Hi - taking the 'package' and on the glide path

[lindal00l00]

I am so grateful for the reassurance and insight offered by this forum - which I have been viewing for over a year.

I am 57 and taking a package at the end of the year which will give me a year of severance. I start receiving retirement ($47,000) next year which includes healthcare (around $200 month for my contribution). I have planned for this day and am pretty comfortable with my financial outlook - which is something like this:

Divorced female (and had a prenup!)
401 K - $1,006,000
Investments - $806,000
CDs - $195,000
Cash - $140,000

I have checked and rechecked expenditures and concluded that after paying off the mortgage with the severance, I will have about as much discretionary income as I did while working and hope not to touch assets for a long time to come. My only two delimnas are when to take SS, and whether to withdraw from 401 before I start taking it (I figure my required withdrawels will bump me back to a hgher tax bracket at 70).

I like working, but have had my fill of passive agressive bosses and poor leadership! Nonetheless, I still feel blessed!

 

[sengsational]

Welcome to the board! You're playing it very conservatively, indeed! With respect to when to take social security, if you can live without it until 70, that's probably what would be the generalized suggestion you might hear (without knowing if there are any longevity concerns). Awesome that you have the pension and a nicely priced health insurance policy. Is the pension indexed to inflation? If so you're sitting even prettier!

 

[lindal00l00]

2/3rd of pension is tied to COL index. My one consideration for taking SS early is that I am such a skeptic conservative and like many others have my doubts whether it will be around .......

 

[sengsational]

2/3rd of pension is tied to COL index. My one consideration for taking SS early is that I am such a skeptic conservative and like many others have my doubts whether it will be around .......

Yep, I'm with you there. We're of similar age, so my thinking, which you may share, is that we can "cross that bridge when we come to it". As you say, it probably won't be around (in it's current form) when the first decision day comes. You can even take SS early, then pay it all back and start fresh at the higher amount. The rules are mind boggling, so I'm not trying to get an optimized plan until I can actually do something.

 

[harley]

My only two delimnas are when to take SS, and whether to withdraw from 401 before I start taking it (I figure my required withdrawels will bump me back to a hgher tax bracket at 70).

Hi Linda, and congratulations!

Just to add another possibility to your calculations, what about keeping the mortgage and using tax break plus living off after tax investments for a while to keep your tax bracket really low? Then you can do a Roth conversion from your tIRA to the top of the 15% tax bracket. Doing this can lower your RMDs significantly by the time you are forced to take them.

Just a thought, though. Do whatever works best for you, and enjoy!

 

[larrytbm]

You can even take SS early, then pay it all back and start fresh at the higher amount.

The rules have changed to prevent this loophole. Now, I believe you only have 12 months to repay and reapply, so most of the benefit is gone.

 

[larrytbm]

My only two delimnas are when to take SS, and whether to withdraw from 401 before I start taking it (I figure my required withdrawels will bump me back to a hgher tax bracket at 70).

My view is take SS whenever necessary to avoid dipping into investments. I believe I can achieve greater asset growth than what SS increases by waiting. Besides, it takes roughly 11+ years to reach the break even point (when total SS payments exceed age 62-1/2 payments). And that is true whether you begin payments at say age 64 or 66 or 70. As already suggested, Roth conversions can reduce your RMD and tax burden at age 70-1/2. Over the past 6 years, I've paid $30k in taxes to convert $300k into Roth accounts that are now worth $460k tax free and RMD free.

 

[lindal00l00]

As already suggested, Roth conversions can reduce your RMD and tax burden at age 70-1/2. Over the past 6 years, I've paid $30k in taxes to convert $300k into Roth accounts that are now worth $460k tax free and RMD free.

Thank you for the advice. I will look into the conversion for sure. I have to be strategic with this as my severance and retirement will both occur over the next year. To be honest I did not fully manage the 'tax' implications of my income while working but am now free to do the extra study.

I did sit down and write down my retirement goals and one was to maintain my assets (as best I can). Having been an accumulator all my life, I am having a hard time saying "it is okay to spend a bit your savings."

 

[sengsational]

It sounds as if another of your retirement goals is to leave a lot behind for your heirs. What really opened my eyes were the tools like frecalc (scroll down on the right margin). You can put in how much you want to leave behind and then keep jacking up annual spending. I was surprised how high I could go before any of the lines went below zero.

 

[lindal00l00]

It sounds as if another of your retirement goals is to leave a lot behind for your heirs. What really opened my eyes were the tools like frecalc (scroll down on the right margin). You can put in how much you want to leave behind and then keep jacking up annual spending. I was surprised how high I could go before any of the lines went below zero.

That is the problem - I don't have any heirs other than two God-daughters. But I don't want to end up in a subsidized nursing home, either. I have played with Firecalc and the crowd sourced version out there and agree that I am in a good position. Believe it or not,, I looked into LTC and found a salesman with integrety who said I could self insure and did not need it.

 

[pb4uski]

Can you defer the start of your pension and if so, do the benefits then increase (like SS)? If so, if your health/longevity is good you may want to think about doing that, living off your taxable funds and doing annual Roth conversions while you are in a low tax bracket to build up the Roth and avoid RMDs later in life.

