52 Yr old, $3.1 million, all over the place!

[Turboslacker]

It's time to stop working and start living!

 

[Walt34]

I think it IS the transition that was stumping me; how do I go from saving for 30 years to actually taking money out of the sacred savings accounts? More mental than financial, me thinks.

That happens to many people here. After a lifetime of saving it is a huge mental adjustment to switch to spending.

 

[pb4uski]

AmIReady, You ARE ready!!!! At least financially. Change is hard. I have a similar background (but not near as big a nestegg) and have been ER'd for two wonderful years.

Lower taxes will be a big surprise. To see, take your 2013 tax return and zero out your earnings and withholdings and I think you will get a pleasant surprise. A big reasons is that if your income stays in the 15% tax bracket, the tax rate on qualified dividends and LTCGs is 0% - tax free!

Your spending is modest in relation to your nestegg. Even if you withdraw $100k a year your withdrawal rate will only be a tad over 3% and will be even lower once SS comes on line.

While you have a long tome to make a final decision, given your family longevity, assets and potential RMDs, I would plan to delay SS until age 70 which will allow you to do Roth conversions and reduce the tax bite once SS comes online.

Also, I believe that your after-tax 401k can be rolled into a Roth IRA where it will grow tax free. I was unaware of this opportunity when I rolled over my 401k but luckily my after-tax balance was immaterial.

Also, if your 401k has a stable value fund option that offers a decent interest rate, you may want to stay in the 401k as stable value funds are not available in IRAs. Stable value funds are similar to bonds but with no interest rate risk.

You may want to run your situation through Quicken Lifetime Planner which is a simple, easy to use deterministic retirement planner.

What I did to mitigate the emotion associated with withdrawing after accumulating for so many years was to schedule an automated transfer from my investment cash to my checking account that was roughly the same as my net paycheck on the same date's that I got paid while I was working as my new retirement "paycheck".

Finally, you can put some of that cash to better work in some online savings accounts that will earn 0.8-1.0% and keep an eye out here for the December PenFed CD special (2013's was 3% for a 5 year CD).

My withdrawal strategy is first from taxable accounts, then from tax-deferred accounts and then from tax-free accounts and using Roth conversions as I can to reduce taxes later in retirement.

 

[Trooper]

Thanks for sharing your situation, AmIReady. Many of your concerns resonate with me, and my financial situation is fairly similar to yours, although not as flush .

Although I really enjoy my work and my employer likes the work I do, I am starting to feel that I like NOT working more. I'm 56 and sitting at a desk all day makes me feel like crap at the end of the day.

The main differences in our situations is that I am married (wife retired) and we have no mortgage. Like you we get freaked out over whether the money will last after the transition from saving to spending. Our annual income needs are about $90K including health care. I keep asking myself why do we need so much but...

Wondering how much of your $75K spending needs is for health care?

Thanks again...I am now able to benefit from the great responses from others.

 

[38Chevy454]

I should have added in my previous reply, but it has enough to stand on its own. I have stated to others previously: Yours is an emotional decision, not a financial one. It is the transition and change that you need to deal with, but don't be concerned with the financial stress, no need for that!

You have done well with the savings and working for your money, now it is time to let your money work for you.

 

[Al in Ohio]

You should have retired 2 years ago IMO.

 

[Huston55]

Also, I believe that your after-tax 401k can be rolled into a Roth IRA where it will grow tax free. I was unaware of this opportunity when I rolled over my 401k but luckily my after-tax balance was immaterial.

Is this correct? Even for a normal 401k? What are the tax consequences?

 

[gauss]

..
I'm divorced and my ex had significantly less earnings so I'm sure my SSI is the better one. There is no real need in my withdrawal plan to take SSI earlier, and honestly it all came back to my FEAR OF DEPLETING MY SAVINGS ACCOUNTS. That's hard to do! I modeled to live to 90 and still had minimal assets left at a 3% ROI, but jeeze that mental block is hard to overcome.

My grandmother is 94, and her mother died at 102. My grandmother still saves cottage cheese containers and writes dates on her eggs so that she uses them in order. I think they ruined me.

Just to amplify panacea's post - Under current law you can take a Spousal Social Security benefit for a few years that does not effect your own future benefit. That is to say that your deferred benefit will continue to grow on its own. It is not a choice of a Spousal benefit vs your own, but rather a choice of a Spousal benefit vs nothing for the few years when this strategy works. I believe that it works for the years between your full retirement age and 70 years if you fully defer your own benefit. It is kind of a free lunch to the tune of tens of thousands of dollars. That being said, the law is subject to change and the President's budget proposal from a month or two ago had a sentence suggesting that this may be targeted for reform.

-gauss

 

[Hermit]

Is this correct? Even for a normal 401k? What are the tax consequences?

As I understand, yes you can. In my plan, they will do two disbursements any time I withdraw money from the plan. The after-tax is proportional. That means to get my after-tax amount all out I would need to pull all of the money out and place it all in two IRAs, one taxable and one Roth. There are no tax consequences. The after-tax component is only what was put in, not the earnings. The sooner that cash is put in a Roth, the sooner the earnings also become tax free. In my case, the amount of after-tax cash is so small, it isn't worth the hassle.

 

[gauss]

As I understand, yes you can. In my plan, they will do two disbursements any time I withdraw money from the plan. The after-tax is proportional. That means to get my after-tax amount all out I would need to pull all of the money out and place it all in two IRAs, one taxable and one Roth. There are no tax consequences. The after-tax component is only what was put in, not the earnings. The sooner that cash is put in a Roth, the sooner the earnings also become tax free. In my case, the amount of after-tax cash is so small, it isn't worth the hassle.

There is current discussion about the benefits/issues of after-tax contributions to 401ks for those fortunate enough to have plans that allow it going on at this thread.

-gauss

 

[pb4uski]

Is this correct? Even for a normal 401k? What are the tax consequences?

Remember I am talking about after-tax 401k money, not pre-tax. IIRC the regs on whether or not you can roll after-tax 401k money to a Roth IRA are unclear and many interpret that it is allowed so just keep in mind that there is some tax risk to doing so but when I researched it I concluded that it was probably ok.

As I recall, you need to pay tax on the excess of the rollover over your after-tax contributions.