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Funding the 4 year gap between ER and earliest SoSec date.
Old 12-08-2017, 06:29 PM   #1
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Funding the 4 year gap between ER and earliest SoSec date.

First, yes, this is a sequence of returns risk and maybe a market timing question as well. But second, while I may not start taking SS at 62, with retiring at 58 next year I will need to suppliment my retirement income from 401k funds until I start SS with 62 being the first milestone.

My 401k balance is small compared to the majority here but it is enough to suppliment our pension and the SS my wife and I will receive. Honestly, once we start SS what we have left in the nestegg will just provide fun money and cola.

One obvious option is to set aside 4 years of income that will match SS at 62, then evaluate at 62 whether to postpone SS further or go ahead and start it.

But I could also set aside 2 years cash or CDs and leave an addition 2+ years or a much higher % of my portfolio invested in a low volatile Wellesley type fund. I could also roll the dice a little by holding out 2 years to start and leaving the rest invested more aggresively to benefit if markets keep performing well and take out one year's $$$ at year 3 if markets are down or two or more if markets are significantly up.

What I hope is that with two to four years in cash to fund that 1st gap to age 62, my remaining investments do well enough that I can draw out more each year from 62 until 65 or 67 without draining it. But I fully expect a pull-back sometime over the next 4 to 5 years.
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Old 12-08-2017, 07:35 PM   #2
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One obvious option is to set aside 4 years of income that will match SS at 62, then evaluate at 62 whether to postpone SS further or go ahead and start it.
I like this one. Sounds great and pretty much foolproof. For example, if you will be getting $1,000/month from SS at age 62, set aside $48,000 in a high yield savings account to bridge the gap from age 58 to age 62.
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Old 12-11-2017, 08:27 AM   #3
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I like this one. Sounds great and pretty much foolproof. For example, if you will be getting $1,000/month from SS at age 62, set aside $48,000 in a high yield savings account to bridge the gap from age 58 to age 62.

Thanks for the response. This is my default but I am bad about second guessing the obvious.
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Old 12-11-2017, 08:56 AM   #4
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Thanks for the response. This is my default but I am bad about second guessing the obvious.
I have a 2 year gap, so I built a 2 year CD ladder (and we have ~1 year SHTF cash stash). YMMV.

Oh, also, congrats!
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Old 12-11-2017, 08:58 AM   #5
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FWIW, I did three month intervals for the duration.
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Old 12-11-2017, 09:01 AM   #6
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My approach is to look at what my SWR would be before the earliest I planned to take SS (which for me I set to 63), and ensure I had that amount set aside in cash so that market swings would not impact it. I am willing to give up potential gains for the safety.

This may be similar to your "set aside 4 years of income that will match SS at 62, then evaluate at 62 whether to postpone SS further or go ahead and start it" approach. I believe main difference is that I am not looking at what SS would provide, but rather what I plan to spend as the set-aside amount.
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Old 12-11-2017, 09:27 AM   #7
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My retirement is based on your layout.
I receive my monthly pension and a withdrawal from my 401k.
My 401k and a 457b have just a little more then enough to bring me to SS. The 401 and 457 are just bridges to SS, nothing more.
Not saying it's the way to go but it works for me.
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Old 12-11-2017, 09:30 AM   #8
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I like this one. Sounds great and pretty much foolproof. For example, if you will be getting $1,000/month from SS at age 62, set aside $48,000 in a high yield savings account to bridge the gap from age 58 to age 62.
this is exactly my plan. Or build up a stable value fund that's in a liquid account. Of course when I actually reach my target fire date who knows if that plan will stick.

First mode of operation is pump as much cash into the stock market as I can.
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Old 12-11-2017, 10:31 AM   #9
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.....One obvious option is to set aside 4 years of income that will match SS at 62, then evaluate at 62 whether to postpone SS further or go ahead and start it. ...
Does your 401k have any restrictions on the amounts or frequency of withdrawals that you need to consider... IOW, let's say you needed $1,000/month... can you set up a $1,000/month automatic withdrawal? or can you take out $12,000 once each year? Or do you have to take out the entire amount at once?

