Order of retirement assets withdrawal - spouse/mine

[Barkingsparrow]

The plan is to have my wife retire at the end of this year at age 64, and start her SS Jan of 2024. I will continue working until her Medicare eligibility date, about July 2024. At that point, both of us will start Medicare. I will wait until age 70 in 2028 to start my SS and of course, she'll start her spousal benefit.

About 92% of the retirement assets (401K, IRA) we have are under my name. So would it make sense to deplete her assets first before we start to withdraw from mine? I figure her assets would carry us through partial 2024/full 2025/partial 2026; meaning I will probably need only nearly 2 full years of withdrawals from my assets before my SS kicks in. Our combined SS will cover about 80% of our expenses, and we'll need only about 2% withdrawal rate from the remaining retirement assets.

We both currently have a 401K, Trad IRA, and Roth IRA; no taxable accounts.

[David Jay]

His and hers make little difference.

We treat our decisions on the type of accounts (tax-deferred, taxable and Roth) rather than by the ownership. This allows us to make certain we are being tax-efficient, see the Wiki here: https://www.bogleheads.org/wiki/Tax_eff ... _placement

[Jack FFR1846]

I would think you'd want to drain down your 401k/IRA type accounts first to reduce what's there for when you hit 72 and have to take RMDs. This assumes you can remove them at a lower tax rate.

[mhalley]

It doesn’t matter the order, but it would lead to more simplicity if you depleted spousal ira first. But it doesn’t matter in the long run.

[Barkingsparrow]

I would think you'd want to drain down your 401k/IRA type accounts first to reduce what's there for when you hit 72 and have to take RMDs. This assumes you can remove them at a lower tax rate.

I think it will be 73 by the time I retire. I ran some RMD estimates and yes, I need to get it down about by 35% from the current balance to avoid taking too much out.

[celia]

Psychologically, it would feel weird to me to have all the assets in one person’s name when both of you worked. I wouldn’t touch hers at all, unless it was her idea.


Have you started Roth conversions yet? If you have over a million in tax-deferred, I strongly suggest you project your future RMDs based on what your age 75 tax-deferred balance is projected to be. After you turn 70 and both are taking SS, you won’t have as much room in your retirement tax brackets for Roth conversions.

There are even scenarios where it might be better if you retire now so you can start converting. Meanwhile, you can get health insurance from the ACA. But you haven’t given us anywhere enough information to determine it. (You didn’t even tell us your current ages so we have to look ahead to your Medicare starts and assume you are turning 65 and subtract some years.)

[vested1]

We were in much the same position when we retired and began our delay of SS. I had a much larger IRA because I took a lump sum and combined it with my 401k into an IRA. My wife took a 100% survivor pension and has a relatively small IRA. She filed for SS at 65 and I delayed until age 70 in July of 2022. My wife was disinterested in which account the money came from so I kept the relative percentages about the same as when we retired 7 years ago in case she ever wondered why her account had gotten so low as compared to mine. That was just me being me though, as she doesn't really care.

You didn't mention what your cash positions were in your IRA's, but if they are small, I would consider directing dividends into a high yield money market within your traditional IRA's, or transfer them to the MM after they settle, in order to avoid selling equities during your delay. When your cash cushion is sufficient you can redirect future dividends to reinvest. This is especially attractive right now with high interest rates. I would avoid withdrawing from the Roth in order to benefit from future tax free gains.

Celia is a great source for advice on converting traditional savings in IRA's or 401k's to Roth. I wish I had heeded her council on that subject more religiously.

[Marseille07]

Psychologically, it would feel weird to me to have all the assets in one person’s name when both of you worked. I wouldn’t touch hers at all, unless it was her idea.

Not sure why you think it feels weird. Isn't it how their income & investment growth ended up, without any fault on either party? "Both of you worked" doesn't at all indicate they earned the same amount or their asset allocations were similar.

[OhBoyUhoh]

(You didn’t even tell us your current ages so we have to look ahead to your Medicare starts and assume you are turning 65 and subtract some years.)

