Retiring now

when rolling your own insurance, how high is high?
Now and then I look at the Obamacare plans available in my state.
Medical insurance is the biggie for early retirement. The implementation of Obamacare came very close to tanking my early retirement. My original plan was a BCBS catastrophic policy ($283/mo; $7500 deduct). Ocare went in effect Jan 1 2014, I retired Jun 2014. Change was no catastrophic plans available to people over 30.

Plan B: bought standard BCBS policy ($345/m; $4200 deduct) outright for 1st year.

2nd year, Plan B cost rose to $524/month; $5400 deduct. My agent said it will go up again the following year. Not good.

3rd year, Plan B went to $695/mo; $7200 deduct with another increase predicted the following year. This was no longer sustainable.

After going through the options: no insurance+penalty, ad hoc work to pay premiums, get job for insurance, medicaid, or Obamacare itself--elected to go the Ocare route the 3rd year via the national Marketplace. I didn't think I qualified but agent found out yes. Unfortunately, Ocare requires earned income in excessive of the Medicaid limits but less than a predetermined level based on status. And I was living off savings which was zero earned income.

After many meetings with people smarter than me, I restructured my retirement income plan to provide earned income monies to qualify for both Ocare subsidies when possible. This income fluctuates every year depending on my year-end fund balances and external side income. While Ocare has income limits like Medicaid it does not have "countable asset" requirements like Medicaid. For a similar policy to Plan B above but with a smaller provider network my monthly premiums have ranged from $111 to $325 with deductibles from $550 to $2750. The open market price on this same BCBS plan is $711 per month with $4000 deduct. The irony of the whole thing was Ocare screwed my original insurance plan yet in the end Ocare ended up saving the day and at times is cheaper than my 1st plan. Go figure.

Having learned a lot about Ocare, I'd gladly take my back my original catastrophic plan if I could. The ACA is not what was marketed to the population as a whole.

I don't know how any subsidies would work,
Obamacare subsidies work on 2 levels: monthly premium and deductibles. Both are based on earned income that exceeds the Medicaid limit of $12k or $16K for Medicaid Extended states. At the $29K level (for a single person) the deductible subsidy is lost but the premium subsidy remains with all subsidies prorated until you reach the upper Ocare income limit of $50k for a single person. The only way to see how you qualify is to get an account and go through the process or find an insurance agent that has one of the Ocare calculators. Every state is different.
 
Few people seem to take that into consideration.


Probably because the math of an amortization table doesn't work that way.

You always pay the same interest every month on the outstanding principle which is the cash you would need to pay off the mortgage.

Assume you finance $350,000 to buy a home on a 30 year 4% note. The first month your payment is $1670.95 and $1167 goes to interest and $504.28 to principle.

Payoff balance after year 10 would be $275,744. If you didn't pay it off your interest would still be 4% of that balance which is $919.

The equation is exactly the same for the return needed to justify the payoff no matter where you are at in the amortization.
 
Medical insurance is the biggie for early retirement. The implementation of Obamacare came very close to tanking my early retirement. My original plan was a BCBS catastrophic policy ($283/mo; $7500 deduct). Ocare went in effect Jan 1 2014, I retired Jun 2014. Change was no catastrophic plans available to people over 30.

Plan B: bought standard BCBS policy ($345/m; $4200 deduct) outright for 1st year.

2nd year, Plan B cost rose to $524/month; $5400 deduct. My agent said it will go up again the following year. Not good.

3rd year, Plan B went to $695/mo; $7200 deduct with another increase predicted the following year. This was no longer sustainable.

After going through the options: no insurance+penalty, ad hoc work to pay premiums, get job for insurance, medicaid, or Obamacare itself--elected to go the Ocare route the 3rd year via the national Marketplace. I didn't think I qualified but agent found out yes. Unfortunately, Ocare requires earned income in excessive of the Medicaid limits but less than a predetermined level based on status. And I was living off savings which was zero earned income.

