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malakito · 05-31-2004, 01:12 PM

Bill,

Good afternoon.

You wrote:

The only problem with that scenario is that, because of my age I can't simply withdraw the amount that I want from the 401K. I have to get the "equal payments" thing, which they calculate for me, or else I can buy an annuity. If I use the 4% withdrawal technique and change it each year, I'll have to pay a penalty. This is all "as I understand it" of course...

More or less right, but there's quite a bit more to it. An alternative to an annuity is to roll your 401k into a traditional IRA and then take SEPP payments from it. Although there are rules, there are techniques you can use to still get what you want. For example, you can split your IRA into as many IRAs as you want and you can do an SEPP from any or all of them. You can hold IRAs "in reserve" and not include them in your SEPP "universe" (to quote TheBadger). If flexibility is your concern, I suggest you head on over to www.retireearlyhomepage.com and look around for TheBadger's report on SEPP payments. It's like $10 for a 136-page PDF which will tell you more than you ever wanted to know on the subject. Highly recommended reading.

There's another flavor of the same thing which is that you can leave your 401k with your employer, and if you separate in the year you turn 55 you can get set up to just take regular withdrawals from the 401k. No penalties, no annuity. But you'd have to check with your company on what their options are in this regard. This probably won't work for you, though, since you said you're 53, but I mention it in case you had a superflexible employer and were going to turn 54 tomorrow; maybe they'd keep you around for another six months doing special projects so you could use this option and retire on January 1, 2005.

You later wrote:

Is it better to sell my current place, take the profit (about $150K), and invest it? Then I would have to rent. Or should I buy a smaller place for all-cash and not have a monthly housing payment at all?

This is two separate questions:

1. Do you want to downsize to a cheaper place to live in order to free up money to invest/live on?
2. Do you want to own or rent?

Both are really up to you. The first one is a good technique if your home equity is a large portion of your net worth and you're looking around for capital. The second question has been debated nearly endlessly and the conclusion I've come to is "It depends on your circumstances and what you want to do."

Oh, you also mentioned low crime. Personally I would caution against believing that cheaper houses means higher crime rates. There are inexpensive places to live and the people are decent there too.

Charlie wrote:

Others are more current on this, but if you go the
"equal payments route" for withdrawals from your
IRA/401k there are a number of things to keep
in mind. First, you are committed to continue for
5 years or age 59, whichever comes last.

True for SEPP payments, which can't be done from a 401(k) (but can be done from a traditional IRA, which you can roll your 401(k) into).

I'm not sure if this is true if you follow the "separate from employer in the year you turn 55 route".

I did the same thing when I retired at 55 in '89. As it
turned out, the withdrawal rate was over 6% which,
as you know, exceeds the 4% most consider safe.
I think you can split your IRA and make the equal
payments on only part of the total. You could also
convert only part of your IRA to an immediate annuity.

Both true.

Regards,

malakito.

05-31-2004, 01:12 PM	#15
malakito Recycles dryer sheets Join Date: Jan 2004 Posts: 159	Bill, Good afternoon. You wrote: The only problem with that scenario is that, because of my age I can't simply withdraw the amount that I want from the 401K. I have to get the "equal payments" thing, which they calculate for me, or else I can buy an annuity. If I use the 4% withdrawal technique and change it each year, I'll have to pay a penalty. This is all "as I understand it" of course... More or less right, but there's quite a bit more to it. An alternative to an annuity is to roll your 401k into a traditional IRA and then take SEPP payments from it. Although there are rules, there are techniques you can use to still get what you want. For example, you can split your IRA into as many IRAs as you want and you can do an SEPP from any or all of them. You can hold IRAs "in reserve" and not include them in your SEPP "universe" (to quote TheBadger). If flexibility is your concern, I suggest you head on over to www.retireearlyhomepage.com and look around for TheBadger's report on SEPP payments. It's like $10 for a 136-page PDF which will tell you more than you ever wanted to know on the subject. Highly recommended reading. There's another flavor of the same thing which is that you can leave your 401k with your employer, and if you separate in the year you turn 55 you can get set up to just take regular withdrawals from the 401k. No penalties, no annuity. But you'd have to check with your company on what their options are in this regard. This probably won't work for you, though, since you said you're 53, but I mention it in case you had a superflexible employer and were going to turn 54 tomorrow; maybe they'd keep you around for another six months doing special projects so you could use this option and retire on January 1, 2005. You later wrote: Is it better to sell my current place, take the profit (about $150K), and invest it? Then I would have to rent. Or should I buy a smaller place for all-cash and not have a monthly housing payment at all? This is two separate questions: 1. Do you want to downsize to a cheaper place to live in order to free up money to invest/live on? 2. Do you want to own or rent? Both are really up to you. The first one is a good technique if your home equity is a large portion of your net worth and you're looking around for capital. The second question has been debated nearly endlessly and the conclusion I've come to is "It depends on your circumstances and what you want to do." Oh, you also mentioned low crime. Personally I would caution against believing that cheaper houses means higher crime rates. There are inexpensive places to live and the people are decent there too. Charlie wrote: Others are more current on this, but if you go the "equal payments route" for withdrawals from your IRA/401k there are a number of things to keep in mind. First, you are committed to continue for 5 years or age 59, whichever comes last. True for SEPP payments, which can't be done from a 401(k) (but can be done from a traditional IRA, which you can roll your 401(k) into). I'm not sure if this is true if you follow the "separate from employer in the year you turn 55 route". I did the same thing when I retired at 55 in '89. As it turned out, the withdrawal rate was over 6% which, as you know, exceeds the 4% most consider safe. I think you can split your IRA and make the equal payments on only part of the total. You could also convert only part of your IRA to an immediate annuity. Both true. Regards, malakito.