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New Member advice needed for ER
Old 11-28-2007, 07:07 PM   #1
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New Member advice needed for ER

This is my first post and I'm asking for some help and experience. I appreciate being able to post/explain my financial status and questions w/o too many LOL's. I hope:

I'm 54 and will be 55 in March. I have a good job for my area, my income is $120 K/ year. Family is raised, no mortgage, no loans, and $ 1.55 MM invested as follows: $ 775K in self -managed investments with a moderate to good amount of capital gains, $250K in an IRA as a transfer from a previous 401k, 415 K in my current 401k, $50K combined in individual Roth's for the wife and I. The rest is in cash positions and and an annuity as explained below. My investments now are about 60/40 equities-MF/bonds and I think well invested across asset classes. We also have a bit of real estate that if sold is worth another $250K I can draw a small pension of $1500/mo (non-indexed) upon retirement. My SS has been maxed out for about 10 years. We have a moderate life style and I figure we can live very well on about $45K/yr after taxes. Work has become such a bitch I'd like to hang it up @ 55. Both of us are super healthy, but HI future costs, and SS reform are big issues.

I think we can make a retirement at 55 drawing my pension, income from these investments, and some small outside work if needed.

I would like to draw income from my $415K 401K upon retirement. Does anyone have experience using the 72T(I think) provision to transfer and draw income off this type account? How would I do it? What are there tax implications? Who should I consult?

Lastly I have a Principal annuity account which was a "transfer" from a Whole Life insurance I took out 30 years ago. It's only worth about $28 K and is invested in Fidelity Contrafund. I'll confess it was a pretty stupid investment and in spite of a good fund...it's not really appreciating. I'd like to transfer to something worthwhile. What can I do with this?

I know this is asking a lot, but any advice on my overall status and my individual questions would be much appreciated.

Thanks in advance,
Randy
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Old 11-28-2007, 07:16 PM   #2
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10at6,

I can't help you with 72(t) or the annuity question, but overall:

You have $1.55m. At a safe withdrawal rate (SWR) of 4%, indexed for inflation, that's $62k / year (pre-tax). You also have a non-indexed pension of $18k / year, and are 8 years away from minimum SS age. You think you can live on $5k / yr after-tax (not including healthcare?).

Even if healthcare costs are not included in th $45k / yr figure, you're in good shape with the pension, and not that far from SS.

ASSUMING (here's the big one!) that the $45k / yr is accurate, go for it!!!a
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Old 11-28-2007, 07:23 PM   #3
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Quote:
Originally Posted by 10at6 View Post
Does anyone have experience using the 72T(I think) provision to transfer and draw income off this type account? How would I do it? What are there tax implications? Who should I consult?
I didn't go the 72t route so I have no experience to share, but if I were you I'd start here: Welcome to 72t on the Net
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Old 11-28-2007, 07:34 PM   #4
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Yeh, go for it. $1.55 million at a conservative SWR of only 3% gives $46,500, then add your pension of $18000 gives you $64,500.

You are debt free, home paid off, kids raised and gone.

$64,500 gross to yield a $45000 after tax looks good. If you were even in the 20% effective tax rate, you would get $51600 after tax.

The in 7 years you qualify for early SS if needed/wanted. And you could always raise that very conservative SWR rate from your investments from 3% to 4% for a few years to yield an "extra" $15500 a year.

And you mention parttime outside work if needed---would be a complete bonus for income. I'd say you and DW can fly the coop next March!

The $250k real estate investment you have (and could sell) can be considered an emergency reserve for medical, unexpected expenses, family world tours, etc.

Someone else will have to answer the 72t questions and annuity tansfer questions.

Welcome to the forum.
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Old 11-28-2007, 07:42 PM   #5
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Originally Posted by 10at6 View Post
We have a moderate life style and I figure we can live very well on about $45K/yr after taxes.
Randy, with all those nice post-tax dollars, you can burn through them for quite a while with virtually no tax liability. In that case, I'd consider withdrawing from the IRA to fill up to the 15% tax bracket each year (joint return this gets you over 60k/y), using post-tax dollars to make up any gaps. At age 55 you may be able to withdraw penalty-free from your 401k if you are over 55 and have terminated employment with the sponsoring employer.

This has the net effect of depleting your pre-tax accounts over the years and makes your required minimum distributions less hefty when that time comes. The dollars come out at a 15% bracket, compared to whatever bracket you'll be in later - probably 25% with SS, pension, etc.

Don't pull the trigger until you have a clear and realistic plan for health insurance. It's a deal-killer otherwise.