After many meetings with people smarter than me, I restructured my retirement income plan to provide earned income monies to qualify for both Ocare subsidies when possible. This income fluctuates every year depending on my year-end fund balances and external side income. While Ocare has income limits like Medicaid it does not have "countable asset" requirements like Medicaid. For a similar policy to Plan B above but with a smaller provider network my monthly premiums have ranged from $111 to $325 with deductibles from $550 to $2750. The open market price on this same BCBS plan is $711 per month with $4000 deduct. The irony of the whole thing was Ocare screwed my original insurance plan yet in the end Ocare ended up saving the day and at times is cheaper than my 1st plan. Go figure.

Having learned a lot about Ocare, I'd gladly take my back my original catastrophic plan if I could. The ACA is not what was marketed to the population as a whole.


Obamacare subsidies work on 2 levels: monthly premium and deductibles. Both are based on earned income that exceeds the Medicaid limit of $12k or $16K for Medicaid Extended states. At the $29K level (for a single person) the deductible subsidy is lost but the premium subsidy remains with all subsidies prorated until you reach the upper Ocare income limit of $50k for a single person. The only way to see how you qualify is to get an account and go through the process or find an insurance agent that has one of the Ocare calculators. Every state is different.

I have a little while to work this out, but thanks for that info. I wasn't sure how subsidies are calculated with no earned income after I quit work.
 
but thanks for that info
Here's the Marketplace link. Lot's of info in the drop down menus: https://www.healthcare.gov/
Also Google is your friend. Tons of info. After that find a local Ocare certified agent/broker... not an "assister"... to get more specific info. There's a drop down link on the above site to find local help.
 
It’s not just earned income, the modified income ACA uses to decide if you get subsidized includes IRA withdrawals, dividends, capital gains, etc.
Also it’s not a gradual tapering off, there is a cliff at the 400% poverty income level.


Tom
 
My medical is $1200/month for a "silver" plan, and I am single. That's before I ever set foot in a medical facility.

When I was still eligible for COBRA, it was $500/month for a better plan.
 
Probably because the math of an amortization table doesn't work that way.

You always pay the same interest every month on the outstanding principle which is the cash you would need to pay off the mortgage.

Assume you finance $350,000 to buy a home on a 30 year 4% note. The first month your payment is $1670.95 and $1167 goes to interest and $504.28 to principle.

Payoff balance after year 10 would be $275,744. If you didn't pay it off your interest would still be 4% of that balance which is $919.

The equation is exactly the same for the return needed to justify the payoff no matter where you are at in the amortization.
This is a bit like Zeno’s paradox to me, it’s had my head in a knot. It may be what I don’t know that is causing my confusion. So here’s a question....

I thought payments over the monthly amount were applied to the end of the amortization schedule, or at least they were for me on a previous loan. If that is the case, the lender has money that isn’t reducing the principle for any year until the end of the term. That money seems to be his, interest free until the loan is paid for. If the payment schedule is adjusted each year and your extra payments reduce the principle for the upcoming year, then what your saying makes more sense. At least that is how I see it in my mind. What am I missing?
 
modified income ACA uses
Correct. I was being general. Your MAGI is close to your standard AGI.
Also it’s not a gradual tapering off, there is a cliff at the 400% poverty income level.
The subsidies prorate from 100% or 133% level based on MAGI. They end at the 400% level. If you select a Silver plan you have a prorated deductible subsidy but it ends at the 250% level.
 
This is a bit like Zeno’s paradox to me, it’s had my head in a knot. It may be what I don’t know that is causing my confusion. So here’s a question....

I thought payments over the monthly amount were applied to the end of the amortization schedule, or at least they were for me on a previous loan. If that is the case, the lender has money that isn’t reducing the principle for any year until the end of the term. That money seems to be his, interest free until the loan is paid for. If the payment schedule is adjusted each year and your extra payments reduce the principle for the upcoming year, then what your saying makes more sense. At least that is how I see it in my mind. What am I missing?

There are different types of loans. I can get a simple interest loan that is not on an amortization schedule through my brokerage. In that loan the principal payment is divided equally over the duration of the loan. The interest is based on the remaining principal, so as you pay the principal the interest payment decreases. If you didn't guess, you can get that type of loan if you qualify, (meaning you don't really need it.) I can also choose just to pay the interest if I use it for an accounts payable loan where I know that I will be paying it off after some short period of time (usually a month or two).

