Early retirement and withdrawal strategy for retirement accounts

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2tall4economy
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Early retirement and withdrawal strategy for retirement accounts

Post by 2tall4economy » Tue Aug 28, 2018 7:48 pm

I’ve been targeting early retirement mixed with a “comfortably luxurious” life since I entered the workforce. While it’s 10 years later than I originally planned it’s around the corner and still pretty early (45) which is getting me excited. I’m sure my friends will think I’m nuts retiring during my prime earning years but it’s feeeling more and more like the right decision. Wife and I are starting to try living on fixed income to test it out and see, and planning what city to retire to (impossible!)

The absolute $ has been on track for some time and I’ll soon just be working for toys and college funds but I was struggling with how to spend the free time (another topic I’ll post on at some point) and how to cover the years between retirement and retirement account penalty free timelines since most of my market investments sit in my 401k and ira.

I had looked at the 72t option previously but I dismissed it as a poor tax strategy and therefore told myself I should build up a taxable spending/investment account to cover the interim. Today when I was updating my investment and spending spreadsheet a thought came out of nowhere to me - if (and it’s a big if) you plan to consume most or all of your entire retirement account balances while a live vs passing it on and trying to be the guy with the biggest number in the graveyard, the best tax strategy is to take the 72t the day you exit the workforce so that you’ll slide under the income brackets for as many years as possible.

Seems simple and obvious now looking back but my mindset was “early withdrawal is evil because you should spend after tax money first”.

Seems too easy of a conclusion, which usually worries me. Am I missing something?
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abonder
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by abonder » Tue Aug 28, 2018 8:17 pm

There have been a lot of good articles on drawdown strategies. In many ways, it’s a more complex concept than accumulation/savings. You have to decide what your goals and needs are. Do you have a pension at time of early retirement or later? Timing of anticipated social security? Would you want to make Roth conversions of some of your pre-tax funds to ultimately decrease RMDs and give you greater flexibility once you approach full retirement age?

Your general instinct that accessing pre-tax funds as early as possible MAY be a good solution. It’s likely would enable you to decrease your pre-tax balances gradually and decrease the risk of large RMDs later in life. Again, I think these things are better addressed with actual numbers/estimates because there are multiple factors that would all need to be accounted for in deciding optimal withdrawal strategy.

rkhusky
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by rkhusky » Tue Aug 28, 2018 8:24 pm

Unless RMD's & SS will kick you up into a significantly higher marginal tax rate, you should likely spend down your taxable account first (probably not to zero, but to a small balance). It's the reverse of the advice to contribute to tax-advantaged first, then to a taxable account. On the other hand, if your taxable and Roth IRA contributions are not sufficient to get you to a penalty free age, the 72t option should definitely be considered and understood, because it will tie up a large amount of money for 14-15 years if you implement it at 45.

Sasquatch
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by Sasquatch » Tue Aug 28, 2018 8:39 pm

Have you been over to https://72t.net/

Some good information over there. 72t / SEPP distrubutions are quite rigid so it will require some serious thought and planning as you are locked into the fixed withdrawals for so long if you choose the amortization method. 5 years or 59 1/2, whichever is longer. There are strategies to mitigate that somewhat.

The other issue is forgoing the ERISA protection that a 401k has vs. rolling into multiple IRA’s to help with some flexibility in withdrawals. Im still researching if multiple IRAs under the $1.28M protection cap would afford more protection.

My plan is to take my first distribution December 2018. Right now though I am crunching numbers big time. Numerous scenario tabs on a spreadsheet.

sawdust60
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by sawdust60 » Wed Aug 29, 2018 2:28 am

One strategy is to do a Roth conversion each year in an amount to stay within the 12% tax bracket. You'll also want to consider the 0% tax bracket on on long-term capital gains and qualified dividends, as the marginal rate can be 27%: an additional dollar withdrawn from an IRA might look like 12%, but it can result in another dollar of LTCG/qualified dividends being taxed at 15% instead of 0.

Determine the amount to convert in December, once you know other taxable income amounts. Note that the entire amount of the IRA withdrawal is put into a Roth, so you will need to pay the tax with other funds (and you'll likely have an estimated tax payment due January 15th).

In review of this article on Roth conversions, I didn't understand if there is something related to age 50.
https://www.fidelity.com/viewpoints/ret ... n-after-50

But another thing it mentions is if you own company stock [with a low cost basis] in a 401K, there are special rules -- reasons why you might want to keep the 401K, perhaps until 59 1/2.