She's 63 and he's 62. OP had just enough info to determine this.

Cheers

[teen persuasion]

How does your state tax withdrawals?

NY exempts the first $20k of tIRA/etc withdrawals individually from taxation, plus the standard deduction, but I can't transfer my exemption to my DH. So if we both have balances to draw, we get $20k + $20k + $16k = $56k tax free, but only $36k if one spouse's accounts are depleted early.

We are Roth converting DH's larger accounts before touching mine, and I'm still contributing to my much smaller account to build it up. I only got access to an employer account a few years ago.

[Barkingsparrow]

OK - some good points here.

I'm 64 - turning 65 this year.
She is 63 turning 64 this year.

The plan is to have her retire first at the end of this year as her health is slowly declining , her job is very tedious, and frankly she is wearing out. The #1 goal is to get her to Medicare. She was fine until maybe late last year but has hit the wall. My state does fully tax retirement withdrawals but not social security.

At age 70 when I start my SS - our combined estimate as of now (based on Open Social Security) will be around $72,000, which will cover about 75 to 80% of our estimated expenses. I don't have cash in any retirement account, except for my 401K at work, and I have been planning to use that cash account for our withdrawals from my retirement date until age 70.

The more I think on it the more that - yes - as having the much bigger account, it would be better to leave hers alone and focus on avoiding major RMD withdrawals from mine.

[OhBoyUhoh]

OK - some good points here.

I'm 64 - turning 65 this year.
She is 63 turning 64 this year.

I was pretty close!

[You Know What I Mean]

OK - some good points here.
The more I think on it the more that - yes - as having the much bigger account, it would be better to leave hers alone and focus on avoiding major RMD withdrawals from mine.

Did you consider teen persuasion's helpful advice? Or does your state not provide any deduction (perhaps $10K or $20K per individual)? I guess not, if your state "fully taxes" retirement income.

[Barkingsparrow]

OK - some good points here.
The more I think on it the more that - yes - as having the much bigger account, it would be better to leave hers alone and focus on avoiding major RMD withdrawals from mine.

Did you consider teen persuasion's helpful advice? Or does your state not provide any deduction (perhaps $10K or $20K per individual)? I guess not, if your state "fully taxes" retirement income.

No deductions unfortunately. Fully taxed.

[You Know What I Mean]

OK - some good points here.
The more I think on it the more that - yes - as having the much bigger account, it would be better to leave hers alone and focus on avoiding major RMD withdrawals from mine.

Did you consider teen persuasion's helpful advice? Or does your state not provide any deduction (perhaps $10K or $20K per individual)? I guess not, if your state "fully taxes" retirement income.

No deductions unfortunately. Fully taxed.

Bummer!

[sport]

The plan is to have her retire first at the end of this year as her health is slowly declining , her job is very tedious, and frankly she is wearing out.

Perhaps she should retire now. It's not worth risking one's health and wellbeing. A year is a long time under those conditions.

[Barkingsparrow]

The plan is to have her retire first at the end of this year as her health is slowly declining , her job is very tedious, and frankly she is wearing out.

Perhaps she should retire now. It's not worth risking one's health and wellbeing. A year is a long time under those conditions.

Yep - we actually discussed that. But she wants to finish out the year and the fact that she now sees retirement on the horizon for real has really lifted her spirits - like a weight has been lifted off her shoulders. She is already starting to make plans for what comes next.

[You Know What I Mean]

The plan is to have her retire first at the end of this year as her health is slowly declining , her job is very tedious, and frankly she is wearing out.

Perhaps she should retire now. It's not worth risking one's health and wellbeing. A year is a long time under those conditions.

Yep - we actually discussed that. But she wants to finish out the year and the fact that she now sees retirement on the horizon for real has really lifted her spirits - like a weight has been lifted off her shoulders. She is already starting to make plans for what comes next.

Great plan! Great attitude! It is so important that the plan lifted her spirits.