Question about proving income for the recently FIRE'd

[evanc]

Let's say hypothetically you just ditched the 100k/yr job and intend to live on investment returns equalling a small fraction of that, e.g. 36k/yr.

How do you prove this for purposes of ACA, or any other government (or non-govt) program where income is generally verified by your last year's tax return (which will show, of course, the high salary which you no longer earn in retirement)?

Do they just take your word for it that you no longer earn this much? Has anyone encountered difficulties during the first year or two of FIRE in showing that incoming has dramatically decreased suddenly?

[Lake161]

Most people send in a letter explaining the situation and a copy of some report showing expected dividend or other income.

Lots of threads on this, try this one: http://forum.mrmoneymustache.com/post-fire/aca-asking-for-proof-of-income/

[jim555]

Let's say hypothetically you just ditched the 100k/yr job and intend to live on investment returns equalling a small fraction of that, e.g. 36k/yr.

How do you prove this for purposes of ACA, or any other government (or non-govt) program where income is generally verified by your last year's tax return (which will show, of course, the high salary which you no longer earn in retirement)?

Do they just take your word for it that you no longer earn this much? Has anyone encountered difficulties during the first year or two of FIRE in showing that incoming has dramatically decreased suddenly?

I just declared the estimate for the new year.  They didn't pursue it.

[evanc]

Thank you, both! Appreciate the information.

[Spork]

Let's say hypothetically you just ditched the 100k/yr job and intend to live on investment returns equalling a small fraction of that, e.g. 36k/yr.

How do you prove this for purposes of ACA, or any other government (or non-govt) program where income is generally verified by your last year's tax return (which will show, of course, the high salary which you no longer earn in retirement)?

Do they just take your word for it that you no longer earn this much? Has anyone encountered difficulties during the first year or two of FIRE in showing that incoming has dramatically decreased suddenly?

I just declared the estimate for the new year.  They didn't pursue it.

Don't count on it. 

Hopefully, it's gotten better over last year.  But last year I received the "approval" on the exchange.  It was followed up by "request for more information."  It came late in December.  I can remember, as I was out of town starting Dec 14 last year... and it was while I was away that I had to try to dig up "proof."  It was a back-n-forth pain in the ass with them never seeming to be satisfied.  I got letter after letter with them threatening to pull the subsidy and then suddenly around March of 2016 <poof> they just stopped asking for it.  The subsidy never ended.

We will see what this year has in store. 

[AdrianC]

Don't count on it. 

Hopefully, it's gotten better over last year.  But last year I received the "approval" on the exchange.  It was followed up by "request for more information."  It came late in December.  I can remember, as I was out of town starting Dec 14 last year... and it was while I was away that I had to try to dig up "proof."  It was a back-n-forth pain in the ass with them never seeming to be satisfied.  I got letter after letter with them threatening to pull the subsidy and then suddenly around March of 2016 <poof> they just stopped asking for it.  The subsidy never ended.

We will see what this year has in store.

Mine was accepted on the exchange. I estimated close to 400% FPL to get just a small subsidy. Kinda hoping they have a cut off where they don't bother asking for documentation if it's close. I can't prove what my income will be. 2016 was 4x what I expect in 2017. 2015 was 1/2 of 2016. Such is life as a semi-retired self-employed consultant.

[bacchi]

I never satisfied the exchange. I'll make it back when I file but I could never "prove" that my income would drop substantially from 2015 to 2016. It'll drop more this coming year, since I may not work at all, and I expect another battle with an unseen, uncaring, non-analyzing, opponent.

[arebelspy]

I never satisfied the exchange. I'll make it back when I file but I could never "prove" that my income would drop substantially from 2015 to 2016. It'll drop more this coming year, since I may not work at all, and I expect another battle with an unseen, uncaring, non-analyzing, opponent.

Is it really worth fighting all the bureaucracy just to get the subsidy now, rather than refunded at tax time?

Sure, it's an interest free loan.

Let's just ballpark some numbers... say your subsidy totals $5k for the year.

