Upcoming decisions on retirement

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Midwest Dave
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Joined: Wed Jan 22, 2014 2:27 pm

Upcoming decisions on retirement

Post by Midwest Dave » Thu Aug 04, 2016 11:06 am

As I rapidly approach retirement, I would appreciate input on several issues. I have done extensive reading in the forum and the Wiki and aware of most options, rationale, etc. That being said, one is left with making decisions without the ability to forecast key information, e.g. rates of return, inflation, health, life expectancy, etc.

Relevant data:
Age 62, spouse 61
Minimum retirement income desired 90k
Desired retirement income 120k
Taxable accounts – tax efficient 200k
Roth – 100k
Deferred accounts 1.8 million
Current AA 70 stock 30 bond primarily via mix of Wellesley and Total Market Index
SS income at 66 – 30k, spouse 27k
SS income at 70 – 39k, spouse 36k
No pension or other income
Excellent health
No debt of any kind

Current Plan:
Retire in 3-4 years, spouse 3-4 years
Defer my SS to age 70
Depending on market returns, defer spouse SS to age 70
Change AA to 60/30/10 or 60/25/15 over the next year
Reduce or stop deferred contributions (SS plus RMDs will greatly exceed current income)
Continue maximum Roths

Any input greatly appreciated
He who knows he has enough is rich.

joebh
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Re: Upcoming decisions on retirement

Post by joebh » Thu Aug 04, 2016 11:14 am

It seems like a great plan to me.

At 70, you'll have $75k of COLAed income, which puts you in great shape.

You haven't mentioned it but you'll want to consider where you'll live out your years and what kind of home you'll need. And if you haven't already done so you may wish to think about Long Term Care insurance.

Nice work - I think you are set up for a long and comfortable retirement!

The Wizard
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Re: Upcoming decisions on retirement

Post by The Wizard » Thu Aug 04, 2016 11:42 am

Your numbers and goals are similar to mine, except I'm single.
Part of the issue is bridging the gap till age 70 and start of SS.
I annuitized a portion of my tax deferred accounts to get a nice (taxable) base Income and am then withdrawing additional to cover my seven years from 63 to 70.
It's working out great...
Attempted new signature...

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4nursebee
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Re: Upcoming decisions on retirement

Post by 4nursebee » Thu Aug 04, 2016 12:03 pm

Perhaps I don't read so well but I do not see what the things you wanted help with.
4nursebee

Midwest Dave
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Re: Upcoming decisions on retirement

Post by Midwest Dave » Thu Aug 04, 2016 12:47 pm

Joe - still working on where to live, but home works for now. I have access to comprehensive health insurance at a low cost and am willing to self insure any long term care.

Wizard - I have considered the annuity idea, but am leaning to the delay for my spouse and fund the gap with investment gains (hopefully), cash, or if there is a big downturn, draw on 200k line of credit, or take spouse's SS at the downturn. After my demise, she would get my higher SS, so we could sacrifice some of her benefit instead of depleting investments in a downturn.

4nursebee - I'm sure you read just fine. I think I'm doing the right stuff, but my spouse, although successful and intelligent, wants to leave this up to me. So, I just want to make sure I'm not missing something and I don't really like to discuss details like this with friends.
He who knows he has enough is rich.

joebh
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Re: Upcoming decisions on retirement

Post by joebh » Thu Aug 04, 2016 12:55 pm

Midwest Dave wrote:Joe - still working on where to live, but home works for now. I have access to comprehensive health insurance at a low cost and am willing to self insure any long term care.


Sounds good.

Eventually, you'll want to consider some estate planning. But for now, it appears that you are in great shape.
Enjoy!

SuzBanyan
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Re: Upcoming decisions on retirement

Post by SuzBanyan » Thu Aug 04, 2016 12:59 pm

Midwest Dave wrote:Joe - still working on where to live, but home works for now. I have access to comprehensive health insurance at a low cost and am willing to self insure any long term care.

Wizard - I have considered the annuity idea, but am leaning to the delay for my spouse and fund the gap with investment gains (hopefully), cash, or if there is a big downturn, draw on 200k line of credit, or take spouse's SS at the downturn. After my demise, she would get my higher SS, so we could sacrifice some of her benefit instead of depleting investments in a downturn.

4nursebee - I'm sure you read just fine. I think I'm doing the right stuff, but my spouse, although successful and intelligent, wants to leave this up to me. So, I just want to make sure I'm not missing something and I don't really like to discuss details like this with friends.

Dave: I agree with others that you have set yourself for a comfortable life when it comes time to retire in the next 3 to 4 years.

Because most of your assets are in tax-defferred accounts, you will not likely have many options to reduce the future tax bite. You might want to add information about current marginal tax rate and expected annual savings before retirement if you want some feedback on tax planning strategies.

