Reader Case Study: Can we get by just working part-time?

[Goldendog777]

I quit my job working for a large bank at the end of last year thinking that I wanted to start a 2nd career as a registered dietitian.  After going to school for the past 8 months, I’m not so sure that I want to continue down that path.  I’m currently working a flexible, very part-time job (10-15 hrs / wk) that I enjoy and brings in a little money.  DH is also in school but his degree will be in music so not much will change upon his graduation.  He also works a very part-time job (4-6 hrs / wk).  He is looking for a job that will give him a few more hours (15 hrs /wk).

I would like to know if we can continue to just work part-time until about age 62ish. We are planning on getting SSI (at least 75% of it anyway), which should be about $25,000. 

Life Situation: 
Married, filing joint, DH and I are both 49, no kids, 1 dog.  We live in Henderson, NV (MCOL).

Gross part-time salary me:  $7247 / net: $6832 (no IRA contributions)
Gross part-time salary DH:  $2900 / net:  $2868 (no IRA contributions)
Dividends and Interest:  $5931
AGI:  $16078

Current Expenses:
Health care (medical-ACA plan + copays, dental and vision): $6952 (our biggest expense)
Groceries:  $4801
Utilities (electricity, gas, water, garbage, internet):  $4767 (it’s hot in the desert!)
Auto maintenance: $1200
General Merchandise (Target/Amazon):  $3975
Pets (had 2 dogs until 10/25):  $3158
Home Maintenance:  $3325
Insurance (auto and home):  $2600
Property taxes:  $2980
HOA dues:  1080
Gas:  $1328
Personal care/clothing:  $1683
Phone:  $528
Misc:  750 (gifts, charity)
Entertainment:  $500
Pad for whatever life throws at us:  $2500
Total Expenses: $42127 ($3510/mo)
(School expenses are not listed.  We have $25,000 in an account that we do not include in our net worth that covers all tuition/books)

Assets:
Paid off home:  $500,000
Cash:  $70,577
Taxable investments:  $243,465
Traditional IRAs:  $761,718
Roth IRAs:  $336,997
Asset allocation 75% index funds/25% bond funds
Total Assets:  $1,842,180 / minus home: $1,412,757

Our plan is to start converting IRA funds to Roth IRA funds while keeping our income low enough to maximize ACA subsidies.

Liabilities:
None.  Home and cars are paid (1998 Ford Ranger and 2013 CRV)

Do we have enough to just carry on with fun part-time employment?  The goal is to earn at least $10,000 a year.  The rest of our expenses to be covered with investments.  At the end of Dec 2018, we had $1,250,000 in assets (not including the house) and that is what we use to calculate a WR of 3.5%.  Does our plan look OK?  Am I missing anything?  I’m really nervous to hear what you all think! Thanks in advance!

[MDM]

Gross part-time salary me:  $7247 / net: $6832 (no IRA contributions)
Gross part-time salary DH:  $2900 / net:  $2868 (no IRA contributions)

Current Expenses:
Total Expenses: $42127 ($3510/mo)

Total Assets minus home: $1,412,757  At the end of Dec 2018, we had $1,250,000.

Our plan is to start converting IRA funds to Roth IRA funds while keeping our income low enough to maximize ACA subsidies.

Do we have enough to just carry on with fun part-time employment? 

...about age 62ish...planning on getting SS...which should be about $25,000.

Doing some handwaving with the numbers above:
4% of $1.25 million = $50K/yr.  That alone would be enough to cover your stated expenses, let alone what you bring in with part time work and eventual SS income.

You might take a look at this tool that evaluates SS benefit start dates for a couple: Open Social Security: Free, Open-Source Social Security Calculator.

For your conversion plan, the case study spreadsheet could show you marginal tax rates for various amounts of Roth conversions now, and estimate what those rates will be when you have SS income and RMDs kick in.

In short, you should be fine no matter - within reason ;) - what you do, and there are tools to help you make informed decisions.  Good luck!

[terran]

I think you just mean you are expecting Social Security income? SSI is Supplemental Security Income, which is disability income or old age (>65) income for people who have low/no income and low assets who either don't qualify for Social Security or Social Security Disability under their own work records, or who would receive less than the SSI amount, which is around $750/month/person, but less for married people who both receive it. It's quite restrictive, so I would only consider it as a last resort.

Make sure you're estimating your expected Social Security correctly. The estimates provided by the Social Security Administration are based on the assumption that you continue to earn same amount (adjusted for inflation) that you did in the most recent year for which they have records until you retire. If that's won't be the case (although it might be if you've been working part time for the last few years) then you'll need to do your own calculations.

Other than that, by my math, even at a conservative 3.5% withdrawal rate and invested assets of $1.3M you have enough to support your current spending without working at all, so you certainly have enough to support working part time. And it looks like there is probably some fat in your budget you could trim if needed, and you could downsize and/or move to a lower cost of living area, so lots of safety margin added there too. I'd say you can do what you want, work or not.