Hope this gives you some ideas.

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privatefarmer
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by privatefarmer » Wed Aug 29, 2018 2:56 am

its awesome to see others who are in same situation as me... researching things like 72t withdrawals and how much of my roth is contribution vs earnings etc... I have a ? of my own :

I had a roth 401k that was rolled into my roth IRA. after it was rolled into my roth IRA, does the ENTIRE balance now count as a "contribution" to the IRA? Or must I possibly prove how much of it was roth 401k contributions and how much is earnings? seems complicated.

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privatefarmer
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by privatefarmer » Wed Aug 29, 2018 3:04 am

also not sure what industry you're in but are you 100% confident you're going to completely retire vs just going part-time? makes a HUGE difference when planning withdrawal strategies... I feel I have a case of the "golden handcuffs" as job pays well and the benefits of staying at least part-time are so massive that I don't see myself ever completely walking away... I think you have to find the sweet spot, where you are still getting many of the financial benefits of working but not having any real contraints on your freedom/being able to still do whatever you'd like in life.

I also would highly encourage you to look at variable w/d strategies vs fixed. paul merriman has lots of great info on this. but basically, if your portfolio is large enough, you should be able to withstand a fluctuation in the amount you w/d each year. this should allow you to actually w/d a much higher percentage each year and ultimately a lot more money over time. portfoliovisualizer.com has a great monte carlo tool that lets you look at a variable w/d strategy.

aristotelian
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by aristotelian » Wed Aug 29, 2018 6:25 am

As others mentioned, you might look into Roth conversion ladder. The overall strategy is the same - save aggressively pretax during your working years, then withdraw at a lower tax rate in retirement. Roth conversion is generally easier and more flexible than SEPP. It will certainly help your spending plan to have some Roth and taxable funds, but there is absolutely no reason not to max your pretax saving.

https://rootofgood.com/roth-ira-convers ... etirement/

Many people mistake their retirement spending rate for being in a high tax bracket. This thread completely changed my thinking on that. You can have $100K spending and big pretax account and still pay very little tax in retirement.
viewtopic.php?t=87471

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2tall4economy
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by 2tall4economy » Thu Aug 30, 2018 12:33 pm

Thanks all for your replies so far. Will definitely check out that 72t website.

Addressing some inputs:
Working part time is a possibility - in fact Easing into retirement by having a white collar but lower paying job with strict 9-5 or even 10-3 working hours could be ideal since I will still have 3 kids under 10 who will be in school. My challenge is that I’m moving to a place upon retirement that my current employer doesn’t have an office. If I was staying put I’m sure they’d find a middle ground but there is no incentive for them if I move. Plus, I’d love to hire on with an employer in the place I’m moving to who will give me a relo package vs paying the bill myself. And I’d like to see what other things I can get into when forced to spend 8 hours a day without my time occupied. The final vote against part time is the fact it screws up spending long summer vacations with the kids, though I suppose that’s possible too somewhat.

The Roth conversions would be ideal but there is that pesky 5 year rule. So I’d be cashing in taxable dividends and cap gains for 5 years at the same time I’m rolling over, so I’d likely be paying 15% on the taxable distributions and 12% on the roll over, vs 0% and 12% if I time it right. Might be missing something there so please correct me.

At the end of the day the 72t feels a lot like a Roth conversion ladder, minus the 5 year challenge, with the drawback that it’s inflexible once initiated.

Interested in any additional feedback.
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livesoft
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by livesoft » Thu Aug 30, 2018 12:43 pm

One doesn't have to do 72t with all their tax-deferred money. One can set up an IRA for the 72t bit and do other things with the rest of the money --- including Roth conversions.
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slow n steady
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by slow n steady » Thu Aug 30, 2018 2:56 pm

aristotelian wrote:
Wed Aug 29, 2018 6:25 am
As others mentioned, you might look into Roth conversion ladder. The overall strategy is the same - save aggressively pretax during your working years, then withdraw at a lower tax rate in retirement. Roth conversion is generally easier and more flexible than SEPP. It will certainly help your spending plan to have some Roth and taxable funds, but there is absolutely no reason not to max your pretax saving.

https://rootofgood.com/roth-ira-convers ... etirement/

Many people mistake their retirement spending rate for being in a high tax bracket. This thread completely changed my thinking on that. You can have $100K spending and big pretax account and still pay very little tax in retirement.
viewtopic.php?t=87471
Here is another decent article on the roth conversion ladder:

https://www.madfientist.com/how-to-acce ... nds-early/

I'm not sure what your health insurance plans are, but that is another factor for how much income you want in a year if you will be using the ACA.

