Nearing Retirement - Any missing pieces?

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vas
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Nearing Retirement - Any missing pieces?

Post by vas »

Hello all,

Starting to wonder if I should retire this year. The last year of work was both rewarding and stressful. On the one hand I have a well compensated, fully remote, largely self directed position that affords a lot of flexibility. On the other, work has become an endless series of personnel, staffing, financial, and product problems. Lots of cat herding and very little direct creative work. I can keep soldiering on for a while but my heart isn't in it and I want to spend my remaining healthy years wisely. Other factors to consider:

1. Health - 57 and in generally good shape but on a perpetual med now and watching older relatives deal with more serious issues.
2. Passion - I don't think I can switch jobs and take on a new demanding passion project or role. Increasing want to focus on some other personal objectives.
3. Financial - I'm conservative and want to make sure I have a rock solid financial plan.
4. College - 14 year old at home so college funding required in four years

I've done a portfolio review on the forum before so I think my investments are in decent shape. Here is a snap shot:

$1.6M pretax (401K, Roth, HSA) 70/30
$400K pension Today's cash value; fair; 40/30; various annuity options or cash out
$700K house equity, $210K mortgage at 2.75% Plan to pay off with cash in March after RSU, ESPP, etc.
$230K Cash
$90K 529 Plan
SS projection is $47K per year if I retire now and start SS at 70.

Expenses: $75K / yr inclusive of taxes, ACA insurance premium and max out of pocket, all routine expenses.
$90K / yr for planning purposes. Includes more travel, unplanned expenses

Firecalc analysis (taking pension as lump sum): 100% success with $870K lowest end balance 50/50 allocation
Firecalc analysis (pension single life annuity): 100% success with $460K lowest end balance 50/50 allocation
100% success with any AA above about 15% stocks
95% success rate annual spending is $105K / yr

Options I'm considering:

1. Retire in April and enjoy the Summer.
- Roll pension lump sum to IRA
- Change AA to 50/50
- Cash flow / loans for college as needed.
- COBRA and then ACA for healthcare
- Live on 401K via rule of 55
2. Cowboy up and put in two more years of conference calls and retire at 59.5
- Bump up college fund to $200K
- Set aside a couple years of living expenses in cash
- Take vacation time (retirement training)

The overall numbers seem OK but are there any other pieces of the puzzle? I've got max out of pocket medical covered, "new roof" type home repairs can fit into the annual spend if needed. Estate plan with trust for child is in place.

Thoughts? What am I missing?
“For every complex problem, there is a solution that is clear, simple, and wrong.” - H. L. Mencken
chipperd
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Re: Nearing Retirement - Any missing pieces?

Post by chipperd »

Your situation looks great.
One added bonus of retiring between now and the next year or perhaps a bit more, your income will drop to the point of probably qualifying for financial aid for college. (Currently a two year look back via tax returns). The 529 money will hurt you a bit in the financial aid dept. but not enough to knock you off the financial aid charts, esp at CSS profile schools.
You get one chance at time on this planet....
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
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vas
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Re: Nearing Retirement - Any missing pieces?

Post by vas »

chipperd wrote: Thu Jan 20, 2022 4:30 pm One added bonus of retiring between now and the next year or perhaps a bit more, your income will drop to the point of probably qualifying for financial aid for college. (Currently a two year look back via tax returns). The 529 money will hurt you a bit in the financial aid dept. but not enough to knock you off the financial aid charts, esp at CSS profile schools.
That is a great point. I need to start educating myself on the nuances of Financial Aid qualification. Didn't know about the two-year look back for example.

Love the signature line BTW
“For every complex problem, there is a solution that is clear, simple, and wrong.” - H. L. Mencken
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Watty
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Re: Nearing Retirement - Any missing pieces?

Post by Watty »

vas wrote: Thu Jan 20, 2022 4:26 pm 1. Retire in April and enjoy the Summer.
.....
- COBRA and then ACA for healthcare
.....
...are there any other pieces of the puzzle?
You can normally use COBRA for 18 months(with a few special cases) and then switch to ACA but a downside of that is that you will need to start your deductible for the year all over when you switch. If you can time your COBRA so that it runs out at the end of December and you start ACA in January then you can avoid having to pay two deductibles for the same year.