A mortgage follows an amortization schedule, it's been too long to remember which schedule they use, but your recollection is correct, you pay mostly interest at the beginning which is not advantageous to you versus a simple interest loan, but beggars can't be choosers. If you are near the end of your mortgage you are usually better off to just make the payment and invest the money you would have used to pay the loan off early. If you are near the beginning of the loan, then you are usually better off paying the loan off if you can.
 
There are different types of loans. I can get a simple interest loan that is not on an amortization schedule through my brokerage. In that loan the principal payment is divided equally over the duration of the loan. The interest is based on the remaining principal, so as you pay the principal the interest payment decreases. If you didn't guess, you can get that type of loan if you qualify, (meaning you don't really need it.) I can also choose just to pay the interest if I use it for an accounts payable loan where I know that I will be paying it off after some short period of time (usually a month or two).

A mortgage follows an amortization schedule, it's been too long to remember which schedule they use, but your recollection is correct, you pay mostly interest at the beginning which is not advantageous to you versus a simple interest loan, but beggars can't be choosers. If you are near the end of your mortgage you are usually better off to just make the payment and invest the money you would have used to pay the loan off early. If you are near the beginning of the loan, then you are usually better off paying the loan off if you can.
I had a mortgage and that’s how I viewed it. I paid it off at the 12-13 year mark on a 30yr loan, but much past that and I was just going to keep to it. It seemed to me that the worst option was to pay some amount over the required payment each month. In that case, the lender benefitted the most.
 
My medical is $1200/month for a "silver" plan, and I am single. That's before I ever set foot in a medical facility.

When I was still eligible for COBRA, it was $500/month for a better plan.
Now you are making me wonder if I am remembering correctly, if that was each or for both of us.
 
Now you are making me wonder if I am remembering correctly, if that was each or for both of us.
My plan is not the cheapest, nor is it the most expensive. I think I will do a little better shopping around this year. I procrastinated last year, then I went on vacation. Also, my COBRA expired at the end of November, which was inconvenient, since I didn't want a gap.
 
I had a mortgage and that’s how I viewed it. I paid it off at the 12-13 year mark on a 30yr loan, but much past that and I was just going to keep to it. It seemed to me that the worst option was to pay some amount over the required payment each month. In that case, the lender benefitted the most.

I've never run the numbers, but generally paying more each month is applied to the principal and shortens the loan so it can be beneficial. Not sure it would have helped since you paid it off early.
 
Every piece of advice you will find will tell you that a 401(k) loan is the worst idea ever, and will surely lead to financial ruin. This is not universally true, though. Under certain conditions, it can work out to your advantage. I did it once, and it saved me a lot of money.
401k loans are SO much better than any other loan you’d get in a scenario you’d take that loan. I’ve leveraged them multiple times in the past. Can’t see doing it again, but I’d do it before leaving money on a credit card or taking out a personal loan.
 
Curious. Was your policy through the National Marketplace or through a state exchange to get your Silver plan?
It's a state approved (?) plan, but not a standard Covered California plan. In other words, buying this plan, I would not get a subsidy, even if I qualified for one.
 
It's a state approved (?) plan, but not a standard Covered California plan. In other words, buying this plan, I would not get a subsidy, even if I qualified for one.
I looked at Healthcare.gov.

For KS, and my and my wife's current age right now:

Bronze average: $1820 ($21840/yr)
Silver average: $2287 ($27444/yr)
Gold average: $2213 ($26556/yr)

Those have deductibles around $12k.
 
My and my wife's Medicare is $135.50 a month for each of us. I still have money in an HSA. For my wife we have an AARP United Healthcare supplement that is $130 a month and a drug plan that is $28.90. Have a VSP plan for eye care through my retirement plan that is $21 a month.
 
I looked at Healthcare.gov.

For KS, and my and my wife's current age right now:

Bronze average: $1820 ($21840/yr)
Silver average: $2287 ($27444/yr)
Gold average: $2213 ($26556/yr)

Those have deductibles around $12k.
Wonder why the gold is slightly less expensive than the silver...

