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extra expenses? lowered expenses? 72t?
Old 01-08-2008, 04:48 AM   #1
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extra expenses? lowered expenses? 72t?

Spoke w/Fidelity yesterday. setting up appt to go in and speak w/them. Have money in Fidelity but cant answer anything else as I really dont understand whats going on
Girl did say however that I can replace more than my current gross salary w/a 72T. Im 50, I know I'll be commited for 9/9.5yrs
Also need to consider 4yrs college for my highschool freshman

Did you find you needed your last gross salary to make the money work? were there extra costs when you first left work? were you able to cut expenses?

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Old 01-08-2008, 08:32 AM   #2
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Hi retiring,

Do you have a spreadsheet that estimates your future expenses and income? I have found it the best way to try to figure out when I can retire. That, and punch your numbers into Firecalc (see link at bottom of page).

A 72T is a way to get money out of your IRA before 59.5. Some people use it, I don't intend to - rather, I intend to save enough in taxable accounts to get me to 59.5. Whether you can replace your current salary depends on how much you have saved in your IRA, as there are rules as to the amount you can withdraw.

As far as how much you need to live on (I think that is what you mean by your last 2 questions), the spreadsheet will help with that. There are many adjustments you can make to your current expenses:

Since you are retiring at 50, I assume you save a big chunk of your salary now. When you are retired, you won't be saving anymore, so you can take that out. You won't have to pay SS taxes anymore. Will your mortgage be paid off? You won't have commuting costs or work clothes expenses, but maybe you will travel more? Will you be taking up an expensive hobby?

Start from what you spend today, and then think about where things will change. Add in an estimate of college costs in years 4 through 8 of your spreadsheet, and see what that does. Estimate inflation and the growth in your portfolio over time, to see how much income you can get out of it.

You don't actually live on 100% of your gross salary now, so it is unlikely you'd spend that much when you retire.

Hope this helps a little. If you have any specific questions, let us know.

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You may want to split the account into two
Old 01-08-2008, 11:22 AM   #3
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You may want to split the account into two

Use one for the 72t and leave the other for emergencies so you don't face back taxes for not following the 72t rules. You may also want to take out more than you need and use the excess for Roth conversions from the other one assuming your tax bracket is low. Be sure to account for inflation over that time. Find out if they require withholding or you can just rely on quarterly tax payments. My expenses changed little, but they were always far below my income.
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Old 01-08-2008, 12:42 PM   #4
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I retired last year at 48 with most of my $$ in IRAs. I take 72t payments from the big IRA,
but keep a seperate smaller IRA in case I encounter some big unexpected expenses in the next
10 years. My spending is slightly higher than my pre-retirement spending, which is quite a bit
higher than a few years earlier due to pre-paying off my mortgage in 2004, but this is intentional
and could be cut back considerably since most is on travel / wine / entertainment / toys.
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Old 01-08-2008, 01:45 PM   #5
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My gross salary in '04 was $75K. Retired 30 Dec '04 (age 54). Spent less than $25K every year since (not including buying a used car).

Initially I was researching how to get money out of retirement accounts; my needs have not exceeded my pension.

But then, I'm rather frugal and don't have a family .

You probably won't need your gross salary.

Previous advice was good: track your spending and think about inflation.

Just because you're withdrawing money, doesn't mean you have to spend it all.

I think there is a way to refigure the 72T withdrawal every year based on age and amount; but someone else will have to recall details.
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Old 01-08-2008, 04:38 PM   #6
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Originally Posted by Khan View Post
I think there is a way to refigure the 72T withdrawal every year based on age and amount; but someone else will have to recall details.
Yes, that is the easy method, which I use. The percentage goes up a bit each year, and is specified
by an IRS approved table. This year I withdraw just under 3% of my balance on Dec 31 2007.
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Old 01-08-2008, 08:30 PM   #7
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I have no opinion on where to draw your funds from as I did not have that issue. I have a pension and have set up income from parts of my taxable portfolio which will cover my expenses. So I don't have to draw on my 401k yet (I believe I 'over-engineered' my retirement funding by being overly conservative).
As to expenses, I have found that our expenses are about the same (as before retirement). We just spend it on different things. We have exchanged work expenses for travel expenses. If needed (for additional initial travel) we have budgeted for it from our taxable accounts. In our case we continue our LBYM ways by NOT spending more than we have in our budgets, while enjoying travel while we are still young enough and healthy enough to do so.
Best of luck on your upcoming retirement.

Life is GREAT!
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