Planning to retire in 2 yrs. and looking for any advice on current plan

[afr]

Hi all,
I've posted in the past and am looking for an honest appraisal of our current situation. We had a very late start to investing. We're both planning to retire in 2 more yrs. due to my extenuating circumstances that I'd prefer not to discuss. We own our home and 2 cars and have no other debt.
Me-64(65 this May)
spouse-60(62 Jan. '27)
INCOME
Me-181k(decreasing 10-15k/yr for the past several yrs.-part of the extenuating circumstances)
DW-36k
ESTIMATED Soc. Sec. when I take at 67-$3617, spouse at 62-$1809

EXPENSES-$5050/mo(incl. my soon to be Medicare and wife's medical premiums)

INVESTMENTS(current est. $1,274k)
Me-401k(no employer match)-
Vanguard 500-463k
American Funds US Gov't. R6-264k

Me-Roth IRA-Vanguard Total St. Mkt.-120k

DW-tIRA-Vanguard Life Strategy Moderate Growth-162k
Roth IRA-Vanguard Total Stock Mkt-28k

Joint taxable(236k)
Vanguard Fed Money Mkt(settlement/emergency fund)-41k
Total Stock Mkt.-161k
Total Int'l.-12k
Vanguard Health Care fund-12k
Vanguard Extended Mkt-9k

Currently maxing out my 401k and contributing to VFMXX(Vanguard money market). Any further suggestions would be greatly appreciated.
Thank You

[Raspberry-503]

Are the expenses after tax? Your SS security roughly matches your expenses, so are you confident you can live on that forever?

If so then your portfolio is for... what? nice trips? legacy? house repair? long-term care? I think it's important to understand that. It looks like before we can advise on whether the portfolio will meet its goal. You are 100% equity, If we experience a cyclical market crash you are highly exposed to sequence of returns risk if you indeed need to draw from the portfolio at the wrong time, but if it's something you control (don't take that trip or buy that car) then maybe it's OK?

[DIYtrixie]

Hi all,
I've posted in the past and am looking for an honest appraisal of our current situation. We had a very late start to investing. We're both planning to retire in 2 more yrs. due to my extenuating circumstances that I'd prefer not to discuss. We own our home and 2 cars and have no other debt.
Me-64(65 this May)
spouse-60(62 Jan. '27)
INCOME
Me-181k(decreasing 10-15k/yr for the past several yrs.-part of the extenuating circumstances)
DW-36k
ESTIMATED Soc. Sec. when I take at 67-$3617, spouse at 62-$1809

EXPENSES-$5050/mo(incl. my soon to be Medicare and wife's medical premiums)

INVESTMENTS(current est. $1,274k)
Me-401k(no employer match)-
Vanguard 500-463k
American Funds US Gov't. R6-264k

Me-Roth IRA-Vanguard Total St. Mkt.-120k

DW-tIRA-Vanguard Life Strategy Moderate Growth-162k
Roth IRA-Vanguard Total Stock Mkt-28k

Joint taxable(236k)
Vanguard Fed Money Mkt(settlement/emergency fund)-41k
Total Stock Mkt.-161k
Total Int'l.-12k
Vanguard Health Care fund-12k
Vanguard Extended Mkt-9k

Currently maxing out my 401k and contributing to VFMXX(Vanguard money market). Any further suggestions would be greatly appreciated.
Thank You

If you haven’t already done so, use:
https://opensocialsecurity.com/
to try out various Social Security claiming strategies. There’s a graph at the bottom of the results (scroll down) that can be very helpful.

[dratkinson]

I worry that your expected SS income seems to be close to your expected cost of livings. I'd worry about large one-time expenses (new car, new roof,...).



Idea. When I retired (late start, little saved, small pension), I was in a similar boat and realized I needed another source of income. After a few false starts, I settled on buying bonds in taxable with excess money from pension and withdrawn traditional accounts (withdrawal so I didn't advance tax brackets).

My preferred bond was Vanguard's LT national muni (VWLTX). Why?
--More expected after-tax income in my then 15% fed tax bracket. (Slightly more than expected from TBM.)
--Tax-exempt dividends didn't push me toward next higher tax bracket. (One less thing to worry about.)

Non-Vanguard clients may prefer VTEB.

I watched my spending and rebalanced each month (excess pension, all taxable distro, tax refunds,...) into bonds in a rising market.
Growing bonds meant growing monthly dividends (rebalanced into bonds).

Long story short. After 15yrs of rebalancing into bonds, their dividends covered my modest cost of living.
Since I delayed SS as long as possible, it became gravy.



Idea. You could add bonds to taxable.

While working. You could spend next 2years growing (tax-efficient) bonds in taxable instead of your traditional accounts.

Why? There is a hierarchy of desirability among the account types.
   (least desirable) Traditional accounts -- Taxable accounts -- Roth accounts (most desirable)

Why?
Traditional accounts.
--Pro. Some are tax-deductible. Tax-sheltered growth until withdrawn.
--Con. Contribution limits. Withdrawals (contribution + growth) taxed as ordinary income. RMDs apply.

Taxable.
--Pro. No contribution limits. Tax-sheltered growth until withdrawn. Tax benefits for QDI, LTCG, FTC, TE dividends. No RMDs.
--Con. Contributions are after-tax. Dividends are taxed (choose most tax-efficient funds).

Roth.
--Pro. Tax-free growth and withdrawals. No RMDs.
--Con. Contribution limits. Contributions are after-tax.

Assume your cost of living is $60,600 (=12 x 5050). What bond principal is required to produce enough dividends to cover your cost of living?
--VWLUX SEC yield: 3.83%. See: https://investor.vanguard.com/investmen ... file/vwlux
--VTEB SEC yield: 3.48%. See: https://investor.vanguard.com/investmen ... ofile/vteb
--VMFXX SEC yield: 4.24%. See: https://investor.vanguard.com/investmen ... file/vmfxx

VWLTX. $60,600 / 3.83% = $1.6M. Half this amount, will cover half your cost of livings. A quarter of this amount,....
VTEB. $60,600 / 3.48% = $1.7M. Ditto.
VMFXX. $60,600 / 4.24% = $1.4M. Ditto. BUT! you can't expect yields to continue when yields return to normal!

In retirement. You could convert traditional accounts to tax-efficient bonds in taxable in retirement's lower tax bracket.



Idea. Some BHs recommend an SPIA to offset cost of living, but I know nothing about them so can't advise.



Idea. A neighbor used a reverse mortgage on paid off home (repaid by heirs).



Edit. Clarity.

[afr]

Are the expenses after tax? Your SS security roughly matches your expenses, so are you confident you can live on that forever?

If so then your portfolio is for... what? nice trips? legacy? house repair? long-term care? I think it's important to understand that. It looks like before we can advise on whether the portfolio will meet its goal. You are 100% equity, If we experience a cyclical market crash you are highly exposed to sequence of returns risk if you indeed need to draw from the portfolio at the wrong time, but if it's something you control (don't take that trip or buy that car) then maybe it's OK?

Thanks for your reply. Yes, other than my 401k contributions, the $5050/mo. are all after tax expenses. Wish I had a crystal ball on our expenses, but don't. Our portfolio is for living expenses you mentioned beyond which SS income(after taxes) doesn't cover in a given year. We do live rather frugally. How do you see our portfolio as being 100% equity?

[afr]

I worry that your expected SS income seems to be close to your expected cost of livings. I'd worry about large one-time expenses (new car, new roof,...).



Idea. When I retired (late start, little saved, small pension), I was in a similar boat and realized I needed another source of income. After a few false starts, I settled on buying bonds in taxable with excess money from pension and withdrawn traditional accounts. (Withdraw from traditional so I didn't advance tax brackets.)

My preferred bond was Vanguard's LT national muni (VWLTX). Why?
--More expected after-tax income in my then 15% fed tax bracket. (Slightly more than expected from TBM.)
--Tax-exempt dividends didn't push me toward next higher tax bracket. (One less thing to worry about.)

Non-Vanguard clients may prefer VTEB.

I delayed SS as long as possible and rebalanced each month (excess pension, all taxable distro, tax refunds,...) into bonds in a rising market.
Growing bonds meant growing monthly dividends.