I personally would lean heavily towards the roth conversion ladder vs. the 72t because of the flexibility.

For a deeper discussion, we really need to get into the weeds of how much you have in taxable and tax advantaged and how much your family will need to live on every year.

Good luck!

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Re: Early retirement and withdrawal strategy for retirement accounts

Post by willthrill81 » Thu Aug 30, 2018 2:59 pm

Sasquatch wrote:
Tue Aug 28, 2018 8:39 pm
Have you been over to https://72t.net/

Some good information over there. 72t / SEPP distrubutions are quite rigid so it will require some serious thought and planning as you are locked into the fixed withdrawals for so long if you choose the amortization method. 5 years or 59 1/2, whichever is longer. There are strategies to mitigate that somewhat.

The other issue is forgoing the ERISA protection that a 401k has vs. rolling into multiple IRA’s to help with some flexibility in withdrawals. Im still researching if multiple IRAs under the $1.28M protection cap would afford more protection.

My plan is to take my first distribution December 2018. Right now though I am crunching numbers big time. Numerous scenario tabs on a spreadsheet.
Remember that just because you withdraw money from tax-deferred accounts, whether SEPPs or RMDs, you are not required to spend any of your withdrawals. If I were setting up SEPPs, I would gravitate (apart from tax issues) toward the method that will allow for the largest withdrawals. Unneeded money can be reinvested in a taxable account.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Sasquatch
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by Sasquatch » Thu Aug 30, 2018 6:25 pm

willthrill81 wrote:
Thu Aug 30, 2018 2:59 pm
Remember that just because you withdraw money from tax-deferred accounts, whether SEPPs or RMDs, you are not required to spend any of your withdrawals. If I were setting up SEPPs, I would gravitate (apart from tax issues) toward the method that will allow for the largest withdrawals. Unneeded money can be reinvested in a taxable account.
Could you expound please. Why not let the balance grow tax deferred?

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Re: Early retirement and withdrawal strategy for retirement accounts

Post by willthrill81 » Thu Aug 30, 2018 6:44 pm

Sasquatch wrote:
Thu Aug 30, 2018 6:25 pm
willthrill81 wrote:
Thu Aug 30, 2018 2:59 pm
Remember that just because you withdraw money from tax-deferred accounts, whether SEPPs or RMDs, you are not required to spend any of your withdrawals. If I were setting up SEPPs, I would gravitate (apart from tax issues) toward the method that will allow for the largest withdrawals. Unneeded money can be reinvested in a taxable account.
Could you expound please. Why not let the balance grow tax deferred?
If I could be fairly certain that I wouldn't need the largest withdrawals, then I wouldn't take them and would opt for one of the other methods that results in smaller withdrawals. But keep in mind that you can't switch back and forth between the three different IRS-approved methods whenever you want. If my memory is correct, I believe you can only switch methods once. So this is something that you want to get right the first time. I'd rather have a little too much income, losing out on some of the tax-deferred growth but probably not much, than not enough to pay for my needs/wants.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Early retirement and withdrawal strategy for retirement accounts

Post by iceport » Thu Aug 30, 2018 6:58 pm

willthrill81 wrote:
Thu Aug 30, 2018 6:44 pm
Sasquatch wrote:
Thu Aug 30, 2018 6:25 pm
willthrill81 wrote:
Thu Aug 30, 2018 2:59 pm
Remember that just because you withdraw money from tax-deferred accounts, whether SEPPs or RMDs, you are not required to spend any of your withdrawals. If I were setting up SEPPs, I would gravitate (apart from tax issues) toward the method that will allow for the largest withdrawals. Unneeded money can be reinvested in a taxable account.
Could you expound please. Why not let the balance grow tax deferred?
If I could be fairly certain that I wouldn't need the largest withdrawals, then I wouldn't take them and would opt for one of the other methods that results in smaller withdrawals. But keep in mind that you can't switch back and forth between the three different IRS-approved methods whenever you want. If my memory is correct, I believe you can only switch methods once. So this is something that you want to get right the first time. I'd rather have a little too much income, losing out on some of the tax-deferred growth but probably not much, than not enough to pay for my needs/wants.
Could the existence of a substantial taxable account provide a sufficient hedge against potential income shortfalls?
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by willthrill81 » Thu Aug 30, 2018 7:01 pm

