What to do with Earmarked expenses?

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What to do with Earmarked expenses?

Postby SteveNet » Thu May 02, 2013 4:37 pm

So far I am of the mind to start SS at age 66, I am currently 59.
As my Pension gets cut aprox in half at age 62 I have to make up some difference in expenses for 4 yrs from my accounts if I don't start SS @ 62.
Projections so far are as follows for the added expense of making up for lost Pension during those 4 years....
Monies drawn from investment accounts.
Age 62 withdraw 3.57%
Age 63 withdraw 3.97%
Age 64 withdraw 4.38%
Age 65 withdraw 4.81%

Those withdrawal rates actually give me an extra 1 to 2% more than needed each yr. to make up the loss of pension funds. Just to be on the safe side and beer money.
I have also factored a 5% inflation rate. And a 4.5% portfolio avg return.
All Those withdrawals = aprox 18% of my current investment portfolio. 42/51/7 Equities/bonds/cash

After that, starting at age 66 with SS all things being equal I shouldn't have to touch my investment accounts for withdrawals (with the exception of home repairs, car etc)
(I'm also thinking during that time to convert my IRA to a Roth as I will be in the 15% bracket as I am currently, converting while staying in the 15% bracket.

My first inclination is to just let everything ride and make the % withdrawals when the time comes for those 4 yrs from equities in my taxable acct and rebalance in my tax deferred acct from bonds.

Then I thought maybe I should allocate that 18% now into something Else...idk perhaps laddered CD's for those 4 yrs?

Suggestions, recommendations, advise welcome. :beer
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Re: What to do with Earmarked expenses?

Postby Default User BR » Fri May 03, 2013 4:26 pm

It's kind of in class of the short-term need. Move a portion to a safer investment wouldn't be the worst thing in the world.


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Re: What to do with Earmarked expenses?

Postby Dandy » Fri May 03, 2013 4:52 pm

You might find that your actual retirement expenses are less than you think. I am in a somewhat similar situation i.e. waiting to take SS at age 70 and funding the time between 65 and 70 with drawdowns from my retirement portfolio and expect to have to withdraw little or nothing at age 70 (but will have to due to RMD). I like the fact that my income will be higher in my senior senior years and want to maximize the SS income to my wife if I die early. My pensions will be reduced by 50% so maximizing SS will help offset the lower pension income.

I have enough money allocated to Ltd term tax exempt fund and some CDs/bank savings to fund 5 years. I didn't feel like taking much risk with the SS at 70 goal. This money is part of my intended cash allocation of 5 to 10%. So it fits my overall allocation plan.

The great thing about delaying the onset of SS is that if conditions change e.g. health or expenses you can always change your mind and take it.

Doing some Roth conversions while in the 15% tax bracket sounds like a good idea.
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Re: What to do with Earmarked expenses?

Postby SteveNet » Fri May 03, 2013 5:53 pm

Default User BR wrote:It's kind of in class of the short-term need. Move a portion to a safer investment wouldn't be the worst thing in the world.


Brian


That was my thinking sort of, although I know I'm within the limits of the aprox 4% withdrawal rule thing, and it would only be for 4 yrs.
If the markets took another 2008 dump during that time I most likely would not be a happy camper selling in the midst of it.
Although I would sell equities in taxable acct, (if at a gain) the current tax would be 0% in the 15% tax bracket.
And then sell a portion of my bond position in tax deferred/free and repurchase the equities sold.

imo no place looks good (respectively) to store a 'safe' investment.
.8% online bank, 1.18% IBonds, laddering CD's...
Right now I'm sort of contemplating converting some of my cash position to IBonds for those years. 0% interest and 1.18% cpi-u adjustments for this yr anyway, it's better than bank interest, and
will at least keep up with inflation. But then the interest is taxable at income rates when cashed.

As I currently own no IBonds, and I do have a cash position @.8% I guess what I could do is portion off a part of the cash to purchase IBonds anyway (even @ 0% interest) to at least keep up with inflation each yr.
That way I'll have the option when the time comes to use IBonds or sell equities for the needed Pension replacement.

At least that is my thinking and assumptions, anyone feel free to correct me or suggest another path.

Dandy wrote:You might find that your actual retirement expenses are less than you think. I am in a somewhat similar situation i.e. waiting to take SS at age 70 and funding the time between 65 and 70 with drawdowns from my retirement portfolio and expect to have to withdraw little or nothing at age 70 (but will have to due to RMD). I like the fact that my income will be higher in my senior senior years and want to maximize the SS income to my wife if I die early. My pensions will be reduced by 50% so maximizing SS will help offset the lower pension income.

I have enough money allocated to Ltd term tax exempt fund and some CDs/bank savings to fund 5 years. I didn't feel like taking much risk with the SS at 70 goal. This money is part of my intended cash allocation of 5 to 10%. So it fits my overall allocation plan.

The great thing about delaying the onset of SS is that if conditions change e.g. health or expenses you can always change your mind and take it.

Doing some Roth conversions while in the 15% tax bracket sounds like a good idea.


What you say is very true about expected expenses in retirement being 'different' (Lower at least in my case as well) I've been retired for 9 yrs now and I'm pretty sure as nothing upsets the applecart that my expenses will be stable here on out for the most part.
Right now I'm just looking at delaying till 66 for the same reasons you mentioned :beer
When that time comes I can evaluate a 70 start date more clearly, right now I'm planning on 66, and as you said if the need arises for whatever reason starting SS at any time is an option.

Thanks for the Replies so far :sharebeer
Bouncing it off the forum helps me get my thinking clear.
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