Not that RMDs are all bad but if you lived on your pension and didn't touch the 401k between now and age 70 as stated in your OP I think the RMDs would probably be very significant and result in high taxes. Something to consider and think through over the next year.

 

[lindal00l00]

Can you defer the start of your pension and if so, do the benefits then increase (like SS)? If so, if your health/longevity is good you may want to think about doing that, living off your taxable funds and doing annual Roth conversions while you are in a low tax bracket to build up the Roth and avoid RMDs later in life.

Not that RMDs are all bad but if you lived on your pension and didn't touch the 401k between now and age 70 as stated in your OP I think the RMDs would probably be very significant and result in high taxes. Something to consider and think through over the next year.

Sadly, I cannot defer my pension. I could do income leveling as tho I were getting SS, but then it would drop at age 62, so I am not going to select that option. Longevity is a mixed bag for me - mother died at 57 and father died last year at 83.

 

[pb4uski]

You still might want to consider some tax planning. In your case you may be better doing Roth conversions to the top of the 25% or 28% brackets if it causes you to avoid even higher tax brackets when you are over 70 and collecting SS and RMDs.

 

[lindal00l00]

Thank you for the collective wisdom here. My mortgage has less than 5 years left, so there is little tax advantage left, and quite franky, with it gone, I will be debt free. Something to be said for that.

With more time on my hands, I will devote some of it to managing the tax consequences.

And I am already getting the 'come back as a consultant' vibe at work...am mulling that over but feel I will most likely decline....so I can study tax consequences!

 

[jclarksnakes]

Way to go. You may want to look into ex-spouse SS benefits. IMO you should delay taking your own SS benefit as long as possible and the ex-spouse benefit may be the way to do that. I am 3 years older than you and I think changes to SS will come but will probably not be big enough to make a big difference for those of us for whom SS is just a part of our retirement plan.

 

[lindal00l00]

Way to go. You may want to look into ex-spouse SS benefits. IMO you should delay taking your own SS benefit as long as possible and the ex-spouse benefit may be the way to do that. I am 3 years older than you and I think changes to SS will come but will probably not be big enough to make a big difference for those of us for whom SS is just a part of our retirement plan.

Although ex spouse made more money, he did so via an S corp. and paid low wages with high distribution. We didn't make it to the 7 year mark so I don't think he could claim much from me. Besides, I would rather let a sleeping dog lie.

 

[lindal00l00]

Cleaning off my desk!

Again, thank you to everyone for terrific wisdom. I just left a conference call explaining all the benefits and severance package. Am cleaning off my desk, cleaning off my hard drive, deleting emails, and preparting to walk away for good tomorow. Let the journey continue!

 

[W2R]

Linda, congratulations!!! Hope your retirement day is absolutely perfect.

 

[robnplunder]

Again, thank you to everyone for terrific wisdom. I just left a conference call explaining all the benefits and severance package. Am cleaning off my desk, cleaning off my hard drive, deleting emails, and preparting to walk away for good tomorow. Let the journey continue!

Hooray!

I envy you. Go knock yourself out in having fun. I am hoping to do the same in two years with similar asset you have now. So, if you keep posting here about your progress, that'd be awesome! (well, for me and folks in similar path).

 

[InTheSticks]

Great news. Good Luck.

 

[lindal00l00]

Ha Ha! I am so excited about leaving that I cannot spell PREPARING correctly, calling is PREPARTING......heck...I might be on to something.

 

[Rothman]

Congrats Linda, the plan sounds great. I add +1 for doing Roth conversions to top limit of tax bracket. It gives you flexibility which is really desirable given your young age, but when we have a year like this one, the thought of 25% growth tax free is so exciting. I think I'd manage your AA so that the Roth piece is all equity if you can swing it, slit becomes your inflation hedge and long term growth or inheritance part of your portfolio. Please let us know how you do, and enjoy your success!

 

[Hermit]

Hi linda100100,

Welcome. I just retired this last summer. I have the same problem with a pension and additional income in that my income is too high as a single person to be able to get in the 15% tax bracket. I just finished reading:

Lange, James (2011-01-11). The Roth Revolution: Pay Taxes Once and Never Again . Morgan James Publishing.

It has examples where Roth conversions are best and ones where he recommends against conversions. It helped me understand how Roth conversions might fit in my investment and tax strategy.

Good luck on your new freedom and managing your taxes.

 

[lindal00l00]

Hi linda100100,

Welcome. I just retired this last summer. I have the same problem with a pension and additional income in that my income is too high as a single person to be able to get in the 15% tax bracket. I just finished reading:

Thank you Rothman and Hermit.

I am learning that I have to pay diligent attention tax strategy and timing, largely through posts here. I have talked with my accountant and we are also going to work on selling my stock (15% of my 401k) to take unrealized gains.

I also have the issue that almost as I was walking out the door people were asking if I would come back as a contractor. At the moment I am just trying to wrap my head around everything, one day at a time. And to think I have lost sight of the hoiday season for focusing on my departure. I am working on fixing that, too!

 

[Lcountz]

My last day was Jan 4, 2013, from Megacorp, and I too never even realized Christmas was happening last year, cause I was so wrapped up and preoccupied and scared in a small way about retiring at 57!!!!!

People couldn't understand it, but I understand how you feel!!!!

Good luck and CONGRATULATIONS!!!!!

YOU WILL LOVE IT!!!!!!