@notrichenough - have to ‘go with the flow’ - nice to be aware of the subsidies and other limitation lines, another to take advantage of w/o hurting your retirement picture. It is just like lower expenses in another state - just too much trouble and one may desire to ‘stay put’ in the state and city they are in even with the higher costs in retirement.
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Is the 2 year look back for earned or unearned income?
for IRMAA, its Modified Adjusted Gross Income, i.e., 1040 AGI with a few add backs, such as Municipal Bond interest, rental losses…
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@jym626 I am pretty sure it is $147K gross, and I believe the additional payment is $30/mo per person but I can’t find where that all came from.
I just looked and our AGI has been over $160K looking back 2018, 2019, and 2020. So it will be 2021 and 2022 as the two years before we are below that threshold.
In retirement we will easily be below that $147K threshold as long as buying/selling property (primary residence or 2ndary residence) money doesn’t get included. Will have to search out the details again for us when it is relevant.
sorry, the feds consider all income, so any net over $500k (couple) for selling your primary residence definitely counts as income (cap gain) for IRMAA. And since there is zero exclusion for rental property, that cap gain counts too.
The income levels (MAGI)for paying the standard part B premium is $176,000(married filling jointly). You are also able to appeal if you are assessed a IRMAA premium. One of the reason for an appeal is work stoppage, ie retirement. There is a form to complete and file SSA -40 (?) after which an adjustment is made and if your below the MAGI you will pay the standard premium.
@mabelsmom thank you for the update info on the standard part B premium - maybe I was looking at single instead of married. Glad we make ‘the cut’.
Our home ( fully paid off) is less than 10 percent (about 7 percent ) of our net worth. It’s a nice home exactly at the median price for my area. We could afford a more expensive home but it’s very comfortable and we enjoy being able to spend lavishly in other areas.
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Just got off a call with our financial advisor. Looks like he is going to sell some stock and move some other money around which will give us enough to pay off our mortgage balance! We have a loss carryover from 2020 so this won’t increase taxes for us in 2021. Our mortgage is not high, but it will be great to have it paid off a few years before we retire.
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Yes, I gotta say it felt great when we paid off the mortgage. It was down to final few years, so mostly principal … but for us the psychological advantage of being debt free prior to retirement was important.
PS - Too bad there is still property tax (not too bad for us) and home insurance to cover.
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I wondered if anyone thought that buying a rental property (would require a loan to do so) would be a good investment through retirement? We have a few more years of work; going to get profit from the sale of property soon (have to sell).
Was thinking that instead of putting all the $ toward daughter’s remaining three years of college, could buy a duplex and rent out, use revenue to partly fund college, take out more college loans, pay them back over a few years with rental property revenue & regular cashflow from income - then have a revenue-generating asset at the end of the day (to continue for years to come).
Not finance-savvy so this may be a plan rife with potential problems!!!
H and I looked into this but I thought it would be a lot of work and expense to keep running. I think being a landlord brings a LOT of headaches. Also, if you need a loan, I think that the rates are not as favorable for an investment property as for a personal residence.
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For the right type of person, it’s great. For the wrong type, it’s a nightmare. Know several who do this and prefer “real/hard assets” vs. the market. One friend owns several rentals and collects a decent income. Will actually retire soon as he has low debt and the RE income will be sufficient to cover his expenses. He can always sell a property to generate a large bucket of cash if / when he wants.
For others, however, the lack of liquidity, maintenance, tenant issues, taxes and general upkeep make it undesirable. I’ve done both as a passive investor (have a management company take care of all the above issues) and it’s been both good and bad. At this stage of my life, I’d like to simplify and sell. Been stuck with a few properties (commercial) for some time. That’s the challenge.
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My parents amassed most of their wealth being landlords That said they had more and more issues with tenants not paying rent, damage to units, and then laws making it impossible to evict. I remember one situation where a tenant went more than two years without making a single payment. Took forever to evict and lots of court costs. They slowly started selling off the rentals in the ‘90s. My parents got out of the landlord business completely in 2008.
Based on their experience, I wouldn’t do it unless you were living on site in the other unit. And maybe not even then.
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I was able to open this in a private browser window. If it’s behind a paywall, try that
That’s an interesting article but I don’t agree that 401ks caused the demise of defined benefit pensions. I think that 401ks are a response to the demise.
My FIL had a great pension, in theory, from a now defunct commercial airline (he was a pilot). The airline went bankrupt and he got next to nothing after basing all of his plans on the assumption of a pension. It was terrible for him. A defined benefit pension in the private sector was never more than a promise, sometimes realized if you were lucky in your employer. At least with a 401K the employer has to pay you upfront, not as some distant time in the future. You have what you have, even though it may not be enough.
Even government pensions aren’t ironclad. I live in a state with huge public pension liability. It is an ongoing political issue. Eventually, insecure private-sector taxpayers will be unwilling to subsidize what they consider lavish pensions for government employees. What cannot go on, will not.
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Real estate can be a great way to build wealth, I think RE is the #3 way people on the Forbes 400 acquired their money.
Rental residential real estate is not for the faint of heart, though. There’s a lot you need to know, there’s a lot of law that governs this that varies a lot from state to state and even town to town, Fair Housing laws (pop quiz: Can you advertise your rental as “walking distance to schools”?), lead paint regulations, handling of keys and security deposits, leases and what is legal to put in them, how to handle it on your tax return, whether a particular location is tenant-friendly or landlord-friendly, eviction law, etc etc etc.
You have to have a plan for finding and screening potential tenants (how will you get credit checks done?), you need a method for evaluating whether a building is a good investment, you have to be able to ignore the sob stories, you have to be willing to deal with maintenance issues (why does the heat always go out on a Sunday???) you have to be ready and willing to put people out on the street. It helps to have a group of tradespeople you can trust who will call you back when you need them. You need deep enough pockets that a non-paying tenant for a year won’t cause you to lose the property.
You can hire a manager to do a lot of this but it eats a lot of the profit.
A majority of our retirement will be funded by rental RE, but DW works in the industry and in fact runs an association for small property owners. So for us it has worked out well (1 eviction in 20 years), but I’ve heard some horror stories though. At least we haven’t had anyone die in a unit yet.
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Given the pandemic eviction moratoriums and more and more locales becoming renter-friendly, I am not considering becoming a landlord.
Not necessarily in many locations today, particularly if one has tenants who have not paid rent in months and refuses to move.
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This is a big concern, although the moratoriums are coming to an end.
95% of being a successful landlord is picking the right tenants. Rule #1 of landlording is “An empty apartment is better than a bad tenant”. Landlords get into trouble when the cave to the pressure to put someone in there just to keep the cash coming (or can’t afford not to). We have income guidelines, credit score policies, are strict about verifying past tenancies and employment, etc. Every one of my tenants has continued to pay their rent during the pandemic (knock on wood) - some of this is luck, but a lot of it is picking the right tenants up-front.
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