But the prices seem about equivalent to what I pay based on where we both live. I pay that San Francisco premium for everything.

Actually I checked while I still lived in Colorado, and the prices were about the same in both locations.
 
The amazing part about those plans is that they’re larger than my first mortgage per month.
 
The amazing part about those plans is that they’re larger than my first mortgage per month.
Mine too, by a lot. But I will only have to pay that huge individual policy premium for a little over 2 1/2 more years. I think. Not 30 years. ;)
 
Gold average: $2213 ($26556/yr)
Wonder why the gold is slightly less expensive than the silver...
How many providers are there when you look up those policy prices? Those prices look nothing like I see when the ACA subsidies are applied especially with the Silver plans. Unless you are exceeding the ACA income requirements there might be some other info needed to get a more accurate quote.

While each state is different the exchange websites are not very forth coming when it comes to this.
 
How many providers are there when you look up those policy prices? Those prices look nothing like I see when the ACA subsidies are applied especially with the Silver plans. Unless you are exceeding the ACA income requirements there might be some other info needed to get a more accurate quote.

While each state is different the exchange websites are not very forth coming when it comes to this.
There were only 7 total policy choices. I did not try to get a price with subsidies.
 
How many providers are there when you look up those policy prices? Those prices look nothing like I see when the ACA subsidies are applied especially with the Silver plans. Unless you are exceeding the ACA income requirements there might be some other info needed to get a more accurate quote.

While each state is different the exchange websites are not very forth coming when it comes to this.
Speaking for myself, I don't come close to qualifying for a subsidy, so I get to pay the full price.

I don't remember how many insurers there were, guessing at least 4 or 5.
 
There’s also, as I eluded to, especially for “nesters” an ROI that isn’t measurable mathematically. The “peace of mind” thing for them that the lower rung of Maslow’s hierarchy is handled, barring a huge storm destroying the place. And even that can be mitigated relatively cheaply with homeowner’s insurance with full replacement value, if they’re really concerned about it. :)

Peace of mind is important, but it needs to be a good financial decision, too.
I’m generally anti-debt but if someone really really must do this sort of loan I always counsel them to think hard about their specific industry and job. The chances I would ever work more than seven years at a company in tech are abysmal in real world numbers. The chances I would find another job are fairly good however.

For anyone in an unstable job or industry, 401K loans with their forced payment upon job loss, are a really big risk, and worse when you add on the tax penalty.

Younger folks I’ve seen use them who lost jobs then WAY too often decide that cash is tight while looking for the new job, so just let the thing pay itself off from retirement money and go ahead and withhold the taxes, and they don’t notice until tax time that they lost 40-50% of what they earned and put in there.

It’s set up to be way too easy to be distracted by the immediate cash flow “emergency”, especially for lower salary workers, and just accept the penalty and not think about how freaking much money just got flushed.

Debt is a tool, nothing more, nothing less. Used responsibly and properly it is not a problem. Used irresponsibly and it can be a real problem. Likewise retirement plans - under some old pension systems (including the old Fed system), one could leave and take their contribution money out. Often that's not a wise decision, but under some personal circumstances, it's a fine decision. Likewise NQ executive compensation deferred plans - those require that you take the money out when you leave the company - sometimes it makes sense to reinvest, sometimes it makes sense to use it as a severance package.

Some here are likely millionaires. I had an Edward Jones guy come to my door at the city house, and I doubt he was one. I think I’ll take advice from rich people, not broke people. But you do have to decide if they’re blowing smoke up your ass, either way. Ha.

I know who I won’t take financial advice from over ANYONE on PoA. My family. Good lord. I’ve tried to help. Really I have. It doesn’t even register.

Being "millionaires" does not qualify one to be the bearer of advice. I know some that got their money through the lucky sperm club or less-than-ethical acts: I wouldn't trust them. I've met a couple of billionaires (with a B) that I wouldn't take advice from either for other reasons. And Edward Jones (I knew someone that referred to the company as "Fast Eddie") is not on my radar of good advisors. I mentioned qualified independent advisors. That means one who doesn't have an interest in churning or selling you more stuff.

