Retirement Strategic Planning Sanity Check

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desertbandit442
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Retirement Strategic Planning Sanity Check

Post by desertbandit442 » Mon Feb 20, 2012 9:53 am

I have developed my Retirement Strategic Plan as I am 59 years old and married. I have military retirement pension pay, which I am receiving and we are living on now. We don't need social security to live on, so my plan is to wait until age 70 to take social security income (SSI), if my health remains good. This will allow my SSI to grow around 8 percent a year between ages 66 and 70. This will also allow my wife to receive maximum SS benefits if I should pass. I realize that my wife can only receive 100% of my SSI at my retirement age of 66, so if I develop terminal health issues I would start taking SSI at age 66--there would be no use for me to wait til age 70 then.

My main planning issue is how to handle my Traditional IRA. Essentially my income will double at age 70 with the SSI scenario I am thinking about. (I also have a Roth IRA that I don't need to use and I will just let my wife roll that over into a spousal IRA.) I don't need the money out of the Traditional IRA, but I will have to start taking the required minimum distribution at age 70 1/2. Right now I can only see income taxes increasing over the next 10-15 years, so if I wait until age 70 1/2 to take traditional IRA distributions I will be paying more tax on those distributions, especially with my retirement income doubling at age 70.

My lowest taxable income years will be between ages 60-70; therefore, I am thinking I should take my traditional IRA total and divide that total by 10--taking those payments each year to deplete my traditional IRA by the time I reach age 70. I can reinvest those IRA payments in Vanguard index funds.

I know there are all kinds of what ifs, but all that I can really plan on is what I know of the financial world today. Our house is payed off and we have no other outstanding debts. We also have investments in Vanguard index funds outside of IRAs, so my wife doesn't really need to rely on my traditional IRA for living.

I am throwing this plan out there to see what the fallacies are in my thinking/planning for retirement :?:

Muchtolearn
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Re: Retirement Strategic Planning Sanity Check

Post by Muchtolearn » Mon Feb 20, 2012 3:02 pm

OP, it seems as though you are evaluating all choices and will eventually make the right one. One area that I think is missing in your analysis is that your wife can die before you. Does she have no earnings, pension or assets? Did she ever work?

earlyout
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Re: Retirement Strategic Planning Sanity Check

Post by earlyout » Mon Feb 20, 2012 4:45 pm

desertbandit442 wrote: My lowest taxable income years will be between ages 60-70; therefore, I am thinking I should take my traditional IRA total and divide that total by 10--taking those payments each year to deplete my traditional IRA by the time I reach age 70. I can reinvest those IRA payments in Vanguard index funds.
:?:
It would probably be better to convert the tIRA withdrawals into a Roth IRA. That way you could let the money grow tax free.

EO

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desertbandit442
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Re: Retirement Strategic Planning Sanity Check

Post by desertbandit442 » Mon Feb 20, 2012 5:19 pm

She will not have a lot of SSI on her benefits alone. My wife is three years younger than me, so about the time I get ready to start drawing my increased SSI at age 70, she will be able to draw full SSI benefits at 66 and 4 months. When she hits her full retirement age I'll file and suspend (even though it will be for only 9 months) then she'll be able to draw a higher SSI (1/2 my full benefits) until I start it again at 70. She does have other income from dividends in stock of a family owned company (her side of the family, stock can only transfer to blood). Her dividends pay out quarterly and the company has been paying steady during the "great recession," but that doesn't mean the company couldn't go under in the future. So we don't have those dividends in our retirement plan and don't use it to live on. She saves most of her dividend money and uses some for "mad" money.

If she were to pass first, I'll be more than ok with my current retirement pension, and then SSI would be for investing and some "mad' money. If she were to pass first, then I would probably take my SSI at 66 and invest that income to pass on to heirs.

My only gray area right now is if I should draw down my Traditional IRA between ages 60-70 to avoid the higher taxes on the the RMD withdrawals if I wait until age 70 1/2 when I have to start withdrawing? I am assuming taxes would be higher on my RMD withdrawals, because at age 70 is when my SSI would kick in also under my current plan.

livesoft
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Re: Retirement Strategic Planning Sanity Check

Post by livesoft » Mon Feb 20, 2012 5:22 pm

Roth conversion of your traditional IRA is something you should be doing already. There does not appear to be any need to simply withdraw it and put it in a taxable account.

Have you tried the calculator at http://www.i-orp.com ? Also be sure to test your tax calculations and conversion amounts with tax software. Do not just wing this. Make some real calculations.

