frugality, as well as interest expenses that would have been avoidable if we had more "money in the bank".

 

[ArmchairMillionaire]

Totally agree. We didn't have ACA subsidies to deal with, but lack of savings outside of pre-tax accounts has been a problem for us in the first five years of retirement. It makes every financial action a taxable event, even a medium-sized home repair or going on vacation.

IMHO, it has led to some unnecessary frugality, as well as interest expenses that would have been avoidable if we had more "money in the bank".

Thanks for the heads up. Hopefully our after-tax account, Roth IRA, and savings (~$350K) should help cover most unexpected expenses.

 

[Out of Steam]

You should be fine with that much savings. Ours have been running under $20K, as we've been unable to build the balance without exceeding a 4-4.5% draw rate from retirement savings.

As I noted in another thread, it's time to file for Social Security.