Sometimes folks that aren't uberwealthy can provide good advice if they've been in your shoes and can help you avoid mistakes they made.

But again, YMMV. You gotta find someone that will understand your particular situation and help guide you... at the same time you gotta have enough smarts to say "this isn't right". I happen to be a big fan of dollar cost averaging in investments, yet I've met a couple of advisors telling folks to lump-sum invest everything at once without regard to the market. Are they wrong? Dunno, just a different opinion, but in the kind of frothy market we have right now, averaging will tend to reduce risk. YMMV.
They’re not totally gone. I have a railroad buddy who’s going to make BANK in retirement on his pension. Also know multiple double dippers who did military or civil service long enough to qualify for a pension and then took new civil service jobs to do another 20 years. They had to plan it right and be a tiny bit lucky that their specialities were in demand, and I suppose trust that the taxpayers will bail out the failing pensions. But they have a promise on paper anyway. Whether it’s made good, remains to be seen.
Yeah, there are a couple of places where they still exist - primarily state and local governments. Even the Feds stopped doing it. Some heavily unionized industries still have them, but many have gotten rid of them (one reached a settlement with employees that required them to make extra contributions to the 401K/SIP for certain employees to compensate for no pension - that was a pretty sweet deal). Certainly there's a risk to the retirees.

But again, see above for commentary on listening to rich people and not broke people for advice. Someone can offer information on a forum that hints they know what they’re talking about without posting their net worth. It’s helpful when figuring out who’s advice is wheat and whose is chaff.
I stand by my comment that being rich in and of itself doesn't qualify someone. Broke people aren't generally ones to turn to, either. What is needed is someone that can understand the situation and make tailored recommendations. One size never fits all.


I always assume HERE that folks do at least basic budgeting or they wouldn’t be able to afford our silly hobby. But yeah, budget is WAY before planning. If you don’t know what the incoming numbers are and the outgoing numbers, it’s impossible to plan anything.

I always joke that the real world way to get ahead is to cheat, but if you have morals, here’s the long slow boring path to wealth, even generational wealth, if you get on with it early. Investing shouldn’t be optional in your 20s, if you want to make things much easier on yourself. We invested back then but didn’t know the budget or the math and got ourselves into massive consumer debt. Utterly stupid but neither of us was ever taught finance in a simple way. We taught ourselves in our 30s. Many many mistakes. No debt and paid off home at 42 and that was accelerated by a small inheritance we’d rather not have had. Planning showed we would have done it without that by 46 or 47. Dad had retired early and was squeaking by on a tight budget until Social Security, so the inheritance wasn’t that significant in our numbers because he was essentially doing what the FIRE crowd would call LeanFIRE or maybe BaristaFIRE. He had a little part time retail job that he did barely enough hours at to buy medical insurance, which as others have mentioned, is the hardest part about any early retirement.
Basic financial education is seriously lacking in this country. Education about personal finance need to start in grade school. And worse, many parents today don't know themselves so they can't teach their kids. I was fortunate enough to have parents that taught me good financial planning skills early on (they were born before the Great Depression), including appropriate use of debt as a tool. Sure, I made mistakes along the way, but nothing so serious that I couldn't recover once I realized the error of my ways. It's a different world now, but the fundamentals are the same (same way as technology makes aviation a different world now, but you still gotta learn the basics of flight).

Income level. The government won’t give you the free taxes if you make more than a certain amount.

Thing is, the backdoor Roth “loophole” exists as well as there used to be the ability to “recharacterize” into Roths, so there’s really no real barrier to investing in a Roth if one wants to. The only serious pain in the ass for those is if you already have significant investments in taxable accounts, Roth deposits CAN trigger tax problems for people who miss that the law and the loophole say that ALL invested money is part of the tax bill.

YMMV so a good accountant is needed if there’s already a huge chunk of money in a regular IRA.