Long story short. After 15yrs of rebalancing into bonds, their dividends covered my modest cost of living. So SS became gravy.



Idea. You could add bonds to taxable.

While working. You could spend next 2years growing bonds in taxable instead of your traditional accounts.

Why? There is a hierarchy of desirability among the account types.
   (least desirable) Traditional accounts -- Taxable accounts -- Roth accounts (most desirable)

Why?
Traditional accounts.
--Pro. Some are tax-deductible.
--Con. Contribution limits. Withdrawals (contribution + growth) taxed as ordinary income. RMDs apply.

Taxable.
--Pro. No contribution limits. Tax-free growth until withdrawn. Tax benefits for QDI, LTCG, FTC, TE dividends. No RMDs.
--Con. Contributions are after-tax.

Roth.
--Pro. Tax-free growth and withdrawals. No RMDs.
--Con. Contribution limits. Contributions are after-tax.

Assume your cost of living is $60,600 (=12 x 5050). What bond principal is required to produce enough dividends to cover your cost of living?
--VWLUX SEC yield: 3.83%. See: https://investor.vanguard.com/investmen ... file/vwlux
--VTEB SEC yield: 3.48%. See: https://investor.vanguard.com/investmen ... ofile/vteb
--VMFXX SEC yield: 4.24%. See: https://investor.vanguard.com/investmen ... file/vmfxx

VWLTX. $60,600 / 3.83% = $1.59M. Half this amount, will cover half your cost of livings. A quarter of this amount,....
VTEB. $60,600 / 3.48% = $1.74M. Ditto.
VMFXX. $60,600 / 4.24% = $1.43M. Ditto. BUT! you can't expect yields to continue when yields return to normal!

In retirement. You could convert traditional accounts to bonds in taxable in retirement's lower tax bracket.



Idea. Some BHs recommend an SPIA to offset cost of living, but I know nothing about them so can't advise.



Idea. A neighbor used a reverse mortgage on paid off home (repaid by heirs).

Thanks for your recommendations. Trust me when I say that I've spent my entire working life(and even prior to that while in school) worrying about money.

[utvolfan]

I realize that SS is just barely covering the normal monthly expenses, but with a $1.2 million dollar portfolio, wouldn't they be able to withdrawal at least $36k (3%) a year to cover lumpy expenses like vacations, home repairs, new vehicles etc? That would be an additional $3k a month, some of it taxable depending on where the w/d was coming from. Is it possible medical expenses, failure of SS to have Colas that actually do keep up with inflation (I realize they probably don't) or something else I am missing that seems to be a major cause of concern for many of the replies? Just trying to learn myself here, as I'm one of the little people too as far as retirement savings goes... no multi-million here

[Jack FFR1846]

I would hold off on social security and let it rise. I use this handy tool to project taxes: https://www.irscalculators.com/tax-calculator

You can do a combination of taxable account sales for long term capital gains and also pre-tax IRA to lower the future RMDs and live on the cash withdrawn and pay zero Federal tax. I'm doing that this year and I'll have several hundred thousand in withdrawn or Roth converted money. The extra beyond living expenses will go towards that Roth conversion or into non-dividend paying BRK/b in my taxable account.

[mhadden1]

I realize that SS is just barely covering the normal monthly expenses, but with a $1.2 million dollar portfolio, wouldn't they be able to withdrawal at least $36k (3%) a year to cover lumpy expenses like vacations, home repairs, new vehicles etc?

That's the way it's supposed to work, and likely will work. Probably there are some optimizations regarding the best safe withdrawal rate, when both partner should take Social Security, the best AA, etc. Thinking things out thoroughly before retiring is definitely the right thing to do.

[Harmanic]

I worry that your expected SS income seems to be close to your expected cost of livings. I'd worry about large one-time expenses (new car, new roof,...).

Some Roth conversions might help with this, since you won't be hit with a massive tax bill if you need money for a large one-time expense, thus keeping tax rates fairly steady throughout retirement.

[SFAtty]

I'm 9 months from retirement rather than 2 years (and a few years younger than you), and a couple of thoughts. First, why do you plan to take social security at 67/62? If you are both in bad health and do not expect to live past, say 80, that's fine. But otherwise, I have to believe that taking it at 70 will be much more favorable. Second, with the expenses you predict, you certainly look to be in generally fine shape. But that monthly number looks to be awfully low, especially in the first 3 years of retirement when you will need health insurance for the younger spouse, and there will be some (hard to predict) expenses that Medicare does not cover. With a house (property taxes and maintenance), two cars (maintenance and gas), and at least some income taxes, your budget looks to cover a pretty spare existence (caveat: I live in an expensive area). So I'd focus on planning carefully for those first three years before Medicare kicks in for your spouse, when your expenses will probably be the highest. Lots of options - one that I've used is to increase over the past 12 months the mix of higher-dividend funds (e.g. VYM) and bond funds (e.g. BND) and also pure "cash" (money market funds - you seem good there). That may not be maximally tax efficient, but it gives me the peace of mind that I can cover things in the first few years without selling anything if I don't want to in the event of a steep downturn early in retirement. Once Medicare kicks in and Social Security is paying out, ie 3 years after retirement, you really can just enjoy it without worries. You seem to have a good nest egg given your expenses, even if your estimate is on the low side, as you can cover a higher budget and it's okay to draw down a little bit in the first few years before government benefits kick in.

[afr]

I'm 9 months from retirement rather than 2 years (and a few years younger than you), and a couple of thoughts. First, why do you plan to take social security at 67/62? If you are both in bad health and do not expect to live past, say 80, that's fine. But otherwise, I have to believe that taking it at 70 will be much more favorable. Second, with the expenses you predict, you certainly look to be in generally fine shape. But that monthly number looks to be awfully low, especially in the first 3 years of retirement when you will need health insurance for the younger spouse, and there will be some (hard to predict) expenses that Medicare does not cover. With a house (property taxes and maintenance), two cars (maintenance and gas), and at least some income taxes, your budget looks to cover a pretty spare existence (caveat: I live in an expensive area). So I'd focus on planning carefully for those first three years before Medicare kicks in for your spouse, when your expenses will probably be the highest. Lots of options - one that I've used is to increase over the past 12 months the mix of higher-dividend funds (e.g. VYM) and bond funds (e.g. BND) and also pure "cash" (money market funds - you seem good there). That may not be maximally tax efficient, but it gives me the peace of mind that I can cover things in the first few years without selling anything if I don't want to in the event of a steep downturn early in retirement. Once Medicare kicks in and Social Security is paying out, ie 3 years after retirement, you really can just enjoy it without worries. You seem to have a good nest egg given your expenses, even if your estimate is on the low side, as you can cover a higher budget and it's okay to draw down a little bit in the first few years before government benefits kick in.

Thanks for the advice. I'm in relatively good health but DW has HBP and type 2 diabetes. I'm figuring we both have a life expectancy of 80-85 yrs. That monthly expense amount of $5050 does include my Medicare and DW's premium, property and school taxes/homeowners ins.(I did not incl.home maint)and gas for cars(maintenance not incl). My DW doesn't really wish to wait until I turn 70 to take SS. She really just wants me to take it at 67 when I call it quits with work(and she will be 62, take SS and call it quits).

[dratkinson]

Me-64(65 this May)
spouse-60(62 Jan. '27)
INCOME
Me-181k
DW-36k
ESTIMATED Soc. Sec. when I take at 67-$3617, spouse at 62-$1809

Curious.  Her benefit is a spousal benefit based on your income history?  I ask because with the income disparity, her benefit is ~half yours.



Idea.  Pinch pennies to save tax dollars.

You could review your Sch B for opportunities to increase tax efficiency.
--Sch B part 1.  Things (interest: bank, savings bonds, account opening bonuses) reported here are taxed as ordinary income: reduce or eliminate.
--Sch B part 2.  Things reported here (investment dividends) should have offsetting benefits for: QDI, LTCG, FTC, or tax-exempt dividends.

You could compute the QDI percentages for your taxable investments: QDI% = 1099DIV box 1b / 1099DIV box 1a.

