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New and looking for advice
Old 12-25-2013, 08:47 AM   #1
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New and looking for advice

Hello,

I have been looking at this forum for a little while now and decided to finally introduce myself and seek some advice. I have a plan in my head, but not sure if it is the smartest way to go...so, any advice would be appreciated. Here's my story:

I'm retired military and currently get an after-tax pension of $2700/month which is adjusted each year to be close to the inflation rate. My wife is currently in the military and getting close to retirement, but she is in the Guard and will not get her pension until she is 60. I am currently 42 and she is 40.

We both currently work full-time and will for the next few years. However, I hope to retire completely when I turn 52. I'm currently in a Federal position and will qualify for another (albeit small) pension once I hit 10 yrs. At that point, I expect that we will have approximately $650K in a mix of 401K/Roth IRAs.

What I am thinking about doing is using a portion of that $650K (~$500K) and take out 79T distributions for about 10-12 yrs to give us some steady income until my wife's pension comes in and we are eligible for SS. After that, we would take the remaining balance and do something else...but, not sure the best strategy at that point...although I know that I do want to draw down the balance over my lifetime so that we can use our money before we die .

We are pretty simple people and want to just settle into a small hobby farm and live a basic, country life, so we don't expect to need more than about $3500-4000/month to live comfortably on.

I know that we will be pretty comfortable once my wife's pension is coming in and we can collect SS. But, I don't want to work until I'm 62+. With all that said, what is the best way to tap into the $650K between the age of 52-62 to give us some income during that period?

I'm just now learning about 79T distributions and like how it gets around the 10% early withdrawal penalty, but I don't know if that is the best option for us. Any inputs/suggestions would be greatly appreciated. Thanks in advance for your help.
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Old 12-25-2013, 09:05 AM   #2
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I would forget the 72T withdrawals and just plan to add some taxable account savings over the next 10 years (from 42 to 52) to carry you from 52 to 60.

You need $4,000 a month and your military pension is $2,700 a month so the gap is $1,300 a month or $15,600 a year. So if you had $125k of taxable savings when you turn 52, that should be sufficient to carry you from 52 to 60 ($15,600 * 8 years). To be safe, bump it up to $150k. So save $15k a year from now until you ER in taxable accounts and you should be set.
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Old 12-25-2013, 09:17 AM   #3
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Thanks. I thought about that strategy briefly...but, wouldn't I be missing out on the potentially higher rate of return if I took that $15K/yr and invested it into my 401K vs. a very low interest saving account? I'd also be putting away post-tax dollars into that saving account vs. pre-tax retirement accounts, thus increasing my taxable income each year until I'm 62 right? I'm still a novice to this, so I may be wrong...I certainly like the simplicity of just putting it away in a separate account to use for that period of time.


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Originally Posted by pb4uski View Post
I would forget the 72T withdrawals and just plan to add some taxable account savings over the next 10 years (from 42 to 52) to carry you from 52 to 60.

You need $4,000 a month and your military pension is $2,700 a month so the gap is $1,300 a month or $15,600 a year. So if you had $125k of taxable savings when you turn 52, that should be sufficient to carry you from 52 to 60 ($15,600 * 8 years). To be safe, bump it up to $150k. So save $15k a year from now until you ER in taxable accounts and you should be set.
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Old 12-25-2013, 09:42 AM   #4
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Your taxable savings don't necessarily need to be in a low interest savings account. You could invest in a no-load, low cost stock (or mixed) mutual fund. In fact, for tax efficiency it would be best to have your taxable accounts in stocks rather than bonds.

There is a risk that the account might decline in value as you are nearing 52, but you could mitigate that risk by grading towards something less volatile in years 5-10.

The tax disadvantage depends on your current marginal tax rate compared to your tax rate in ER but it would be a trade-off of any tax disadvantage compared to the 72T constraints.
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Old 12-25-2013, 11:13 AM   #5
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Some 401k plans have a 55 and terminated from service, 10% penalty free clause. You still owe tax and most withhold 20% for that. If it applies may be a more flexible way to go. All of this depends on the plans SPD. If its a rollover chance of that is probably 0.
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Old 12-25-2013, 11:49 AM   #6
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I don't usually post with advice since there are so many here with way more knowledge so mine is really more of a question. Since you already have $2700/month and in 10 years when you retire at 52 you get another small pension do you have any idea how much it might be? You are only $800-1300/month off from your target of $3500-4000/month. Will your pension in 10 years (considering inflation) cover that target or at least most of it? You may not need much to cover the difference.

If so if it were me then I would still put money away in a taxable low cost mutual fund account like Vanguard Index or one of the others that folks here might recommend. It sounds like the $125-150k that pb4uski suggested will give more than enough buffer with some left over since the second pension will be contributing too. In my case I saved too much in my tax sheltered accounts and will be moving to a higher tax bracket once I reach 70.5. Bummer!

After that it sounds like you and your wife are going to be in really good shape eventually with 3 pensions, 2 SS, and medical pretty much covered with Tricare.

Cheers!
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Old 12-25-2013, 01:20 PM   #7
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Badger--thanks for the response.

I'm a federal employee right now and I plan to put in for a deferred retirement/pension once I get 10 yrs in, which is the earliest I would be eligible. I won't be able to collect it until I hit my minimum retirement age (MRA), which is 57. So, if I retire at 52, I will have to wait 5 years for it. But, even after I get it, it will only be about $400/month after taxes and penalties. I've considered working until my MRA (57), but my pension would still only be $400/month from that job anyway (it's reduced 5% for every year you are under the age of 62). Yes, I'll be able to save more toward retirement during that 5 years, but I'm really more interested in retiring early with a little less money than working 5-10 more years to have more. Eventually my wife's pension and mine, along with SS should be enough to give us the basics we need, so I'm really focused on those years between 50-62ish.

I know that I should plan for leaving until I'm 90+ yrs old, but I'm also concerned about enjoying my life when I am still young and healthy enough to enjoy the things I like to do (garden, hunting, fishing, working outside, etc.,). It's hard to enjoy that too much when you're working 40+ hrs a week all the time. We enjoy the simpler things in life, so it doesn't take too much to make us happy.

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Originally Posted by Badger View Post
I don't usually post with advice since there are so many here with way more knowledge so mine is really more of a question. Since you already have $2700/month and in 10 years when you retire at 52 you get another small pension do you have any idea how much it might be? You are only $800-1300/month off from your target of $3500-4000/month. Will your pension in 10 years (considering inflation) cover that target or at least most of it? You may not need much to cover the difference.

If so if it were me then I would still put money away in a taxable low cost mutual fund account like Vanguard Index or one of the others that folks here might recommend. It sounds like the $125-150k that pb4uski suggested will give more than enough buffer with some left over since the second pension will be contributing too. In my case I saved too much in my tax sheltered accounts and will be moving to a higher tax bracket once I reach 70.5. Bummer!

After that it sounds like you and your wife are going to be in really good shape eventually with 3 pensions, 2 SS, and medical pretty much covered with Tricare.

Cheers!
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