At many, but not all, companies you will get your healthcare through the end of the month when you leave the job. You will then start using COBRA on the 1st of the next month. If you company works like that and I counted right then if you made your last day June 1st then you could start COBRA in July of 2022 and use it through December of 2023 then go on ACA in January of 2024.

When you pay off the house( :beer ) you might want to set up a home equity line of credit that you can draw on. This can be handy since that can help you to keep your taxable income low enough to get an ACA subsidy or maybe help qualify for financial aid(I don't know much about that). You can likely find a no cost HELOC at some place like a credit union so there is little downside to setting one up. I did this and it required some juggling but by using the HELOC I could keep my taxable income low enough to get an ACA subsidy. Getting a HELOC approved may be easier while you are still working and have income that you can show on the loan application. Having a HELOC can also be handy if you have some unexpected large expense.

If you can't get your numbers low enough to get an ACA subsidy then you might look at lumping your income so that you could get the subsidy every other year.

With COBRA you need to be very proactive with getting the forms and paying the premiums even if you do not get an invoice or some form that you need.

My COBRA was managed but a third party company and they did the bare minimum they could and it was clear that they would have loved for me to miss a payment and be dropped from COBRA. On average people who use COBRA are more expensive so they have an incentive to want you off of it. If you are late on a payment there is a limited time to get current and once you are dropped it is almost impossible to get back on it even if you have a good excuse like being unconscious and in a hospital. Make sure that multiple people know to make your COBRA payment if you and your spouse are not able to pay it for some reason. Normally you get the COBRA paperwork mailed to you after your last day and then it will be retroactive once you make your first payment. The problem is that there will be weeks when it looks like you do not have any insurance. I was able to get my cobra paperwork early from my HR department and get it in before my normal health insurance expired.

Each fall you will also have a healthcare open enrolment period and your employer may change plans and how much you pay just like when you were working. Watch out for that paperwork and ask for it if you do not get it. I don't recall the details but the company I worked for normally had this in November and I still had some contact with people working there so I knew they got it. When I called HR they said they did not send it out to COBRA people until later and I was able to get mine then and sent the paperwork in on time. I also knew to send in the new higher premium by January even though I had not gotten any new payment forms with the higher amount.
bltn
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Re: Nearing Retirement - Any missing pieces?

Post by bltn »

In your position, I d choose option 2 for a bit more financial security/flexibility.
Rather than build up the 529 plan too much, I might keep it about the same level and see if I didn t qualify for financial aid.
WhiteMaxima
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Re: Nearing Retirement - Any missing pieces?

Post by WhiteMaxima »

Roth conversion to 12% tax bracket, you hear me. living on aft-tax.
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willthrill81
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Re: Nearing Retirement - Any missing pieces?

Post by willthrill81 »

OP, you're golden right now. Even with 0% real returns for the next 13 years until you claim SS benefits, at $90k annual spending completely withdrawn from your $1.6m portfolio, you'd still have over $400k plus your pension, SS benefits, and cash. Note that your paid off home, apart from reducing your ongoing expenses, is not a factor in your planning unless/until you're willing to sell it and downsize or move to a lower COL area.

Enjoy retirement!
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chipperd
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Re: Nearing Retirement - Any missing pieces?

Post by chipperd »

vas wrote: Thu Jan 20, 2022 4:39 pm
chipperd wrote: Thu Jan 20, 2022 4:30 pm One added bonus of retiring between now and the next year or perhaps a bit more, your income will drop to the point of probably qualifying for financial aid for college. (Currently a two year look back via tax returns). The 529 money will hurt you a bit in the financial aid dept. but not enough to knock you off the financial aid charts, esp at CSS profile schools.
That is a great point. I need to start educating myself on the nuances of Financial Aid qualification. Didn't know about the two-year look back for example.

