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72t for the spouse?
Old 06-03-2011, 10:05 AM   #1
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72t for the spouse?

Planning on retiring in about 18 months at 60, DW will be 55. Have 13 year old twins. Assets approx. 1.5M, w/ 35% taxable and 65%IRA.

I will have a Navy pension that will pay out approx 15K first 3 years then 30K after that (paying back a previous buy out). In addition, in 3 years the mortgage will be paid off. In another 3 years will start taking SS.

The problem is, income from stock dividends and pension will be rather small in the first 5-6 years, which is exactly the time we want to do some extensive travel with the kids, do some landscaping, etc. while we are still young. By 2019, pensions and SS will pretty much pay for all living expenses (and are COLA protected).

So we want to access all our funds( i.e. DW doing a 72t) and take out a bit more aggressive the first 5-6 years (like maybe 5%). After than we can throttle back to perhaps 3.5% from then on.

Does this sound like a good plan? I know from reading here that it is risky to pull too much money out in the early part of retirement, but on the other hand, the kids and us are only young once and would like to take advantage of doing stuff early on.
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Old 06-03-2011, 11:26 AM   #2
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We are pulling a bit more out early to carry us til 59.5 and for planned vacation in 2012, and built our plan that way. We are not using the 72t however, as we have funds to hold us until then.

My concern would be still having a mortgage, 2 - 13 year olds, health insurance and taxes.

Have you run Firecalc and your numbers? There is too little info in your post to say if it sounds good or not....
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Old 06-03-2011, 11:52 AM   #3
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We are pulling a bit more out early to carry us til 59.5 and for planned vacation in 2012, and built our plan that way. We are not using the 72t however, as we have funds to hold us until then.

My concern would be still having a mortgage, 2 - 13 year olds, health insurance and taxes.

Have you run Firecalc and your numbers? There is too little info in your post to say if it sounds good or not....
Health care will be covered by my Navy Pension. What have I left out that needs to be covered? Yes, I've run some Firecalc but it doesn't cover getting mortgage paid off, etc (Unless I don't know how to run it correctly).
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Old 06-03-2011, 11:58 AM   #4
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You need to check on 72t rules. Thought withdrawal percentage was based on age didn't think you could adjust it. You should be able to withdraw from your TSP w/o penalty, why not do that?
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Old 06-03-2011, 01:05 PM   #5
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You need to check on 72t rules. Thought withdrawal percentage was based on age didn't think you could adjust it. You should be able to withdraw from your TSP w/o penalty, why not do that?
I'm not sure what a TSP is. My DW and I have IRA's, ROTH IRA's, Stocks and Bonds and my Navy pension. The idea for the 72t was so that my DW at 55 could get some $ from her IRA's without tax penalty. I'm not sure I want to deplete some "buckets" faster than others, would prefer to siphon some assests out of all the buckets over time.
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Old 06-03-2011, 02:22 PM   #6
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I'm not sure what a TSP is. My DW and I have IRA's, ROTH IRA's, Stocks and Bonds and my Navy pension. The idea for the 72t was so that my DW at 55 could get some $ from her IRA's without tax penalty. I'm not sure I want to deplete some "buckets" faster than others, would prefer to siphon some assests out of all the buckets over time.
TSP = Thrift Savings Plan
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Old 06-03-2011, 02:49 PM   #7
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TSP = Thrift Savings Plan
Must have been after my time. Is that a Fed Civilian thing? I don't remember ever hearing of such a thing in the military. We didn't have a contributionary plan when I was in.
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Old 06-03-2011, 03:07 PM   #8
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Planning on retiring in about 18 months at 60, DW will be 55. Have 13 year old twins. Assets approx. 1.5M, w/ 35% taxable and 65%IRA.

I will have a Navy pension that will pay out approx 15K first 3 years then 30K after that (paying back a previous buy out). In addition, in 3 years the mortgage will be paid off. In another 3 years will start taking SS.

The problem is, income from stock dividends and pension will be rather small in the first 5-6 years, which is exactly the time we want to do some extensive travel with the kids, do some landscaping, etc. while we are still young. By 2019, pensions and SS will pretty much pay for all living expenses (and are COLA protected).

So we want to access all our funds( i.e. DW doing a 72t) and take out a bit more aggressive the first 5-6 years (like maybe 5%). After than we can throttle back to perhaps 3.5% from then on.

Does this sound like a good plan? I know from reading here that it is risky to pull too much money out in the early part of retirement, but on the other hand, the kids and us are only young once and would like to take advantage of doing stuff early on.
it is difficult to give a quality/comprehensive answer when we dont know 1) what your expenses will be in retirement and 2) what and when your income sources will be.

however, here is a plan. i would prefer not to use a 72t unless i had to, therefore i suggest you consider:

1) putting off taking SS until you are 70 (this will maximize this COLAed "annuity" and i am assuming that your SS will be larger than your wife's)

2) for any income you need over your pension between the day you retire and the year your wife turns 59.5 use taxable funds and your TIRA. during this time, if it looks good from a tax standpoint, convert as much of your wife's TIRA (and some of yours if your income/expense picture supports it) to roths.

