Messages

61

Expat life / Re: Rent vs. Buy a House Decision for FIRE Families

« on: August 18, 2021, 01:37:38 PM »

It isn't as simple as just 4%. Buying a house is more than just a financial transaction, as you describe.

Unless you have the intention of owning a place for a long time, buying seldom makes sense. That is true in the US, Europe, SE Asia, etc...

For places where the rent yield on a property is insanely low, I would always choose to rent. For example in Taiwan we were paying about $36k/year in rent on a property that would sell for $2 million+. 1.8% yield. You can do better than that with TIPs or Ibonds.

Assuming you want to stay in place for the long term and rent yield is reasonable, the main reason I would consider buying in a country that uses a different currency than I am invested in is to combat currency risk and inflation risk. High growth developing countries often have high inflation. Currency swings could be large. Your rent could increase 2x or more in short order. If you want to stay, that could be a problem.

62

Travel hacking / Re: Travel Hacking Tips for Non-Credit Card Users

« on: August 18, 2021, 01:24:03 PM »

You have to lump expenses - pay taxes, purchase plane tickets, make big purchases you are going to make anyway, etc...
https://www.gocurrycracker.com/award-travel-series-meeting-minimum-spend-requirements/

buying points is seldom profitable even with bonuses, unless you are just buying a small amount, e.g. you already have 99k and just need 1k more to redeem.

Most things are US focused, yes. No way around that.

63

Taxes / Re: IRA too big. Best way to minimize taxes and maximize estate

« on: August 17, 2021, 09:36:55 AM »

What you have described is a reasonable plan.

The question to ask is will your heirs pay tax at a rate higher or lower than 24%? If higher, then your plan is the best option. If lower, then be less aggressive.

The answer to this question is also the answer to whether it is better to pay tax now vs later ("paying $0.5 million in tax now reduces future earnings by $1 million.") Paying 24% tax now and paying 24% tax later will result in identical outcomes (associative property of multiplication.)

Unfortunately this is a very difficult question to answer because we don't know many things - future tax law, future health insurance law, age of inheritance, heir income during the 10 years post-inheritance, investment returns between now and age of death, etc...


One thing to consider - if you are still getting ACA subsidies this year and next, then Roth conversions also result in an 8.5% ACA tax (each $1 of Roth conversion will increase your ACA subsidies by $0.085.) Effective tax rate is then more like 32.5%

Some time ago I explored lifetime tax minimization for a high net-worth couple:
https://www.gocurrycracker.com/reader-financial-review-scared-death-early-retirement/

64

General Discussion / Re: Where to Invest Cash?

« on: August 17, 2021, 09:22:47 AM »

What do you mean by turning your cash into a Roth conversion? Using it to pay the taxes that result from moving funds from a Traditional IRA into a Roth? (This typically isn't a great trade whilst working.)

Since you plan to work another 5-10 years, you could just save the money to fund your first few years of retirement during that time. The cash you have now can be invested according to your target asset allocation

65

General Discussion / Re: Best way of borrowing Money

« on: August 17, 2021, 09:19:26 AM »

Whatever provides the lowest interest rate and most convenient cash flow

You can get margin loans as low as 1% - just be sure to keep margin ratio low to avoid margin calls in a severe downturn.

A mortgage works great - <3% for 30 year, <2% for 15 year at present

HELOCs and personal loans (and credit cards) best used for very short term due to higher rates

66

General Discussion / Re: Why not always rollover TSP/401k to Roth IRA?

« on: August 01, 2021, 11:40:41 PM »

That would work as a plan, yes.

If you want to refine it, try thinking about it in terms of the tax rate you are paying vs absolutes of "I won't reduce ACA subsidies no matter what." It can be quantified.

Before age 62 with planned income of 200% FPL (~$34.5k family of 2), if you do a $1000 Roth conversion you will pay ~$150 extra in ACA premiums for the year, $100 in Federal income tax, and maybe $x in State income tax. So $250/year plus state for an effective tax rate on the conversion of 25%+ (250/1000.)