[MoneyizHere]

Yeah it looks like your plan is pretty solid.  If you drop back on discretionary expenses further, you'd be able to just live for the next 13 or so years till 62 just on your cash/taxable current day. 

How much in ACA tax credit are you getting to offset that $7k copay/premiums @ your current expected $16k agi?

[Goldendog777]

I think you just mean you are expecting Social Security income? SSI is Supplemental Security Income, which is disability income or old age (>65) income for people who have low/no income and low assets who either don't qualify for Social Security or Social Security Disability under their own work records, or who would receive less than the SSI amount, which is around $750/month/person, but less for married people who both receive it. It's quite restrictive, so I would only consider it as a last resort.

Make sure you're estimating your expected Social Security correctly. The estimates provided by the Social Security Administration are based on the assumption that you continue to earn same amount (adjusted for inflation) that you did in the most recent year for which they have records until you retire. If that's won't be the case (although it might be if you've been working part time for the last few years) then you'll need to do your own calculations.

Yes, I meant Social Security Income at age 62/65/70 (haven't decided yet).  I obtained all income earned through 2018 directly from the SS Admin for me and DH and did a manual calculation. 
Thanks!

[Goldendog777]

Gross part-time salary me:  $7247 / net: $6832 (no IRA contributions)
Gross part-time salary DH:  $2900 / net:  $2868 (no IRA contributions)

Current Expenses:
Total Expenses: $42127 ($3510/mo)

Total Assets minus home: $1,412,757  At the end of Dec 2018, we had $1,250,000.

Our plan is to start converting IRA funds to Roth IRA funds while keeping our income low enough to maximize ACA subsidies.

Do we have enough to just carry on with fun part-time employment? 

...about age 62ish...planning on getting SS...which should be about $25,000.

Doing some handwaving with the numbers above:
4% of $1.25 million = $50K/yr.  That alone would be enough to cover your stated expenses, let alone what you bring in with part time work and eventual SS income.

You might take a look at this tool that evaluates SS benefit start dates for a couple: Open Social Security: Free, Open-Source Social Security Calculator.

For your conversion plan, the case study spreadsheet could show you marginal tax rates for various amounts of Roth conversions now, and estimate what those rates will be when you have SS income and RMDs kick in.

In short, you should be fine no matter - within reason ;) - what you do, and there are tools to help you make informed decisions.  Good luck!

Thanks for the recommendations MDM!

[Goldendog777]

Yeah it looks like your plan is pretty solid.  If you drop back on discretionary expenses further, you'd be able to just live for the next 13 or so years till 62 just on your cash/taxable current day. 

How much in ACA tax credit are you getting to offset that $7k copay/premiums @ your current expected $16k agi?

The $7k has already been adjusted with subsidies.  Some of the $7k is dental expenses as well (2 crowns and 1 root canal) and vision.  We pay $297 / mo for our medical with $669 in subsidies, $56 / mo in dental premiums and $26 / mo in vision.  So the $7k is medical/dental/vision.  I adjusted it on my original post.
Thanks!

[Paul der Krake]

Yeah you've won the game already. Do whatever you want, work-wise. It doesn't matter.

[oralyons]

I work part time, I'm a half decent photographer, I get by supporting a family of 5 (including me and my dog and 2 kids and a wife) We don't live beyond our means and manage to save at least 15k a year (rainy day fund)

[seattlecyclone]

As others have mentioned, you already seem to be FI. The work income is optional, so do as much or as little paid work that makes you happiest.

One nice thing about having a bit of wage income in FI is that if you're shooting for a particular income target for ACA or whatever and it turns out when you're doing your taxes in March that you overshot by a bit, you can always correct that mistake by putting a bit of cash into a traditional IRA. That's a pretty nice bit of flexibility to have.

[Cassie]

It looks good. You guys have done a great job so young.

[Goldendog777]

As others have mentioned, you already seem to be FI. The work income is optional, so do as much or as little paid work that makes you happiest.

One nice thing about having a bit of wage income in FI is that if you're shooting for a particular income target for ACA or whatever and it turns out when you're doing your taxes in March that you overshot by a bit, you can always correct that mistake by putting a bit of cash into a traditional IRA. That's a pretty nice bit of flexibility to have.

That’s a great idea!  I forgot about the traditional IRA!

[seattlecyclone]

As others have mentioned, you already seem to be FI. The work income is optional, so do as much or as little paid work that makes you happiest.

One nice thing about having a bit of wage income in FI is that if you're shooting for a particular income target for ACA or whatever and it turns out when you're doing your taxes in March that you overshot by a bit, you can always correct that mistake by putting a bit of cash into a traditional IRA. That's a pretty nice bit of flexibility to have.

That’s a great idea!  I forgot about the traditional IRA!

And hey, if you didn't overshoot your income goals, you might as well move money from your taxable investments into a Roth IRA up to your maximum contribution so that future growth on that money doesn't contribute to your income anymore.