Would you take a 7% distribution from your retirement accounts to wait until you are 70 to collect Social Security? (pensions, emotionally)

[hikernut]

Originally Posted by selhars

Thanks.
I really didn't get it either. But thought I'd ask more about that so I could maybe learn something.

If all of one's retirement money is in deferred accounts then it makes perfect sense. They probably wouldn't want to pull out several years of spending all at once and be sent up into a very high tax bracket. That was the context of the question, as I understood it anyway

[Perryinva]

Exactly!! Same way I understood it. Its just a way to form buckets of no risk (and not high interest) for a sequence of years withdrawals. I have almost a quarter of my IRA as cash sitting in Fidelity earning ZERO after selling after the last run up of some equities, all of it tax deferred. Timing went rather well, so overall the earnings is good. But since I'm not ready to pull that cash out for at least 4 more years, maybe I should drop say 40k in to a 5 year CD within Fidelity. So a portion is risk free, ignored and waiting for me to use first. I think that's the kind of stuff RTB and I are talking about. The majority I will plow back in to equities after the next down cycle. But I don't mind skiimming a small amount and earmarking it as a hedge for first withdrawal should things go really south market wise.

[mathjak107]

Originally Posted by hikernut

If all of one's retirement money is in deferred accounts then it makes perfect sense. They probably wouldn't want to pull out several years of spending all at once and be sent up into a very high tax bracket. That was the context of the question, as I understood it anyway

for us it was easy to structure . every time we sold an asset outside of our deferred accounts we turned it in to cash instead of reinvesting . it took as a while but eventually we built it up to two years withdrawals .

[ReachTheBeach]

That is my situation. Virtually nothing in post tax past a few thousand float money for surprises like car repairs. So I need something qualified, low risk to pay out for the delay years.

[SFBayBoomer]

Originally Posted by ReachTheBeach

It probably will be more than 2400 by age 70 if we have some inflation and COLA adjustments and after age 70 any COLA will be on that full amount.

Don't count on COLA's. There was none this year. Social security uses nationwide information to calculate, which stinks, especially if you live where the COL is high.

And yet, my recently retired husband got a 3% COLA on his pension this year. His pension COLA is calculated on a specific SF Bay Area indicator.

[mathjak107]

colas work both ways . many times nationally inflation runs higher then locally .

[mathjak107]

Originally Posted by ReachTheBeach

That is my situation. Virtually nothing in post tax past a few thousand float money for surprises like car repairs. So I need something qualified, low risk to pay out for the delay years.

this is where most of us dropped the ball all these years with our planning and only wanted to do deducible contributions to our 401k's and ira's .

we never realized the value in having tax free money available to us and all the things linked to our income in retirement .

knowing what i do know i would have done roths all i could . now the conversions have little value . basically we are stuck in the same brackets whether we do them or not and we lost the time value on the roths while our income was ramping up over the decades .

i was going to use some myga's instead of the laddered cd's but there just was not a big enough advantage to start moving money around and lose access to that money if we needed more then the myga allowed .

we found keeping it simple , giving up a fraction of a point using fidelity cd's we can have instant liquidity , no penalty's and even a chance to make money on the cd's if rates keep falling so it was really a win /win for us to just stay with laddered cd's at fidelity even though we could find slightly higher rates else where .

if i was really concerned with maximizing every penny i would just have put everything in the income model and pulled from there . that would have beat any rates available .

but we are happy with the simplicity of handling things this way .

in fact our total portfolio mgmt time is and has been 15-30 seconds a week for almost 30 years now with the newsletter and that is with a dynamic portfolio that changes over time . so marilyn and i like to keep things not only simple in retirement but we don't want to even think about our next moves or 2nd guessing the last ones .

i am to much of a tinkerer and can't keep my hands off of things left to my own devices . left to my own devices i could be the poster child for poor investor behavior as i always think my gut feelings are the correct ones so i would act on them trying to outsmart things . usually a bad move in retrospect ha ha ha .

one thing i am glad about so far is the decision to start our retirement off planning around the rising glide path . who knew our first year in retirement would squeak out a 1% gain or so while spending 3.50% and this year isn't much better so far being up just under 3% ytd.

getting whacked while spending down the first few years can be quite damaging if you have high equity positions while spending down .

the drops do not have to be steep either , even moderate drops that extend out for a few years can do considerable damage .

it used to be the odds of getting hammered like that year 1 were remote but lately it isn't so remote anymore . the y2k retiree got hit with 2 major downturns in the first 10 years putting them on track to match the 1929 retiree 15 years in .

so it is another point to consider if you are pulling the plug soon . while 95% is acceptable odds in most retirement calculators i like planning around 100% the way things have been going and the way the next few years look with below average rates and market returns being likely when valuations are so high .

i rather set our lifestyle lower by planning on a lower draw going 100% success rate then plan for a higher draw and have to take a pay cut if things are worse then expected . i rather take a raise if things are better and be pleasantly surprised , as opposed to the pay cut if they are not .

.

[DaveinMtAiry]

I purposely did traditional 401 contributions until 50 as my plan was to put as much money to work as possible and with the understanding that my tax bracket would be lower in retirement. But since my early 50's I have looked at future tax ramifications and started contributing 10% to the Roth option and only 2% traditional. I have also been converting tradional IRAs to Roths at $5,000/year. Not sure if it was the best plan but it made sense to me.

[mathjak107]

of course the big question is your tax bracket lower in retirement , compared to what ? most folks compare to their later years on the job which is not correct .

your average tax bracket while working starts in the early years and ramps up over decades . it is rare your retirement tax bracket will be lower then your long term average tax bracket which can span decades .

unless you have a job where day 1 you are near your top tax brackets odds are your working average will be lower then your retirement bracket which generally is close to just your final working years.

that is a common mistake folks make when comparing . they just look at the point they started making higher pay but that is only generally a fraction of the story .

the younger and earlier you start the more effective the roth becomes because you have all those ramping up years .

[ReachTheBeach]

It almost feels like a confession to say how well I have done because I should be in outstanding shape for retirement instead of just good, but I am pretty certain that nearly all of my 401k was protected from a higher rate than I will pay on it when I withdraw. This will be the 26th year in a row I have hit the SS cap and the last several years it has still been shorts weather when I hit it. Some crazy complications with kids; I am not sure how most folks do it if their kids have needs outside the norm. We have had some expensive family trips sprinkled in, but not living large as much as you might think. But yeah, pretty certain avoiding the tax was the right choice.