On many recent posts I've seen online, I see members of the Financial Independence Community (no BiggerPockets members that I've seen thus far) talk about ways that early retirees can take advantage of government benefits.

Take the following example:

Joe spends 10 years investing in real estate and index funds. He spends little. He builds up a net worth of over $1M and quits his job. After quitting his job, he and his family of four spend less than $30,000 per year. He arranges his portfolio such that it generates about $25,000 per year in Adjusted Gross-Income - he's able to do this with real estate tax advantages and by placing much of his earnings into tax-advantaged retirement accounts. Because he makes the intelligent decision of house-hacking, he's able to effectively generate zero income from his home, but also breaks even and spends $0 on housing. That ~$35,000 in free cash flow, $25,000 in AGI after his financial movements, and he lives a life of leisure.

Not coincidentally, Joe's AGI is less than $25,000. So what? ...

So, Joe is, technically, according to our government, below the poverty line.

Except he isn't. He is a millionaire and lives a middle to upper-middle-class lifestyle - he simply has no debt, no housing expense, and little transportation expense. He's able to travel the world on credit card points and hang out.

The point of all this is to bring up the following question:

Should Joe take advantage of low-income federal subsidies and benefits?

Specifically - should Joe enroll his family in Medicaid?

Should Joe enroll in SNAP (food stamps)?

Should Joe seek eligibility for section 8?

If the answer to all of the above is "no" - why do you think that?

If the answer to all of the above is "yes" - same question.

If there is a line, where is it?

Personally, I plan to design a portfolio that can't help but generating more income than would qualify me for these government subsidies, but I think I currently feel that it is wrong for citizens with net worth into the high six-figure or even seven-figure range to arrange their portfolio to take advantage of low-income government subsidies. If you can do that (although I'm sure there are exceptions), then generally speaking, I think that you can put in the extra year or two to support yourself independently of government assistance. Plus, why would you make your early retirement depend on government subsidies that might not be around during the course of your lifetime?

What do you think though?

Scott Trench

Podcast Guest on Show #223