Love the signature line BTW
Thanks!
The rules may also change between now and 3-4 years when yours goes to college, so there's that caveat, but yeah, the rules of the game aren't always logical.

For example: Parental and/or student Roth $ won't count against a student for financial aid purposes, as it's in a retirement fund, but can be used to pay for educational purposes. So Roth conversions for you, as a poster mentioned, would probably be a good thing to explore on two levels.

529 fund $ will count against in a financial aid calculation, so consider that when deciding where to put new monies. So doing the "right thing" and putting funds in the vehicle specifically created to save for college isn't always the best idea for mid/lower income earners.

I currently have 3 kids in undergrad and ran the Net Price Calculator for all schools they considered (30+) and the numbers were sometimes quite different . Some schools (I'm looking at you Wellesley grrr) count assets down to the year/make/mileage of your vehicles.

You may wish to start exploring the Net Price Calculators for different schools by plugging in your future/hypothetical numbers vs current numbers to see where you stand. It's really the only way to know what each school will cost you out of pocket as financial aid calculations seem to be proprietary (I couldn't get any of my kids potential schools to share). The Net Price Calculators do seem fairly accurate (within a couple percentage points in our cases) and every school has to have one by federal law.

In the end for us, because we have 3 in undergrad at the same time, we are net positive working very part time vs full time. Inverse (some would say perverse) economic incentives, but I don't write the rules I just play by 'em.

Best of luck!
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
THY4373
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Re: Nearing Retirement - Any missing pieces?

Post by THY4373 »

chipperd wrote: Fri Jan 21, 2022 5:28 am For example: Parental and/or student Roth $ won't count against a student for financial aid purposes, as it's in a retirement fund, but can be used to pay for educational purposes. So Roth conversions for you, as a poster mentioned, would probably be a good thing to explore on two levels.
I believe that is true for the FASFA but NOT true for CSS. The CSS certainly asked for all of my (and my ex's retirement assets).
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Re: Nearing Retirement - Any missing pieces?

Post by liberty53 »

I don't think there is much benefit to waiting to 59 1/2 yo. It looks like you have plenty of cash for the next few years, and could probably take out some Roth contributions to fill the gap to 59 1/2 if necessary. Also, look into your 401k plan to see if they allow the rule of 55, where penalty free withdrawals can be made if you retire at the age of 55 or later.

In my experience COBRA is a very expensive option (may not be in your case). For the ACA, you can go through the hassle and estimate your low income for the next few years to get a great rate on health care with APTC's. Depends on the State you are living in though.
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vas
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Re: Nearing Retirement - Any missing pieces?

Post by vas »

Watty wrote: Thu Jan 20, 2022 7:20 pm
You can normally use COBRA for 18 months...
...set up a home equity line of credit...
...get your numbers low enough to get an ACA subsidy...
Thanks Watty. Great tips on how to manage COBRA. I'll save your post and try to avoid those traps.

Agree on the HELOC. Good to have just incase and there have been number of posts about using the HELOC to make the transition to a downsized house more flexible. I'll add that to my to-do list.

Reading the responses its clear I need to do some additional modeling on Roth conversions that considers both ACA and College financial aide.
“For every complex problem, there is a solution that is clear, simple, and wrong.” - H. L. Mencken
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vas
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Re: Nearing Retirement - Any missing pieces?

Post by vas »

willthrill81 wrote: Thu Jan 20, 2022 8:25 pm Note that your paid off home, apart from reducing your ongoing expenses, is not a factor in your planning unless/until you're willing to sell it and downsize or move to a lower COL area.
Understood. I'm envisioning downsizing at some point after my child is off to college. I'm already rattling around in the big house and will not miss keeping up the grounds. Just need to keep a home base available until the kiddo is launched and on solid footing. For planning purposes I'm not counting on revenue from the house for anything but on-going housing costs. Some of the modeling tools such as iORB assume that the house is sold and 'consumed' at some stage but I'm not counting on that for now.
“For every complex problem, there is a solution that is clear, simple, and wrong.” - H. L. Mencken
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vas
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Re: Nearing Retirement - Any missing pieces?

