Upcoming talk with boss
When my boss returns from travel the week after next, I plan to request a sit-down to discuss my status. I will send him an email briefly outlining my desires so he has some time to think about it before we meet to discuss.
i'll request 1. A reduction of hours to 25 hours weekly (ideally, 3 days a week), and 2. Fixed hours, so I know exactly when I'm leaving at day's end.
I'd like to get both items, but will settle for just #1, since it will be easier to deal with if I'm only working 3 days a week.
I really don't know if he'll go for it since it will require him to do some work to make that happen. Namely, finding and breaking in a new proofreader.
To otherwise prepare for my transition to semi-retirement, I've also done the following:
1. Recalculated my "Retirement Readiness Score" via T. Rowe Price's Future Path software.
Retiring now, taking $45,000 in income annually, buying a new car in 4 years and dying at age 95, my score is a 94. This measures how likely I will hit my goals.
2. Perhaps more importantly, I also decided to recalculate my annual projected expenses.
Now I could simply average out my last 5 years of annual expenses and see that my average is $37,316. But from one year to the next, these expenses are all over the map. One year they're fairly high, another year, very low. Partly because when I'm not working steadily, I tend to really tighten my belt and rein in discretionary spending. I tend to loosen the purse strings when I have a steady job.
The other big factor is how much I spend on capital home improvements, which I define as any purchase for the home/property over $500. One year it was over $12,000 when I got new vinyl siding; in 2016 it was roughly the same amount when I got a new driveway with the lovely paver "courtyard," but in 2014 it was pretty low, at $2,617, when cap improvements included a tree take-down, a new dishwasher and a plumbing repair.
In the past, whenever I was laid off, I would calculate my absolutely minimum necessary expenses; I would eliminate things like dining out, entertainment, clothing and such.
Now, for the first time, I want to create a new "budget" with what I believe are reasonably comfortable monthly expenses in retirement. Not a tightening-my-belt-as-much-as-I-can-and-still-breathe austerity budget, but one that allows for some fun.
I began by taking my average 2017 monthly expenses for all my different spending categories and then making adjustments up or down as I believe they will vary during life in retirement.
I was pleasantly surprised by my totals. My typical month of living in retirement should require just $2,620 a month, or $31,440 annually. This is far below the $45,000 I've used most recently in retirement projections with T. Rowe Price, for instance. So I have plenty of breathing room for unexpected expenses and unforeseen costs.
So, for example, things like food ($273) and electricity ($70/mth) won't change much in retirement, so these budgetary line items are based strictly on what expenses I incurred last year.
But other line items will change. I chose to increase my budget for heating oil by 25% ($81/mth) since I will be staying home more and not lowering the thermostat when I leave for work. (Hope this is enough of an increase.)
Gas for my car was adjusted down by 25% to $41 a month since I won't be commuting daily. I may be taking more pleasure trips, but it won't be on a daily basis.
My budget for entertainment was adjusted up by 25% and my clothing allotment was adjusted down by 33%.
I'm allowing $5,000 annually for capital home improvements and I'm adding a brand new line item of $1,000 annually for travel, for now. I certainly wouldn't hesitate to increase it if an opportunity arose to go abroad. But at least this way, it's factored into my budget.
Not every expense will increase in retirement.
In 2024 I'll be able to take advantage of a substantial senior property tax refund program. As long as I keep my total income under $45,000, I'll qualify for the maximum refund of $2,525. Which is pretty darn good for my #1 biggest expense.
If I made between $45,000 and $55,000 in income in retirement, I would still qualify for a small discount of $1,750. In either case, I would have to reapply for the refund every year.
This is just my town's program, intended to keep seniors from leaving the state due to high taxes. I understand there is also a state program offering smaller discounts.
I'll also qualify for a small $10 discount on my dump sticker/permit when I turn 65.
The budget I developed is really just a working budget for 2018; in future years, I may want to budget more for anticipated car repairs or dental work or any sort of thing. But this does help put things in perspective and assures me I will likely be okay when I leave full-time work.
If a horrendous correction did occur, I would go on auto-pilot and put myself on an austerity budget for a year or more, if necessary, to minimize withdrawals from brokerage accounts when prices were low. Actually, I would probably start withdrawing from my bank accounts (either maturing CDs or my money markets), which aren't affected by market fluctuations. Right now I've got about $60K there, with about $28K readily accessible now in money markets and about $18,000 in CDs maturing in 2018.
3. I also went back on CT's healthcare exchange a few nights ago and saw that with a subsidy, I could get on a Silver plan for about $375/mth. I wanted to check those costs exactly when calculating my expenses, but their website is down for the moment.
4. Finally, I got in touch with my friend the recruiter, who got me my current job, and told him my latest plan to pursue p/t work more local to where I live. He actually has something in nearby city (would cut commute in half), has to do with writing internal communications and pays better ($40+ an hour compared to my current $32/hr). However, it's a contract job that could last just 3 months or a year. Perhaps I would gamble on it despite the uncertainty since the stakes for me aren't really quite so high.
Because my T. Rowe Price calculation did not factor in any further income, period. So whatever I can make will be icing on the cake. I just have to make sure I make at least $17K annually so I don't get stuck with Medicaid for health insurance. Or as I think Monkey Mama pointed out, if I saw toward year's end I hadn't made $17K, let's say I made $10K for the year, I could always cash out $7,000 from a taxable brokerage account, which would then be counted as taxable income. If I withdrew $$ from a taxable money market, would that also be recognized as taxable income?
I hope I'm not forgetting anything.
When the healthcare exchange website is back online, I want to try to pick an HSA-eligible policy to take advantage of tax-free contributions.
Putting the transition into motion
Upcoming talk with boss
January 20th, 2018 at 11:22 pm 1516490550
I also hope that your eye is feeling better by now!
January 20th, 2018 at 11:37 pm 1516491467
January 20th, 2018 at 11:49 pm 1516492182
January 21st, 2018 at 01:00 am 1516496402
The part that is taxed would be the gain. So you'd want to withdraw more than $7,000. The taxable gain would need to be $7,000, in your example. The thing about harvesting tax gains is there is no wash rules on gains. So you can literally just sell off some stocks/funds and then buy them back if you want to. You should probably be doing some of this anyway (and/or ROTH conversions) in lower income years. Take advantage and move money over to tax-free space. I doubt your money market funds have enough gains to be useful for this purpose.
January 21st, 2018 at 01:02 am 1516496552
They need to update this link for the new tax law, but is still 0% long term capital gains rate on bottom two tax brackets.
January 21st, 2018 at 01:03 am 1516496602
Trying again because I messed up the link the first time.
January 21st, 2018 at 02:23 am 1516501384
January 21st, 2018 at 01:50 pm 1516542652
This sounds like an excellent idea. So just to be clear, when I do a conversion, taking money currently in a traditional IRA account, the $$ I convert is then considered taxable income in the year of the conversion?
If so,then I guess that would easily achieve my purpose of ensuring I always have north of $17K in reportable income so I can hold onto what I would consider a higher quality Obamacare health plan rather than get dumped into Medicaid.
And my tax-deferred accounts, divided between traditional and Roth accounts, is definitely lopsided and more heavily weighted toward traditional, so I could do these back door Roth conversions for years, right up until the time I no longer need Obamacare and can get on a Medicare plan.
January 21st, 2018 at 01:55 pm 1516542941
January 21st, 2018 at 02:18 pm 1516544309
Is something you can just do at the end of the year, when you know how your income is going to shake out for the year.
January 21st, 2018 at 09:04 pm 1516568661