It is perfectly OK to reduce ACA subsidies if the alternative is paying more than 25% on IRA withdrawals / Roth conversions / RMDs later.


From 65-67 - Say you are in the 12% bracket. 12% is less than 25% by a significant amount.
You could fill the <= 12% bracket(s) and the 22% bracket and still come out ahead vs the 25% tax rate from previous years. That is ~$200k of AGI for MFJ. In theory you could even fill the 24% tax bracket (AGI of ~$350k) and come out ahead, although this will impact Medicare premiums (also acting like a tax, albeit not as severe as the ACA impact.)

From 67+ with SS, you will be in the 12% bracket but still have some headroom. Small-ish Roth conversions will be taxed at 12%.


A few larger Roth conversions for 3 years (65-67) will go a long way towards not having a $5 million IRA at age 80.
Those could be 60k-ish in size to fill the 12% bracket or 160k-ish size to fill the 22% bracket. Decide at that time based on how big your IRAs have grown -> bigger IRA means do a bigger Roth conversion.

Then 4 more years of small-ish Roth conversions (30k +/-) until RMD starts at 72. Can do some Roth conversions still if RMD doesn't fill the 12% bracket.

For the duration, enjoy life. If you do pay more tax later at age 80+ it is because the markets have done well for you and you haven't had to worry about money at all for decades. I'd pay that happy tax every chance I got.

67

Early Retirement / Re: Looking for some feedback if I'm screwing up

« on: July 30, 2021, 02:02:45 AM »

Congrats, you appear to be in good shape.

I'd probably stop paying extra toward either mortgage and put the rest in the taxable portfolio. 2.25% is less than the current inflation rate. Even the 3.375% is lower than inflation after your tax deduction.

You can access the retirement funds penalty-free through:
Roth conversion ladder
SEPP
All Roth contributions
Borrow home equity

Plus you have $600k available now (+ future contributions/growth) to fund you from age 42 - 59.5, just use that.

If you stop paying down the mortgage you will have more $ with no access restrictions. The payments will be smaller in 10 years.

At $200k/year you don't really need to worry about a retirement place with decent cost of living. San Diego has nice weather, I'd stay there.

68

General Discussion / Re: Why not always rollover TSP/401k to Roth IRA?

« on: July 30, 2021, 01:54:22 AM »

With QCDs, is the main idea for our application that we essentially give the money away to charity and don’t have to count it as income? So if with our pensions and SS we’ll be in the 12% bracket and I max out that bracket with conversions that count as income (which we will use to live), and if our RMDs are more than that then we give it to charity without taxes? And if we need that money to live then we’ll just have to pay the higher taxes on it?

Yes

You’ve helped me in another post to back off early conversions to stay below ACA limits - we landed on targeting 200% FPL so we can meet our income needs while we should be able to get a good plan. This will put us in the 10% income tax bracket. Once pensions and then later SS starts, we’ll be in the 12% income tax bracket (hopefully). We should still have space to max out that bracket. We should max that bracket out with the conversions, correct?

Whether maxing out the 12% bracket later in life is beneficial is unclear. If you are on the ACA then you need to figure in the ACA tax - let's say that is 15%, so now your combined marginal rate is 27%. You need income of more than $350k/year to pay that level of federal tax once you are on Medicare, and then only on the margin. (24% tax bracket for MFJ ends at ~$350k income.)
https://www.gocurrycracker.com/federal-income-tax-brackets/

Will RMDs add $250k+/year to your income? If your IRA is more than $5 million at age 80 it might happen for a few years. Maybe.

69

General Discussion / Re: Cost of Living Portugal, Spain , Italy, .. ?

« on: July 24, 2021, 07:02:43 AM »

Numbeo, The Earth Awaits, or Nomadlist are all good resources to explore these costs.

https://www.numbeo.com/cost-of-living/
https://www.theearthawaits.com/
https://nomadlist.com/

The creator of The Earth Awaits wrote a guest post:
https://www.gocurrycracker.com/the-earth-awaits-guest-post/

70

Early Retirement / Re: 28 with $930k. Can I safely retire?

