Bridging from Early Retirement to SS

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PMaxwell
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Bridging from Early Retirement to SS

Post by PMaxwell »

I'm considering retiring at 60 and not taking SS until 70. Using this strategy and my available fixed income, I would need to withdraw at 4.5% to 5.5% for the 1st 10 years, then 1.5% to 3% thereafter. Some have warned me of the danger of the market tanking during that 1st few years.

What strategies seem best to address this situation: 10 year SPIA, tiered bucket approach (cash in first years, less conservative in other buckets), or what?

Thanks to all for your thoughts :happy
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Raybo
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Re: Bridging from Early Retirement to SS

Post by Raybo »

I retired at 48 (I am now 62) and have funded my expenses using taxable investments. I sold my house in 2003 and used that boost to both invest and buy IBonds (when you could buy $40K/year). In 2008, I tax lost harvested big time and have been using those losses to cover the gains I've been selling to fund my expenses.

I, too, am waiting to 70 to take Social Security.

My approach is to try and keep, at least, 1 year's expenses in cash. I keep it in an on-line bank to try and get something for it. I am giving up some return by doing this but it helps me sleep at night knowing that I can put my hands on thousands of dollars should I need it without having to sell anything. I also have a good chunk of I/EEBonds that I hold as an "after cash" emergency fund.

I am close to your situation, in that, I have been spending about 3 - 3.5% of my pile each year. Looking toward 70, I see a shortfall of about $15K/year between Social Security and expenses (in today's dollars). In a liability matching move, I have decided to buy $10K IBonds a year (by selling from the TIPS fund and buying TSM in my IRA and then selling $10K from the TSM in my taxable) to help me insulate the shortfall from inflation. At the moment, my losses from 2008 are still covering the gains, but this will end soon.

My suggestion is to make sure you have enough cash to cover a bad stretch in the market and a comfortable emergency fund and to keep on the track in your plan. Note that you will have to have the stomach to buy into a bear market or reduce your investments to the point where it won't bother/hurt you.
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john94549
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Re: Bridging from Early Retirement to SS

Post by john94549 »

I saved as much as possible in my practice in the years just before retiring. After maxing out tax-deferred, I bit the bullet, paid the taxes, and had a goodly amount in after-tax cash at age 59 1/2. Then, I retired.
Professor Emeritus
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Re: Bridging from Early Retirement to SS

Post by Professor Emeritus »

I personally use Wellesley for my SS deferral , emergency fund and self insurance for LTC. DW and I both have pensions and she has SSID so it works nicely
The Wizard
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Re: Bridging from Early Retirement to SS

Post by The Wizard »

I'm doing similar from age 63 to 70; I'm 64 now.
I first set up some lifetime annuities to cover basic expenses. I'm taking an additional $3000 a month out of my tax-sheltered investments to bridge the gap to SS at age 70.

I'm eligible for divorced spouse SS benefit at age 66 so I need to go in and find out approximately what that will come to. Probably only a few hundred a month, so a minor impact.

In the event there's a major stock market downturn in the next six years, my plan B is to start my own SS then, rather than sell off stocks when they are way down...
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freebeer
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Re: Bridging from Early Retirement to SS

Post by freebeer »

I think the main point is that your proposed strategy almost certainly gives you better odds of sustainable spending at your desired level in the case of a market downturn early in retirement than taking SS earlier than 70. Because you get an actuarially-fair inflation adjusting annuity from SS and 32% more of it than taking at 66 and it sounds like the SS will cover a fairly significant % of your total spending (which presumably has some flex in it, as per most of us).

If in case of market downturn your 2.5% withdrawal may become 4%, but you can always decide to fully annuitize later in life and get a higher payout.
SGM
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aRe: Bridging from Elarly Retirement to SS

Post by SGM »

I was looking to cover a 5 to 7 year period until age 70. I looked at short term SPIAs and they paid so little, I felt I could do considerably better investing in the market and bonds than that. Anyway I would rather take the risk than give an insurance company such a low cost loan. I did take a 7 year deferred savings annuity that pays 4% and had planned on taking out 10% penalty free of the balance during the retired years prior to age 70. I now feel I will not need to take out the 10% and will let the money grow tax deferred at 4% until I annuitize it or take it out for some other reason.

