Retirement accounts - withdrawal phase (Illinois, buy, spouse, investment)

[Perryinva]

I actually do use the RIP in Fidelity, as that's where our IRAs are. It shows delaying SS is easily the smarter move, income wise, for me. I mean its not even close. RIP does not account for different tax rates depending on where your investments are for tax purposes, so I'm still having a lot of trouble understanding how replacing higher taxed dollars with lower taxed dollars, while reducing your RMDs can ever lead to higher taxes. It makes no sense.

Everywhere my wife taught, they took out SS, so WEP is not an issue. I actually didn't know ANY teachers could work where they didn't withhold SS.

[mathjak107]

depends what the alternative dollars you use are doing. a 100 % gain on invested dollars that stayed invested the last few years trumps pulling those dollars out of the invested ira money .

if you can access those dollars too at zero capital gain taxes it beats paying even 15% tax on the ira money. it isn't hard to understand.

everything is about if you do x what are you giving up on y.

in fact for us to spend down enough to matter from our ira we would be in the same tax bracket trying to get money out of the ira now as we are with the rmd's and 2x the ss check . in fact we are better with the rmds. by the time they kick in tax brackets are expanding every year letting more and more income through at lower tax rates.

100k by then may be in the 15% bracket. why would i want to pay 25% today as a marginal rate. that would not make sense.?

for your premise to work you need no other income sources and a smaller ira so drawing money off in the 15% bracket counts.

but it may also bounce you right back on what is left into the 25% bracket once 2x the ss check and rmd's come in to play.

had you taken early ss perhaps you could have stayed in 15% right through with the rmd's and 1/2 the check size.


you are trying to have a rule where none can exist.

[Perryinva]

Again, it depends on how you want to argue it. Its's never 100% gain, on staying in vs replacement withdrawal, because you are essentially trading risk for guaranteed annuity equivalent. If the market thrives during the withdrawal years, that's a plus, because the withdrawals have less effect on the principal. If the market tanks during those times, you would be belt tightening to preserve capital, but then it is a safer bet that it will recover during the recovery phase, when you have to withdraw less in the first 10 years after 70. It is indeed, all at how you look at it. At my income there would NEVER be zero capital gains, so 15% equivalent tax is the best I can hope for, if I reduce my standard of income. As discussed, you have a lot of earnings outside of tax deferred, that you have flexibility to draw upon, while I have none, because I didn't see the point since we have to take our reasonably significant pensions, regardless. The real value of the pensions erodes with inflation, while the tax advantages of the COLA adjust increased SS income increases with inflation. Like I said, RIP also shows it as a slam dunk, as does "analyzenow" calculators, and neither accounts for tax free Roths, that I noticed. I'm sure you've done your due diligence, and that's what really counts. I'm just a "need to see the numbers" guy (since I'm an engineer).

[mathjak107]

each situation will play out differently .

if we delay ss that whopper of an ss check has us right in the 28-33 % bracket . i can't possibly pull enough out a year and stay below that because we have 7 figure ira's.

the whole idea would be to pull money out of the ira now at 15% rather than at 25% down the road while delaying ss. that could work in some situations.

but many times that 2x the ss check by delaying boosts you not only to the 25% but to 28% or higher later on what you couldn't spend down..

for us taking ss early and keeping that ss check as low as possible will keep us out of the 33% bracket with rmd's. a smaller check for a longer period of time can be a benefit in that situation vs a bigger check for shorter .