Post by vas »

liberty53 wrote: Fri Jan 21, 2022 8:46 am I don't think there is much benefit to waiting to 59 1/2 yo. It looks like you have plenty of cash for the next few years, and could probably take out some Roth contributions to fill the gap to 59 1/2 if necessary. Also, look into your 401k plan to see if they allow the rule of 55, where penalty free withdrawals can be made if you retire at the age of 55 or later.

In my experience COBRA is a very expensive option (may not be in your case). For the ACA, you can go through the hassle and estimate your low income for the next few years to get a great rate on health care with APTC's. Depends on the State you are living in though.
Thanks for your input. Paying off the house in Q2 will eat into my cash reserves a bit. I'm expecting to have only one year's expenses in cash after the payoff so I wont be able to live off taxable long enough to do meaningful Roth conversions. Once I'm living on 401K withdrawals the basic living expenses will fill the lower tax brackets. So that's one argument to work a bit longer and build up additional after-tax funds.

Good point about making sure the 401K allows he rule of 55. I thought that was tax law and not at the discretion of the plan so I was just assuming that was a viable option.
“For every complex problem, there is a solution that is clear, simple, and wrong.” - H. L. Mencken
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vas
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Re: Nearing Retirement - Any missing pieces?

Post by vas »

liberty53 wrote: Fri Jan 21, 2022 8:46 am In my experience COBRA is a very expensive option (may not be in your case). For the ACA, you can go through the hassle and estimate your low income for the next few years to get a great rate on health care with APTC's. Depends on the State you are living in though.
I don't know what COBRA costs; no excuse for not investigating that. I'll add that to my list. I haven't seen any documentation on COBRA on our benefits site but I'll take a closer look.

I have obtained ACA quotes (or estimates) for both premiums and max out of pocket and used a Silver plan as input into my expense model. Approximately $10K premiums and $15K max OOP. I'll get the COBRA numbers and compare.
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Re: Nearing Retirement - Any missing pieces?

Post by liberty53 »

vas wrote: Fri Jan 21, 2022 10:20 am
I don't know what COBRA costs; no excuse for not investigating that. I'll add that to my list. I haven't seen any documentation on COBRA on our benefits site but I'll take a closer look.

I have obtained ACA quotes (or estimates) for both premiums and max out of pocket and used a Silver plan as input into my expense model. Approximately $10K premiums and $15K max OOP. I'll get the COBRA numbers and compare.
You want to investigate ACA costs at various breakpoints that are based on income as a percentage of the FPL. If you can keep your income below 400% of FPL then you should be able to get something lower than $10k/year. With most of your savings in pre-tax, and spending down cash, you should have no problem being well below the 400% of FPL.
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Re: Nearing Retirement - Any missing pieces?

Post by willthrill81 »

vas wrote: Fri Jan 21, 2022 10:20 am I don't know what COBRA costs;
Buckle up. It's been very spendy in every instance I've seen or heard of.
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Watty
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Re: Nearing Retirement - Any missing pieces?

Post by Watty »

vas wrote: Fri Jan 21, 2022 10:11 am I'm expecting to have only one year's expenses in cash after the payoff so I wont be able to live off taxable long enough to do meaningful Roth conversions. Once I'm living on 401K withdrawals the basic living expenses will fill the lower tax brackets.
Retirement taxes may not be as bad as you think especially once you get on Medicare and start Social Security.

It would be good to do some dummy tax returns to see what your taxes will actually look like when you are 70+ years old.

Most states do not tax Social Security so that also helps lower your combined effective tax bracket.

You did not mention is you are married or single but for a couple they can have $40K in SS and $20K in taxable income and owe no federal income taxes. The way Social Security is taxed is complicated so it would be good to understand how that works. If you get lucky your numbers may work out so that you pay little to no taxes on your Social Security.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits
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Re: Nearing Retirement - Any missing pieces?

Post by vas »

Watty wrote: Fri Jan 21, 2022 10:41 am Retirement taxes may not be as bad as you think especially once you get on Medicare and start Social Security.