If you got that throughout the year, and got a risk-free return (or close enough) of 2% on it, that's $100.  If you spend 10 hours fighting it, you're fighting at a rate of $10/hour.  I'd much rather give up the $100 opportunity cost and just get all the subsidies back at tax time, personally.  I think I could earn $100 a lot quicker than that, and DEFINITELY with a lot less frustration.

Even if you double the subsidy amount, and half the hours, so that $10/hr becomes $40/hr., I'm not sure it would be with 5 hours of aggravation and frustration for a lousy $200.

YMMV, of course.  :)

(Directed not just at bacchi, whom I quoted, but the OP, and everyone else going through the same thing, just something to think about--you don't HAVE to try and get the subsidies now.)

[Spork]

I never satisfied the exchange. I'll make it back when I file but I could never "prove" that my income would drop substantially from 2015 to 2016. It'll drop more this coming year, since I may not work at all, and I expect another battle with an unseen, uncaring, non-analyzing, opponent.

Is it really worth fighting all the bureaucracy just to get the subsidy now, rather than refunded at tax time?

Sure, it's an interest free loan.

Let's just ballpark some numbers... say your subsidy totals $5k for the year.

If you got that throughout the year, and got a risk-free return (or close enough) of 2% on it, that's $100.  If you spend 10 hours fighting it, you're fighting at a rate of $10/hour.  I'd much rather give up the $100 opportunity cost and just get all the subsidies back at tax time, personally.  I think I could earn $100 a lot quicker than that, and DEFINITELY with a lot less frustration.

Even if you double the subsidy amount, and half the hours, so that $10/hr becomes $40/hr., I'm not sure it would be with 5 hours of aggravation and frustration for a lousy $200.

YMMV, of course.  :)

(Directed not just at bacchi, whom I quoted, but the OP, and everyone else going through the same thing, just something to think about--you don't HAVE to try and get the subsidies now.)

I totally agree with the above.  I fought with them a little last year and was pretty frustrated.  (Their request came at a really bad/busy time, which enhanced my frustrations.) 

My plan moving forward: if they ask for something, spend a bare minimum of time producing as simple of an answer as you can.  I.e.: upload a PDF describing your plan along with copies of bank/IRA/securities statements to back it up.  Don't sweat it.  Move on.  Take it as a refund.

[arebelspy]

Yeah... I mean, you HAVE the time in ER.

But who wants to spend it like that?  Unless you find it fun. I'm sure there's some sicko out there.  ;)

[geekette]

For some (silver) plans, the lower your income, the lower your deductible under the "cost sharing" part of the plan.  Some even have power copays as well. It can be worth the fight.

[arebelspy]

For some (silver) plans, the lower your income, the lower your deductible under the "cost sharing" part of the plan.  Some even have [l]ower copays as well. It can be worth the fight.

Ah, good point.

I wonder if it'd be worth picking a plan that's not like that during your first year of FIRE when the income from previous year is still showing high, then switch once you can show low income. Probably depends on your plan choices.

[Lake161]

For some (silver) plans, the lower your income, the lower your deductible under the "cost sharing" part of the plan.  Some even have [l]ower copays as well. It can be worth the fight.

Ah, good point.

I wonder if it'd be worth picking a plan that's not like that during your first year of FIRE when the income from previous year is still showing high, then switch once you can show low income. Probably depends on your plan choices.

We had five months of ACA exchange insurance at the end of our first year of FI when we returned to the US. Rather than try to explain our big income change, we decided to just pay the full premiums for 2016 and claim the tax credit later.

For 2017, it is now much easier to show our income and we've applied for both the subsidized premiums and the cost-sharing silver plan with lower copays and deductibles.

Still waiting to hear back from Covered CA, but it was relatively easy to show our expected income because the income change 2016 to 2017 was much smaller than 2015 to 2016, where we would have had to explain away a huge severance package.

[whiskeyjack]

I provided a copy of last years tax return which I annotated with the 2016 estimated income, and a copy of the termination letter from work.  This was good enough to let us purchase through the exchange and I'll worry about getting the refund when I file.   (The numbers show that we SHOULD get a subsidy but somehow that has not translated into getting it right now). 