Just some ideas to play with. I'm NOT a financial expert, so do your own research. See what FIRECalc says, and good luck - my first impression is that you are there.
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As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
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Old 11-28-2007, 07:53 PM   #6
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Quote:
Originally Posted by 10at6 View Post
This is my first post and I'm asking for some help and experience. I appreciate being able to post/explain my financial status and questions w/o too many LOL's. I hope:

I'm 54 and will be 55 in March. I have a good job for my area, my income is $120 K/ year. Family is raised, no mortgage, no loans, and $ 1.55 MM invested as follows: $ 775K in self -managed investments with a moderate to good amount of capital gains, $250K in an IRA as a transfer from a previous 401k, 415 K in my current 401k, $50K combined in individual Roth's for the wife and I. The rest is in cash positions and and an annuity as explained below. My investments now are about 60/40 equities-MF/bonds and I think well invested across asset classes. We also have a bit of real estate that if sold is worth another $250K I can draw a small pension of $1500/mo (non-indexed) upon retirement. My SS has been maxed out for about 10 years. We have a moderate life style and I figure we can live very well on about $45K/yr after taxes. Work has become such a bitch I'd like to hang it up @ 55. Both of us are super healthy, but HI future costs, and SS reform are big issues.

I think we can make a retirement at 55 drawing my pension, income from these investments, and some small outside work if needed.

I would like to draw income from my $415K 401K upon retirement. Does anyone have experience using the 72T(I think) provision to transfer and draw income off this type account? How would I do it? What are there tax implications? Who should I consult?

Lastly I have a Principal annuity account which was a "transfer" from a Whole Life insurance I took out 30 years ago. It's only worth about $28 K and is invested in Fidelity Contrafund. I'll confess it was a pretty stupid investment and in spite of a good fund...it's not really appreciating. I'd like to transfer to something worthwhile. What can I do with this?

I know this is asking a lot, but any advice on my overall status and my individual questions would be much appreciated.

Thanks in advance,
Randy
Things look solid to me with your numbers. Health Insurance even at 1000 a month you seem to be good to go, unless you have high falutin lifestyle.

Many are enjoying retirement on 40K a year.
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Old 11-28-2007, 09:45 PM   #7
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On your 401K plan withdrawals you need to check with the Plan Administrator, find out the details of your specific 401k as to withdrawals.

If they are like IRA rules then you EITHER need to be age 59-1/2, OR you can take at an earlier age IF you take substantially equal payments without penalty if you take them for at least five years and past age 59-/12.

Not sure I explained that clearly, but you likely can get a stream of income from 401k at age 55 without early withdrawal penalty of extra 10% IRS tax. Your plan documents may explain that better.
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401K Withdrawal
Old 11-28-2007, 09:56 PM   #8
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401K Withdrawal

Randy,

If you retire the year you turn 55, you should be able to access your 401k without a 10% early withdrawal penalty and without using 72t. Rule of 72t applies to IRA and if the current 401k is rolled into an IRA 72t would apply in order to avoid early withdrawal penalty.

Above however depends on the adminstrative rules around your 401k and allowance for partial distributions. Be cautious with your 401k administrator as you will be subject to any partial withdrawal rules the administrator has; limited number of withdrawals per year for example. Also, believe the administrator is required to withhold 20% of the requested withdrawal amount for tax. Income tax will owed on the amounts distributed, but no early withdrawal penalty should apply.

I left a portion of my funds in my 401k to bridge to 59.5 yo so I could then withdraw without penalty from my IRA and also avoid 72t.

For the rest of it, don't know much about annuities as have avoided them due to cost. The rest of your kitty seems fat enough to do what you want as long as you don't go crazy.

Peace out.
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Old 11-29-2007, 09:33 AM   #9
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Quote:
Originally Posted by Rich_in_Tampa View Post
Randy, with all those nice post-tax dollars, you can burn through them for quite a while with virtually no tax liability. In that case, I'd consider withdrawing from the IRA to fill up to the 15% tax bracket each year (joint return this gets you over 60k/y), using post-tax dollars to make up any gaps. At age 55 you may be able to withdraw penalty-free from your 401k if you are over 55 and have terminated employment with the sponsoring employer.

This has the net effect of depleting your pre-tax accounts over the years and makes your required minimum distributions less hefty when that time comes. The dollars come out at a 15% bracket, compared to whatever bracket you'll be in later - probably 25% with SS, pension, etc.

Don't pull the trigger until you have a clear and realistic plan for health insurance. It's a deal-killer otherwise.

Just some ideas to play with. I'm NOT a financial expert, so do your own research. See what FIRECalc says, and good luck - my first impression is that you are there.
I second this suggestion- this is really excellent advice.

Capital gains are taxes at 5% if your income is in lowest tax bracket- so much of the gains you are sitting on might be taxes at 5%. In addition utilize 72(t) to max out 15% bracket as well.

72 (t) has some requirements, my thought is figure out what you would withdraw in the 5 years prior to age 59.5, and have this money in one IRA (say with Fidelity or custodian A) and then have all other IRA money in another IRA (say with T Rowe Price or Custodian B). I believe I read somewhere the 72(t) was account specific/ custodian specific.

Tax tables
Reference Room

$65,100 is highest amount in 15% bracket, so the suggestion is 5 years of income ($325500) in one IRA for 72(t) and the balance in another.
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Old 11-29-2007, 10:38 AM   #10
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Retire Early: Can I withdraw money from my IRA before age 59½ ?
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