It would be good to do some dummy tax returns to see what your taxes will actually look like when you are 70+ years old.

Most states do not tax Social Security so that also helps lower your combined effective tax bracket.

You did not mention is you are married or single but for a couple they can have $40K in SS and $20K in taxable income and owe no federal income taxes. The way Social Security is taxed is complicated so it would be good to understand how that works. If you get lucky your numbers may work out so that you pay little to no taxes on your Social Security.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits
I'm single and live in a State that does tax SS. Not sure if I'll stay in the same State for retirement but I'm using their tax rate for planning purposes now. The tax modeling I've done so far focused on the first years of retirement, pre Medicare and SS. I was assuming that would be worst case, however, Roth conversions and RMDs will presumably have a big impact on post 70 taxation. All the more reason to spend some more time planning the Roth Conversion strategy.

Good point on the dummy tax returns. Sounds like a good idea to complete returns for several different ages and understand the implications.
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Re: Nearing Retirement - Any missing pieces?

Post by chipperd »

THY4373 wrote: Fri Jan 21, 2022 8:19 am
chipperd wrote: Fri Jan 21, 2022 5:28 am For example: Parental and/or student Roth $ won't count against a student for financial aid purposes, as it's in a retirement fund, but can be used to pay for educational purposes. So Roth conversions for you, as a poster mentioned, would probably be a good thing to explore on two levels.
I believe that is true for the FASFA but NOT true for CSS. The CSS certainly asked for all of my (and my ex's retirement assets).
It's my understanding that some CSS schools ask, but not all use that info in determining financial aid. At least in our case when I called to ask.
But you bring up a good point, I shouldn't generalize my experience so broadly.
Thanks.
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Re: Nearing Retirement - Any missing pieces?

Post by chipperd »

vas wrote: Fri Jan 21, 2022 10:11 am
liberty53 wrote: Fri Jan 21, 2022 8:46 am I don't think there is much benefit to waiting to 59 1/2 yo. It looks like you have plenty of cash for the next few years, and could probably take out some Roth contributions to fill the gap to 59 1/2 if necessary. Also, look into your 401k plan to see if they allow the rule of 55, where penalty free withdrawals can be made if you retire at the age of 55 or later.

In my experience COBRA is a very expensive option (may not be in your case). For the ACA, you can go through the hassle and estimate your low income for the next few years to get a great rate on health care with APTC's. Depends on the State you are living in though.
Thanks for your input. Paying off the house in Q2 will eat into my cash reserves a bit. I'm expecting to have only one year's expenses in cash after the payoff so I wont be able to live off taxable long enough to do meaningful Roth conversions. Once I'm living on 401K withdrawals the basic living expenses will fill the lower tax brackets. So that's one argument to work a bit longer and build up additional after-tax funds.

Good point about making sure the 401K allows he rule of 55. I thought that was tax law and not at the discretion of the plan so I was just assuming that was a viable option.
Note: Home equity will count against you for financial aid at some CSS profile schools. https://thecollegesolution.com/will-you ... d-chances/
Not that the financial aid tail needs to wag your portfolio dog.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
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vas
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Re: Nearing Retirement - Any missing pieces?

Post by vas »

chipperd wrote: Fri Jan 21, 2022 11:35 am Note: Home equity will count against you for financial aid at some CSS profile schools. https://thecollegesolution.com/will-you ... d-chances/
Not that the financial aid tail needs to wag your portfolio dog.
Thanks for that link; there were comments earlier in the thread about CSS etc. and this is exactly the explanation I was going to seek out. I have a relative that is applying to CSS schools this year and from the sound of it they do indeed consider the house fair game.
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Re: Nearing Retirement - Any missing pieces?

Post by vas »

willthrill81 wrote: Fri Jan 21, 2022 10:35 am
vas wrote: Fri Jan 21, 2022 10:20 am I don't know what COBRA costs;
Buckle up. It's been very spendy in every instance I've seen or heard of.
After some investigation I've found that the company allows retirees to purchase health insurance at the organizations group rate. No company contribution so the retiree pays the full premium. In addition the company provide a Health Reimbursement Account (HRA) for retirees to which they contribute $3500 per year.

