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72(t): now vs later
Old 06-22-2016, 10:18 AM   #1
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72(t): now vs later

Hello all,

I've been on and off the forum for years, mainly off. My wife passed away about 4 years ago, at which time I took about 3 years off work to focus on raising my daughters.

Fast forward to now, I'm re-married, have been back in the engineering workforce for a year, and am ready to chuck-it once again.

My question is, I'm 52 and have liquid savings to carry me through the next several years.

I could either:
1. Live off liquid as long as possible before queueing up a 72(t)
2. Start the 72(t) now, live off it and liquid savings until 59.5

My thoughts are to delay 72(t) as long as possible in order to maximize portfolio growth, but then on the flipside there's a risk that down the road, things have changed and my 72(t) amount available is significantly smaller.

Firecalc tells me I'm good for a 35 year time frame given my portfolio, spending, and social security projected, so in the grand scheme of things I'm not concerned; just thinking of the mechanics of how I structure it.

Thoughts appreciated.

- John
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Old 06-22-2016, 12:39 PM   #2
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Quote:
Originally Posted by runchman View Post
Hello all,

I've been on and off the forum for years, mainly off. My wife passed away about 4 years ago, at which time I took about 3 years off work to focus on raising my daughters.

Fast forward to now, I'm re-married, have been back in the engineering workforce for a year, and am ready to chuck-it once again.

My question is, I'm 52 and have liquid savings to carry me through the next several years.

I could either:
1. Live off liquid as long as possible before queueing up a 72(t)
2. Start the 72(t) now, live off it and liquid savings until 59.5

My thoughts are to delay 72(t) as long as possible in order to maximize portfolio growth, but then on the flipside there's a risk that down the road, things have changed and my 72(t) amount available is significantly smaller.

Firecalc tells me I'm good for a 35 year time frame given my portfolio, spending, and social security projected, so in the grand scheme of things I'm not concerned; just thinking of the mechanics of how I structure it.

Thoughts appreciated.

- John
I briefly considered planning for a 72(t) to get me to 59 1/2 but decided to take the path via Roth instead.

Both my and DW's 401ks allowed after-tax contributions to our 401k(s) up to around $50,000/year each. After year 2010 we were able to freely convert these contributions to Roth IRAs.

  • Roth contributions can be withdrawn from Roth IRAs. (But the earnings would be subject to tax/penalty before age 59 1/2)
  • Roth conversions can be withdrawn after a 5 year waiting period for each conversion.
The only challenge with this strategy is that you have to track and report your basis in Roth contributions and conversions separately on IRS Form 8606, but not until you start taking distributions -- that can involve much record archeology if you weren't expecting this.

Bottom line John is that if you have Roth assets available now they may provide another path to age 59 1/2.

The other idea that I also had was to access a HEL on my home if I started to run short to get me to age 59 1/2 since the home is nearly paid off and there.

-gauss

p.s. I am sorry to hear the part in your post about your wife's passing.
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Old 06-22-2016, 05:30 PM   #3
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35 years is a bit short, you are probably looking at more like a 40+ lifespan for one of you.
Does your wife currently work ?
When are you planning to take SS ?
Did you do the manual SS calculator as the number SS gives you will be off because you stop working early ?
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72(t): now vs later
Old 06-22-2016, 10:34 PM   #4
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72(t): now vs later

Curious what else you might do to generate more income to stretch your taxable funds. I keep a list of probably 60 ideas, many hair-brained on second reading but some quite viable. They are just fun part time jobs, eBay-type businesses, selling the house for a duplex and renting half as a VRBO, etc. If nothing else, the list is some comfort that there are plenty of things to do post-career.

Congrats on re-marrying. Does your wife work?

Could you live abroad for a few years or in a low cost of living place?

If you could do some things like this to stretch your taxable account to get you within 2-3 years of age 59.5, it might be worth it to then just pay the 10% penalty rather than the 72T hassle and 5 year requirement.
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Old 06-23-2016, 08:43 AM   #5
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Thanks for the comments, I will likely remain on the fence for some time as ideas bounce around my head. Wife works, making just north of $40k and plans to continue for a few years at least. My thought is to work part-time, close to home, ditching my 35 mile commute in Chicagoland traffic hell.

No plans to move overseas or cut expenses by moving at this point, as wife's grandkids are nearby, I have a daughter still in high school, blah blah blah. That's one thing that's a killer - property taxes here are horrible, $9500 on a $340k house. We'd eventually go lower cost, but that's far on the horizon.

My main question was really on the wisdom of delaying 72(t) as long as possible, which I guess is more or less a no-brainer; better to live off the taxable savings and modest income, make ACA cheaper.

Back to the spreadsheets and endless pondering
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Old 06-23-2016, 11:54 AM   #6
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Originally Posted by runchman View Post
Thanks for the comments, I will likely remain on the fence for some time as ideas bounce around my head. Wife works, making just north of $40k and plans to continue for a few years at least. My thought is to work part-time, close to home, ditching my 35 mile commute in Chicagoland traffic hell.

....
Since you are in engineering, why don't you apply for jobs closer to home, they exist and the market has improved over the past year.
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Old 06-23-2016, 12:51 PM   #7
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Since you are in engineering, why don't you apply for jobs closer to home, they exist and the market has improved over the past year.
Yeah, that's an idea, and one I've pursued a bit recently. Thought I had a job locked up at Argonne labs, cool position, 5.5 miles from home, back in February, but that fell through. Gotta keep looking/applying.
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