iceport wrote:
Thu Aug 30, 2018 6:58 pm
willthrill81 wrote:
Thu Aug 30, 2018 6:44 pm
Sasquatch wrote:
Thu Aug 30, 2018 6:25 pm
willthrill81 wrote:
Thu Aug 30, 2018 2:59 pm
Remember that just because you withdraw money from tax-deferred accounts, whether SEPPs or RMDs, you are not required to spend any of your withdrawals. If I were setting up SEPPs, I would gravitate (apart from tax issues) toward the method that will allow for the largest withdrawals. Unneeded money can be reinvested in a taxable account.
Could you expound please. Why not let the balance grow tax deferred?
If I could be fairly certain that I wouldn't need the largest withdrawals, then I wouldn't take them and would opt for one of the other methods that results in smaller withdrawals. But keep in mind that you can't switch back and forth between the three different IRS-approved methods whenever you want. If my memory is correct, I believe you can only switch methods once. So this is something that you want to get right the first time. I'd rather have a little too much income, losing out on some of the tax-deferred growth but probably not much, than not enough to pay for my needs/wants.
Could the existence of a substantial taxable account provide a sufficient hedge against potential income shortfalls?
Absolutely. It could also be a hedge against potentially rising income tax rates.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Sasquatch
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by Sasquatch » Thu Aug 30, 2018 7:15 pm

Another angle is to split your lump balance into say, 3 individual IRAs. Use 2 to achieve the withdrawl you desire. One with the bulk of the withdrawl and the second a lesser amount. If down the road the circumstances change you could "turn off" the smaller of the two active 72t accounts and pay the taxes / the 10% penalty+interest. Or, if the two accounts are not supplying enough you could "turn on" the third IRA. In our case my wife has a 401k as well. That could be turned on as well. We will likely keep that in the 401k for ERISA protection. Four 72t accounts at the same time would be a bookeeping nighmare with a high probability for error IMHO.

"turning off" would be unlikely. Instead, as you suggest, reinvesting in a Roth or taxable account would be preferrable. Also a one time change from amortization or annuitization to RMD is a allowance the IRS makes. It's impossible to forsee ten years down the line. All you can do is really think the plan through. Potentially problematic is the fact that the withdrawls are a fixed amount for the duration with no COL factored in.

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Re: Early retirement and withdrawal strategy for retirement accounts

Post by Sasquatch » Thu Aug 30, 2018 7:23 pm

iceport wrote:
Thu Aug 30, 2018 6:58 pm
Could the existence of a substantial taxable account provide a sufficient hedge against potential income shortfalls?
Excellent point. Thats a angle I need to put more thought into.

Right now my budget keeps me under the ACA cliff so I could potentially save $917 / mo. If that goes away, running the withdrawl somewhere into the 22% bracket may make sense.

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Re: Early retirement and withdrawal strategy for retirement accounts

Post by rkhusky » Thu Aug 30, 2018 7:32 pm

iceport wrote:
Thu Aug 30, 2018 6:58 pm
Could the existence of a substantial taxable account provide a sufficient hedge against potential income shortfalls?
It depends. If the taxable account is large enough, you don't need to do 72t. If you are counting on using up the taxable account and using the 72t to fill the shortfall, then you are still at risk of a shortfall unless the taxable account and 72t account are both invested in safe investments.

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Re: Early retirement and withdrawal strategy for retirement accounts

Post by sailaway » Thu Aug 30, 2018 7:47 pm

rkhusky wrote:
Thu Aug 30, 2018 7:32 pm
iceport wrote:
Thu Aug 30, 2018 6:58 pm
Could the existence of a substantial taxable account provide a sufficient hedge against potential income shortfalls?
It depends. If the taxable account is large enough, you don't need to do 72t. If you are counting on using up the taxable account and using the 72t to fill the shortfall, then you are still at risk of a shortfall unless the taxable account and 72t account are both invested in safe investments.
I thought we were discussing taking the excess of 72t and putting it into taxable, rather than spending down taxable.