Maintaining my current coverage during retirement pencils out like this:

$12,250 per year premium
-$3,500 HRA (company contribution for retirees)
$8,750 total premium plus $13,000 max out of pocket

I'd need to compare plans in more detail but at first blush ACA may be less expensive provided our health care spending doesn't exceed $13,000. The ACA plan I looked at had a max out of pocket of $25,000 but there are likely other plans to consider. The $3500 HRA can be used for ACA premiums as well so that's a wash.

Haven't found any info on CORBA rates yet but its likely I'd only use that as a short term bridge to maintain coverage.
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Re: Nearing Retirement - Any missing pieces?

Post by willthrill81 »

vas wrote: Fri Jan 21, 2022 11:50 am
willthrill81 wrote: Fri Jan 21, 2022 10:35 am
vas wrote: Fri Jan 21, 2022 10:20 am I don't know what COBRA costs;
Buckle up. It's been very spendy in every instance I've seen or heard of.
After some investigation I've found that the company allows retirees to purchase health insurance at the organizations group rate. No company contribution so the retiree pays the full premium. In addition the company provide a Health Reimbursement Account (HRA) for retirees to which they contribute $3500 per year.

Maintaining my current coverage during retirement pencils out like this:

$12,250 per year premium
-$3,500 HRA (company contribution for retirees)
$8,750 total premium plus $13,000 max out of pocket

I'd need to compare plans in more detail but at first blush ACA may be less expensive provided our health care spending doesn't exceed $13,000. The ACA plan I looked at had a max out of pocket of $25,000 but there are likely other plans to consider. The $3500 HRA can be used for ACA premiums as well so that's a wash.

Haven't found any info on CORBA rates yet but its likely I'd only use that as a short term bridge to maintain coverage.
Your company plan seems to be very reasonably priced for what it is, though you're right that an ACA plan might be a better fit for you. In addition to deductibles and out-of-pocket maximums, be sure to look into whether the plan would cover your preferred healthcare provider(s).

And yes, the best use of COBRA seems to generally be temporary 'stop gap' coverage until you can get something else, which is what it was intended for anyway.
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Re: Nearing Retirement - Any missing pieces?

Post by Eagle33 »

vas wrote: Fri Jan 21, 2022 11:50 am
willthrill81 wrote: Fri Jan 21, 2022 10:35 am
vas wrote: Fri Jan 21, 2022 10:20 am I don't know what COBRA costs;
Buckle up. It's been very spendy in every instance I've seen or heard of.
After some investigation I've found that the company allows retirees to purchase health insurance at the organizations group rate. No company contribution so the retiree pays the full premium. In addition the company provide a Health Reimbursement Account (HRA) for retirees to which they contribute $3500 per year.

Maintaining my current coverage during retirement pencils out like this:

$12,250 per year premium
-$3,500 HRA (company contribution for retirees)
$8,750 total premium plus $13,000 max out of pocket

I'd need to compare plans in more detail but at first blush ACA may be less expensive provided our health care spending doesn't exceed $13,000. The ACA plan I looked at had a max out of pocket of $25,000 but there are likely other plans to consider. The $3500 HRA can be used for ACA premiums as well so that's a wash.

Haven't found any info on CORBA rates yet but its likely I'd only use that as a short term bridge to maintain coverage.
Add 2% administration fee to the $12,250 per year premium for existing company group plan to get your COBRA cost. That is all COBRA is, keeping your company group medical plan plus 2%. The high cost everyone talks about is them not accounting for the portion of the premiums their employer paid as part of their compensation as an employee. Medical insurance is expensive unless subsidized by someone - employer or government.
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Re: Nearing Retirement - Any missing pieces?

Post by Jablean »

liberty53 wrote: Fri Jan 21, 2022 10:31 am
vas wrote: Fri Jan 21, 2022 10:20 am
I don't know what COBRA costs; no excuse for not investigating that. I'll add that to my list. I haven't seen any documentation on COBRA on our benefits site but I'll take a closer look.