I mention this because you have a little bit of HC (VGHCX) in taxable, and it's not generally believed to be tax-efficient.  But this Vanguard document says its dividends were 100% QDI in 2024, its STCG were ~30% QDI.
See Vanguard Qualified Dividend Income by year:  https://investor.vanguard.com/investor- ... &year=2024

The taxable investments you decide not to keep could be rolled into munis to grow that dividend income stream.  Or VMFXX if you prefer.  But taxable dividends can increase your tax bracket, hence the suggestion to consider munis.

N.B.  Muni dividends DO affect SS MAGI for taxation.  But since SS MAGI is based on actual dollars (not taxable-equivalent dollars), and since muni dividends are less than taxable alternatives, they should affect SS taxation less.

Bottom line.  If muni dividends don't advance your tax bracket and give you more after tax then taxable alternatives, then don't sweat the small stuff.



Idea.  To avoid FOMO (fear of missing out), can use cashback CC to boost return on 1st-tier EFs in low-interest accounts.  How?

Use trusted* creditors' ABP (automatic bill payment) plans and cashback CC.  (* They don't mess up your bills in their favor.)
--Set up creditors' ABP plans to be paid by cashback CC where you can, and from checking where you must.
--Set up CC ABP to be paid from checking.
--Keep 2mos of living expenses in checking to ensure ABP runs smoothly.
   Creditors' bills (ABP) --> cashback CC (ABP) --> ~0% checking.
--CC cashback is tax-free since it's considered to be a price reduction, not income (no 1099).
--Worse case.  Your bills run on autopilot so you don't need to worry about them until next month's statements' reconciliations and rebalancing.
--Best case.  Your EFs in low-interest bank* accounts get a tax-free boost.  

* The ABP-CC math doesn't care where you keep your 1st-tier EFs. If you run 1yr of living expense through creditors' ABP plans and they are paid by cashback CC, they you earn the cashback on the whole year of EFs.

Example.
If you have $12K in 1st-tier EF and your cost of living is $1K/mo (paid by ABP-CC).
A 2% CC will pay you $20/mo (= $1K x 2%), so $240/yr.
Which mean you are earning +2% (=$240/$12K) on your 1st-tier EFs.
You may have $2K in 0% checking so ABP runs smoothly, but the rest can be in HY savings or mmkt.
You are earning CC cashback on everything that runs through checking (1yr of living expenses), not its $2K monthly balance.
The ABP-CC math doesn't care where you keep your 1st-tier EFs, so it's okay to keep 2+ months in checking if that's more comforting and you avoid FOMO.

[afr]

Me-64(65 this May)
spouse-60(62 Jan. '27)
INCOME
Me-181k
DW-36k
ESTIMATED Soc. Sec. when I take at 67-$3617, spouse at 62-$1809

Curious.  Her benefit is a spousal benefit based on your income history?  I ask because with the income disparity, her benefit is ~half yours.



Idea.  Pinch pennies to save tax dollars.

You could review your Sch B for opportunities to increase tax efficiency.
--Sch B part 1.  Things (interest: bank, savings bonds, account opening bonuses) reported here are taxed as ordinary income: reduce or eliminate.
--Sch B part 2.  Things reported here (investment dividends) should have offsetting benefits for: QDI, LTCG, FTC, or tax-exempt dividends.

You could compute the QDI percentages for your taxable investments: QDI% = 1099DIV box 1b / 1099DIV box 1a.

I mention this because you have a little bit of HC (VGHCX) in taxable, and it's not generally believed to be tax-efficient.  But this Vanguard document says its dividends were 100% QDI in 2024, its STCG were ~30% QDI.
See Vanguard Qualified Dividend Income by year:  https://investor.vanguard.com/investor- ... &year=2024

The taxable investments you decide not to keep could be rolled into munis to grow that dividend income stream.  Or VMFXX if you prefer.  But taxable dividends can increase your tax bracket, hence the suggestion to consider munis.

N.B.  Muni dividends DO affect SS MAGI for taxation.  But since SS MAGI is based on actual dollars (not taxable-equivalent dollars), and since muni dividends are less than taxable alternatives, they should affect SS taxation less.

Bottom line.  If muni dividends don't advance your tax bracket and give you more after tax then taxable alternatives, then don't sweat the small stuff.



Idea.  To avoid FOMO (fear of missing out), can use cashback CC to boost return on 1st-tier EFs in low-interest accounts.  How?

Use trusted* creditors' ABP (automatic bill payment) plans and cashback CC.  (* They don't mess up your bills in their favor.)
--Set up creditors' ABP plans to be paid by cashback CC where you can, and from checking where you must.
--Set up CC ABP to be paid from checking.
--Keep 2mos of living expenses in checking to ensure ABP runs smoothly.
   Creditors' bills (ABP) --> cashback CC (ABP) --> ~0% checking.
--CC cashback is tax-free since it's considered to be a price reduction, not income (no 1099).
--Worse case.  Your bills run on autopilot so you don't need to worry about them until next month's statements' reconciliations and rebalancing.
--Best case.  Your EFs in low-interest bank* accounts get a tax-free boost.  

* The ABP-CC math doesn't care where you keep your 1st-tier EFs. If you run 1yr of living expense through creditors' ABP plans and they are paid by cashback CC, they you earn the cashback on the whole year of EFs.

Example.
If you have $12K in 1st-tier EF and your cost of living is $1K/mo (paid by ABP-CC).
A 2% CC will pay you $20/mo (= $1K x 2%), so $240/yr.
Which mean you are earning +2% (=$240/$12K) on your 1st-tier EFs.
You may have $2K in 0% checking so ABP runs smoothly, but the rest can be in HY savings or mmkt.
You are earning CC cashback on everything that runs through checking (1yr of living expenses), not its $2K monthly balance.
The ABP-CC math doesn't care where you keep your 1st-tier EFs, so it's okay to keep 2+ months in checking if that's more comforting and you avoid FOMO.

I sincerely appreciate your feedback and will l look into your suggestions further when time allows. And yes, my DW’s SS benefit is based on my being the higher earner over the years.

[delamer]

I worry that your expected SS income seems to be close to your expected cost of livings. I'd worry about large one-time expenses (new car, new roof,...).

Just the opposite. If retirees can cover their core expenses with annuitized income (like SS and pensions), that’s an excellent position to be in.

Their portfolio can be used for lumpy expenses, discretionary wants, and possibly future long-term care.

And the unfortunate, but likely, situation where one spouse predeceases the other and the survivor need to start drawing down the portfolio for core expenses.

There are no problems with the portfolio as is. Maybe get rid of the 3 smaller funds in the taxable account because they are too small to affect overall return.

[afr]

I worry that your expected SS income seems to be close to your expected cost of livings. I'd worry about large one-time expenses (new car, new roof,...).

Just the opposite. If retirees can cover their core expenses with annuitized income (like SS and pensions), that’s an excellent position to be in.

Their portfolio can be used for lumpy expenses, discretionary wants, and possibly future long-term care.

And the unfortunate, but likely, situation where one spouse predeceases the other and the survivor need to start drawing down the portfolio for core expenses.

There are no problems with the portfolio as is. Maybe get rid of the 3 smaller funds in the taxable account because they are too small to affect overall return.

I’ve actually thought about getting rid of int’l , health care and extended market in our joint taxable. I was just afraid of taking a tax hit by selling the funds and moving the proceeds to the total stock fund.

[delamer]

Just the opposite. If retirees can cover their core expenses with annuitized income (like SS and pensions), that’s an excellent position to be in.

Their portfolio can be used for lumpy expenses, discretionary wants, and possibly future long-term care.

And the unfortunate, but likely, situation where one spouse predeceases the other and the survivor need to start drawing down the portfolio for core expenses.

There are no problems with the portfolio as is. Maybe get rid of the 3 smaller funds in the taxable account because they are too small to affect overall return.

I’ve actually thought about getting rid of int’l , health care and extended market in our joint taxable. I was just afraid of taking a tax hit by selling the funds and moving the proceeds to the total stock fund.

I don’t know anything about recent relative returns by sector, but you would probably be selling low and buying low.

