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Old 05-21-2013, 08:03 PM   #21
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Might want to toss that question out to the folks at: bogleheads.org also.
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Old 05-21-2013, 08:23 PM   #22
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Any further suggestions for AA and and withdrawal strategies to generate a 0.03% inflation adjusted $21.6k income from $230k for 7 years?
To minimize risk (at the expense of returns) you can just put everything in cash (or cash equivalent). At 3% inflation you won't run out.

To maximize returns (at the expense of risk) you can go 100% equities.

To go a middle ground, just interpolate between the two according to your risk tolerance. Given that the drawback of poor equities returns is minimal (you have to tap 72t), I would probably take a chance and go with a higher equity portion.

Stable value doesn't seem attractive to me because it sounds like even less risk than bonds (and hence less return).
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Old 05-22-2013, 12:37 AM   #23
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It looks like like your Asset Allocation is already close to supporting this, if you can keep up with inflation with your stable value, CDs, etc. If this math is correct.

Spending needs are about $150,000. Plus inflation.

$1,800/month * 12 months * 7 years = $151,200. There will also be dividends from the other $80,000 in equities. Even if dividends are cut in half and then rise with inflation, they would provide about $5,500, providing $1,200 and some cushion.

Now there is 5% cash and 8% stable value, but some is in retirement accounts. If that could be “moved” to taxable cash accounts and/or 475 accounts, by swapping cash and equity in both cases, this would already bring the asset allocation close to the spending needs in cash.

Only a few percent more equity would need to be sold to reach $150,000.

If spending needs are larger than expected, there are several backups:
- Withdrawal from retirement accounts often do not carry such a terrible penalty
- 72t with no penalty, but a nuisance and opportunity cost
- As you say, back to UK for free health care
- As you say, downstairs for higher rent income
- As you say, get a job
- As others say, a mortgage
- What most people do. cut back on expenses

Because you have so many choices, there is less need to be extremely conservative.

How can you keep up with inflation?

If you also have U.S. citizenship, you can obtain $10,000 or $15,000 of Series I Savings Bonds per year for 0% return, less 3 months inflation if redeemed before 5 years. Can't redeem first year.

You can also buy 5 year CDs for the last two years of spending, from somewhere with high yield but that lets you break the CD early without too high of a fee. If inflation rises much, you can switch to a bank account or a shorter term CD.

For the first 5 years, it could be more difficult. If your stable value fund only pays 2% and is dropping, it might not keep up. If you don’t want to withdraw from it, or wish to be conservative, you could add some percentage for inflation failure for the first five years, and sell a little more equity. The dividends can also help for, I don’t know, about ¾% inflation loss. $4,300 applied to 5 years expenses, if no help from I bonds.
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Old 05-23-2013, 07:35 PM   #24
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Looks like I have my plan to generate the inflation adjusted $21.6k for 7 years.

$20k cash

$60 in taxable Vanguard Total Stock Market

$150k 457 Stable Value fund currently paying 2.66%

As I spend down those assets I'll rebalance the rest of my portfolio.
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Old 05-24-2013, 09:17 PM   #25
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Interesting thought = I wonder if anyone has ever taken a job at age 55 just long enough to play the IRA->401k shuffle, then quit.

You can do that? Move traditional IRA money into you current employer 401k? That would be awesome! I had resigned myself that I had to go the 72t route. I wouldn't need to move it all, just enough to get me from 55 to 59.5.

I have only a few years worth of contributions in the current employers 401k, but I've kept my former employers 401k intact (super low fees). That one is off the table for age 55 withdrawls, isn't it?
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Old 05-24-2013, 11:00 PM   #26
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I have only a few years worth of contributions in the current employers 401k, but I've kept my former employers 401k intact (super low fees). That one is off the table for age 55 withdrawls, isn't it?

Maybe not. We rolled over a previous employer 401K to the last employer's 401k. Now we have access to the amounts from both 401Ks we can draw down on prior to 59.5 without any early withdrawal penalties.
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Old 05-25-2013, 10:38 AM   #27
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Maybe not. We rolled over a previous employer 401K to the last employer's 401k. Now we have access to the amounts from both 401Ks we can draw down on prior to 59.5 without any early withdrawal penalties.
Wow! Sounds like it's possible for me to move a rollover IRA account and/or previous employer 401(k) account to my current 401(k) and have access at 55! I figured the previous employer 401(k) could be available with a temporary stop in a rollover IRA, but nice to know there's a direct route.

I suspect that its going to be an all or nothing transfer. In other words, I can't take a portion of a rollover IRA or a portion of a former employer 401(k) and move it...gotta move the whole thing?

Now I just need to figure out if going this route is better than just going the 72(t) route. I don't like the idea of locking in a 72(t) and then finding they change the PPACA subsidy cutoff and I'm locked-in to a fixed amount.
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Old 05-25-2013, 10:52 AM   #28
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For those who are considering 72(t), please be aware that you do not need to include ALL of your IRAs in the calculation. You can have multiple IRAs and only use one for the 72(t) portion. https://www.irahelp.com/forum-post/1...-multiple-iras

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Old 05-25-2013, 10:59 AM   #29
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For those who are considering 72(t), please be aware that you do not need to include ALL of your IRAs in the calculation. You can have multiple IRAs and only use one for the 72(t) portion. https://www.irahelp.com/forum-post/1...-multiple-iras
That's a good point. I looked that one up when started doing my analysis and learned there was some granularity in my situation (four 72(t)-able accounts).