I have obtained ACA quotes (or estimates) for both premiums and max out of pocket and used a Silver plan as input into my expense model. Approximately $10K premiums and $15K max OOP. I'll get the COBRA numbers and compare.
You want to investigate ACA costs at various breakpoints that are based on income as a percentage of the FPL. If you can keep your income below 400% of FPL then you should be able to get something lower than $10k/year. With most of your savings in pre-tax, and spending down cash, you should have no problem being well below the 400% of FPL.
If there is just the 2 of you (parent & child) you'll have to keep you MAGI down below $70,000 to be under the 400% cap. Insurance in my state for a bronze tends to be free for a HSA plan. But your Roth rolls count for income so that doesn't give you a lot of leeway. You'll most likely be above what we used to call the cliff (currently more of a glide slope yay) and paying full price if the 8.5% premium disappears as currently set.
basspond
Posts: 1500
Joined: Wed Nov 27, 2013 3:01 am

Re: Nearing Retirement - Any missing pieces?

Post by basspond »

My company has insurance for retirees, but the rules changed so once you go off their coverage you can’t get back on. So check the rules with yours and there is no guarantee it will remain the same.

I don’t know why you choose April but I would work until your child is off for summer break.

I would hold off paying your house off at least a year.
dandinsac
Posts: 282
Joined: Sat Jul 30, 2016 8:34 am

Re: Nearing Retirement - Any missing pieces?

Post by dandinsac »

vas wrote: Fri Jan 21, 2022 10:11 am
liberty53 wrote: Fri Jan 21, 2022 8:46 am I don't think there is much benefit to waiting to 59 1/2 yo. It looks like you have plenty of cash for the next few years, and could probably take out some Roth contributions to fill the gap to 59 1/2 if necessary. Also, look into your 401k plan to see if they allow the rule of 55, where penalty free withdrawals can be made if you retire at the age of 55 or later.
Paying off the house in Q2 will eat into my cash reserves a bit. I'm expecting to have only one year's expenses in cash after the payoff so I wont be able to live off taxable long enough to do meaningful Roth conversions. Once I'm living on 401K withdrawals the basic living expenses will fill the lower tax brackets. So that's one argument to work a bit longer and build up additional after-tax funds.
Looks like a good plan, but I wouldn’t pay off the mortgage. Having cash may allow you the flexibility to better minimize taxes.
Chadnudj
Posts: 1269
Joined: Tue Oct 29, 2013 11:22 am

Re: Nearing Retirement - Any missing pieces?

Post by Chadnudj »

A couple more thoughts:

- Make sure to think carefully about timing. The "retire June 1st" or retire on the 1st of a month thing above about COBRA is a great example -- by having your last day be early in the month, you get your employer to pay for the whole month of insurance and delay the start of COBRA by about a month.

- Think about timing in regards to other things, too -- when does your 401k match get contributed? When does any profit sharing or bonus happen? Make sure you're around long enough to get the free money you're probably owed.

- Use up all your benefits -- unused vacation time should be used up (or, if your employer pays it out, that should be factored in), do all your doctor/dentist/vision visits, if you have a health flex spending account I think you can get reimbursed fully even if you haven't contributed the whole amount (i.e. you set it for $1200 a year, you could get reimbursed on Feb. 1 for $1200 in January spending on health stuff, even if you've only put in $100 that year), etc. Think about all the benefits your employer provides here, too -- do they pay for a gym membership? Does your company retirement plan include a consultation with a financial advisor? Do you have life insurance through work that you may have to replace/live without?

- If you have any need for credit (for a car purchase, mortgage, or to get a HELOC), I'd get that set up while you still are employed. No first hand experience here, but I gather that getting a line of credit is generally easier when you have W-2 income to show.

- Finally, make sure to max out your 401k quickly the year you retire, even if it means living off of savings while you do so. If you could max out a 401k by March/April, that's one more year of contributions you get to make and have grow tax deferred until you need them.
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