And you can deduct losses, if any, from your taxes.

[ER_LatePlanner]

I realize that SS is just barely covering the normal monthly expenses, but with a $1.2 million dollar portfolio, wouldn't they be able to withdrawal at least $36k (3%) a year to cover lumpy expenses like vacations, home repairs, new vehicles etc? That would be an additional $3k a month, some of it taxable depending on where the w/d was coming from. Is it possible medical expenses, failure of SS to have Colas that actually do keep up with inflation (I realize they probably don't) or something else I am missing that seems to be a major cause of concern for many of the replies? Just trying to learn myself here, as I'm one of the little people too as far as retirement savings goes... no multi-million here

I also feel like I'm in the "little people" camp around here, though that takes nothing away from the helpful info and advice I've gotten.

Some perspective to the OP. I'm trying to retire this spring. Ideally I'll work part-time for another year or so, but that isn't totally up to me. Going into it:

- we've never had as much income as you
- we'll start with lower investment assets than you
- we'll be spending down our nest egg for 8-10 years before Soc Sec rather than 2.
- our expected Soc Sec will be a little lower than yours
- our monthly spending is higher than yours

In your position, I'd have retired a few years ago. Food for thought.

[DocH]

If spouse collects spousal benefit at less than full retirement age I don’t think will be half of yours. Should look at that. Despite that SS should still cover majority of expenses. Would recommend asset allocation 70 to 50 percent stocks, start of withdrawing 3% and adjust from there. As far as immediate advice would fund Roth IRAs

[afr]

If spouse collects spousal benefit at less than full retirement age I don’t think will be half of yours. Should look at that. Despite that SS should still cover majority of expenses. Would recommend asset allocation 70 to 50 percent stocks, start of withdrawing 3% and adjust from there. As far as immediate advice would fund Roth IRAs

I did check the numbers on the SS website. My current AA is 65/35. Held in Govt securities in my 401k and bonds in my DW’s tIRA account

[dratkinson]

Idea.  During a market crash: stocks can lose 50-90%, bonds can lose 5-15%.  Because of this...

Recall some retirees report keeping at least 5yrs of living expenses in cash equivalents (savings, inflation-indexed 5yr CD ladder, savings bonds, bonds,...) to avoid the Sequence of Returns Risk (SoRR): being forced to sell stocks during a down market to pay for retirement living expenses.  How?  Since most crashes recover within ~4yrs, having ~5yrs in cash equivalents should avoid SoRR.  So you can delay selling stocks until after the market recovers.

Where's this going?  If you don't have 5yrs of living expenses ($303K = 5050 x 12 x 5) in cash equivalents in taxable now, then now would be a good time to work on it.  Meaning, you'd be growing not-stocks (savings, CDs, VMFXX, bonds...).  And if you sell any stocks, then you'd use the proceeds to grow not-stocks.

Meaning you're growing not-stocks in taxable at the expense of making traditional contributions.  But that's okay because taxable investing is more desirable* than traditional (tax-deferred) investing.  (* Avoids tax on all growth as ordinary income.)

Example.  If you're planning to live on withdrawn bonds from traditional/tax-deferred accounts, you'll owe tax as ordinary income on the dividends.  This is expected and no worse than taxable bonds are treated in taxable accounts... hence the suggestion to skew traditional accounts to bonds, and Roth accounts to stocks.

But!  If your bonds are in taxable and are national* munis, then they can be chosen to produce more after-tax income than TBM.  Hence the suggestion to begin growing bonds in taxable vs in traditional, and to use muni bonds vs taxable bonds to save tax dollars.  (* An acceptable single-state muni, if available to you, is triple tax-exempt.)



Idea.  If you're using bonds for your cash equivalents in taxable and worried about the money being there for a planned expense, then can increase their allocation to ~120% (=1/(1-.15)) of intended need and stop worrying.  Why?  Enough money should be there when needed, but maybe with a tax loss/deduction on the sale.



Idea.  50/50 AA.  I'll tell you what I was told.  Older folks need more bonds.  Since you're in your 60s, the conservative advice is to have "age in bonds".  I couldn't take that advice so settled on 50/50... the "I don't know which will do better AA."

Bottom line.
--It is recommended to increase AA to bonds as we age.
--Taxable account tax treatment of dividends is preferable to traditional/tax-deferred account tax treatment of dividends.
--Muni dividends (in taxable) avoid fed (and maybe state/city) income tax.
--Munis can be chosen that can return more after-tax than TBM.

So you could begin loading up on munis in taxable, from now until you take SS.  
--Their dividends will boost your (spendable) monthly income so give you a larger cushion to support monthly spending.  
--Their principle will lessen your SoRR worry about paying for lumpy expenses (new roof,...).

[afr]

Idea.  During a market crash: stocks can lose 50-90%, bonds can lose 5-15%.  Because of this...

Recall some retirees report keeping at least 5yrs of living expenses in cash equivalents (savings, inflation-indexed 5yr CD ladder, savings bonds, bonds,...) to avoid the Sequence of Returns Risk (SoRR): being forced to sell stocks during a down market to pay for retirement living expenses.  How?  Since most crashes recover within ~4yrs, having ~5yrs in cash equivalents should avoid SoRR.  So you can delay selling stocks until after the market recovers.

Where's this going?  If you don't have 5yrs of living expenses ($303K = 5050 x 12 x 5) in cash equivalents in taxable now, then now would be a good time to work on it.  Meaning, you'd be growing not-stocks (savings, CDs, VMFXX, bonds...).  And if you sell and stocks, then you'd use the proceeds to grow not-stocks.

Meaning you're growing not stocks in taxable at the expense of making traditional contributions.  But that's okay because taxable investing is more desirable* than traditional (tax-deferred) investing.  (* Avoids tax on all growth as ordinary income.)



Idea.  If you're using bonds for your cash equivalents and worried about the money being there for a planned expense, then can increase the allocation to ~120% (=1/(1-.15)) of intended need and stop worrying.  Why? Enough money should be there when needed; but maybe with a tax loss on the sale.

dratkinson,
All we are currently contributing to is my 401k and our VMFXX(settlement account in joint taxable) due to its current 7 day yield of 4.24% and not having to be concerned about having any money "locked up" in a CD or bond fund.

[dratkinson]

...
dratkinson,
All we are currently contributing to is my 401k and our VMFXX(settlement account in joint taxable) due to its current 7 day yield of 4.24% and not having to be concerned about having any money "locked up" in a CD or bond fund.

I concede for now:
--VMFXX does appear to be returning more than munis (in my lower 22% fed tax bracket).
--The traditional tax-deductible contribution may be of more benefit.

But when things change:
--Interest rates return to normal.
--You can't get a tax deduction.

Then reconsider my above + second thoughts.  Why?

I was thinking about some retirees worrying about SoRR.  And their reported solution.  For you, the same solution would mean needing ~$300K of cash equivalents in taxable.  And you don't have that now.  So I was thinking that if you started now, you'd get a head start on the process.  That's all.


If you choose to put something in-place after you retire:
--You'll want to withdraw from traditional to take maximum advantage of your then current tax bracket headroom.
--If your then current tax bracket is insufficient to empty traditional before RMDs start, then consider advancing tax brackets to finish the job.
--If you must advance tax brackets to finish the job, then you could live on those withdrawals while delaying SS... which increases SS benefits 8%/yr: win^2.

Excel is your friend.  Some BHs use Excel to simulate retirement years.  Simulation are refined by what's learned (inflation,...) at the end of each real year.
--Simulate each retirement year in Excel (columns).
--Use a different sheet for each simulation (take SS and withdraw/convert traditional*, live on withdrawals while delaying SS,...).
--For each simulation, you'll want to predict tax bracket headroom and account balances (traditional, taxable, Roth).  
   Traditional balance, goal: empty it.
   Taxable balance: assumed to be muni bonds so can predict growing tax-exempt income.
   Roth balance: to bequeath? (Your choice.)

* Simulation#1. Start with your current plan: take SS upon retirement and begin withdrawing/converting traditional.