[AdrianC]

I provided a copy of last years tax return which I annotated with the 2016 estimated income, and a copy of the termination letter from work.  This was good enough to let us purchase through the exchange and I'll worry about getting the refund when I file.   (The numbers show that we SHOULD get a subsidy but somehow that has not translated into getting it right now).

There's no income limit to be able to buy on the exchange. You put in your estimated income and it tells you what subsidy you get. Didn't it do that for you?

[whiskeyjack]

I provided a copy of last years tax return which I annotated with the 2016 estimated income, and a copy of the termination letter from work.  This was good enough to let us purchase through the exchange and I'll worry about getting the refund when I file.   (The numbers show that we SHOULD get a subsidy but somehow that has not translated into getting it right now).

There's no income limit to be able to buy on the exchange. You put in your estimated income and it tells you what subsidy you get. Didn't it do that for you?

We qualify for the subsidy and it tells me that we qualify for the subsidy.  But we haven't been getting a discount on the premiums and I haven't felt motivated to figure out who to talk to get that put through Right Now.  We'll get the money back when we file our taxes.   The only downside is that we are potentially missing out the cost-sharing for silver plans, but I don't expect us to have many medical expenses before the end of the year anyway.

[Reynold]

For those who have had fights with the government about it, does it help at all if you quit mid year, so you can show "before" and "after" income on a monthly basis?  Or do they just look at yearly totals? 

[Spork]

For those who have had fights with the government about it, does it help at all if you quit mid year, so you can show "before" and "after" income on a monthly basis?  Or do they just look at yearly totals?

I really don't think you can qualify this.  I believe it is just about as random as you can get.  It depends on what person is looking at your documentation and how much sense they have and how much they care about getting it right vs applying a stock formula.  I also think comparing how things worked in 2014 vs 2015 vs 2016 vs 2017 is also a bit of a lost cause. 

* Do the best you can, but don't spend too much effort
* Realize it may be rejected.  Also realize that if they say it is rejected, it may not ACTUALLY be rejected.
* Realize that if it is rejected, the law still applies when the next year's taxes get filed and it will all just work out

[jim555]

For those who have had fights with the government about it, does it help at all if you quit mid year, so you can show "before" and "after" income on a monthly basis?  Or do they just look at yearly totals?

Subsidies are based on yearly totals.  Monthly is for Medicaid.

[whiskeyjack]

As an update:  when the renewal came around I wound up having to call in for assistance and at that time I was told that averaging my yearly income only works for self employed and would not apply to us since we had a regular w-2 wage for the first 6 months of this year.   

I don't start my Roth pipeline until January so we were put onto Medicaid for December based on the monthly income I can prove.

[BuffaloStache]

But who wants to spend it like that?  Unless you find it fun. I'm sure there's some sicko out there.  ;)

If I'm severely frustrated with a company/service, I find some pleasure in being obscenely polite yet acting completely clueless to people on the phone, especially so if I'm elevated to a call center manager or other :-P. This is what I do every 6-12 months when calling to make sure I'm getting a low price for my internet/insurance/etc.

[Spork]

But who wants to spend it like that?  Unless you find it fun. I'm sure there's some sicko out there.  ;)

If I'm severely frustrated with a company/service, I find some pleasure in being obscenely polite yet acting completely clueless to people on the phone, especially so if I'm elevated to a call center manager or other :-P. This is what I do every 6-12 months when calling to make sure I'm getting a low price for my internet/insurance/etc.

I believe I waited on the phone for over an hour last year... manager never became available.  YMMV

[NoNonsenseLandlord]

For the ACA you have to be 'right'.  Just tell the truth.  They know many people's first year is a bit suspect.

For any credit card applications, fill in the amount you want.  Any amount, high or low.  The credit card companies use credit score and declared income as they have no way to verify income.  The Government can verify income, and can put you in jail.

[Paul der Krake]

Has anyone FIREd in year X, left the US in year X+1, declared themselves not subject to the ACA that year with a much lower income in X+1 than X, then came back stateside and applied for subsidies in year X+2?