[mathjak107]

interesting enough if you look at the FIDELITY RIP planner it analyzes where to draw the income from if you delay ss . i never realized it before until i just ran 2 scenarios . delaying and spending down and not delaying and put them side by side to comapare taxes . .

the planner analyzes where to pull that income from , the ira's first or the taxable account using zero capital gains brackets and 15 % tax brackets where it can. reading the methodology behind the calculations says it will find the most efficient manner.

looking at age 71 it left the ira's untouched going for the taxable side .

if you have the option of equities in the taxable as well as ira's try it and see where it will suggest you spend down from while waiting for ss . interesting.

also interesting was that using 2.7 million as a base the worst case scenario assets were 3,426,568.00 at end of plan not delaying.

it had 3,597,928.00 left delaying ss , a 170k difference but that hinged on wife living until 95 and me 93. that equation shifted big time depending on what age one of the parties died. the loss of one ss check altered the equation by a lot.

through most of the 80's the bigger balance was collecting early.

in our scenario taxes were higher every year after age 71 delaying ss because the better tax deal early on was spending the taxable account first , then the rmd's and larger ss check caused higher taxes all the way through.

[Perryinva]

Well that is pretty much what I said, in that it depends on what your desired income level wanted is, sources are and final outcome is wanted. Most of that is obvious; of course your balance is bigger collecting early, as you haven't drawn it down to delay SS benefits. If you DON'T have zero capital gains or 15% tax bracket taxable investments, then delaying is a slam dunk. Having them, especially large amounts, as you are calculating, then of course there is little benefit to delaying SS, because you already have taken as much advantage of low tax displacement for later high tax dollars as can be used. The effect is a larger, fully taxable, deferred account that you will "never" use because you don't want to pay full taxes on it, and it is left to your heirs. Apples and Apples only works if you compare the same after tax generated income, with similar sources. I do not calculate on leaving as much to my heirs as possible, or simply to avoid excess taxes, but to maximize my less risky, dependable income through my life. The vast majority of even good savers is to have the far largest bulk of retirement savings in tax deferred vehicles because the early intent was to avoid taxes while earning, NOT thinking about low tax income later in life. If you were advanced thinking enough to shelter your money to cover both bets, you are in an enviable position. I personally feel that I did more than just OK by having $1MM in Roth, IRAs, & 401k with a healthy pension.

I'd love if the scenarios, even worst case, worked out that way, as they have me at $2.2MM at 90 by delaying...way more than I calculate!

[loves2read]

I can't do that on my IPad because it is in Flash--nothing comes up when I go to the link
Although the Fidelity RMDs link works for me...
guess it depends on who did the programming for the info

will try again on my husband's laptop maybe because that is very interesting info and something I don't think our investment guy has shown us...
their Monte Carlo projects don't seem to make a difference in HOW the money in our different accounts (taxable, tax-advantaged, Roth, cash) are taken out before RMDs are due or with two versions of SS -- with me drawing spousal and husband drawing his at FRA or with him waiting until 70 (doing file and suspend so I can draw at FRA)...

[mathjak107]

Originally Posted by Perryinva

Well that is pretty much what I said, in that it depends on what your desired income level wanted is, sources are and final outcome is wanted. Most of that is obvious; of course your balance is bigger collecting early, as you haven't drawn it down to delay SS benefits. If you DON'T have zero capital gains or 15% tax bracket taxable investments, then delaying is a slam dunk. Having them, especially large amounts, as you are calculating, then of course there is little benefit to delaying SS, because you already have taken as much advantage of low tax displacement for later high tax dollars as can be used. The effect is a larger, fully taxable, deferred account that you will "never" use because you don't want to pay full taxes on it, and it is left to your heirs. Apples and Apples only works if you compare the same after tax generated income, with similar sources. I do not calculate on leaving as much to my heirs as possible, or simply to avoid excess taxes, but to maximize my less risky, dependable income through my life. The vast majority of even good savers is to have the far largest bulk of retirement savings in tax deferred vehicles because the early intent was to avoid taxes while earning, NOT thinking about low tax income later in life. If you were advanced thinking enough to shelter your money to cover both bets, you are in an enviable position. I personally feel that I did more than just OK by having $1MM in Roth, IRAs, & 401k with a healthy pension.

