Retirement Questions

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Turtle
Posts: 7
Joined: Thu Dec 13, 2007 10:32 pm

Retirement Questions

Post by Turtle »

First, a thank you for advice this forum offered 7 years ago. Following it, DW and I funded our children’s college expenses and grew retirement savings effectively. With gratitude for our good fortune, we now hope for forum guidance regarding actual retirement planned for late summer of 2015.
Background: I am 63 and working; wife is 59 and retired. Combined assets: Traditional IRAs - low 7 figures; ROTH IRAs - low 6 figures, very adequate emergency reserves. One state pension – low 5 figures…unless the state’s financial difficulties cause major reductions or elimination of promised benefits.
Our original plan was to defer SS until I reach 70, to draw down the T-IRAs to meet retirement living expenses, and hopefully, also to convert some portion of T-IRAs to ROTH IRAs (while remaining within lower Federal tax rates) so as to avoid large RMDs and higher taxes when SS begins.
We expect retirement expenses to be reduced through sale of existing home and move as snowbirds to a smaller residence in sunny Florida (state income tax free) where we would most likely rent at first. (We are uncertain whether buying a house there offers any greater advantages than renting. The sale of our current house does add significant reserves to our capital, and we could buy a FL house if that is clearly wiser than renting.) During warm months, we hope to rent in mid-Atlantic area or travel the USA for near future.
Questions: Is there a clear process (or recommended tool) for evaluating the tax consequences of deferring SS, taking the pension, using T-IRA balances for living expenses and converting some T-IRA amounts to ROTH IRAs so as to minimize overall taxes during retirement? Likewise, is there any process or tool for evaluating the rent versus buy decision, especially in Florida? Finally, how might we allay any anxiety about spending savings we amassed through years of LBOM if we discover the state can not fund its pension promises, thereby eliminating one leg of our retirement funding stool? We realize that we are blessed to be worrying about such questions, but we want to act as good stewards for the resources we have, continue to LBOM – and hopefully, to pass some of these financial blessings on to our children. Thank you in advance for your shared wisdom.
Laura
Posts: 7975
Joined: Mon Feb 19, 2007 6:40 pm

Re: Retirement Questions

Post by Laura »

Hi Turtle,

Given your uncertainty about the state pension, I think holding off SS until 70 is a good idea. If the pension suddenly disappears your monthly social security payments will be significantly higher. I don't know of a particular tool to help calculate which accounts to use when and it is probably hard to develop that given the number of variables that come into play.

If you are getting ready to move to a new place like Florida I would suggest renting initially just to make sure you like the place and the people. Once you become more familiar with your chosen area and are comfortable that Florida is the place for you then buying could make sense I think. However, if you planning to spend half the year in Florida and half in a more northern area then renting in both locations could make the most sense assuming you don't keep both of these places year round. Not sure that you would want to move your belongings back and forth however.

Congratulations at having reached the point where you can really focus on answering the "how to" fine tuning questions.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
User avatar
Peter Foley
Posts: 5533
Joined: Fri Nov 23, 2007 9:34 am
Location: Lake Wobegon

Re: Retirement Questions

Post by Peter Foley »

Some individuals have found the planner at http://www.i-orp.com/ to be helpful

Bigfoot48 has a spreadsheet planner that I have found helpful:
BigFoot48 has a spreadsheet that is very clear to use and has all you need to take just about everything about your personal situation into account. You can downloaded it using the link in this thread. viewtopic.php?f=1&t=97352
User avatar
Watty
Posts: 28860
Joined: Wed Oct 10, 2007 3:55 pm

Re: Retirement Questions

Post by Watty »

Turtle wrote:Is there a clear process (or recommended tool) for evaluating the tax consequences of deferring SS, taking the pension, using T-IRA balances for living expenses and converting some T-IRA amounts to ROTH IRAs so as to minimize overall taxes during retirement?
I use tax software to make up dummy tax return then try different scenarios to see how it works out, at least with the current tax laws. This is nice since it also take your state taxes into account. You can also use tax caster to get a quick feel for your federal taxes.

https://turbotax.intuit.com/tax-tools/c ... taxcaster/
Turtle wrote:Likewise, is there any process or tool for evaluating the rent versus buy decision, especially in Florida?
See the links here.
http://www.bogleheads.org/wiki/Owning_vs_renting
Finally, how might we allay any anxiety about spending savings we amassed through years of LBOM if we discover the state can not fund its pension promises, thereby eliminating one leg of our retirement funding stool? We realize that we are blessed to be worrying about such questions, but we want to act as good stewards for the resources we have, continue to LBOM – and hopefully, to pass some of these financial blessings on to our children.
It is hard to tell but it sounds like if the value of the pension was cut in half that it would not impact your lifestyle and you could still support yourself if either of you live to be in your late 90's even if you get conservative investing returns The biggest consequence sounds like it would be that you would leave a smaller estate someday.

If that is correct then the most likely outcome is that neither of you live to be in your late 90's and that when you die before that your kids still inherit a pretty big pile of unused money even with the reduced pension. If you also plan conservative investing returns there is a good chance that you will get average or above average investing returns which which will cause you to leave a larger estate.
skibum
Posts: 27
Joined: Sat Feb 15, 2014 3:08 pm

Re: Retirement Questions

Post by skibum »

For utilizing the tools mentioned,I have found i-orp and bigfoot48 to be helpful for long range planning for Roth conversion, and a dummy tax return helps calibrate the current years results to your individual situation for interpreting or adjusting the long range plan.

The two articles below are the most comprehensive I have come across with regards to the benefits of deferring social security.

The strategies to convert tIRA to Roth for minimizing taxes, and deferring SS to mitigate market, inflation, and longevity risk are fortunately complementary. There are many factors and unknowns to optimize each strategy. I would think the first decision would be when to draw SS (based on the several intangible factors), then project the long range cash flow and assets using Bigfoot48's spreadsheet. It seems possible to project different SS withdrawals into the Roth conversion model, however, I expect any attempt to optimize the combined results would be shattered by different SS outcomes w/r to longevity or market risk.

http://siepr.stanford.edu/system/files/ ... _2013b.pdf

http://www.kitces.com/blog/how-delaying ... y-can-buy/
Topic Author
Turtle
Posts: 7
Joined: Thu Dec 13, 2007 10:32 pm

Re: Retirement Questions

Post by Turtle »

Thank you for the suggestions -- and the reassurance that the work at this point is essentially "fine-tuning". DW and I are grateful for this forum and your generously offered help.
I look forward to exploring the software and approaches referenced - and hopefully answering our questions. Best wishes to all.
User avatar
Peter Foley
Posts: 5533
Joined: Fri Nov 23, 2007 9:34 am
Location: Lake Wobegon

Re: Retirement Questions

Post by Peter Foley »

Turtle
My wife and I are in a similar situation except for the who's working and who's retired. :happy

Our plan is to do Roth conversions until I start taking SS - probably at age 67 or 68. Have you looked at RMD's? Ballpark they are $4000/$100,000 while in one's 70's.
Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: Retirement Questions

Post by Calm Man »

OP,
Can I suggest something to you.
The first is easy to say. It sounds like you have benefited a great deal from the people at this site. And you are further looking to get assistance here. It cost money to maintain the site. A donation would be very nice indeed.
Post Reply