Let's talk about spending In retirement

[disneysteve]

I know a number of folks here are already retired, or, like us, are going to be there soon. I thought it would be good to have a thread where people share their experiences on how they are going about funding their retirement spending. Which accounts are you drawing from first and why? Are you aiming to stay under the ACA cap or the 0% capital gains cap? Are you collecting a pension? Are you getting Social Security? If not, when do you plan to? How much cash are you maintaining and how are you replenishing it as you spend it?

[QuarterMillionMan]

I would like to add 1 more question for those who are retired but not at the age to qualify for Medicare as to what are you doing about medical insurance. I'm 55 and if forced into retirement today wondering if I can wing it having to buy Biden care until I qualify for Medicare.

[disneysteve]

I would like to add 1 more question for those who are retired but not at the age to qualify for Medicare as to what are you doing about medical insurance. I'm 55 and if forced into retirement today wondering if I can wing it having to buy Biden care until I qualify for Medicare.

I've used Healthsherpa.com to price ACA plans, or you can use Healthcare.gov. You can run the quotes with different income amounts if you aren't sure if you'll be under the subsidy cap.

I'm reasonably confident we can stay under the cap by mainly drawing from cash savings and taxable accounts for the first few years. I will have to take RMDs from the inherited IRAs but that won't put us over the cap even when added to our other taxable income sources.

[Fishindude77]

Retired 3.5 years, current ages 61 & 58. We are fairly big spenders in retirement, budget $140-150k annual spending. Could live much cheaper if necessary by eliminating some things, but this is our current chosen path. Pre retirement we made investments that would generate income, as well as wealth preservation and some long term growth. These include several farms that we get annual cash rent checks from, and also have enrolled in government CRP plans which generate annual income. Also purchased significant stock ownership in a business I am very familiar with and sit on the board of.
Farm income is approx. $30,400
Stock dividends & directors fees $24,500
Also drawing monthly out of our IRA (formerly 401k) for a total $48,000

The balance of our needs is coming from cash in checking and savings accounts. We've got close to $1 mil in cash getting rather minimal income in CD's, and savings accounts. In the back of my mind it's there in the event a good deal on another farm comes up. We are also kicking around the idea of an expensive home remodel which this would fund.

Will probably start taking Soc Sec at 67 which looks like it will generate approx. $33,000 and eliminate the need to draw much cash out of our savings. No pensions, inheritance or other income expected.
We pay full price for ACA health insurance and really don't foresee that changing before Medicare eligibility.

[disneysteve]

Farm income is approx. $30,400
Stock dividends & directors fees $24,500
Also drawing monthly out of our IRA (formerly 401k) for a total $48,000

The balance of our needs is coming from cash in checking and savings accounts. We've got close to $1 mil in cash

We pay full price for ACA health insurance and really don't foresee that changing before Medicare eligibility.

Would it be beneficial for you to stop the IRA draw, make up the difference from your cash accounts, and qualify for the ACA subsidy? For us, the subsidy comes to 12K/year or so.

[Fishindude77]

Would it be beneficial for you to stop the IRA draw, make up the difference from your cash accounts, and qualify for the ACA subsidy? For us, the subsidy comes to 12K/year or so.

Who knows? Not really keen on drawing down that cash $48k per year quicker.
The 401k / IRA was saved and intended for retirement, so I'm going to use it first, and at the rate we're using it (2.5%), we could really be using more of it.

[disneysteve]

Who knows? Not really keen on drawing down that cash $48k per year quicker.
The 401k / IRA was saved and intended for retirement, so I'm going to use it first, and at the rate we're using it (2.5%), we could really be using more of it.

Understood. Just something to think about. The ACA cap is about 69K this year so you could still take about 15K from the IRA and only about 33K from cash. It might save you 12K/year on your insurance.

[srblanco7]

I think we can be fairly decent spenders in retirement - starting in the next 10-18 months.

Initial source of income will come from brokerage account dividends/cap gains which generate about $50-55k/year. Second source of income will come from 401ks (via SEPP or rule of 55) and third source from brokerage account share redemption, at approx, $50k-60k each. Total $150 to $175k/year.

Based on some rough modeling I did, a balanced, multi-source approach appeared to be tax efficient - with the added benefit that tax-efficient withdrawals from our 401ks when we’re early in retirement, help us to realize reasonable RMDs when we’re in our 70s.