3) for any income you need over your pension between the year your wife turns 59.5 and you turn 70 use all funds except roths. if your wife has earned SS on her work record (i am still assuming that yours is larger) start taking hers when she turns 62. also continue to convert TIRAs to roths as is appropriate wrt taxes.

4) start taking your SS at age 70.

however, if your wife's SS, based on her work record, is larger than yours then you would alter the above plan by starting yours when you are 62 yo and delay the start of her until she turns 70.
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Old 06-03-2011, 09:36 PM   #9
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I mostly concur with JDW's plan

It sounds like you have a 4.5 year gap between when you retire and your wife is eligible to withdraw her IRA money penalty free. It probably makes sense for you guys to start withdrawing money from your IRA in order to take advantage of the relatively low tax bracket you'll be in. A 15K pension plus the interest and dividends from a ~500K taxable portfolio is pretty small. However, I don't see any reason not to withdraw money from your IRA (and possible do roth conversions with hers as JDW suggests).

Why do you want to go through the hassles of setting up a 72(t) for her IRA as opposed just taking the money from hers?
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Old 06-03-2011, 10:28 PM   #10
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Must have been after my time. Is that a Fed Civilian thing? I don't remember ever hearing of such a thing in the military. We didn't have a contributionary plan when I was in.
Guess so, didn't realize you were out in 99. Nowadays Military and Civil Service can contribute, essentially a 401k.
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Old 06-03-2011, 10:29 PM   #11
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I mostly concur with JDW's plan

It sounds like you have a 4.5 year gap between when you retire and your wife is eligible to withdraw her IRA money penalty free. It probably makes sense for you guys to start withdrawing money from your IRA in order to take advantage of the relatively low tax bracket you'll be in. A 15K pension plus the interest and dividends from a ~500K taxable portfolio is pretty small. However, I don't see any reason not to withdraw money from your IRA (and possible do roth conversions with hers as JDW suggests).

Why do you want to go through the hassles of setting up a 72(t) f
or her IRA as opposed just taking the money from hers?
I didn't realize they were such a hassle.
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Old 06-03-2011, 10:47 PM   #12
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I didn't realize they were such a hassle.

I haven't set one up, just read over the years posting by the guy behind 72t.net. I don't think they are horribly hard to set up, but they aren't something that typical employee of financial institution has much or even any experience with administrating. They aren't particularly flexible and the IRS penalties for making a mistake are draconian IMO. They are very valuable in some situations. In fact just this week, I urged my friend who has been out of work for 2.5+ years and just started tapping his IRA to use a 72(t) rather than taking the 10% penalty.

However, 72(t) are much more complicated than simply withdrawing money from traditional for anybody over the age of 59.5. So why take the risk?
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Old 06-03-2011, 10:47 PM   #13
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I mostly concur with JDW's plan

It sounds like you have a 4.5 year gap between when you retire and your wife is eligible to withdraw her IRA money penalty free. It probably makes sense for you guys to start withdrawing money from your IRA in order to take advantage of the relatively low tax bracket you'll be in. A 15K pension plus the interest and dividends from a ~500K taxable portfolio is pretty small. However, I don't see any reason not to withdraw money from your IRA (and possible do roth conversions with hers as JDW suggests).

Why do you want to go through the hassles of setting up a 72(t) for her IRA as opposed just taking the money from hers?
thank you for your support of my plan however i am not seeing where your suggestion is any different than mine. all i can find in your post is as follows:

Quote:
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I mostly concur with JDW's plan
...
However, I don't see any reason not to withdraw money from your IRA (and possible do roth conversions with hers as JDW suggests).
...
however i also suggested that if needed, from the start of his retirement, he use funds from his TIRA as needed for expenses and if reasonable for roth conversions.

Quote:
2) for any income you need over your pension between the day you retire and the year your wife turns 59.5 use taxable funds and your TIRA. during this time, if it looks good from a tax standpoint, convert as much of your wife's TIRA (and some of yours if your income/expense picture supports it) to roths.
i think it is important to get as much money as you can out of your TIRAs and into roths while also trying to do tax bracket leveling across your lifetime. this means more TIRA conversions/withdraws when you have lower other taxable income. also, this will take some guess work as to future tax brackets but it is probably not a bad bet that tax rates will only go up from here.