You want to make sure there isn't a conflict between what you want to do and what the plan allows.
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Old 12-11-2017, 11:33 AM   #10
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Does your 401k have any restrictions on the amounts or frequency of withdrawals that you need to consider... IOW, let's say you needed $1,000/month... can you set up a $1,000/month automatic withdrawal? or can you take out $12,000 once each year? Or do you have to take out the entire amount at once?

You want to make sure there isn't a conflict between what you want to do and what the plan allows.
Yes, I have checked on that. I can set up the regular monthly withdrawals and I can take a larger sum out in the beginning if needed without penalty as long as I leave enough to cover those withdrawals in the 401K.

And about 72% of my 401k balance in a self-directed TD Ameritrade account I am not feeling the need to roll any of it out until I am passed the 59.5 milestone.

Thanks
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Old 12-11-2017, 01:27 PM   #11
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You are lucky... many employer 401ks are not near as flexible.
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Old 12-11-2017, 08:49 PM   #12
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"My 401k balance is small compared to the majority here but it is enough to suppliment our pension and the SS my wife and I will receive. Honestly, once we start SS what we have left in the nestegg will just provide fun money and cola."

Congrats Ed!

"One obvious option is to set aside 4 years of income that will match SS at 62, then evaluate at 62 whether to postpone SS further or go ahead and start it."

I'd choose this option, as it ensures some "fun money and money for inflation/cola." But, that's me. If your risk tolerance and $ expectations call for it, you and your DW may prefer to take on more risk in exchange for possible $ gains offered by the other options you mentioned in your first post.

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Old 12-13-2017, 08:54 AM   #13
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while I may not start taking SS at 62, with retiring at 58 next year I will need to suppliment my retirement income from 401k funds until I start SS with 62 being the first milestone.
My 401k balance is small compared to the majority here but it is enough to suppliment our pension and the SS my wife and I will receive. Honestly, once we start SS what we have left in the nestegg will just provide fun money and cola.
That sounds similar to my plan. We are planning to retire when I turn 60 and wife is 55 (about 6 years from now). We will live off my wife's pension and my IRA for the first two years. When I turn 62 I can start drawing my measly SS income, which will reduce what we need to take from the IRA. Once my wife reaches 62 she'll take her SS and we really won't need to take anything from the IRA. It will continue to grow as "play" money, or to cover unexpected expenses. I use the "Flexible Retirement Planner" to test various scenarios like this.
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Old 12-27-2017, 10:45 AM   #14
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You are lucky... many employer 401ks are not near as flexible.
As follow-up particularly to pb4uski, I had a good long discussion with our 401k plan help desk. I meet all the tenure requirements to take out a larger initial distribution to pay off a few things and set up monthly distributions without penalty when I separate (retire) at age 58.

Because all my funds are pre-tax the distributions are taxed as ordinary income, which I knew. Also they are required to withhold 20% for fed income tax which I will get back, partially, when I do my taxes at year-end. That last bit was good info that I wasn't sure about.
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Old 12-27-2017, 11:13 AM   #15
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Retired at 55. Started Pension.
from age 55 to 59 1/2 lived off pension plus monthly 401k withdrawals. See Note 1
at age 59 1/2 rolled 401k to IRA and adjusted monthly withdrawal amount. See Note 1
at age 62 started SS with minor child drawing a benefit, stopped monthly IRA withdrawals.
at age 70 expect RMD plus pension plus social security to far exceed projected expenses.

Note 1:
Employers Summary Plan Description for the 401k allowed early systematic withdrawals. Requirement was to specify a duration for the withdrawals that completely depleted the 401k. I chose a duration that resulted in monthly income that met my projected needs. Once this distribution scheme was set, any changes would result in full immediate distribution. Once I reached 59 1/2 and I rolled the 401k to IRA, I could vary the monthly withdrawals as needed.
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