If so, how did that go?

[arebelspy]

The credit card companies use credit score and declared income as they have no way to verify income.

They can, and sometimes do, ask for paystubs, previous years' taxes, etc.

It's rare though.

Has anyone FIREd in year X, left the US in year X+1, declared themselves not subject to the ACA that year with a much lower income in X+1 than X, then came back stateside and applied for subsidies in year X+2?

If so, how did that go?

I've done the first part, to be exempt.  I don't see why the second part would be an issue.

[Goldielocks]

A related question.
For those who are retired...  with limited income -- how do you requalify for mortgages?  We are on 5 year mortgage terms here, that don't extend the terms, so you HAVE to renew at the end.

Ours will be up in 2019, and year 2018 will have greatly reduced income, but the mortgage (especially if rates climb a bit) may be higher than the 38% calculation allows.  We don't want to sell our tax-advantaged investments to pay down a mortgage at very low rates, if we can help it.

What do you do?     I am thinking that an RRSP self-financed mortgage may be the backup, not a great one due to the low rate of return and fees.

[Spork]

A related question.
For those who are retired...  with limited income -- how do you requalify for mortgages?  We are on 5 year mortgage terms here, that don't extend the terms, so you HAVE to renew at the end.

Ours will be up in 2019, and year 2018 will have greatly reduced income, but the mortgage (especially if rates climb a bit) may be higher than the 38% calculation allows.  We don't want to sell our tax-advantaged investments to pay down a mortgage at very low rates, if we can help it.

What do you do?     I am thinking that an RRSP self-financed mortgage may be the backup, not a great one due to the low rate of return and fees.

We haven't tried.  But if you had the assets sitting in a Vanguard (or equivalent) account, it seems like it wouldn't be hard to qualify.  I might be wrong...

[arebelspy]

A related question.
For those who are retired...  with limited income -- how do you requalify for mortgages?  We are on 5 year mortgage terms here, that don't extend the terms, so you HAVE to renew at the end.

Ours will be up in 2019, and year 2018 will have greatly reduced income, but the mortgage (especially if rates climb a bit) may be higher than the 38% calculation allows.  We don't want to sell our tax-advantaged investments to pay down a mortgage at very low rates, if we can help it.

What do you do?     I am thinking that an RRSP self-financed mortgage may be the backup, not a great one due to the low rate of return and fees.

We haven't tried.  But if you had the assets sitting in a Vanguard (or equivalent) account, it seems like it wouldn't be hard to qualify.  I might be wrong...

Mortgages--in the US at least--are income based, not asset based.

Yes, they would rather give a $100k mortgage to a dude making $50k/yr, with 0 assets than someone making $0/yr (or maybe 25k from stock sales, but no W2 income) with $5MM in the bank.

Their underwriting is based on ability to repay, not assets or money in the bank.

[Spork]

A related question.
For those who are retired...  with limited income -- how do you requalify for mortgages?  We are on 5 year mortgage terms here, that don't extend the terms, so you HAVE to renew at the end.

Ours will be up in 2019, and year 2018 will have greatly reduced income, but the mortgage (especially if rates climb a bit) may be higher than the 38% calculation allows.  We don't want to sell our tax-advantaged investments to pay down a mortgage at very low rates, if we can help it.

What do you do?     I am thinking that an RRSP self-financed mortgage may be the backup, not a great one due to the low rate of return and fees.

We haven't tried.  But if you had the assets sitting in a Vanguard (or equivalent) account, it seems like it wouldn't be hard to qualify.  I might be wrong...

Mortgages--in the US at least--are income based, not asset based.

Yes, they would rather give a $100k mortgage to a dude making $50k/yr, with 0 assets than someone making $0/yr (or maybe 25k from stock sales, but no W2 income) with $5MM in the bank.

Their underwriting is based on ability to repay, not assets or money in the bank.

Interesting.  I had no idea.  Is that true across the board?  In other words, if you walk into a smaller savings and loan, can you make a less-than-normal deal?

