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Old 10-08-2017, 08:52 AM
 
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in a typical situation where a retiree sets a draw rate based on that portfolio value such as 4% inflation adjusted . that is the draw rate .

the fact you have to change the tax status on some money does not mean it is a draw down . it merely changes hats from being invested in the ira to the same exact investment where you can in a brokerage account .

the shifting out of money does not make it a draw down unless you don't reinvest it or spend it .

then you have to retest the portfolio for the number of years left , the portfolio at the reduced value and the success rate going forward .

the safe withdrawal rate , the total portfolio value and the allocation are joined at the hip forever . if you have a pension covering everything you may just use the portfolio for extra money . however you still should stress test it for the amount you want to take if it needs to last as long as you do . . perhaps it is only 1 or 2% extra a year or perhaps you want 5 or 6% to give away yearly for as long as you live , so you need to see under worst case how long can you sustain that draw .

if you don't care how long it lasts that is a different story . such as i don't need any retirement account money at all , so i want to give 25k a year to a charity or the kids as long as it lasts .

different situation then it having to last x-amount of years through good and bad times . .

we have other income coming in but we still draw 3-1/2 to 4% a year from our portfolio and combine it with all our other income sources .

whether i take rmds or not that draw needs the portfolio amount we have working to meet that income level . how we reorganize that value we have tax wise has nothing to do with needing the full amount working for us . i may pull 100k out as an rmd but that money is counted on . it goes right back in to the same fund in a brokerage account where it continues it's roll in the income generation we want just as it was needed before taking the rmd .

Last edited by mathjak107; 10-08-2017 at 09:08 AM..
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Old 10-08-2017, 10:02 AM
 
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Quote:
Originally Posted by Larry Siegel View Post
Can you please explain? (1) QLACs *are* longevity insurance - they are just a tax status for a longevity insurance product. (2) You can't put a very large fraction of your IRA into a QLAC anyway, so you're not deferring much of the tax past age 85. (3) You are right that QLACs should be bought younger, but if you're already older that is not an option but they still defer the tax and provide longevity insurance at the same time.

QLACs are very cheap if the income deferral is to age 85. For a 65 year old male, a $240,000 QLAC purchase will get you $100,000 a year starting at age 85 and ending at death, contingent on living to age 85.
I'm also researching QLACs. I don't understand how you are calculating a $240K QLAC, since my research seems to indicate the maximum you can set aside in a QLAC is 25% of your tax-deferred account up to a maximum of $125K.

I'm not getting why buying a QLAC at a younger age would be advantageous as long as you buy it before you are required to start taking the RMD; even after that, if your account is >$500K you would still only be able to set aside $125K. It seems that the QLAC just shelters you from having to withdraw as large a taxable RMD.

I'm hoping to use it as self-insurance for long-term care <shudder> costs and as a way to pass more of my assets on to my heirs instead of having the government tax them at a high marginal rate.
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Old 10-08-2017, 10:06 AM
 
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larry said he forgot the limit was 125k in an earlier post. qlacs can make taxes worse as the later you start the more have to be taken after age 85 and taxed .i see no significant tax savings once you draw down the road .

as michael kitces said if you made it to age 100 you may see a 5-6% return . that is a pretty risky bet . returns would likely be better on the same amount of money with bonds at typical life expectancy.

giving them money decades before drawing has a pretty big cost to it and when he calculated that larger amount you got decades later best case at 100 would be about all of 5 or 6% . it is going to be much less at normal life expectancy and certainly within range of what you would accumulate had you bought a bond with a time frame of the same amount of years .

there really is no magic going on with a longevity annuity that you can't do with conventional products and not have to bet on an unusually long life time of nearly 100 years to see the same amount .kitces did all the numbers crunching in the link i posted above

Last edited by mathjak107; 10-08-2017 at 10:16 AM..
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Old 10-08-2017, 10:34 AM
 
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Quote:
Originally Posted by Nefret View Post
Well, I do want to treat it as found money. Our SS and pensions are more than enough to cover our living expenses and it would be nice to do something different with this "extra" money.

I have Vanguard make an automatic transfer into a taxable fund and with my other account at Rowe Price, I've put the money into granddaughter's college fund. This year we remodeled our bathrooms.

I like the idea of paying off our kids student loans. I'm also thinking it would be nice to purchase a vacation place, convenient to the whole family, where we could have family gatherings, hubby and I could spend part of the year there, and something to pass on to our 2 adult kids when we are gone. The yearly RMD's would cover the mortgage.

As I said in my OP, not knowing how many "good" years we have left, perhaps it is time to live it up a little. When I said that we live below our means---live frugally--I don't mean that we deprive ourselves. We just don't have expensive tastes. Also we live in a low cost area with relatively inexpensive golf, skiiing, etc.
We are buying a family vacation to Africa for our kids. Everyone is excited and looking forward to it. It will be a surprise for the grandkids. Essentially, after you have remodeled to happiness, buy experience. All your ideas sound good.
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Old 10-08-2017, 10:42 AM
 
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Quote:
Originally Posted by mathjak107 View Post
STOP !!!!!! VERY IMPORTANT " never forget these rmd's are still money that is calculated as part of the pile of money developing your income . this is not "EXTRA " money .

because you have to change a tax status on some of your money does not mean it is "extra money" in any way .

if you needed x-amount in a portfolio to be the goose laying those golden eggs up to the rmd's , you still pretty much need the same amount less some tax money after them . nothing changed because you are switching pockets on some of the money .

to many folks screw up here thinking it is bonus spending money they don't need . yet that money was calculated in the size of the total portfolio when setting their draw rate and is part of the income generation end of things and is still needed to safely generate that income .

