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Old 08-07-2019, 12:44 PM
 
6 posts, read 1,192 times
Reputation: 18

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All the articles i have seen talk about depleting taxable assets first, tax-deferred second, and non-taxable last. What they do not really address is my situation where my non-taxable asset is basically plain ol' cash.

I'm 64, own my house, no debt, married and retiring in about 4 months. Non-working spouse. I will confess right off that I am just not the type of person who has the patience to achieve the level of financial sophistication that many of you posses, which is why I'm hoping to borrow a bit of your knowledge. I put "plan" in quotes because it is probably comically unsophisticated. Nonetheless, here it is.

I calculate that our joint SS will be $43,000 per year. I calculate we can live as we want to on an annual income stream of $100,000k (with a possible bump here and there for a larger than normal trip or something). I have a taxable 401K with a balance well over $1 million. I also have non-taxable cash or cash equivalents of several hundred thousand.

My "plan" is to supplement SS with about $57,000 of cash up to my $100,000 income goal for maybe the first four years. That way i leave my 401K untouched to grow, and as i understand it, I'd be living basically tax free. I would not spend the cash to $0 - I'd keep a reserve. Only after the first 4 years or so, I'd start taking 401k distributions.

Does this make sense? It also occurs to me i could preserve some cash by taking just enough 401k distributions up front to keep me just below the threshold where the SS benefits are taxed - that would be roughly $1,000 per month. Does that make any more sense?

Thanks. Laughter is also welcome.
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Old 08-07-2019, 12:59 PM
 
Location: SoCal
13,778 posts, read 6,545,574 times
Reputation: 10339
I do tax deferred first. In taxable, if you have large LTCG, your heirs get a step up level.
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Old 08-07-2019, 01:44 PM
 
Location: Kentucky
571 posts, read 325,975 times
Reputation: 2313
Why would any one laugh at that? Most people have much less of a plan than you do!

Good luck, Rg
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Old 08-07-2019, 01:50 PM
 
1,154 posts, read 257,294 times
Reputation: 2318
If you are not 100% confident with what you read or you don't understand it, consider talking to a fee only financial planner.
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Old 08-07-2019, 02:07 PM
Status: "Life is good." (set 15 days ago)
 
Location: Colorado
54 posts, read 12,015 times
Reputation: 270
I would argue to leave your cash alone and take the balance that you need from your 401K now to lower the required RMDs that will really impact your taxes later on. Yea, you pay taxes now but it saves you from paying higher taxes later. Using current tax law, your first RMD will likely be around 50K.
BTW, congratulations. You have saved a bundle with your lack of 'financial sophistication'. Enjoy your retirement.
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Old 08-07-2019, 02:11 PM
 
Location: Florida
4,430 posts, read 3,766,014 times
Reputation: 4234
You need an emergency fund so part of your cash can go into CD's or the short term bond market.


The rest of the cash is surplus so spending it on day to day living expenses makes sence.

Maybe get a series of CD's that cover the first couple of years of cash need so you get a little bit of earnings. Go on line to find them.

I would also take a little out of the 401k and put that into CD's for the years down the road. I would pay attention to current taxes. Your goal is to reduce your required minimum distribution when you are 70. My assumption is you will be paying taxes on all your income once that happens.

If the market crashes, and it will at some time, then leave your equites alone and work of the CD's.
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Old 08-07-2019, 02:17 PM
 
1,077 posts, read 1,126,348 times
Reputation: 1426
If one of you dies, you will drop down to one social security check. Do you have a plan B if that happens?
Also one million dollars at 4% is $40,000. And 3% is a better draw down rate. I think $100,000 is too much to expect to draw, once your taxable money runs out. Are you investing in stocks or mainly bonds and cash? There are a lot of variables.
You say you have well over a million in 401K and several hundred thousand in taxable, exactly how much over these amounts do you have?
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Old 08-07-2019, 03:32 PM
 
Location: the Old Dominion
307 posts, read 156,018 times
Reputation: 1461
Default ...laugh, laugh...- the Beau Brummels

Quote:
Originally Posted by Tiredo'werkin' View Post
All the articles i have seen talk about depleting taxable assets first, tax-deferred second, and non-taxable last. What they do not really address is my situation where my non-taxable asset is basically plain ol' cash.

I'm 64, own my house, no debt, married and retiring in about 4 months. Non-working spouse. I will confess right off that I am just not the type of person who has the patience to achieve the level of financial sophistication that many of you posses, which is why I'm hoping to borrow a bit of your knowledge. I put "plan" in quotes because it is probably comically unsophisticated. Nonetheless, here it is.

I calculate that our joint SS will be $43,000 per year. I calculate we can live as we want to on an annual income stream of $100,000k (with a possible bump here and there for a larger than normal trip or something). I have a taxable 401K with a balance well over $1 million. I also have non-taxable cash or cash equivalents of several hundred thousand.

My "plan" is to supplement SS with about $57,000 of cash up to my $100,000 income goal for maybe the first four years. That way i leave my 401K untouched to grow, and as i understand it, I'd be living basically tax free. I would not spend the cash to $0 - I'd keep a reserve. Only after the first 4 years or so, I'd start taking 401k distributions.

Does this make sense? It also occurs to me i could preserve some cash by taking just enough 401k distributions up front to keep me just below the threshold where the SS benefits are taxed - that would be roughly $1,000 per month. Does that make any more sense?

Thanks. Laughter is also welcome.
The best plans tend to be unsophisticated.
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Old 08-07-2019, 03:55 PM
 
688 posts, read 204,592 times
Reputation: 2505
Tired, your and my own situation are very similar, except I'm a couple of years younger and unmarried (but still similar, your takeout is about twice mine, since I'm single). What I'm currently doing, is living off my "cash", deferring my SS until later (hopefully, age 70, due to having good current health and family longevity), and converting my regular IRA (401k rollover) to a Roth IRA. The plan is to decrease my regular IRA to a point where the RMD at age 70 will not trigger income tax when combined with SS after that age, and I can then supplement it with tax-free Roth distributions. I had originally planned on keeping the conversions to under $52K per year to stay in the 15% bracket (adjusted for inflation), but that really won't do what I want it to, I have converted about $75K this year, and will make further adjustments as needed to make goal at age 70. I really don't know if it's better to pay the taxes upfront or later, but it sure seems that keeping SS income tax-free is a laudable goal, especially if I later move to a state like Oregon, which exempts SS income but imposes a high tax on IRA distributions.

The problem becomes, "What will tax rates and market gains be in the future?" (let alone health and longevity), but nobody has those answers, all we can do is look at history and make our best judgements as to which path to take. Congratulations on having provided so well for your and your partner's future, Enjoy.
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Old 08-07-2019, 07:04 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,822 posts, read 40,266,699 times
Reputation: 24092
Similar age, single income couple, no pension, just my own plan....

Any Roth or 401k Roth? (401k can be offered Roth or non).
If so, save that till last to spend (most flexible)
If not.... Consider Roth conversions age 65-71 to lower RMD, run tax scenario each yr to decide. Any ltcg to capture? Do those on low income yrs ~$72k = zero ltcg!
We will be taking some distributions from traditional IRA age 64-71 to aid in lowering RMD.

RMD will go to QCD (charity) if needed.

Probably will delay ssa to age 70 to reap the 8% annual bonus post FRA. Spousal claim will be at FRA (max available).

We travel a lot, >50% of the time. Very inexpensively.... 1 yr RTW cost us less than $40k. USA cost is usually $20k. House will never be paid off... Cheap money.
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