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Old 08-08-2019, 07:19 AM
 
6 posts, read 1,192 times
Reputation: 18

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I'm so unsophisticated that when you used the acronym LTGC, I had to Google it, but I am bright enough to figure out you probably did not mean Lake Tahoe Golf Course.

For those asking about Roths or other assets that might be subject to capital gains, or specific amounts I have, my sum total assets, not counting cars, are as follows:

1. House in a hot and stable real estate area worth conservatively $700,000 that I paid $84K for as a repossessed HUD home in 1991. Neither of us is emotionally tied to this house, and will gladly sell it to move somewhere cheaper if it ever comes to that. So I view part of its value as a reserve asset.

2. Fully taxable regular 401K with a current balance of $1.2 million. Right now it is weighted heavily towards bond funds. Bonds are dong ok right now, and I get scared about going more to stocks for obvious reasons, such as the news.

3. Cash of about $350,000.

I should also add 2 things. Neither us expects to live into our 90s. 80s would be a bonus. And I do not particularly have a goal of dying with my 401k balance the same or higher than I started. We have 2 kids, but both are engineers. If we leave them the house or a chunk of money on top of that, they will be thrilled. I suppose I should also add we are not extravagant spenders. Both of us would rather take a road trip through the Adirondacks or whatever over a trip to Tuscany.

For the person who said I need to reduce my RMD, and that currently it would be about $50k at 70, won't my distribution under my plan be more than that anyway - at least $57k in today's dollars? For the person who said I should take some 401k money out now and put it in CDs, that's where my lack of saavy hits home. If I withdraw, its taxable. Then I put it in a CD that, although a known rate of return, is probably a lower rate than the money would make sitting where it is. What am I missing?

EDIT: And I should add that due to my longevity expectation, I will take SS now. So whatever I do with the above assets, will be building on top of about $43k annually as long as we are both alive.

Last edited by Tiredo'werkin'; 08-08-2019 at 07:53 AM..
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Old 08-08-2019, 09:40 AM
 
Location: SoCal
13,779 posts, read 6,545,574 times
Reputation: 10344
Your account will grow by the time you have to take RMD. But I’m curious why you need $100k of income why your house cost is low, I assume you have paid off your house by now.
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Old 08-08-2019, 02:11 PM
 
Location: Florida
4,430 posts, read 3,766,014 times
Reputation: 4234
The reason you would take money out of your 401k now is to reduce taxes over your life time. I will make up an example but I am not using real tax rates. Just trying to show your what can happen.

Lets say your taxable income is $50,000 and your tax rate is 15% with no 401k income.
Now lets say you take 10,000 from your 401k so your income is now 60,000 and your tax rate is still 15%
Thus you pay 15% on your 401k.

Now at 70 lets say your income before the 401k is still 50,000 and the tax rate is 15%
Now your RMD is 30000 (just a guess) so your total income is 80,000 but your highest tax rate is 20%. Lets say the 20% rate starts at an income over 70,000. Thus only 10,000 of the 401k is taxed at 20%. What you want to do is to take this 10000 now so it is taxed at 15%.

By the way if you did take the extra 10,000 from the 401k now and invest it in dividend paying stocks you may get a very low tax rate on the dividends and the gain when you sell the stock. You may want to discuss your options with a CPA that does taxes.

Also the money left to your children in the 401k will be taxed at their current income tax rates. They may pay less taxes if you get as much money out of the 401k as you can even if you do not want to spend it.

I assume you have a history of limited life span in your family so your planning is a little more complicated. I would look for a CPA that also does financial planning to review your retirement plans. Not looking for someone to manage your investments, just to make sure what you are doing is going to result in what you want.

The first step is to do what you are doing. Then I would go to a few online brokers and read their retirement sections and use their planning software. This should all be free. Then develop your plan. Then pay a CPA for a couple of hours of his time to review.

I am not a big fan of annuities but an annuity that considers your family longevity record may also be a good option.
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Old 08-08-2019, 02:28 PM
 
Location: SoCal
13,779 posts, read 6,545,574 times
Reputation: 10344
I would get a copy of TurboTax and run the number yourselves. No need for a COA. It will let you model your tax situation much more accurately. That’s how I do it.
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Old 08-08-2019, 02:52 PM
 
Location: USA
1,067 posts, read 417,828 times
Reputation: 2949
OP - as I relaxed at lunch and thumbed though the news via my phone, an article popped up that might help you.