I will fully fund the difference between retirement and age 70 with a yet to be determined flexible withdrawal rate including dividends and interest from taxable accounts. I think sales of assets from taxable accounts will be minimal. The withdrawals will have to cover any shortfall not covered by any pension, spousal SS benefit and rental income.
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VictoriaF
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Re: Bridging from Early Retirement to SS

Post by VictoriaF »

I will also be living off my savings (and pensions) between the date of retirement and the date of taking Social Security at the age of 70. During this period, I will not be considering my annual withdrawals as a "withdrawal rate." Instead, I will allocate to it some amount of money, invested very conservatively and estimated to last through this period. At the age of 70, I will have all my income streams in place and at that time, I will calculate a desired withdrawal rate from my remaining assets or start buying SPIAs.

Victoria
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jimkinny
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Re: Bridging from Early Retirement to SS

Post by jimkinny »

I am now 66, retired at age 64. I keep about 1 year's worth of living expenses in a savings account and have about 60% of fixed income in CDs with maturities now at 1,2,and 3 years (had a semi-ladder going out to 5 years).

The idea was to have very safe money to get me to age 70 and then start SS. That CDs had a yield about double of a Treasury of equivalent term is a bonus. I also have two small pensions that I have not started. Lump sum payout increases 4-5% per year on these. I might start these sooner than RMD requirements for psychological reasons but since equities have been doing well, I do not feel the need to have income, which I might, if I saw the equities markets going down for the last two years.

Good luck,

jim

I am adding this after rereading your post: from my reading, a major cause of portfolio failure to last a lifetime is negative/poor equity returns in the first years (2,3,5??) of retirement. I think one's goal should be to isolate oneself from this risk by either having enough saved or working longer. The thought of reaching 74 and needing to go back to work is a bit disconcerting.
Ron
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Re: Bridging from Early Retirement to SS

Post by Ron »

FWIW, I retired at age 59 (currently age 66) and created my own "pension" with a joint/life SPIA, using some of the proceeds of my former company's cash balance plan.

While most folks will advise/opine that you should not consider an SPIA until later in life, I felt that this was one instance where the product could meet our needs at an earlier age; it did.

Seven years into retirement (and less than three till age 70 SS income) it has worked out quite well.

A side note; while current inflation was a consideration, it turned out that the inflation rate over the last seven years has been less than the (IRR) rate I received for the SPIA - just under 5%. You could not have received as much return on a non-risk "investment" over the last seven years (including the 2008 drop and the 2013 gain). While some folks would tell you that you could do better in the market (some can, some can't), we were primarily looking for a risk free income product to meet our needs. And no, CD's were not the answer; an SPIA returns not only accrued "interest", but also principal - something a CD cannot normally do (and please, don't mention a ladder; to many to issue to match the 28-year guaranteed term of our policy - and it would not cover if one/both lived beyond that date).

We went with a joint life, guaranteed term product (e.g. if one/both live until age 87, payments continue at 100% to the survivor; if one/both live longer than 87, payments continue at 100% until we both pass; if both pass before age 87, remaining payments get paid to our estate).

It's working IRL (not just an opinion) for us. Others would have to analyize their own situation and find out if this retirement tool (in your toolbox) would possibly satisfy your own personal need. And inflation? In less than three years, the SPIA will just be icing on the SS "cake" and will reduce the amount we will have to withdraw from our joint portfolio's.

Tax wise? Since a life annuity is not considered under MRD's (at age 70.5), the policy premium will not be considered in the mix when we start our payments, a few years from now; we've also reduced the amount of tax deferred investments to be considered under MRD rules since we've lowered our portfolio by the amount of the preimum.

- Ron
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