« on: July 17, 2021, 08:58:35 AM »

You can probably do it now, yeah.

You can post follow up questions here for no cost, or if you want I do some detailed consulting via video chat
https://www.gocurrycracker.com/consulting/

Generally speaking you can spend as much as 4% of your starting investment portfolio each year, or ~$37k, adjusting for inflation each year. $22k is much less than that so you would have significant margin. If you have sufficient work credits to get SS in the future, that is an additional margin of safety. Since you would be retiring extremely early, a maximum spend of 3% is "safer" (your target is currently ~2.5%)
https://www.gocurrycracker.com/what-is-your-retirement-number-the-4-rule/

There are additional risks for living and spending in a different currency than your portfolio, e.g. your income/capital gains in USD and your spending in VND. Currencies can go against each other causing a significant increase in cost of living. Developing economies can also have more dynamic inflation.

With the calculator you are using, there are a couple things to watch out for:
1 - you have it configured for ongoing income
2 - fixed percentage portfolio growth doesn't happen in the real world - use "historical cycles" to get a better picture. This uses actual historical year-to-year return data so you can see what would happen in the worst historical examples

A better tool for #2 is cFIREsim,
https://cfiresim.com/

71

General Discussion / Re: Why not always rollover TSP/401k to Roth IRA?

« on: July 03, 2021, 09:06:13 PM »

You can do roth conversions after age 59.5
(correcting your phrasing - there is no rollover from a TSP to a Roth IRA)

Roth conversions are taxable events - paying tax now might be more expensive than paying tax later


The RMD probably isn't as big of a deal as you might be thinking - it starts with withdrawals of less than 4%. Half of all taxes paid from RMDs occur after age 90


A Roth IRA isn't a better vehicle for inheritance or charitable contributions more times than not - you can contribute an entire RMD to a charity with zero tax (google QCD), but if you did a Roth conversion first (and pay taxes) the charity gets less $

72

Early Retirement / Re: Roth Ladder and 72T Sepp

« on: July 03, 2021, 08:53:07 PM »

Hi M

This is a big topic with lots of side topics - let me see if I can hit the big points in a 1st reply and we can narrow down from there if need be.

--

You would first need to rollover/transfer your TSP to an individual IRA. (There is no intermediate 401k - replace 401k with IRA in your original text and you have it right.) (The taxpayer relief act of 2012 apparently enabled TSP participants to do in-plan Roth conversions. A quick google search doesn't come up with anything so it may not have been implemented. )

From there you can do Roth conversions at your leisure.

--

You can do Roth conversions at any age, no need to stop at an arbitrary point (e.g. age 54.5)

Once you hit 59.5 you have access to all Roth funds, conversions and earnings both, without additional taxes or penalties

--

For SEPP - You can split your individual IRA into as many pieces as you want... 1, 5, 100... it doesn't matter. Then you can setup the 72t SEPP withdrawals on just one of them.

It is inflexible in that you can't decide to stop the periodic payments until age 59.5, but its only 9 or 10 years - make 'em small enough that it isn't a big deal. Do this on an IRA in the name of whichever spouse is OLDEST so you are making the shortest possible commitment.

You also don't need to start this today - you can start it in a year or 2 once you have a better feel for your retirement spending.

--

The TSP (or rollover IRA) belongs to only one of you. RMDs are based on that individual's age - so you will both have RMDs starting when you each reach age 72.  On your taxes, withdrawing $1 will be taxed the same regardless of which account it comes from

73

General Discussion / Re: Investing Extra Cash

« on: July 03, 2021, 02:38:41 AM »

Yeah, if need the cash in 6 months then just dump it in a savings account / 3 month CD / short term treasuries

You'll pay tax on the interest (which won't be substantial)

74

General Discussion / Re: Investing Extra Cash

« on: June 30, 2021, 06:44:56 PM »

Need the money soon (<3 years) -> cash or cash equivalents

Avoid capital gains tax? You don't

75

Taxes / Re: Dependent care credit vs dependent flex

« on: June 14, 2021, 08:05:45 AM »

I haven't looked at the flex account changes at all, sorry