I’m just starting to learn about ACA and subsidies - seems unlikely we’ll qualify if dividends & cap gains count toward income threshold (think I read that in a thread on this site or the early-retirement forum. Please correct me if I’m incorrect).

[disneysteve]

I’m just starting to learn about ACA and subsidies - seems unlikely we’ll qualify if dividends & cap gains count toward income threshold (think I read that in a thread on this site or the early-retirement forum. Please correct me if I’m incorrect).

Yes, interest, dividends, and capital gains (in taxable accounts) all count toward your taxable income. Your 401k withdraws count too. So yeah, you're not going to be under the 69K AGI cap.

[srblanco7]

Yes, interest, dividends, and capital gains (in taxable accounts) all count toward your taxable income. Your 401k withdraws count too. So yeah, you're not going to be under the 69K AGI cap.

Thanks for the confirmation DS. I gather there’s a choice to be made between funding a couple years retirement expenses from our cash bucket to get to a subsidy level vs. sitting on the cash bucket to protect against SORR. My inclination is to opt for the latter - at least for the first few years of ER. We’ll have more than a decade of ER before we’re medicare eligible - so at some point living off the cash bucket and qualifying for the subsidy remains an option.

[kork13]

Thanks for the confirmation DS. I gather there’s a choice to be made between funding a couple years retirement expenses from our cash bucket to get to a subsidy level vs. sitting on the cash bucket to protect against SORR. My inclination is to opt for the latter - at least for the first few years of ER. We’ll have more than a decade of ER before we’re medicare eligible - so at some point living off the cash bucket and qualifying for the subsidy remains an option.

I haven't used/interacted with any of the ACA policies, but they renew every year, correct? And thus you would need to stay under the subsidy level every year as well? Seems like something that would be undesirable or unsustainable if you aren't right up against the Medicare qualification age.

[disneysteve]

I haven't used/interacted with any of the ACA policies, but they renew every year, correct? And thus you would need to stay under the subsidy level every year as well? Seems like something that would be undesirable or unsustainable if you aren't right up against the Medicare qualification age.

Yes the subsidy qualification is annual based on AGI. I'm not sure why it would be undesirable/unsustainable though. The majority of ACA folks get the subsidy. It's really not that hard for most people to stay under the cap. The cap for 2021 is $68,960. That's after your standard deduction of $25,100 (MFJ). So a couple can earn at least $94,060 taxable and still get the subsidy.

We have a pretty large taxable portfolio so it shouldn't be hard for us to qualify. We'll need it for 7 or 8 years.

[kork13]

I'm not sure why it would be undesirable/unsustainable though. The majority of ACA folks get the subsidy. It's really not that hard for most people to stay under the cap. The cap for 2021 is $68,960. That's after your standard deduction of $25,100 (MFJ). So a couple can earn at least $94,060 taxable and still get the subsidy

I guess my thought was that one may not want to restrict income to <$100k (srblanco & fishindude as examples), thus undesirable. The unsustainable piece would be that someone like that who also doesn't want to draw too much from investments could trip over the subsidy line... So you need a bunch of cash to offset. If you're retiring early and gonna draw from this cash for a decade+ (≤55), even if you're "only" aiming for spending $120k/yr, if you pull $90k/yr in income from taxable investments or 401k/IRA SEPPs, you then need to sustain that $30k/yr cash draw for that decade+ to retain the subsidy... Not many would have that much sitting in cash (thus the unsustainable part).

The other argument is that this becomes a presumably high-NW individual/family trying to play intricate games to get a government subsidy. While by no means illegal or immoral, perhaps it could become "bad form"? Or just not worth the effort/restrictions.

[disneysteve]

I guess my thought was that one may not want to restrict income to <$100k (srblanco & fishindude as examples), thus undesirable.

Yeah, it's not really aimed at people spending >100K/year, so I agree with you in that case.

As for not having a lot of cash, that's not the only way to have non-taxable income. You could draw from your Roth if you're eligible. You could also sell taxable investments since only your gains are taxable. I plan for us to do at least some of that.

[Fishindude77]

The other argument is that this becomes a presumably high-NW individual/family trying to play intricate games to get a government subsidy. While by no means illegal or immoral, perhaps it could become "bad form"? Or just not worth the effort/restrictions.

This is pretty much where I stand.
We can't live on $68k or less and don't ever intend to, so no sense playing games to get there.