Simulation#2. Once you get Sim#1 working, then copy it to a new sheet and convert it for the new scenario: living expenses come from traditional withdrawals, SS delayed. (Delaying SS means your have more tax bracket headroom to more quickly draw-down traditional.)

Simulation#3. For Sims#1 and #2, what happens if you differentiate between growing bonds in taxable vs growing your Roth? I think the difference will be: growing taxable bonds will give surviving spouse more after-tax income, but growing Roth would please your heir.


Which simulation appears to give you the best outcome: more after-tax income for surviving spouse at the end of the simulation?*

* Assuming the surviving spouse is your wife, getting her the most after after-tax income, means we need to work on the income pieces: SS (delay for 8%/yr increase seems to be an obvious solution), and bonds expected to produce more dividends than stocks, munis bonds expected to produce more tax-exempt after-tax income than TBM.**

** You can use Excel to simulate growing these pieces, while at the same time drawing down traditional to avoid RMDs. (During years of high growth, you could probably also withdraw from Roth more than expected from bonds... but I don't know how to forecast that in a simulation.)

[afr]

I'm 9 months from retirement rather than 2 years (and a few years younger than you), and a couple of thoughts. First, why do you plan to take social security at 67/62? If you are both in bad health and do not expect to live past, say 80, that's fine. But otherwise, I have to believe that taking it at 70 will be much more favorable. Second, with the expenses you predict, you certainly look to be in generally fine shape. But that monthly number looks to be awfully low, especially in the first 3 years of retirement when you will need health insurance for the younger spouse, and there will be some (hard to predict) expenses that Medicare does not cover. With a house (property taxes and maintenance), two cars (maintenance and gas), and at least some income taxes, your budget looks to cover a pretty spare existence (caveat: I live in an expensive area). So I'd focus on planning carefully for those first three years before Medicare kicks in for your spouse, when your expenses will probably be the highest. Lots of options - one that I've used is to increase over the past 12 months the mix of higher-dividend funds (e.g. VYM) and bond funds (e.g. BND) and also pure "cash" (money market funds - you seem good there). That may not be maximally tax efficient, but it gives me the peace of mind that I can cover things in the first few years without selling anything if I don't want to in the event of a steep downturn early in retirement. Once Medicare kicks in and Social Security is paying out, ie 3 years after retirement, you really can just enjoy it without worries. You seem to have a good nest egg given your expenses, even if your estimate is on the low side, as you can cover a higher budget and it's okay to draw down a little bit in the first few years before government benefits kick in.

SFatty,
I'll most likely outlive my DW(high bp,type2 diabetes and left bundle branch block). My mom passed just shy of her 81st from kidney failure and pancreatic cancer. Dad lived to 94(hx of prostate and bladder cancer). I'm estimating I'll make it to 85 at best, so I’m not sure why I’d wait until 70 to take SS benefit, considering the break even point is 10.4 years.

[afr]

...
dratkinson,
All we are currently contributing to is my 401k and our VMFXX(settlement account in joint taxable) due to its current 7 day yield of 4.24% and not having to be concerned about having any money "locked up" in a CD or bond fund.

I concede for now:
--VMFXX does appear to be returning more than munis (in my lower 22% fed tax bracket).
--The traditional tax-deductible contribution may be of more benefit.

But when things change:
--Interest rates return to normal.
--You can't get a tax deduction.

Then reconsider my above + second thoughts.  Why?

I was thinking about some retirees worrying about SoRR.  And their reported solution.  For you, the same solution would mean needing ~$300K of cash equivalents in taxable.  And you don't have that now.  So I was thinking that if you started now, you'd get a head start on the process.  That's all.


If you choose to put something in-place after you retire:
--You'll want to withdraw from traditional to take maximum advantage of your then current tax bracket headroom.
--If your then current tax bracket is insufficient to empty traditional before RMDs start, then consider advancing tax brackets to finish the job.
--If you must advance tax brackets to finish the job, then you could live on those withdrawals while delaying SS... which increases SS benefits 8%/yr: win^2.

Excel is your friend.  Some BHs use Excel to simulate retirement years.  Simulation are refined by what's learned (inflation,...) at the end of each real year.
--Simulate each retirement year in Excel (columns).
--Use a different sheet for each simulation (take SS and withdraw/convert traditional*, live on withdrawals while delaying SS,...).
--For each simulation, you'll want to predict tax bracket headroom and account balances (traditional, taxable, Roth).  
   Traditional balance, goal: empty it.
   Taxable balance: assumed to be muni bonds so can predict growing tax-exempt income.
   Roth balance: to bequeath? (Your choice.)

* Simulation#1. Start with your current plan: take SS upon retirement and begin withdrawing/converting traditional.

Simulation#2. Once you get Sim#1 working, then copy it to a new sheet and convert it for the new scenario: living expenses come from traditional withdrawals, SS delayed. (Delaying SS means your have more tax bracket headroom to more quickly draw-down traditional.)

Simulation#3. For Sims#1 and #2, what happens if you differentiate between growing bonds in taxable vs growing your Roth? I think the difference will be: growing taxable bonds will give surviving spouse more after-tax income, but growing Roth would please your heir.


Which simulation appears to give you the best outcome: more after-tax income for surviving spouse at the end of the simulation?*

* Assuming the surviving spouse is your wife, getting her the most after after-tax income, means we need to work on the income pieces: SS (delay for 8%/yr increase seems to be an obvious solution), and bonds expected to produce more dividends than stocks, munis bonds expected to produce more tax-exempt after-tax income than TBM.**

** You can use Excel to simulate growing these pieces, while at the same time drawing down traditional to avoid RMDs. (During years of high growth, you could probably also withdraw from Roth more than expected from bonds... but I don't know how to forecast that in a simulation.)

dratkinson,
Thanks for taking the time. Sim #1 is my most likely go-to.

[stan1]

I would not tell your employers or co-workers anything about your plans. Way too early.

[afr]

I would not tell your employers or co-workers anything about your plans. Way too early.

I haven’t.

[afr]

And I suppose FWIW, my DW wife and I will be looking at future inheritances down the road. My FIL(and his DW) are 86 and 88 respectively with a NW of 4-5M(not incl. RE)that will be split 4 ways. My MIL is 84 and has a NW north of 1M(plus RE)that will be split 3 ways. A bit morbid, but reality. And I do realize there will be estate taxes, as my FIL lives in PA and my MIL resides in FL.

[birdbard]

I realize that SS is just barely covering the normal monthly expenses, but with a $1.2 million dollar portfolio, wouldn't they be able to withdrawal at least $36k (3%) a year to cover lumpy expenses like vacations, home repairs, new vehicles etc? That would be an additional $3k a month, some of it taxable depending on where the w/d was coming from. Is it possible medical expenses, failure of SS to have Colas that actually do keep up with inflation (I realize they probably don't) or something else I am missing that seems to be a major cause of concern for many of the replies? Just trying to learn myself here, as I'm one of the little people too as far as retirement savings goes... no multi-million here

I also feel like I'm in the "little people" camp around here, though that takes nothing away from the helpful info and advice I've gotten.

Some perspective to the OP. I'm trying to retire this spring. Ideally I'll work part-time for another year or so, but that isn't totally up to me. Going into it:

- we've never had as much income as you
- we'll start with lower investment assets than you
- we'll be spending down our nest egg for 8-10 years before Soc Sec rather than 2.
- our expected Soc Sec will be a little lower than yours
- our monthly spending is higher than yours

In your position, I'd have retired a few years ago. Food for thought.

I'd like to hear more details on your plans! I have more in savings but a much higher monthly spend than op, I'm still trying to retire soon and learn alot from others details.

I'll be spending alot until soc sec, and worry how much I'll have at 70 particularly if the markets continue to slide and inflation picks up as most seem to expect. Currently at about a 6% withdrawal rate. I'm about 9.5 years to soc sec from here, still working currently. but, kind of done with it in my heart.

[dratkinson]

And I suppose FWIW, my DW wife and I will be looking at future inheritances down the road. My FIL(and his DW) are 84 and 86 respectively with a NW of 4-5M(not incl. RE)that will be split 4 ways. My MIL is 82 and has a NW north of 1M(plus RE)that will be split 3 ways. A bit morbid, but reality. And I do realize there will be estate taxes, as my FIL lives in PA and my MIL resides in FL.