taking raises because things are better than expected is a different issue than just being forced to shift from one account type to another .

if a balance of 1 million was generating A 40K income pre rmd's , you still need the same million to generate that same income . the fact you have to pull 100k rmd amount out does not make it extra money and you now have a 140k to spend so you think you can blow it or give it away . .. the 100k still needs to do its share and will just do its share of generation from a brokerage account instead of an ira .

don't blow this because of a misconception as to what is happening when you take rmd's .
True, it is not found money, and yes spending rather than reinvest will decrease the income assets generates. But that income is also reinvested, and also ultimately increases your AGI. So why not spend it if that makes one happy? if all your expenses, as well as unexpected expenses are covered, there is a limit to what you need to save. Give it away now instead of leaving it in your estate.
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Old 10-08-2017, 11:26 AM
 
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the answer is above . it is if it does not count in the creation of your portfolio income then spend it .
if it is part of the balance you have been basing your income on than you can't spend it . it is a pretty simple decision .

i use a variable draw , so each dec 31 st my following years goal posts are set at 4% of each years balance . if we are up i get a raise , but if we are down i get the higher of 4% of the balance or what i took last year less 5% . wash and repeat each year


i can spend those rmd's but my income will be cut proportionately . same applies to anyone who set a 4% safe with drawl rate using their total portfolio . that draw is based on that full amount and the worst case scenario's acting upon it over the years . it is not going to hold under poor conditions unless that whole amount originally started with does not have excessive draws at any point more than 4% .

if you want extra money for spending the safer way , if you are drawing 4% or so is to look at your balance every 3 years . if you are 50% higher than you started with initially when retiring take another 10% on top of any inflation raises . repeat evety 3 years .

if you are living on your portfolio that is the way to safely take more money , not arbitrarily just taking huge draw rates made of of rmd money you really may need to sustain your income with ..once you just pull randomly based on rmd's you no longer have a safe withdrawal rate it is just a draw rate

Last edited by mathjak107; 10-08-2017 at 11:37 AM..
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Old 10-08-2017, 01:41 PM
 
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Thanks mathjak. I went back & reread the whole thread & the Kitces article, and I'm kinda despairing here. Like some of the other posters I have a (small but guaranteed) pension and SS. I also have about $200K of proceeds from the sale of a piece of property, so I don't need to take distributions from my 401(k), since I lead a pretty frugal life. What is freaking me out is that my millennial children, despite being hard-working and conscientious during their adult lives, are never going to get the pension, and probably not as good a deal on the tax-deferred retirement accounts or soc sec. I was hoping that using a QLAC would be a way to pass on more of my tax-deferred savings to them, rather than having the gov't lop off a big chunk of it. It looks as though I'm mistaken.

Having to take RMDs will increase my income tax bill by 75 - 80%. I've got an appointment with my financial planner -- hoping there is some magic that will let me pass more of my savings on. AFAIK, other than the QLACs the only way to avoid the giant tax hit is direct charitable donations. Am I missing something obvious here?

Quote:
Originally Posted by mathjak107 View Post

as michael kitces said if you made it to age 100 you may see a 5-6% return . that is a pretty risky bet . returns would likely be better on the same amount of money with bonds at typical life expectancy.

I read something on line (can't recall exactly where) that indicated some QLACs could be structured so that you could use them for LTC expenses even if you hadn't hit the distribution start date. That was the other reason I was looking into them -- as a way of self-insuring for LTC.

there really is no magic going on with a longevity annuity that you can't do with conventional products and not have to bet on an unusually long life time of nearly 100 years to see the same amount .kitces did all the numbers crunching in the link i posted above

Sigh.
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Old 10-08-2017, 01:52 PM
 
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yes you would be quite mistaken on the taxing of the qlac . it uses an accelerated schedule when you start drawing later in life than 70.50 .

this is why i say we all need to find the people who are not just talking heads that spew mis-information from other mis-informed people .

i like kitce and find his logic and numbers crunching pretty good and chock full of fact .

if he says no you can be pretty comfortable something is a no go .

but there are other reasons to use them . if you have longevity you should do better than had you bought bonds instead

.
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Old 10-08-2017, 02:25 PM
 
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mathjack107, I can look this up (and I will) but I figure you probably know the answer which I will then verify.

Is there a minimum withdrawal amount that one must take when one reaches age 70 and a half? I know withdrawals must start, but I'm not sure of the minimum amount or set amount.

I also have an old 401(k) at one of the law firms where I worked - how is that money handled, if impacted by requirement to withdraw at age 70.5 like an IRA. (I'm thinking this money does not fall under that 70.5 requirement?)

(sorry, I haven't read the thread yet, which I definitely will do - I apologize if this is repetitive)
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Old 10-08-2017, 02:32 PM
 
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Quote:
Originally Posted by matisse12 View Post
mathjack107, I can look this up (and I will) but I figure you probably know the answer which I will then verify.

Is there a minimum withdrawal amount that one must take when one reaches age 70 and a half? I know withdrawals must start, but I'm not sure of the minimum amount or set amount.

I also have an old 401(k) at one of the law firms where I worked - how is that money handled, if impacted by requirement to withdraw at age 70.5 like an IRA. (I'm thinking this money does not fall under that 70.5 requirement?)

(sorry, I haven't read the thread yet, which I definitely will do - I apologize if this is repetitive)
https://individual.troweprice.com/pu...RMD-Calculator

It is a fixed percentage rate rate based on age. The above calculator will figure it out for you. There are many online calculators.
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