"In 2017, the Stanford Center on Longevity analyzed 292 different retirement income strategies and determined the best way for most people to withdraw their savings. It’s called the “spend safely in retirement strategy” (SSiRS) and involves two basic components: delaying Social Security benefits and creating an “automatic retirement paycheck.”"

That led to this paper which throughly reviews how to "Spend Safely in Retirement Strategy (SSiRS)" and is aimed at folks who:
• have not accrued significant benefits in defined benefit pension plans,
• have accumulated meaningful balances in DC retirement plans, IRAs, or other savings, and
• might not work with financial advisers.
Does that sound like anyone you know?

The full paper is here on the Society of Actuaries site.

That reminds me of an old joke: what do people do who don't have the personalities to become accountants? They become actuaries.

That's my way of saying that the paper is rather dry but, if you read carefully, I'll bet you can find confirmation of some of the same advice offered in this thread in the paper itself.
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Old 08-08-2019, 11:16 PM
 
Location: NYC
2,992 posts, read 1,624,702 times
Reputation: 8077
Quote:
Originally Posted by k7baixo View Post
....

"In 2017, the Stanford Center on Longevity analyzed 292 different retirement income strategies and determined the best way for most people to withdraw their savings. It’s called the “spend safely in retirement strategy” (SSiRS) and involves two basic components: delaying Social Security benefits and creating an “automatic retirement paycheck.”"

......
I read this the other day & the one thing I wished they examined in a little more detail was the amount of the self-styled "paycheck" from a transition fund formed to cover the pre-SS years. One figure is your RMD amount. But if I read it right they seem to gloss over the difference between taking the same amount one would get from SS at income cessation vs taking the same amount at reaching 70yo. That's a 75% difference in drawing from assets if one stops working at 62 & claims at 70yo.

"There are two methods for reflecting Social Security benefits in the calculation of the retirement transition fund:
1. The retirement transition fund replaces the Social Security benefit that could have started at the time of retirement. The rationale is that if the retiree hadn’t decided to delay Social Security, he or she would have been satisfied with the Social Security benefit at retirement. In this case, the retiree will realize an increase in retirement income when the actual Social Security benefit starts that reflects the delayed retirement credits.

2. The retirement transition fund replaces the estimated Social Security benefit that reflects the anticipated delayed retirement credits when the actual Social Security benefit will start. This requires a larger retirement transition fund than the first method, but will provide a smoother transition in income when the actual Social Security benefit starts."


I found it confusing conflating the two methods.
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Old 08-09-2019, 03:24 AM
 
Location: Washington State
19,001 posts, read 9,790,509 times
Reputation: 16178
Quote:
Originally Posted by Tiredo'werkin' View Post
I'm so unsophisticated that when you used the acronym LTGC, I had to Google it, but I am bright enough to figure out you probably did not mean Lake Tahoe Golf Course.

For those asking about Roths or other assets that might be subject to capital gains, or specific amounts I have, my sum total assets, not counting cars, are as follows:

1. House in a hot and stable real estate area worth conservatively $700,000 that I paid $84K for as a repossessed HUD home in 1991. Neither of us is emotionally tied to this house, and will gladly sell it to move somewhere cheaper if it ever comes to that. So I view part of its value as a reserve asset.

2. Fully taxable regular 401K with a current balance of $1.2 million. Right now it is weighted heavily towards bond funds. Bonds are dong ok right now, and I get scared about going more to stocks for obvious reasons, such as the news.

3. Cash of about $350,000.

I should also add 2 things. Neither us expects to live into our 90s. 80s would be a bonus. And I do not particularly have a goal of dying with my 401k balance the same or higher than I started. We have 2 kids, but both are engineers. If we leave them the house or a chunk of money on top of that, they will be thrilled. I suppose I should also add we are not extravagant spenders. Both of us would rather take a road trip through the Adirondacks or whatever over a trip to Tuscany.

For the person who said I need to reduce my RMD, and that currently it would be about $50k at 70, won't my distribution under my plan be more than that anyway - at least $57k in today's dollars? For the person who said I should take some 401k money out now and put it in CDs, that's where my lack of saavy hits home. If I withdraw, its taxable. Then I put it in a CD that, although a known rate of return, is probably a lower rate than the money would make sitting where it is. What am I missing?

EDIT: And I should add that due to my longevity expectation, I will take SS now. So whatever I do with the above assets, will be building on top of about $43k annually as long as we are both alive.