That could change things enough to make most worries moot. Never mind.

[afr]

And I suppose FWIW, my DW wife and I will be looking at future inheritances down the road. My FIL(and his DW) are 84 and 86 respectively with a NW of 4-5M(not incl. RE)that will be split 4 ways. My MIL is 82 and has a NW north of 1M(plus RE)that will be split 3 ways. A bit morbid, but reality. And I do realize there will be estate taxes, as my FIL lives in PA and my MIL resides in FL.

That could change things enough to make most worries moot. Never mind.

I revised the ages of my in-laws per conversation w/DW. Her father is 86( his DW 88) and my MIL is 84.

[dratkinson]

Hmmm.

If you believe you have a high probability of inheriting more ~$200K, then...

Idea#1. You (plural) could delay taking SS until you (he) are age 70 (3yrs = 70 - 67), and live on traditional withdrawals until then.
--The lack of SS benefits (additional tax bracket headroom) will allow you to more quickly draw-down traditional (work toward removing RMDs).
--Your (his) deferring SS benefits will max your SS benefit.
--Ditto her SS benefit.
--The SS benefit cost to you (plural) from delaying those 3years should be ~$182K (=5050x12x3).
--After which your (his) SS benefit should have increased to ~6414/mo (PV:5050 N:3x12 I:8/12 PMT:0 mode/type:0)
--So her SS benefit should be 3207 (=6414/2).
--For a couple's total SS benefit of 9621 (=6414+3207), an increase of 4571 (=9621-5050) over your current expected benefit. Sweet.
--Since SS benefits indexed for inflation, above guesstimates will be low but then purchasing power should be equivalent to today's guesstimates.


Idea#2. And if you DON'T believe you have a chance of inheriting anything... then idea#1 is still a good idea.
--It just seems the only thing required is delayed gratification.
--You've got the money to make it work.
--And all money moved afterwards into taxable (from: traditional, inheritance,...), I recommend moving into cash equivalents (munis are my favorite*) to establish a second income stream to supplement a surviving spouse's. Once your cash equivalents cover your cost of living, then can resume buying stocks for growth.

* Previously mentioned. My belief about munis.
--They can be chosen to produce more expected after-tax income than from TBM.
--Tax exempt. Doesn't add to fed taxable income so doesn't advance tax brackets (national munis). May be triple tax-exempt (single-state munis).
--Muni dollars do affect SS taxation, but less than taxable dollars producing the same after-tax income.
--Worst case. TLH if principal drops enough in value that it annoys you. (I have. The carryover loss and annual tax deductions are okay.)



Edit. Oops (math). Second thoughts.

[afr]

Hmmm.

If you believe you have a high probability of inheriting more ~$200K, then...

Idea#1. You (plural) could delay taking SS until you (he) are age 70 (3yrs = 70 - 67), and live on traditional withdrawals until then.
--The lack of SS benefits (additional tax bracket headroom) will allow you to more quickly draw-down traditional (work toward removing RMDs).
--Your (his) deferring SS benefits will max your SS benefit.
--Ditto her SS benefit.
--The SS benefit cost to you (plural) from delaying those 3years should be ~$182K (=5050x12x3).
--After which your (his) SS benefit should have increased to ~6414/mo (PV:5050 N:3x12 I:8/12 PMT:0 mode/type:0)
--So her SS benefit should be 3207 (=6417/2).
--For a couple's total SS benefit of 9624 (=6417+3207), an increase of 4574 (=9627-5050) over your current expected benefit. Sweet.
--With SS benefits indexed for inflation, the above guesstimates will be low.


Idea#2. And if you DON'T believe you have a chance of inheriting anything... then idea#1 is still a good idea.
--It just seems the only thing required is delayed gratification.
--You've got the money to make it work.
--And all money moved afterwards into taxable (from traditional, from inheritance,...), I recommend moving into cash equivalents (munis are my favorite*) to establish a second income stream to supplement a surviving spouse's.

* Previously mentioned. My belief about munis.
--They can be chosen to produce more expected after-tax income than from TBM.
--Tax exempt. Doesn't add to fed taxable income so doesn't advance tax brackets (national munis). May be triple tax-exempt (single-state munis).
--They do affect SS taxation, but less so than taxable equivalents producing the same after-tax income.

dratkinson,
Much thanks for sharing your thoughts. However, I don’t know when my in-laws will ultimately kick the bucket(my FILis quite ready), it’s gonna take 10.4 years to break even if I take SS at 67 as opposed to 70. If my life expectancy is 85 then why wait?

[FatefulTanker]

... it’s gonna take 10.4 years to break even if I take SS at 67 as opposed to 70. If my life expectancy is 85 then why wait?

Since your wife is younger, her break even age is something like 75-76. Only one of you has to make it 10.4 years to break even. Or at least that is how I think about it.

[dratkinson]

... it’s gonna take 10.4 years to break even if I take SS at 67 as opposed to 70. If my life expectancy is 85 then why wait?

You're not doing this for you, you're doing it for your wife.
--By definition, your (his) situation will always be better than hers, so if you are the surviving spouse, you have less to worry about as you'll only lose 1/3 of the couple's SS benefit.  But if she is the surviving spouse, she'll lose 2/3 of couple's SS benefit.
--So I don't believe break even analysis is in your (plural) best interest.  Instead, I believe setting your wife up for best possible outcome is in your best interest.  And the only way to do that is to set her up to receive the maximum SS benefit possible; and that means you delay SS until age 70.
--I believe she has the option to take her SS benefit at age 62 based on her work history, and switch to a spousal benefit 3yrs later when you take your benefit at age 70.  I believe the spousal benefit remains for her as a surviving spouse.  (You'll need to check on this.)
--That.  And growing a second income stream from bonds (munis) in taxable.  
--Keep funneling new money (traditional withdrawals, inheritance, tax refunds,...) into bonds in taxable until their dividends comfortably cover your cost of living.  At which point, you (plural) can stop worrying as her SS benefit becomes gravy.


You'll need to explain this logic to your wife.  Why?  It's called: "Hope for the best, but plan for the worst."  

The worst, being:
--You do not inherit.
--Your wife becomes a surviving spouse and loses 2/3 of the (his age 67) couple's SS benefit.

The only lever you have with which to move the outcome seems to be you (him) delaying taking SS until age 70.  Why?  It should almost double her otherwise single-spouse SS benefit.

If you are unable to convince her of this course of action, then it becomes more important to develop a second income stream from taxable investments... to offset the 2/3 SS benefit shortfall she'll see as a surviving spouse.



I faced a similar dilemma about when to take SS: ASAP, age 70,....  

I read BH thinking.  I sided with BHs who viewed SS benefit as a LTC (long-term care) annuity that increased in value the longer we delay tapping it.

So my decision.
--I was in reasonable health.
--Didn't need the SS money (had other sources of income).
--After my forum review (switched AA from 90/10 to 50/50), I noticed my bonds were slowly growing as another source of income.  Sweet.
--But taxable bond dividends were pushing me toward next tax bracket.  What to do?  So created multiple sample tax returns and learned I could have same/more after-tax income with VWLTX and not be pushed toward next tax bracket.  Meaning all of my stock QDI would remain taxed at 0% (15% fed tax bracket).  Sweet.  (Growing stocks/dividends eventually pushed me into 25%, so that's not the munis' fault.)

[Harry Livermore]

I worry that your expected SS income seems to be close to your expected cost of livings. I'd worry about large one-time expenses (new car, new roof,...).

Just the opposite. If retirees can cover their core expenses with annuitized income (like SS and pensions), that’s an excellent position to be in.

Their portfolio can be used for lumpy expenses, discretionary wants, and possibly future long-term care.

And the unfortunate, but likely, situation where one spouse predeceases the other and the survivor need to start drawing down the portfolio for core expenses.

There are no problems with the portfolio as is. Maybe get rid of the 3 smaller funds in the taxable account because they are too small to affect overall return.

