Winning the game...maybe

[jd0850]

Hi everyone. So glad I found this forum. About us. I am 60 & retiring at 62. DW is 56 and semi retired as of last fall. I will collect a $52000 yearly pension at 62(no COLA). DW has 403b in TIAA Trad which at 59 1/2 will be worth $200,000 and 6,000 in a Roth 403b (Cref Stock). We also have $92,000 in our IRA's and Roth accounts at Schwab (85% equities). Have $35,000 cash on hand but will use most of that to pay off mortgage. My SS at FRA will be $24,000. Hers is $18,000 at FRA.

Our expenses in retirement would be $50,000 including HI but excluding taxes. Austerity would be $35,000 and $60,000 on the high end which probably would be in the first few years because we would like to get a little traveling in while were young(relatively speaking).

Initial plan was for both to take early SS. Everything would be fine and dandy out to 90 and beyond. DW laughs at my planning past 90, insisting she will never make 80 (and she calls ME the negative nelly). But I have some lingering doubts about the pension. I pretty sure its good for the next decade ( 90% funded which is considered "Healthy Status by the PBGC). After that I get more pessimistic plus it is losing value. If it would fail completely, possible but hopefully unlikely (trying to think POSITIVE Dear), I would be eligible per the PBGC of about $13,000 per year. Yikes

The plan I'm working on now is for me to file for Spousal SS at 66, wife to file early SS and I would file for my own SS at 70. That creates some cash flow problems early in retirement. Part of DW TIAA Trad ($66,000) is subject to TPA restrictions so the plan would be to start the TPA when she reaches 59 1/2. That will alleviate most of the cash flow problems but not all.

My question is should we fund the shortfalls in the high end budget (no problems with the normal budget) with the IRA's or Roth's or dip into the balance of the TIAA Trad which is not subject to any restrictions. Or should we not even touch any of her TIAA and fund the shortfall solely with IRA accounts.

My main model is QLP(Quicken). I have used Firecalc,Fido and countless others and all seem to say I'm good to go if the pension stays healthy. Still trying to figure out how to model the failure of pension say at 70.

 

[Animorph]

In general, and I can't speak to your details, you want to spend the Roth last. You have enough in it (though I see it's IRA + Roth, so maybe not) that you might also want to use it earlier if a reasonably small (sustainable) withdrawal can be used to keep you out of a higher tax bracket. For example, if it looks like you will end up $2k over the 15% tax bracket, you might want to reduce your IRA withdrawal by $2k and instead take $2k from the Roth. That might save you an extra 10% tax on that $2k as it pops into the 25% bracket.

My second idea is that I'd keep the mortgage (if it's not 6%+, or do a refi). That gives you extra cash for a few years while waiting for SS to kick in.

 

[jd0850]

Thanks for your reply. Presently the IRA's are divided into $55000 TIRA and $37000 ROTH. For me to get to 70 and full SS we will need about 55000 out of our retirement accounts one way or the other. The wife's 403b is fixed at 3.6%. Should I leave that untouched until RMD's kick in and spend down the ira's and roth's as you mentioned? Or spend down some of the fixed income and hope for better returns in the equities?

The mortgage (5 7/8%) is pretty small at about $30,000. At accelerated payments I will have it paid off in Oct of 2015. Minimum payments would have it paid off in Jan 2019. Either way I run it I will have to tap into retirement accounts in 2018.

 

[clifp]

First of all welcome to the forum, and second I think you are wise to delay SS for yourself in order to allow your younger wife a more secure retirement.

What is the survivor benefit with your pension? Assuming the wife gets at least 1/2 of it.

I'd be incline to spend as follows TIRA first
Then wives 403B when she hits 59.5.
I'd use the Roth strategically to keep you in the 15% bracket when you need the funds.

On one hand 3.6% is better than any no risk short term investment. On the other handyou have such a high percentage of your assets tied up in fixed income with no inflation protection that I think you'd be wise to have more equities. Does she have the option in the 403B to invest in something else?

 

[Animorph]

Thanks for your reply. Presently the IRA's are divided into $55000 TIRA and $37000 ROTH. For me to get to 70 and full SS we will need about 55000 out of our retirement accounts one way or the other. The wife's 403b is fixed at 3.6%. Should I leave that untouched until RMD's kick in and spend down the ira's and roth's as you mentioned? Or spend down some of the fixed income and hope for better returns in the equities?

The mortgage (5 7/8%) is pretty small at about $30,000. At accelerated payments I will have it paid off in Oct of 2015. Minimum payments would have it paid off in Jan 2019. Either way I run it I will have to tap into retirement accounts in 2018.

I'll defer to clifp on the 403b, I have no idea how that works with a 3.6% fixed income investment inside. I assume it's a cash value pension kind of thing? If you have the option to move to equities or spend this down a bit that might be better than selling equities or making Roth withdrawals. However, I suspect your annuity option might be appealing as well. We have enough members here with TIAA and 403b experience that you should be able to pick up some better advice on this in time.

You could refi the mortgage for 15 years at 3% to help out a bit, but it is kind of small and kind of high rate now to keep as is.