For those watching, be aware that there are Roth IRAs and Roth 401Ks - they have different rules. Had the Roth 401K been an option when I was younger, I would have maxed out in that. Later in life, with higher income, it's not a slam-dunk decision.
For most folks, if they can max whatever has a match first, Roth second, and then anything tax deferred third, they’re going to be doing great. Especially if they can afford to max all of those.

Small business owners and self employed have all sorts of other options and weirdness. Again, good accountant is worth whatever they can find that you’re doing sub-optimally for your specific tax circumstances.

If you liked the job, and stuck it out, it’s really a decent deal. Stacking on a defense contractor gig with a pension or solid 401K in “retirement” from the military is also quite common. A great way to solidly retire with serious cash flow. As long as the country honors all of it. Which, we should.
Bottom line for me: get qualified advice. Making a mistake on this stuff can cost serious money in the long run.
 
I wish I'd put more in a Roth, earlier in my career, while I still could. There was an IRA->Roth conversion path that was not subject to the income cap, but I don't know if that's still around.

The “Backdoor Roth” is still available.

I contribute to a traditional IRA, then a day or two later I convert it to Roth. It’s a 100% legal workaround for the income limit for contributing directly to a Roth IRA.
 
Unfortunately I don’t qualify for a roth, but my finance guy seems to think I’m on track otherwise.

Everyone qualifies, just not directly. Fire the Finance Guy "Salesman"
 
This is a pretty simple question really. How much do you have, how much do you need per year (factor in whatever you will be doing, work or otherwise), and then how long will you live.. :)

The question is simple, the variable are not as simple.
 
Being "millionaires" does not qualify one to be the bearer of advice. I know some that got their money through the lucky sperm club or less-than-ethical acts: I wouldn't trust them. I've met a couple of billionaires (with a B) that I wouldn't take advice from either for other reasons. And Edward Jones (I knew someone that referred to the company as "Fast Eddie") is not on my radar of good advisors. I mentioned qualified independent advisors. That means one who doesn't have an interest in churning or selling you more stuff.

Sometimes folks that aren't uberwealthy can provide good advice if they've been in your shoes and can help you avoid mistakes they made.

But again, YMMV. You gotta find someone that will understand your particular situation and help guide you... at the same time you gotta have enough smarts to say "this isn't right". I happen to be a big fan of dollar cost averaging in investments, yet I've met a couple of advisors telling folks to lump-sum invest everything at once without regard to the market. Are they wrong? Dunno, just a different opinion, but in the kind of frothy market we have right now, averaging will tend to reduce risk. YMMV.


...

Basic financial education is seriously lacking in this country. Education about personal finance need to start in grade school. And worse, many parents today don't know themselves so they can't teach their kids. I was fortunate enough to have parents that taught me good financial planning skills early on (they were born before the Great Depression), including appropriate use of debt as a tool. Sure, I made mistakes along the way, but nothing so serious that I couldn't recover once I realized the error of my ways. It's a different world now, but the fundamentals are the same (same way as technology makes aviation a different world now, but you still gotta learn the basics of flight).

....

For those watching, be aware that there are Roth IRAs and Roth 401Ks - they have different rules. Had the Roth 401K been an option when I was younger, I would have maxed out in that. Later in life, with higher income, it's not a slam-dunk decision.

Bottom line for me: get qualified advice. Making a mistake on this stuff can cost serious money in the long run.

All completely agreed. I really couldn’t flesh out the comments about “millionaires” because even for me, that post would be too long. Thanks for finishing those thoughts. My point was mainly to @EdFred who complained about “bragging”. I don’t think most folks here brag, and clearly some have done very well for themselves. We all know what airplanes we all fly. Hahaha. And just playing in the airplane game means we’re all pretty darn blessed.

Check out the “Backdoor Roth”.

A two-step process.

Contribute to a traditional IRA (or roll over 401k into IRA), then convert the funds to Roth.

The gotcha I was trying to elude to was the pro rata rule which really applies to Roth conversions not contributions if I recall this correctly.