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celia
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Re: Upcoming decisions on retirement

Post by celia » Thu Aug 04, 2016 1:48 pm

Dave, I assume you realize that you have about 85% of your assets in tax-deferred accounts. Ouch!

If you don't change anything, you will end up with RMDs of at least $54,000 (based on a $1.8M previous year tIRA balance) that will be taxable at age 70.5 Add that to your Social Security and you have more than your desired income.

You should consider doing some Roth conversions between when you stop working and start SS. This thread discusses Roth conversions (and other things) but you should at least understand the conversion options so that some of the withdrawals can be taxed at a lower tax rate:
viewtopic.php?f=1&t=194462&newpost=2969573
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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David Jay
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Re: Upcoming decisions on retirement

Post by David Jay » Thu Aug 04, 2016 1:55 pm

celia wrote:Dave, I assume you realize that you have about 85% of your assets in tax-deferred accounts. Ouch!

If you don't change anything, you will end up with RMDs of at least $54,000 (based on a $1.8M previous year tIRA balance) that will be taxable at age 70.5 Add that to your Social Security and you have more than your desired income.

You should consider doing some Roth conversions between when you stop working and start SS. This thread discusses Roth conversions (and other things) but you should at least understand the conversion options so that some of the withdrawals can be taxed at a lower tax rate:
viewtopic.php?f=1&t=194462&newpost=2969573


+1 You should consider doing Roth conversions up to the top of your current tax bracket in each year until SS kicks in. By $44,000 annual income (Married filing jointly), 85% of SS is taxable. So RMD + SS will definitely put you in the 25% bracket in retirement.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

LeisureLee
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Re: Upcoming decisions on retirement

Post by LeisureLee » Thu Aug 04, 2016 2:58 pm

Seems to me like you could retire sooner than that. At 70 you'll get $69k in SS so you only need $50k from your portfolio for your ideal income. That's $1.2M at 4%. If you retired now, you need nine years of that $69k while waiting for SS, so another $630k invested to match inflation. $1.2M + $630k = $1.83M, and you have $2.1M today. Even if you only want a 3% draw rate you have almost enough, and you're saying you could accept a 90k income if you had to. You seem all set to me.

Midwest Dave
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Re: Upcoming decisions on retirement

Post by Midwest Dave » Thu Aug 04, 2016 3:27 pm

So current marginal rate is 25%

Looks like future rate is 25%

I like the Roth conversion idea from retirement to SS at 70, but it seems like doing more than that doesn't buy me much.

Does this make sense?

Thanks in advance and for all of the feedback so far.
He who knows he has enough is rich.

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celia
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Re: Upcoming decisions on retirement

Post by celia » Fri Aug 05, 2016 2:26 am

Midwest Dave wrote:So current marginal rate is 25%

Looks like future rate is 25%

I like the Roth conversion idea from retirement to SS at 70, but it seems like doing more than that doesn't buy me much.

In that case, convert to the top of the 25% tax bracket.

Don't forget that when either you or your wife dies, the same RMDs will be taken along with one SS. There is only half as much room in each tax bracket for singles as there is for MFJ, so the tax rate will jump.

As far as conversions, always convert into a new (empty) Roth so that you can recharacterize it (or some of it) up until October 15 of the following year. You would want to do this if you don't have the money available in taxable for the taxes, or the stock market dropped so much that any taxes you would pay would be for an account value that no longer exists, or you find that you were bumped up to a higher tax bracket (because of late-in-the-year income). If the market drops, do another conversion (or more), then recharaterize the "losers" in December.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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tennisplyr
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Re: Upcoming decisions on retirement

Post by tennisplyr » Fri Aug 05, 2016 6:46 am

Three comments:
-retire
-don't worry
-be happy

:beer
Those who move forward with a happy spirit will find that things always work out.

EnjoyIt
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Re: Upcoming decisions on retirement

Post by EnjoyIt » Fri Aug 05, 2016 8:36 am

LeisureLee wrote:Seems to me like you could retire sooner than that. At 70 you'll get $69k in SS so you only need $50k from your portfolio for your ideal income. That's $1.2M at 4%. If you retired now, you need nine years of that $69k while waiting for SS, so another $630k invested to match inflation. $1.2M + $630k = $1.83M, and you have $2.1M today. Even if you only want a 3% draw rate you have almost enough, and you're saying you could accept a 90k income if you had to. You seem all set to me.


This right here is my favorite answer.
Maybe work one or two more year and stop tax deferred contributions. Try and save enough in taxable to last you for a few years. This will allow you to do Toyh conversions for a few years as well. It may be more tax efficient in the long run. Either way you have enough cash to retire today if you wanted to.

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