I'd love if the scenarios, even worst case, worked out that way, as they have me at $2.2MM at 90 by delaying...way more than I calculate!

in my perfect retirement world i would have done roths early on while my income was just rampping up . then when income was much higher switch to traditional plans.

i would have all individual stocks in my taxable account where i could control capital gains and not have distributions whether i wanted them or not like from funds .

i would draw 42k from the ira money at a 4.50% effective tax rate and sell some equities filling up the zero % capital gains bracket to 74k . i would delay ss , add some roth and over funded life insurance money i borrowed out and pay under 5% in taxes on 100k plus income,.

but that isn't how the real world plays out generally .

real world will always have twists and turns that alter everything right down the line.

we get a 20k pension and 50k or more in fund distributions so right off the bat that coveted 15% bracket with its zero capital gains taxes is just about full.

depleting ira money instead of ss makes little since since delaying ss merely adds a bigger check to the mix with less rmd's but in any case brackets are still 25-28% regardless.

taking ss in my case early stops me spending down money that i will lose a lifetime of gains and compounding on , pay taxes on money in the ira that may be in lower brackets later as more money goes through the brackets over time at less tax .

in my case a higher ss check / lower rmd's leaves me worse tax wise than lower ss check higher rmds because we risk jumping brackets with 2x the ss payment..

this stuff has so many scenarios that the odds of nailing it 100% is rare. i find the answer is find something that works for you go with it. no matter what you do if you have assets and income it will end up being a compromise at best.

as i mentioned above on almost 3 million the projected difference at 95 was 170k at best as a difference filing early vs late . but we both had to live to that age, the loss of one ss check earlier on because one of us died totally altered the equation . delaying left us with less.

since the difference is so small and the odd of both of us living to the same age and dying is slim i saw no point in not filing at 63.

delaying works great when you have an underfunded retirement , but if you are fully funded then you really need to back test your own situation.

[Larry Siegel]

Originally Posted by mathjak107

each situation will play out differently .

if we delay ss that whopper of an ss check has us right in the 28-33 % bracket . i can't possibly pull enough out a year and stay below that because we have 7 figure ira's.

the whole idea would be to pull money out of the ira now at 15% rather than at 25% down the road while delaying ss. that could work in some situations.

but many times that 2x the ss check by delaying boosts you not only to the 25% but to 28% or higher later on what you couldn't spend down..

for us taking ss early and keeping that ss check as low as possible will keep us out of the 33% bracket with rmd's. a smaller check for a longer period of time can be a benefit in that situation vs a bigger check for shorter .

I usually follow your logic but I'm missing something here. Since all tax brackets are less than 100%, isn't it always better to have more income than less? So, if you expect to live past the break-even point where it pays to delay taking SS, shouldn't you delay it (to get a bigger paycheck) even if you will have to give some of that bigger paycheck back to the tax man?

[mathjak107]

the typical break even age is only the break even age age if you do not count the lost compounding on the money spent down delaying ss.

once you do it pushes the age so far out that the loss of just one check for a couple earlier than 87 sets you behind.

so for such a small premium betting you both will live to almost 90 why bother ?

the problem is the break even charts count the lost checks but not any lost gains and the early on compounding is worth far more than compounding almost a decade later after you spent assets down . compounding over years on a bigger balance is very powerful.

for the most part what you end up with for much of the retirement time frame if you file early but spend down is higher rmds because of a higher ira balance and a lower ss check vs delaying and having a higher ss check and lower rmd balance,.

what you need to see is which one pushes you into a marginally higher tax bracket or gets you surcharged with the medicare surcharge tax.

many times less can be more because jumping tax brackets can trigger other ramifications like that medicare surcharge tax .

even state estate taxes can be effected and less can be more..

as an example right now in ny we can exempt up to 3 million dollars from estate taxes but go over the 105% threshold and have 3,150,01.00 dollars instead of the allowed 3,150,000 and all 3 million gets taxed not just the overage. there is a tax cliff that is insane.

we had to put a disclaimer trust in place as a back up plan since it does effect us this year.

so those are the things you need to try to compare and since we can't predict the unknown like markets and inflation it is much easier to plan around the known which is filing earlier for us .

.