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Re: Early retirement and withdrawal strategy for retirement accounts

Post by willthrill81 » Thu Aug 30, 2018 8:26 pm

rkhusky wrote:
Thu Aug 30, 2018 7:32 pm
iceport wrote:
Thu Aug 30, 2018 6:58 pm
Could the existence of a substantial taxable account provide a sufficient hedge against potential income shortfalls?
It depends. If the taxable account is large enough, you don't need to do 72t.
If the OP has enough taxable assets or other means to 'get by' for five years, he could start a Roth conversion ladder as well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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2tall4economy
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by 2tall4economy » Fri Aug 31, 2018 12:24 pm

willthrill81 wrote:
Thu Aug 30, 2018 8:26 pm
rkhusky wrote:
Thu Aug 30, 2018 7:32 pm
iceport wrote:
Thu Aug 30, 2018 6:58 pm
Could the existence of a substantial taxable account provide a sufficient hedge against potential income shortfalls?
It depends. If the taxable account is large enough, you don't need to do 72t.
If the OP has enough taxable assets or other means to 'get by' for five years, he could start a Roth conversion ladder as well.
When I retire, I expect to have approx $3.5m, $1.5m tax deferred of which $200k or so is Roth. The other $2.0m is rental property. Recent death knells nothwithstanding I plan to exit my real estate completely before checking out of the workforce and convert it to a paid off mortgage and a modest taxable account balance.

I currently burn $160/yr excluding major capital purchases (cars, house, solar panels, tuition, furniture, boat, etc) which are fairly rare. Half of that is property taxes, home / appliance repairs, and mortgage interest. Yes I realize that’s not very moustachian but obviously its worked for us given early retirement coming soon. The problem of course is 160k for 15 years is 2.4m vs the 2.0m (not including kids college tuition in there too). My math says 72t closes the gap and funds the capital purchases I plan on but a Roth requires that I defer until later, which isn’t something I’d like to do if the on consequence is an inflexible drawdown on a portion of my assets.

It really comes down to the most tax efficient for my situation, given that I do plan to have a zero balance for retirement at 95. If I make it that far I’ll worry about the details then.
You can do anything you want in life. The rub is that there are consequences.

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Re: Early retirement and withdrawal strategy for retirement accounts

Post by KlangFool » Fri Aug 31, 2018 12:40 pm

2tall4economy wrote:
Fri Aug 31, 2018 12:24 pm
willthrill81 wrote:
Thu Aug 30, 2018 8:26 pm
rkhusky wrote:
Thu Aug 30, 2018 7:32 pm
iceport wrote:
Thu Aug 30, 2018 6:58 pm
Could the existence of a substantial taxable account provide a sufficient hedge against potential income shortfalls?
It depends. If the taxable account is large enough, you don't need to do 72t.
If the OP has enough taxable assets or other means to 'get by' for five years, he could start a Roth conversion ladder as well.
When I retire, I expect to have approx $3.5m, $1.5m tax deferred of which $200k or so is Roth. The other $2.0m is rental property. Recent death knells nothwithstanding I plan to exit my real estate completely before checking out of the workforce and convert it to a paid off mortgage and a modest taxable account balance.

I currently burn $160/yr excluding major capital purchases (cars, house, solar panels, tuition, furniture, boat, etc) which are fairly rare. Half of that is property taxes, home / appliance repairs, and mortgage interest. Yes I realize that’s not very moustachian but obviously its worked for us given early retirement coming soon. The problem of course is 160k for 15 years is 2.4m vs the 2.0m (not including kids college tuition in there too). My math says 72t closes the gap and funds the capital purchases I plan on but a Roth requires that I defer until later, which isn’t something I’d like to do if the on consequence is an inflexible drawdown on a portion of my assets.

It really comes down to the most tax efficient for my situation, given that I do plan to have a zero balance for retirement at 95. If I make it that far I’ll worry about the details then.
2tall4economy,

Pardon my ignorance. There are 2 separate questions here:

A) Do you have enough money to early retire?

B) How do you withdraw your money for early retirement?

1) For (A), if you only have 2 million to cover your annual expense, depending on your annual expense and college funding, you may not have the money to early retire. How much is your annual expense after paying off the mortgage?

2) Whether you could use Roth conversion to fund your withdrawal is highly dependent on your annual expense in relation to your taxable account too.

3) It might be counter-intuitive. In your case, it may make sense not to pay off the mortgage totally. You may need the liquidity in the taxable account to bridge the gap of Roth conversion.

KlangFool

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corn18
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by corn18 » Fri Aug 31, 2018 1:15 pm

Maybe i-ORP.com can help you out? I used it for the first time this year and it layed out a a path to get me from 55 to 59.5 without doing 72t and doing tIRA conversions. This resulted in no need for 72t AND no RMDs as I should be able to convert all of my tax advantaged accounts prior to 72. Win Win.
Don't do something, just stand there!