I’ve had some years where a conversion (when I was younger and the tax benefits in retirement were greater — now it’s becoming nearly a wash between pre and post tax unless tax rates seriously skyrocket — would have been useful. If one has significant money in traditional IRAs, like many of us do who never had Roth options available to us before they existed, we would get absolutely screwed by any Roth conversion. The pro rata rule says earnings in ALL IRA accounts have to be used in the calculations, as I understand it.

There’s a lot of earnings in those old accounts.

Kinda ticks me off that someone younger earning more can shelter more than I can, because if I have a down earnings year, I can’t recharacterize anything into a Roth, even if it made a big difference for me now.

Which it doesn’t. But the pro rata rule is a serious crapper if you’re in the generation caught between those who had Roth always available and those who never did.

It honestly makes no sense but, when has tax law ever made sense? LOL.

Anyway ... even if I have that all wrong above, my accountant has looked it all over and Roth conversion for me is a bad idea. That may have changed with a couple of years of lower income due to time off to do flight training and then the medical “fun”.

I’m sure it’ll be a discussion point this year.

We’ve also prepped both the accountant and the investment guy to think in terms of a possible second medical attack that leaves me with a major disability and to discuss options for if that were to happen... as well as a little long term thought about capital gains if for some horrid reason we had to raid the retirement cookie jar for something nasty and medical. Or possibly NOT sheltering some investments for a while to build up the external cookie jar.

And all of that with some thought in mind as to how to properly structure everything such that me having some major issue doesn’t make Karen a broke widow.

They’re going to earn their keep this year, for certain.

Dark topics but heck, even with low percentage chances of that happening, let’s at least have the discussion of where we’d steer the ship (or more likely where they and Karen would) if needed.

Big fat monkey wrench in the gears this year.

Guess we will have a sit down with everyone and make a new plan. The plan never survives first contact with the enemy. LOL.
 
Everyone qualifies, just not directly. Fire the Finance Guy "Salesman"

Remember that we're talking about finding ways of contributing more money to retirement - not just converting money that's already been contributed. So in addition to what I'm already funneling into my 401k, how do I also contribute to an IRA as well?

My finance guy doesn't invest for me - he just gives advice. Incidentally, he thinks I'm saving entirely too much money. ;)
 
The gotcha I was trying to elude to was the pro rata rule which really applies to Roth conversions not contributions if I recall this correctly.

I’ve had some years where a conversion (when I was younger and the tax benefits in retirement were greater — now it’s becoming nearly a wash between pre and post tax unless tax rates seriously skyrocket — would have been useful. If one has significant money in traditional IRAs, like many of us do who never had Roth options available to us before they existed, we would get absolutely screwed by any Roth conversion. The pro rata rule says earnings in ALL IRA accounts have to be used in the calculations, as I understand it.

There’s a lot of earnings in those old accounts.

Kinda ticks me off that someone younger earning more can shelter more than I can, because if I have a down earnings year, I can’t recharacterize anything into a Roth, even if it made a big difference for me now.

Which it doesn’t. But the pro rata rule is a serious crapper if you’re in the generation caught between those who had Roth always available and those who never did.
That is not my understanding of the prorata rule. As I understand it, the prorata rule says that *if* you convert only *a portion* of your IRA to a Roth then the tax paid must be based on the same prorata proportion of deductible contributions, earnings, and non-deductible contributions that exist in the account being converted. If you convert the whole thing at once, then it's not an issue.

I may also have it wrong, hence the admonishment to talk to a qualified accountant or advisor.

As for whether it makes sense.... as the value of your IRA (or rollover IRA, there can be some gotchas there) grows, it can get large enough to bump you into a higher bracket when added to your ordinary income for tax purposes - meaning you pay more tax on the conversion than you might otherwise. Likewise if it's big enough it can, by itself, ratchet up a bracket even if you have no other income. So if you're making $150K a year and you want to roll over a $250K IRA, you'll end up in a $400K bracket (subject to any deductions & exemptions, of course).