Consider the time when you have the pension, two SS benefits, and RMD's (tax deferred account required minimum distributions) (or annuity) hitting you all at the same time. That's when you'll want to have a low balance in any remaining IRA's and similar accounts. If you can spend down the accounts that will drive the RMD's now, that can minimize your tax bill later. You can do that with withdrawals in your lean years or Roth conversions if you don't need the income. Just don't lose a valuable annuity benefit if that's an option. As usual, it's mostly tax optimization and dependent on your specific details.

 

[jd0850]

Yes clifp, it is 50% to wife upon my death. There are 4 other options. 66%, 75%, 100% and single life (not really an option if you know what I mean). And yes there is a whole range of funds in TIAA-CREF I could transfer into. And yes Animorph there is annuity options in the 403b. About a third of the 403b can only be taken out in a TPA (Ten Payment Annuity) over ten years or annuitized. The other 2/3 can be withdrawn at any time or annuitized or transferred. So should I start the TPA at her age of 59 1/2 to spend down the 403b before RMD's, any additional funds that are needed would be taken from our Tira's and try to convert some of the Tira's to Roth. Then rebalance the remaining 2/3s into more equities. There is already a Roth account setup in the 403b with about 6000 in Cref Stock. Maybe I should try to do conversions to that if possible. I'm not sure about that. Thanks for the info.

 

[clifp]

At the risk of being tarred and feather by the forum members.

If you can find a good fee only financial planner, who is familiar with TIAA-CREF products. There are enough moving parts in your plan and enough potential tax consequences that I think spending $500 or so maybe even $1,000 to have some one run various scenarios might be money well spent.

There are often tax advantage ways of withdrawing money from 403(B) but I know, that I don't understand what the are. There are resource on the forum to help you find a fee only adviser.

Plus the forum loves to second guess their advice. In general the forum, is great at keeping people from doing stupid things, but for more complicated stuff you'll often get conflicting advice

 

[jd0850]

Okay Clifp, to keep the naysayers off your back, lets kinda start over. Forget that I ever mentioned 403b because for all intents and purposes, at least in my case, they function just like a 401k. All withdrawals are taxed as regular income and subject to penalties before age 59 1/2. The only difference in my case, is that about a 1/3 of the account ($66,000) has withdrawal restrictions as mentioned before. The other 2/3s ($134,000) of the account acts just like a 401k, fully taxable and such. I hope this clarifies the situation and keeps those pesky feather throwers off your back because I value yours and most everyone else's advice and opinions on this great forum.

So in going with the SS collection plan mentioned before, we would need about $100,000 to bridge the gap till I collect the full SS at 70. So if we fund that with our Tira's and her TPA of $7000 a year for ten years that would leave about $150,000 in her tax deferred account (401k) subject to RMD's when she is 70 1/2. From my calculations our effective tax rate should be around 12% with an additional 4% state during that time period.

So in order to keep the feathers from flying (i am trying to defend you Clifp), any advice and opinions are welcome. Thanks guys

 

[pb4uski]

I would try to keep the TIAA Trad account as long as you can or as long as you need it for the fixed income part of your AA because the interest rate is good and there is no interest rate risk.

Unless you plan to sell you home and move I would look into possibly doing a 15 year cash-out refi while you are still working and interest rates are low that would beef up your taxable accounts to help carry you to through the first few years of ER until you have penalty free access to your tax-deferred funds. If you find out later that you don't need the taxable funds you can then always pay down or payoff the mortgage, but the taxable funds will give you more flexibility during this short period of time until you have penalty free access to your tax-deferred funds.

The problem isn't that your don't have enough to retire and defer SS until you are 70, but that you have limited access until DW is 59 1/2.

One thing to check into is whether DW's 403b plan allows penalty free withdrawals since she quit after she turned 55.

 

[Animorph]

Might be interesting to compare SS with anything similar you could get through DW's 403b. We're talking a somewhat straight trade of 403b funds for extra SS. Wouldn't want to do that if the 403b offered something better. Or you could feel better about it if SS was clearly better.

 

[jd0850]

Yes pb4uski, I agree with you on keeping the TIAA trad intact but its 2/3s of my AA if thats a problem. There is a interest only option on part of the 401 account that I could use also for a few years. If I spend down our Tira's and use the interest only option I will squeak by. That would leave our Roth's intact. Then let the TIAA Trad accumulate or I could move some of it into equities at TIAA for inflation protection.

As for as the mortgage options I can still get by with paying it off. We have kicked around the notion recently of selling so i think I can pay it off with minimal problems. 59 1/2 is the when she can draw form her account.

Animorph. I could annuitize all or any part of the 403b say in a $100,000 ten year certain annuity. That would also cover expenses. That would keep my Tira's intact so i could possibly do some Roth conversions in the meantime. That could be the answer too. Thanks guys. My little brain is about to explode.

 

[pb4uski]

I don't get why you seem concerned.

As I understand it, even assuming that your DW does not have access to her 403b before she is 59 1/2, she will be 58 when you turn 62 and retire, so you only need to fund 2 years of gap before you both have access to penalty free withdrawals, and the gap is about $13k a year ($60 + $5k for taxes -$52k pension), so if you have $26k in taxable savings at the time you retire you are all set to go from DW being 58 to 59 1/2.

Then you can live off tax-deferred savings from when she is 59 1/2 and you are 70, which is another 6-7 years at $13k or so a year is only $90k and you have plenty to fund that.

What am I missing?

 

[jd0850]

Ya you are right. I am way over thinking this. Thanks for the slap back to reality.