I think you should be fine and you're far along in being ready to take the plunge. The one thing that would concern me is the amount you have in cash and bonds which are highly unlikely to do as well as a larger equity mix over time.

You didn't mention where you live but if you are in a high COL area with unfavorable taxes, you might consider relocating to a lower cost area.

You should probably pay to get some professional investment, tax, social security advice. There are some savvy posters on here like Mathjak who can give you more details on some of these issues. You should also review the 4% withdrawal rule with its several iterations which, considering your $1.55M ($62K start) available for investment and $43K SS would render about $105K to start and would be inflation adjusted.
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Old 08-09-2019, 03:32 AM
 
72,585 posts, read 72,452,347 times
Reputation: 50138
Quote:
Originally Posted by Hefe View Post
I read this the other day & the one thing I wished they examined in a little more detail was the amount of the self-styled "paycheck" from a transition fund formed to cover the pre-SS years. One figure is your RMD amount. But if I read it right they seem to gloss over the difference between taking the same amount one would get from SS at income cessation vs taking the same amount at reaching 70yo. That's a 75% difference in drawing from assets if one stops working at 62 & claims at 70yo.

"There are two methods for reflecting Social Security benefits in the calculation of the retirement transition fund:
1. The retirement transition fund replaces the Social Security benefit that could have started at the time of retirement. The rationale is that if the retiree hadn’t decided to delay Social Security, he or she would have been satisfied with the Social Security benefit at retirement. In this case, the retiree will realize an increase in retirement income when the actual Social Security benefit starts that reflects the delayed retirement credits.

2. The retirement transition fund replaces the estimated Social Security benefit that reflects the anticipated delayed retirement credits when the actual Social Security benefit will start. This requires a larger retirement transition fund than the first method, but will provide a smoother transition in income when the actual Social Security benefit starts."


I found it confusing conflating the two methods.
those who delay ss should not wait 8 years to first spend a dollar more if they retired at 62 ... if they can't safely lay out the amount from 62 to 70 they are not getting then perhaps delaying is not the right option for them .

the budget should stay the same from day one and only the make up of the income should shift from being all your money if you delay to more of ss money at 70 ..

you are basically eiher being more market and interest rate dependent taking it early or more longevity dependent taking it later but the spending should be the same regardless
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Old 08-09-2019, 07:34 AM
 
Location: RVA
2,184 posts, read 1,285,366 times
Reputation: 4525
It the KISS vein (keep it simple stupid) the simplicity of a withdrawal plan aids in the ability to understand where the money goes and how to maintain it. The main issues I see with the OP’s plan are pretty straightforward. First, the idea of living on tax free SS plus cash so there are zero taxes is a nice idea. But you are wasting an easy opportunity, that will bite you in the a$$ once you turn 71.
You can withdraw from your 401k up to the married filing jointly limit where the standard deduction credits that income to a still “no tax zone”. That way you preserve more of your cash and reduce taxes when you are 71. “But I will need $57k on top of my $43k SS ANYWAY, so why bother?” Because you don’t HAVE to take all $57k from your 401k. Why is this important? If your RMD (required min distribution) is only $40k, and you take the other $17k you need to make it $57k from cash, then you will only pay tax on the difference between the $40k and the deduction of the standard deduction, so only say ~$15k. And your SS is still tax free. But if you take the full $57k from the 401k, you MAY find that NOW you have been hit by the infamous Tax Torpedo and your $43k SS will NOW have 85% of it taxed! So you would go from zero tax on $100k to paying tax on 0.85(43k) + 57k= $93k!!!

Which means you would need an additional ~$11k just to pay the taxes to get the same net income. And that doesn’t even count any inflation. If you need $100k at age 64, you will need $110k at 74.

So it is quite important to USE as much from your taxable accounts first, up to where you would pay taxes to both reduce your RMDs AND preserve your cash for supplemental income to round out the tax reduction.

Also, unless you and your spouse have a death pact that you will both die simultaneously, if there is a survivor, then they are now paying taxes at the single rate, with a reduced SS total, so a much higher percentage of income is taxed. Not something they want to deal with after dealing with your death.
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Old 08-09-2019, 10:02 AM
 
9,057 posts, read 5,218,118 times
Reputation: 10333
I would take 401k distributions from day 1 and supplement with cash. When your RMDs kick in, you are going to pay a lot in taxes. Definitely fill up that 0% tax bracket.
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