My crystal ball is cloudy right now, but the tea leaves I can see say taxes will go up - perhaps a lot - depending on the outcome of the election. The leading candidates on one side want "wealth taxes", and at least 2 candidates have proposed jacking up the capital gains tax to be equivalent to ordinary income tax, which will also go up. So depending on who gets elected, we could be looking at 43% taxes for both income and cap gains at the higher income brackets, and possibly wealth taxes of 2% for wealth over $50 M. And I personally don't see how those candidates can do what they want to do without whacking middle-class wage earners too.... the math doesn't work (except in the world of getting elected...)

Any way you slice it, I believe taxes will go up. So there may be some though of doing conversions now, though it really doesn't make sense to do something that would result in more taxes than if you'd just invested with taxable income (Roth or otherwise). Qualified accountant or advisor...
 
how do I also contribute to an IRA as well?
Call up an investment company with good fees like American Century or Vanguard, open an IRA account and send them a check. But first I'd fire your finance guy who thinks you save too much and find one that thinks you don't save enough.
 
Maybe I'm misunderstanding your comment, but I wasn't commenting on investment strategy at all. My point was that my "number" that would be necessary to retire decreases as I age. Today, at a relatively young and healthy 40 years of age with lots of life ahead of me and some expensive hobbies and interests, I wouldn't retire without a significant net worth number (i.e. ~$40M might do it). Could I retire on $20M today? Of course, but I'd be somewhat constrained in what I can spend and so for me the mental calculus at this age says I'm happier grinding it out at work and saving more money than retiring early but having to watch my spending. As I get older, the balance of years ahead shrinks and my ability to spend will also eventually reduce, therefore, for every year that passes, my "number" at which I'd retire, reduces a bit. Eventually, the number that I have (actual net worth) and the number that I need (desired "number" to retire) shall meet as the former increases every year and the latter decreases. The year those two lines cross, I retire...

And the good news is that I already have enough saved up (and growing to get back to the mattress vs investment point you made) that I know I don't have to run out the clock to 65 unless some major financial disaster happens.

Generally if you've been able to save and plan well for retirement you won't spend your principal down over the rest of your life, which with your numbers it seems like you are saying you will do. In your example of $40M at 40 years, if you use the 4% rule, you can spend $1.6 million per year and still keep pace with inflation while maintaining your principal. At $20 million you'd should be able to spend $800k per year, still keep pace with inflation and not erode your capital. This spend rate is the equivalent of your net paycheck now. If you are spending this type of money now and not going into debt, then congratulations!
 
Remember that we're talking about finding ways of contributing more money to retirement - not just converting money that's already been contributed. So in addition to what I'm already funneling into my 401k, how do I also contribute to an IRA as well?

This is the next step:

Call up an investment company with good fees like American Century or Vanguard, open an IRA account and send them a check. But first I'd fire your finance guy who thinks you save too much and find one that thinks you don't save enough.

Do you have a spouse? Do they have an IRA of either type, and is it fully funded? Just things to consider. Also, a straight brokerage account for non-qualified investing.

NQ annuities are another way to generate tax-deferred retirement income. Though you should stay away from the ‘free steak dinner’ salesmen and really need a good planner to understand if it’s right for you. Consider adding a CFP to your personal board of directors.

Real estate, either in a REIT or individual properties. We think in multiple streams of income and have IRAs, 401Ks, TSP, and NQ income streams we can tap when traditional pay checks become smaller or non-existent.

Tax strategy is important too, so also consider adding a CPA to your personal board of directors. They should be able to help you understand how to optimize for both today and in the future.
 
Oh, and just to stir the pot a bit... how about the lottery as a retirement plan? Do you take the lump-sum or the annuity if you win the Megapowermillions?

:devil::devil: :popcorn::popcorn:
 
adding a CPA to your personal board of directors
+1. Keep a CPA, Investment Pro, and Tax/Estate attorney in your bullpen. Invaluable...and necessary in my opinion. The best money I spent planning for retirement was in professional fees.
 
Lump sum. I threw this question out at one of my last pre-retire meetings with my cpa, attorney, wealth guy. We all laughed then they looked at each other and in 30 minutes showed me what to do with that lump sum. Even at a modest investment level the lump sum would out perform the annuity option laying down. But I think they saw money on their side as they collectively stated if it were to happen they would convert their fees from a flat rate to a percentage.;)
 
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