The one account, though, the prospectus first says you can do SEPP's, then later it says
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Because the Company cannot predict whether the series of payments will be substantially equal, the Company will report such withdrawls to the Internal Revenue Service as early withdrawls with no known exception.
Thanks a lot! So "the Company" is setting me up for a fight with the IRS!
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Old 05-26-2013, 10:08 AM   #30
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The rates are minimal and you could easily compensate for it by adjusting your portfolio into stronger income producing investments paying out 10%+ offsetting the interest.
Of course you'd be changing the risk in your portfolio. If you need to get at the IRA just do a 72t, why bother with paying interest or other fees. As a general rule it's difficult to get at IRA cash for good reason and the loan process is significantly different from 401k, 403b etc.
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Old 05-26-2013, 10:31 AM   #31
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Risk is not a factor as you change your risk and allocation if you take the loan or the equal distribution on the 72t. Infact you might be opening yourself up to penalties if life changes and now you need to change the plan in anyway. The loan is safer and offers a margin for error not found with a 72T
I thought that IRA loans weren't allowed?? Do you advocate using the IRA as collateral? I thought that wasn't allowed.

If you are adjusting your portfolio to offset interest and fees you will have by necessity changed your portfolio's risk, any "10%+" investment return comes with lots of risk. With the 72t you don't necessarily need to change your asset allocation, but I agree that a 72t needs to be carefully considered and I would only use conservative asset allocations to fund a 72t.

For those reasons I am not considering 72t, 403b loans, or IRA loans (that I didn't think were even possible outside of the 60 day short term withdrawal and payback scheme) to fund my early retirement.
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Old 05-26-2013, 11:08 AM   #32
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not sure who told you IRA loan weren't allowed. We do them all the time at ML and i am not aware of any bank/investment firms that doesn't do them.
My understanding is the loan is considered a withdrawal subject to the 10% penalty and taxes if not repaid within 60 days. What am I missing?

Borrowing From Your IRA - SmartMoney.com
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Old 05-26-2013, 12:43 PM   #33
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1)Just because it's a 10% yield don't assume it's a greater risk. it's simply an investment you are not familiar with or have had access to in the past.
Wow an 10% return on something I'm not familiar with, why aren't I interested?

Quote:
2) you could use a 4% or 3% investment to cover the interest charge and come out on top.
So why are you trying to sell +10% return investments?

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A loan against your assets(ira or any other) gives you greater leverage in that you keep your current investment and yield, can take a higher amount 1 month, lower the next.
To put it in simple terms, It's a line of credit. If you don't use it, no Interest charges apply.
I thought it wasn't possible to use IRAs as collateral for a loan. How does your IRA loan scheme work?
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Old 05-26-2013, 12:49 PM   #34
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Back to the 72T- It most definitely changes your asset allocation since you are depleting your IRA investment every month you take the payment hence leaving you with more cash and potential for re-investing in equivalent securities with a lower yield. So adjusting your portfolio is going to happen with a 72t or a Loan.
The point is the 72t costs nothing, no fees or interest like the loan. So I don't need to adjust my risk/return profile to cover the extra costs of a loan. If I did do a 72t I'd be sure to periodically rebalance.
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Old 05-26-2013, 02:05 PM   #35
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not sure who told you IRA loan weren't allowed.
The IRS?

2. What happens if a loan is taken from an IRA? If the owner of an IRA borrows from the IRA, the IRA is no longer an IRA, and the value of the entire IRA is included in the owner’s income. (Code § 408(e)(2) and (3))
If the owner of an IRA pledges part of the IRA as collateral, the part of the IRA that is pledged is treated as distributed. (Code § 408(e)(4))


Retirement Plans FAQs regarding Loans
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Old 05-26-2013, 02:12 PM   #36
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If you want to through (sic) out the loan idea altogether then, you may want to adjust your other investment to high yielding securities Such as Corp High yield or CMO's using a PAC/TAC to protect against principle prepayment or extension risk) these offer relatively lower risk of principle and higher income.

Hope this helps

Hmmmm........nope I won't be doing any of that
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Old 05-26-2013, 02:15 PM   #37
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The IRS?

2. What happens if a loan is taken from an IRA? If the owner of an IRA borrows from the IRA, the IRA is no longer an IRA, and the value of the entire IRA is included in the owner’s income. (Code § 408(e)(2) and (3))
If the owner of an IRA pledges part of the IRA as collateral, the part of the IRA that is pledged is treated as distributed. (Code § 408(e)(4))


Retirement Plans FAQs regarding Loans
+1.

If ML and all the banks are doing this I'd love "money bags" to explain exactly what his firm is doing.
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Old 05-26-2013, 02:32 PM   #38
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+1.

If ML and all the banks are doing this I'd love "money bags" to explain exactly what his firm is doing.

His biography says he is a "Merrill Lynch Financial Advisor."

Kind of interesting that he disappeared as soon as he realized the financial sophistication of the posters who responded to him.
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Old 05-26-2013, 03:06 PM   #39
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His biography says he is a "Merrill Lynch Financial Advisor."

Kind of interesting that he disappeared as soon as he realized the financial sophistication of the posters who responded to him.
His profile also said he has been a financial adviser for 20 years and his retirement date is 2043.

If he started work at 21, he'd be 41 now and retiring in 30 years from now when he is 71, and yet is trying to give investment advice to people on an early retirement forum.
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Old 05-26-2013, 03:50 PM   #40
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Wow 10% return - how can I lose? Of course on CNBC's American Greed last night the scheme guaranteed 12%. Dial it back to 10% and it appears reasonable and not greedy.
I think in today's environment the scamers out there need to dial it back a bit to say, 7%, and they'll get some takers.
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