I agree.. The only income my Wife and I will have when we both retire is $15k in rent plus mostly qualified dividends which as long as your in the 15% tax bracket do not count towards your MAGI income anyway.
Then max out our contributions to the Traditional IRAs and on paper we make virtually nothing.. Just sell some of our after-tax stock.. Once again as long as your in the low tax bracket the long term capital gains (up to $75 k I believe) don't count towards income either.
Some of the bronze plans I was seeing were for zero monthly cost with subsidies.
The plan would be to spend down the after tax stash and hopefully not tap the taxable stuff until eligible for medicare which using the Roth IRA conversions should be quite doable.
Frank
Actually not true. Capital gains and dividend interest may be taxed at 0% if your income is low enough but they do still count toward your MAGI when looking at ACA subsidies.
We will have about $700K in tax deferred (401K, Roth, IRA) and $700K in taxable, $300K of which will be new money from sale of our home. Since the $300K will be tax free as it is just a return of our home equity from the sale, we can use it to live on for many years.
If you want the best bang for your buck you need a silver plan. For a married couple with no kids at age 46 a super subsidized silver plan has a monthly premium of $100 and significant cost sharing. Aside from the $1200 in premiums, the max out of pocket per year you would pay after the cost sharing is around $2300. Thus budgeting $5000 is excessive.
If our expenses are $40,000 a year, we can live on the 300K for about 7 years. If it is invested in a CD ladder paying 2% then the $40,000 would keep up with inflation.
Our MAGI would consist of the interest from the $300,000 in 2% CDs plus dividends from our $400,000 stock portfolio in the taxable. Those are also about 2%, so our MAGI would consist of 2% of $700,000 or $14,000 a year.
In order to qualify for a subsidized silver plan we actually need a MAGI of around $22,000 a year. We can obtain this by doing IRA to Roth conversions of $8,000 each year. There will be no tax on these conversions because of our very low reportable income.
After five years we could start taking out those $8,000 Roth conversions with no tax and no adjustment to our MAGI. Thus when our $300,000 cash pile is depleted in 7 or 8 years, we will have another $80,000 or so in free cash available (considering we would have converted more than $8000 as our CDs were depleted and MAGI went down). This would extend us another 2 or 3 years, meaning we may be able to keep a MAGI of $22,000 for up to 11 years while actually living on $40,000. During this whole time our stock market invested 401K and taxable accounts will likely have grown to $1.5 million or so and we will be age 57, reasonably close to real retirement age.