Yes, I agree.
Dratkinson, if their anticipated costs are covered by Social Security, AND they have a million-dollar-plus portfolio that they don't "need", why would you suggest they "worry"? They are better off than at least half of the country
OP- your portfolio looks reasonable. I would suggest, as others have, heading to the Open Social Security tool, running it with the numbers from your SS statements and your demographic info. If the resulting advice is for you to claim at 70, then take a look at your portfolio and discuss how you'll bridge the time from age 62 to 70 (FWIW, even though the tool says I should wait to 70, our current plan is for me to take it at 67, for a variety of reasons)
Also, I may have missed it, but you say you "own your home and 2 cars, but have no other debt" Do you have a mortgage (or car payment) that's included in expenses? How much principal left and at what interest rate? I personally think one of the best moves is to be debt-free by retirement, but that seems to be a very personal choice.
Cheers

[afr]

Just the opposite. If retirees can cover their core expenses with annuitized income (like SS and pensions), that’s an excellent position to be in.

Their portfolio can be used for lumpy expenses, discretionary wants, and possibly future long-term care.

And the unfortunate, but likely, situation where one spouse predeceases the other and the survivor need to start drawing down the portfolio for core expenses.

There are no problems with the portfolio as is. Maybe get rid of the 3 smaller funds in the taxable account because they are too small to affect overall return.

Yes, I agree.
Dratkinson, if their anticipated costs are covered by Social Security, AND they have a million-dollar-plus portfolio that they don't "need", why would you suggest they "worry"? They are better off than at least half of the country
OP- your portfolio looks reasonable. I would suggest, as others have, heading to the Open Social Security tool, running it with the numbers from your SS statements and your demographic info. If the resulting advice is for you to claim at 70, then take a look at your portfolio and discuss how you'll bridge the time from age 62 to 70 (FWIW, even though the tool says I should wait to 70, our current plan is for me to take it at 67, for a variety of reasons)
Also, I may have missed it, but you say you "own your home and 2 cars, but have no other debt" Do you have a mortgage (or car payment) that's included in expenses? How much principal left and at what interest rate? I personally think one of the best moves is to be debt-free by retirement, but that seems to be a very personal choice.
Cheers

We are debt free; we fully own our 2 cars and home.

[Flydog]

Are the expenses after tax? Your SS security roughly matches your expenses, so are you confident you can live on that forever?

If so then your portfolio is for... what? nice trips? legacy? house repair? long-term care? I think it's important to understand that. It looks like before we can advise on whether the portfolio will meet its goal. You are 100% equity, If we experience a cyclical market crash you are highly exposed to sequence of returns risk if you indeed need to draw from the portfolio at the wrong time, but if it's something you control (don't take that trip or buy that car) then maybe it's OK?

Side question here to understand your response; you wrote "You are 100% equity..." What are you referring to? Equity vs what? Thanks

[Harry Livermore]

Yes, I agree.
Dratkinson, if their anticipated costs are covered by Social Security, AND they have a million-dollar-plus portfolio that they don't "need", why would you suggest they "worry"? They are better off than at least half of the country
OP- your portfolio looks reasonable. I would suggest, as others have, heading to the Open Social Security tool, running it with the numbers from your SS statements and your demographic info. If the resulting advice is for you to claim at 70, then take a look at your portfolio and discuss how you'll bridge the time from age 62 to 70 (FWIW, even though the tool says I should wait to 70, our current plan is for me to take it at 67, for a variety of reasons)
Also, I may have missed it, but you say you "own your home and 2 cars, but have no other debt" Do you have a mortgage (or car payment) that's included in expenses? How much principal left and at what interest rate? I personally think one of the best moves is to be debt-free by retirement, but that seems to be a very personal choice.
Cheers

We are debt free; we fully own our 2 cars and home.

I think you are in enviable shape. No debt. Your income to expenses ratio is very high. You have a bigger nest egg than many, many other people. I think at this point it's optimizing. The other folks here are excellent at that, so hopefully more will chime in.
It seems as if you will soon enter a phase of low/ no wage income, so perhaps consider doing some small Roth conversions during these years, before taking Social Security. No urgency, as it will probably only marginally help the surviving spouse with taxes or IRMAA, and maybe not even in a large way. It really needs a more in-depth analysis and it's one of the favorite discussions here (as you surely know, with over 800 posts!)
In fact, it might make sense to start spending from the 401(k) pot when you retire, rather than converting. Let the Roth ride and let the taxable grow and get step-up when one of you dies.
Take a look at the Open Social Security tool and discuss with your spouse the pros and cons of claiming at different ages.
Regardless, keep stacking those dollar bills until you officially retire.
Cheers

[afr]

We are debt free; we fully own our 2 cars and home.

I think you are in enviable shape. No debt. Your income to expenses ratio is very high. You have a bigger nest egg than many, many other people. I think at this point it's optimizing. The other folks here are excellent at that, so hopefully more will chime in.
It seems as if you will soon enter a phase of low/ no wage income, so perhaps consider doing some small Roth conversions during these years, before taking Social Security. No urgency, as it will probably only marginally help the surviving spouse with taxes or IRMAA, and maybe not even in a large way. It really needs a more in-depth analysis and it's one of the favorite discussions here (as you surely know, with over 800 posts!)
In fact, it might make sense to start spending from the 401(k) pot when you retire, rather than converting. Let the Roth ride and let the taxable grow and get step-up when one of you dies.
Take a look at the Open Social Security tool and discuss with your spouse the pros and cons of claiming at different ages.
Regardless, keep stacking those dollar bills until you officially retire.
Cheers

Appreciate your advice. Open SS tool shows about a total lifetime difference of about $37-38K if I hold off til 70(DW taking hers at 62 and spousal benefit kicking in when I claim).

[afr]

Are the expenses after tax? Your SS security roughly matches your expenses, so are you confident you can live on that forever?

If so then your portfolio is for... what? nice trips? legacy? house repair? long-term care? I think it's important to understand that. It looks like before we can advise on whether the portfolio will meet its goal. You are 100% equity, If we experience a cyclical market crash you are highly exposed to sequence of returns risk if you indeed need to draw from the portfolio at the wrong time, but if it's something you control (don't take that trip or buy that car) then maybe it's OK?

Side question here to understand your response; you wrote "You are 100% equity..." What are you referring to? Equity vs what? Thanks

It was Rasberry-503 who stated that I'm 100% equity regarding my AA, which I'm definitely not. Closer to 65/35.

[dratkinson]

I'm doing a poor job of explaining what I think I'm seeing.
--Yes, their SS, when taken (his age 67, her age 62) does cover slightly more than their expected cost of living.
--But neither, as a single spouse receives enough SS benefit to cover cost of living*.  (* Left as a student exercise since we don't need to know details.)
--The additional investments are not currently in-place to make up for SS shortfall.  Tax-efficient moves, over many years, required to set that up.

Single-spouse benefit.
--As her SS benefit is 1/3 of couple's total when taken at his age 67, her single-spouse benefit should drop ~2/3 based on couple's total benefit.
--His should drop ~1/3 based on couple's benefit.



Agreed they have enough other investments to make up the shortfall.  But he doesn't want his wife worrying about that then*, so it would be better to put the shortfall plan (a second income stream) into play before it's needed.

* Neighbor used financial manager after husband got sick.  Later after he passed, when she got sick, her friends/I helped her convelese away from home.
--My job was to housesit, open official mail and call a friend to come pay her bills.
--Brokerage statements.  Saw a sell/buy on first I saw; assumed it was client-directed.  Next month, same thing; realized he was churning account.
--Called her friends.  They contacted neighbor and she directed broker to stop.  
--Broker still churning on 3rd statement. Called... and they moved account from broker to Fidelity.  Broker marked transfer as account dispersal.
--Fed and state wrote after next tax season wanting their money.
--Neighbor hired CPA to straighten out tax mess.  Good times.