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Re: Early retirement and withdrawal strategy for retirement accounts

Post by bhsince87 » Fri Aug 31, 2018 1:31 pm

Two more questions that must be answered first:

What do you expect your annual expenses to be after you pay off the mortgage and sell the property?

What do you plan to do for health insurance, and what do you expect it to cost?
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Re: Early retirement and withdrawal strategy for retirement accounts

Post by garlandwhizzer » Fri Aug 31, 2018 3:23 pm

A few pieces of advice from one who retired 21 years ago at age 50 and still going strong. A lot of this is tax planning because taxes over a long time frame take a big bite.

1) Get rid of all debt including mortgages. If you currently have an expensive home and a mortgage, sell the house and take the tax free LTCG to purchase with cash a downsized home/condo that will be easier and less expensive to maintain during retirement. This will reduce you need for ongoing income and lower your future tax bracket. Although interest payments for mortgages are tax deductible, your gross income level before deductions is what defines your tax bracket and you want the lowest bracket possible. Mortgages do not provide a free lunch. Debt is a no-no in retirement.

2) Have a personal non-tax deferred account of considerable value split between 2 large holdings, instantly liquid MMF (which produce low levels of taxable income and do not lose principal value) and also TSM which is very tax efficient. TSM produces no STCG and its dividends are essentially 100% qualified and therefore produce no federal tax at all unless your income is greater than about 90K for a married couple. Qualified dividends above that level still receive preferential tax treatment relative to ordinary income. Aim to provide living expenses as much as possible with LTCG rather than ordinary income. Having considerable assets in this account allows you to access money when and if needed and as much as needed without tax consequences for MMF. If you rely on a tax advantaged account for unexpected financial needs, taxes will take a big bite of every dollar you get.

3) Maximize annual capital gains up to the limits in the tax code where they are federally tax free. Offset LTCG and LTCL aiming at the same goal.

4) Early retirement means you're in it for the long haul which means that your portfolio needs to grow. Equity/bond split at least 50/50 up to about 75/25. Don't get seduced by fear of volatility.

5) Make sure you have sufficient assets when you retire. Don't base the timing decision on optimistic projections. Assume a long term return of no more than 3% in inflation adjusted dollars (not nominal returns) and a retirement time period that will last you until you're 95 years old if you're in good health now. If you don't meet these requirements there is significant risk of failure.

6) Do not take more than RMDs from tax advantaged accounts.

7) Consider adding a Roth IRA to your traditional IRA especially if you have a very long time horizon and especially if the market happens to be relatively cheap at the time. One good reason to keep a large wad of cash in personal accounts for compelling opportunities/emergencies when and if they occur.

Good luck,
Garland Whizzer

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Re: Early retirement and withdrawal strategy for retirement accounts

Post by willthrill81 » Fri Aug 31, 2018 3:30 pm

2tall4economy wrote:
Fri Aug 31, 2018 12:24 pm
willthrill81 wrote:
Thu Aug 30, 2018 8:26 pm
rkhusky wrote:
Thu Aug 30, 2018 7:32 pm
iceport wrote:
Thu Aug 30, 2018 6:58 pm
Could the existence of a substantial taxable account provide a sufficient hedge against potential income shortfalls?
It depends. If the taxable account is large enough, you don't need to do 72t.
If the OP has enough taxable assets or other means to 'get by' for five years, he could start a Roth conversion ladder as well.
When I retire, I expect to have approx $3.5m, $1.5m tax deferred of which $200k or so is Roth. The other $2.0m is rental property. Recent death knells nothwithstanding I plan to exit my real estate completely before checking out of the workforce and convert it to a paid off mortgage and a modest taxable account balance.

I currently burn $160/yr excluding major capital purchases (cars, house, solar panels, tuition, furniture, boat, etc) which are fairly rare. Half of that is property taxes, home / appliance repairs, and mortgage interest. Yes I realize that’s not very moustachian but obviously its worked for us given early retirement coming soon. The problem of course is 160k for 15 years is 2.4m vs the 2.0m (not including kids college tuition in there too). My math says 72t closes the gap and funds the capital purchases I plan on but a Roth requires that I defer until later, which isn’t something I’d like to do if the on consequence is an inflexible drawdown on a portion of my assets.

It really comes down to the most tax efficient for my situation, given that I do plan to have a zero balance for retirement at 95. If I make it that far I’ll worry about the details then.
How much income does your rental property provide annually? Is your $160k spending calculated before the addition of the rental income? And is the $160k of spending inclusive of all taxes (i.e. do you pay taxes out of that $160k or do you spend $160k after taxes)?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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