Let me emphasize again: Convert your traditional IRA to a Roth IRA a little bit each year.
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desertbandit442
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Re: Retirement Strategic Planning Sanity Check

Post by desertbandit442 » Mon Feb 20, 2012 5:25 pm

earlyout wrote:
desertbandit442 wrote: My lowest taxable income years will be between ages 60-70; therefore, I am thinking I should take my traditional IRA total and divide that total by 10--taking those payments each year to deplete my traditional IRA by the time I reach age 70. I can reinvest those IRA payments in Vanguard index funds.
:?:
It would probably be better to convert the tIRA withdrawals into a Roth IRA. That way you could let the money grow tax free.

EO
Can I just convert about a tenth of my Traditional IRA money over to a Roth IRA every year between ages 60-70? I'll have to check into that, and if so that would be the rest of my plan--Thanks

livesoft
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Re: Retirement Strategic Planning Sanity Check

Post by livesoft » Mon Feb 20, 2012 5:28 pm

You should not assume that converting a tenth of your traditional IRA every year between the ages of 60 to 70 is the best way to go. It may be that converting a different amount each year is the way to go. You should use tax software to figure out the most you can convert each year and pay (a) no extra taxes and/or (b) pay only 10% extra taxes and/or (c) pay 15% extra taxes, etc. You can compare different ways and amounts of doing the conversion in order to pay the least taxes and have the most money at age 70 and beyond.
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desertbandit442
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Re: Retirement Strategic Planning Sanity Check

Post by desertbandit442 » Mon Feb 20, 2012 5:31 pm

livesoft wrote:Roth conversion of your traditional IRA is something you should be doing already. There does not appear to be any need to simply withdraw it and put it in a taxable account.

Have you tried the calculator at http://www.i-orp.com ? Also be sure to test your tax calculations and conversion amounts with tax software. Do not just wing this. Make some real calculations.

Let me emphasize again: Convert your traditional IRA to a Roth IRA a little bit each year.
I wasn't ready to do the conversion before because of higher income/taxes. My lowest income window will be from age 60-70. I will incorporated the conversion into my plan, converting about 1/10 of traditional IRA over to Roth --Thanks! and I will use the calculator you mentioned.

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desertbandit442
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Re: Retirement Strategic Planning Sanity Check

Post by desertbandit442 » Mon Feb 20, 2012 5:34 pm

livesoft wrote:You should not assume that converting a tenth of your traditional IRA every year between the ages of 60 to 70 is the best way to go. It may be that converting a different amount each year is the way to go. You should use tax software to figure out the most you can convert each year and pay (a) no extra taxes and/or (b) pay only 10% extra taxes and/or (c) pay 15% extra taxes, etc. You can compare different ways and amounts of doing the conversion in order to pay the least taxes and have the most money at age 70 and beyond.
Sounds like a good thing to incorporate into my plan, now that I will be converting the traditional IRA over to a Roth starting at age 60.

livesoft
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Re: Retirement Strategic Planning Sanity Check

Post by livesoft » Mon Feb 20, 2012 5:35 pm

Why not start now? Why wait until age 60?
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Watty
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Re: Retirement Strategic Planning Sanity Check

Post by Watty » Mon Feb 20, 2012 6:00 pm

One thing to remember is that with an IRA to Roth conversion you can recharacterize it and move it back into the IRA anytime up until your filing deadline plus extensions. This means that if you do a conversion in January of 2012 then you can "undo" it up until October of 2013 if you jump though all the right hoops.

You would want to do this if the investment went down in value. For example you converted $10,000 for an IRA to Roth in January then up through October of 2013 if it went down in value to $7,000 then you can avoid paying taxes on the $10,000 conversion by recharacterizeing it back to the IRA. You could then basically then try doing the conversion again later.

This would help you pay less in taxes but you would likely do need more years to convert as much as you want so it would likely be good to start this sooner rather than later.

This is just a quick and dirty overview of it so you would want to research this more to find more details about how this works.

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desertbandit442
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Re: Retirement Strategic Planning Sanity Check

Post by desertbandit442 » Tue Feb 21, 2012 6:37 am

livesoft wrote:Why not start now? Why wait until age 60?
I didn't want to do it for 2011 because the conversion would generate a taxable event and I didn't need any more taxable income showing up for 2011. I will look at it for 2012 as my overall income will be lower and the taxes on the conversion should not be as much. Thanks

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Re: Retirement Strategic Planning Sanity Check

Post by desertbandit442 » Tue Feb 21, 2012 6:42 am

I want to thank everyone for your excellent inputs/suggestions. They will help me finalize the final piece of my Strategic Retirement Plan--dealing with my Traditional IRA assets. I will be looking at Traditional to Roth conversion information and tax implications the rest of the week so I can start the conversion process this year.:sharebeer

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