did i miss some point you were making that didnt agree with what i said?
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Old 06-03-2011, 10:50 PM   #14
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I didn't realize they were such a hassle.
not just a hassle but they also limit your flexibility. and if your TIRA investments drop like a rock, they can force you to deplete your TIRA. (as well as what clifp said)
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Old 06-03-2011, 11:46 PM   #15
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did i miss some point you were making that didnt agree with what i said?
No only disagreement is that we don't have enough info health and earnings history to make a recommendation about when to take SS. For the generic case of older higher earning man it make sense to wait till 70 to take SS, not sure this would be true in the OPs case. Everything else makes sense.
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Old 06-04-2011, 12:52 AM   #16
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No only disagreement is that we don't have enough info health and earnings history to make a recommendation about when to take SS. For the generic case of older higher earning man it make sense to wait till 70 to take SS, not sure this would be true in the OPs case. Everything else makes sense.
i do agree that we dont have enough info and i said that
Quote:
it is difficult to give a quality/comprehensive answer when we dont know 1) what your expenses will be in retirement and 2) what and when your income sources will be.
but it sounds like you are saying that the "when to start taking SS decision" depends on how much the SS payment will be. i disagree as it is scalable. the increase in SS you get by waiting is the same percentage, no matter what the actual amount is. i did cover the question of who's is higher, saying that the 1 with the higher SS should be the 1 who waits till age 70.
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Old 06-04-2011, 07:10 AM   #17
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i do agree that we dont have enough info and i said that

but it sounds like you are saying that the "when to start taking SS decision" depends on how much the SS payment will be. i disagree as it is scalable. the increase in SS you get by waiting is the same percentage, no matter what the actual amount is. i did cover the question of who's is higher, saying that the 1 with the higher SS should be the 1 who waits till age 70.
Health is good (relatively, i.e. do have heightened BP, but otherwise fine), so is DW health. I am 5 years older than DW and do have the higher earnings. So far we have about 250K transferred into Roth and I'd like to get another 50-75K moved over. I can see where if it is not a hardship, to wait until 70 for my SS, since both of my parents lived into their 90's
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Old 06-05-2011, 02:05 PM   #18
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Health is good (relatively, i.e. do have heightened BP, but otherwise fine), so is DW health. I am 5 years older than DW and do have the higher earnings. So far we have about 250K transferred into Roth and I'd like to get another 50-75K moved over. I can see where if it is not a hardship, to wait until 70 for my SS, since both of my parents lived into their 90's
i see you are providing more info but the kind of info i am interested in is 1) a detailed projection of your expenses in retirement (along with a bit of an explanation as to how you arrived at it) including what your mortgage payment is, how much extra you are planning on spending on travel in the early years, how many years you want to spend this extra on travel, how much & when you plan to spend on landscaping and any other unusual expenses you forsee, 2) projected SS for both you and your wife (based on her work record) at both ages of 62 and 70, 3) size of your TIRA, your wifes TIRA, your roth ira and your wifes roth ira, 4) total cash (including in iras) available, and 5) any other sources of income.

remember, our analysis/advice can only be as good as the data we use (i.e. the data you give us)
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Old 06-05-2011, 03:29 PM   #19
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Will get something out to you by tonight

Thanks
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Old 06-05-2011, 11:19 PM   #20
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i see you are providing more info but the kind of info i am interested in is 1) a detailed projection of your expenses in retirement (along with a bit of an explanation as to how you arrived at it) including what your mortgage payment is, how much extra you are planning on spending on travel in the early years, how many years you want to spend this extra on travel, how much & when you plan to spend on landscaping and any other unusual expenses you forsee, 2) projected SS for both you and your wife (based on her work record) at both ages of 62 and 70, 3) size of your TIRA, your wifes TIRA, your roth ira and your wifes roth ira, 4) total cash (including in iras) available, and 5) any other sources of income.

remember, our analysis/advice can only be as good as the data we use (i.e. the data you give us)
OK, I get the message and agree you can't give advise on minimal info so
1) expenses in retirement. Right now we have about 4500/month expenses, including $1600 mortgage, $250 utilities, $1000 insurance (home, auto, health), $650 food, and the remaining $1000 for gas, clothes, etc. Toss in an extra $6000 a year for auto repair, dining out, etc. and we get to about $60K/year. For retirement (Mar 2013), I'd like to figure on $85K/year since we will have more time to travel. I'd like to buy an RV so would add on $12K/year in payments for that, 1 cruise a year at $7K and add $6K for additional travel costs and some hobbies. I would plan on 10 years of this in early retirement.

At retirement, I start getting a Naval Pension of approx. $15K/year. I would also get the Tricare health which is about $600/year (that saves about $9000/year in health insurance). The mortgage is paid off in 2016, and at the same time my Naval Pension jumps to $29K/year w/ COLA increases thereafter.

2) SS for me at 62 is $1700/mo, 66 is $2190/mo and 70 is $2930/mo. SS of DW is 62= $835/mo, 66.5 = $1120/mo and 70=$1445/mo

3/ My TIRA= $590K, Roth= $130K; DW TIRA= $251K, Roth=$101

4) Total cash avail at ER (my TIRA and ROTH, plus taxable accounts) = $1195K

5) Summary, 2013-2016 income is $15K Naval Pension plus income from #4
After 2016 $29K Naval Pension, no mortgage.

Other info: 2015 I'm 62, 2019 I'm 66 and DW is 62, 2021 DW is 66.5, 2023 I'm 70.

Let me know if other info is needed. I really appreciate the advice here.
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