Bottom line.  OP does not want to leave anything to chance.
--He wants all of the pieces in-place, running, and understood by spouse before they are needed.
--He wants written instructions in-place before he leaves the scene.
--He wants to conduct annual reviews of the plan with spouse where she must find answers to her questions in the written instructions.  If the written instructions do not answer all her questions, then he must add them.
--It'd be good to conduct annual plan reviews in conjunction with setting up annual tax withholding for the new year.
--This repeated exposure/review/hands-on exercise would ensure she could do it on her own... without needing a helpful financial manager.
--The skill to plan/implement annual tax withholding, manage taxable investing, requires no more math than required to balance a checkbook.
  She can learn these skills.  And he has a vested interest in ensuring she does.



Option.  The shortfall plan's (second income stream's) required lifting can be permanently minimized, if the SS benefit is increased: couple delays SS until his age 70.  (Her single-spouse SS benefit shortfall is then expected to be reduced by ~1/3, vs reduced by ~2/3 of couple's at his age 67 SS benefit.)
--Retire from work as planned, but live on traditional withdrawals until taking SS at his age 70.
--What tax bracket would SS at his age 67/70* have pushed them into?  Why?  That's the tax bracket to be used for traditional withdrawals.  (* Use higher.)
--Use excess tax bracket headroom to buy bonds in taxable to begin creating a second income stream.

* If SS will push you into higher tax bracket, then start now and use additional tax bracket headroom to more quickly build bond income stream/drawdown traditional quicker.


Or. You can decide to retire at his age 67, just understand that you'll need more bonds (2x) to make up for her expected ~2/3 SS shortfall at his age 67 (vs ~1/3 SS shortfall at his age 70).



Option.  Create second income stream that is aware that single spouse moves from "MFJ" tax rate table, to "single" tax rate table.
--VFMXX is good enough for now.  It's outperforming TBM and VWLTX.  And in 2024 was >50% USGO (US gov obligation) which helped with state taxes.
--If the use of munis can lower your tax bracket (TE dividends avoid fed tax bracket creep), then you keep more to compound/spend later.
--When the time comes, it's tax-free to replace VMFXX with something else expected to produce more after-tax income, and can be held long-term.  


Or. If you can decide to continue using taxable bonds, you'll need to include them in your tax withholding planning for uncle sugar, and his nephews at state. And the dividends are taxable, so could push you into next tax bracket; but the good news is that the higher tax rate only applies to the dollars that spill over into the higher tax brackets... so not as bad as it could be.



Disclosure.  I've owned VWLTX since ~2008 and it has performed consistently (dollar amounts), though not always best in market (vs VMFXX currently.)

When I was looking for bonds, I found Swedroe's bond book helpful: The Only Guide to a Winning Bond Strategy You'll Ever Need.  I wanted something expected to work well over the long-run (=>TBM after-tax income), within my risk tolerance, and required minimum thought on my part to live with*.

* Inverted-yield environments (as current) raise the yields on everything <5yrs duration, the shorter the more.  Meaning ST treasuries were paying <5%.  Before this, their yields were <1%.  After yields return to normal, I'm expecting them to revert to old returns.  Chasing these yields means tax withholding planning to do so, and CGs tax to sell to chase something else: lather, rinse, repeat.

However, VWLTX is longer duration, so is less affected by inverted-yield environments.  Meaning what it was paying before, it is paying now, so should be paying later (after yield environment reverts to normal). So as long as VWLTX keeps paying steady dividends and covering my cost of living (it is), I don't really care that VMFXX is currently paying more.  

I only diverted some new money to VMFXX in 2024 because it's a mmkt fund so TE to sell; which I did when I saw my taxable dividends/income for the year was about to exceed my planned withholding for the year.  (I scratched the VMFXX itch, but it wasn't easy as I had to think about/plan for its dividends every month: too much work.  On the other hand: VWLTX is consistent, fed tax-exempt, so minimum thought required to live with.)


Each month before rebalancing, I compute TEYs of TBM, VMFXX, VWLTX, anything else that interests me... and rebalance into it with new money. (Excel is my friend: lookup/enter current SEC yields, and it gives me current TEYs.  I consider buying the highest, but I don't always, to avoid little pieces needing to be managed and later sold.)

I can live with VWLTX under-performing VMFXX, because VWLTX dollars create the base upon which my second income stream is built.  

That VMFXX is currently outperforming is nice.  But you have to work to use VMFXX:
--I must include its expected taxable dividends in my tax withholding plan.  (Must work to plan to use it.)
--I must withhold more money throughout the year (additional SS withholding, estimated quarterly tax payments,...).  (Ongoing work to use it.)
--Sometimes, it's just simpler to say "No".

Bottom line.  VWLTX has been simple to live with.  (Yes, I have TLHed it... because the opportunity was there... not because it worried me.)
--It returns more after-tax than TBM... the 3fund standard... that BHs claim is good enough... so VWLTX must be good enough, too.
--Its TE dividends don't need to be accounted for in my fed tax withholding plan.  
--Its dividends are state taxable, but at 4.25% flat tax rate, the tax bite is not too bad and easy to plan/withhold for.
--So with VMFXX, or something else taxable that is currently favored, I always look at the tax consequences (to: own/sell) before going that route. More often than not, I've decided "No" is the simpler choice.

[Harry Livermore]

I'm doing a poor job of explaining what I think I'm seeing.

But the rest of your response is excellent. Good stuff for the OP to consider!
I understand your comment now. Thank you for following up!
Cheers

[afr]

dratkinson,
Thank you for taking the time to post your replies. More than likely I will outlive my DW(due to combination of her health issues and my genetics). Some of our current expenses(~$5100/mo.) are solely attributable to my DW, such as her current medical premium of $800/mo.(she won't be on Medicare for another 5 yrs), hairstyling(~$117/mo), auto ins. for her car, medical/prescription costs care not covered by ins(~$200/mo), food(either going out to dinner together or food shopping for 2). Just some food for thought.

[dratkinson]

I missed some of your particulars.  

I know nothing about health care insurance, except that I didn't have it the first 30yrs of my life (don't know about parents' insurance on me).  Military insurance took care of me after that.  Except for dental which I pay out-of-pocket (gladly: root canals and implants are expensive, but are infrequent so cheaper than dental insurance premiums).



From the BH perspective that sees SS as LTC care insurance that increases in value the longer you delay taking it....


Option#1.  I believe you have enough in traditional to cover the cost of 3years (your age 67-70).  Though I understand how unknown/uncapped health care costs can be worrying if you don't have health insurance.  So....


Option#2.  For wife's current health insurance (COBRA).  Search: https://www.google.com/search?&q=can+em ... retirement


Option#3.  For your current health insurance (COBRA).  Search: https://www.google.com/search?&q=can+em ... retirement


If available, options #2-3 should take care of you (plural) for 18 months*, leaving your time without health care insurance to 18 months.  Maybe something in above will link you to private health care options after COBRA expires.  (* Data point: COBRA insurance seems to be for 18 months.)


Option#4.  I'm aware your work situation is sub-optimal.  You could continue working until age 70 (wife's age 65) and maybe add wife to your employer's health care insurance plan.  (I once worked in a suboptimal environment.  Wanted to leave.  But stayed because I didn't have the tools to do better elsewhere.  A few years later and graduation made all the difference.)

Option#4a.  If you only remain working 18 months longer (past your age 67), then COBRA should carry you (plural) an additional 18 months to her age 65 (Medicare).



On the other hand, sometimes people make decisions based on emotions... so if you must retire at 67 (she at 62), to spend more time together as a couple, I can understand that, then so be it.  

Maybe the above links will help you identify a health care insurance way ahead. And your fallback position is to pay out-of-pocket, which I believe you can, for 18 months after COBRA ends.



I've made a few small tweaks (second thoughts, clarity) to my above replies... probably nothing you have not already thought about.  But you might want to take a second look, just to be sure.

/Best wishes

[afr]

Thanks again for the reply. My DW and I never had the benefit of employer covered health insurance;subsequently we to pay fully for it. I’m finally set up on Medicare(plus supplemental) which goes into effect May 1st. Subsequently my DW’s premium will drop to a little under $800/mo.(from our current $1600/mo).She won’t qualify for Medicare for another 5 years.And FWIW, we always made too high of an income to qualify for any subsidy under the ACA.

[WhiteMaxima]

IRAMMA look back 2 years. So retire at 63 is best.