[arebelspy]

Interesting.  I had no idea.  Is that true across the board?  In other words, if you walk into a smaller savings and loan, can you make a less-than-normal deal?

In the US, from every major bank, yes.  They follow Fannie/Freddie guidelines, which require income, and have no asset test to work around that.

A local credit union or small regional bank (if they didn't go out of business in the last 9 years) that does their own underwriting and keeps loans in house, rather than reselling to Fannie/Freddie may be able to work with you, but likely at a higher rate.

[Goldielocks]

Hmmm   

I may have to warm up to a potential family based financing plan....  If I can find anyone in my family crazy enough to want only 2.5 percent guaranteed return on a very large loan, (secured with a mortgage line on the home title) that is.   Both sets of parents have a large pension fund, so they should not also have large fixed investments ripe for the asking...

[Spork]

You might also talk to local savings & loans.  I wasn't quite sure from ARS's reply if they'd be likely to play along or not, but we got one very unconventional loan from a local S&L when no other bank would touch it.  In our case it was the property that did not conform, not our income.  And we did pay a slightly higher rate.  But we got the loan.

[arebelspy]

You might also talk to local savings & loans.  I wasn't quite sure from ARS's reply if they'd be likely to play along or not, but we got one very unconventional loan from a local S&L when no other bank would touch it.  In our case it was the property that did not conform, not our income.  And we did pay a slightly higher rate.  But we got the loan.

Yeah, if they're doing their own underwriting and keeping the loan in house, they don't have to conform to the standard guidelines, and you may be able to do more unconventional things.  :)

[Spork]

You might also talk to local savings & loans.  I wasn't quite sure from ARS's reply if they'd be likely to play along or not, but we got one very unconventional loan from a local S&L when no other bank would touch it.  In our case it was the property that did not conform, not our income.  And we did pay a slightly higher rate.  But we got the loan.

Yeah, if they're doing their own underwriting and keeping the loan in house, they don't have to conform to the standard guidelines, and you may be able to do more unconventional things.  :)

It's kind of an interesting problem that I think would apply to a fairly wide number of forum members: Post-FIRE and desire to leverage via mortgage instead of paying cash. (Or having "cash" tied up in a variety of tax advantaged accounts.)

[arebelspy]

It's kind of an interesting problem that I think would apply to a fairly wide number of forum members: Post-FIRE and desire to leverage via mortgage instead of paying cash. (Or having "cash" tied up in a variety of tax advantaged accounts.)

Definitely!  One of the common steps in the year before FIREing is a refi.

[CanuckExpat]

Regarding mortgages, you can read about one retired couple's experience here: http://freedomwithbruno.com/day-watched-270000-leave-bank-account/

They ended up paying cash as they didn't qualify for a mortgage without an income

[BuffaloStache]

This is all very interesting and something I hadn't thought of beforehand. It gives a lot of creedance to the idea of purchasing a 'forever' home or going through refi while you still have a major income, prior to RE.

Regarding mortgages, you can read about one retired couple's experience here: http://freedomwithbruno.com/day-watched-270000-leave-bank-account/

Also, this was a great read- thanks!

[Metric Mouse]

This is all very interesting and something I hadn't thought of beforehand. It gives a lot of creedance to the idea of purchasing a 'forever' home or going through refi while you still have a major income, prior to RE.

Regarding mortgages, you can read about one retired couple's experience here: http://freedomwithbruno.com/day-watched-270000-leave-bank-account/

Also, this was a great read- thanks!

Yeah, this is a great blog! Brings back memories of my own travels - these people document things so well, it clearly highlights how lazy I am!

[BuffaloStache]

these people document things so well, it clearly highlights how lazy I am!

I feel this way all the time. As an engineer for my day job, documentation is a TON of my work. I feel so done with it by the time I get home. I've started to get better, but...

[Metric Mouse]

these people document things so well, it clearly highlights how lazy I am!

I feel this way all the time. As an engineer for my day job, documentation is a TON of my work. I feel so done with it by the time I get home. I've started to get better, but...

One of my partners did a blog thing for awhile to keep  track of our travels together, and keep her family in the loop. Seems it's been takne down though.