It’s time to sell the studio and hang up the camera

[Fotodog]

I found my way to this forum when searching for retirement planning software, and it’s been a great source of information with varied ideas and perspectives. Thanks to all for providing your input.

I’ve had a nice career as a professional advertising photographer, and at age 67 this will be my last year of work. My biggest client restructured during COVID with a new marketing director and went in a different direction. No surprise, I knew it was coming at some point, and it would provide the impetus to call it a day.

My wife retired early through a good job and a substantial inheritance from overseas. She will not need to worry about money in her retirement. Although we file jointly for the tax benefits, we keep our finances completely separate. We are both very independent, and both went through nasty divorces years ago. We have our CPA calculate the amount each owes every year on our tax returns.

I have about $1.6 million is IRA’s; 90% in stock funds through T. Rowe Price and less than 10% in a Baird bond fund at TD Ameritrade, with about 50k in cash there as well. I realize that I should likely rebalance my portfolio more conservatively now that I’m not working.

I started Social Security last year due to reduced work income, which is about $2600/month after Medicare is deducted. I have a good health plan through my wife’s former job with the city. Our house is paid off.

I will be selling my work condo in San Francisco next year, which was my studio for the last 5 years. I’ll net about $350k after commissions. Since condo prices have been flat, I’ll have little to no gains.

From my research it seems that converting some of my traditional IRA’s to Roth IRA’s makes sense. My CPA is crunching some numbers, but I want to do my own analysis and hear what some of the esteemed members here have to say.

I have spent a bit of time with the I-ORP calculator, and although I appreciate the time and effort that went into building it, I find the interface doesn’t work well for me. I’m on a Mac, and the software I like best is OnTrajectory. I seems simple at first, but when you dive deeper with different scenarios it becomes very informative.

I will need an additional $4k/month income in addition to SS for now. My initial thoughts are to use the $50k cash in TD Ameritrade for next year’s expenses. After I sell my condo, start using the $350k cash to pay taxes on Roth conversions until age 72. That will leave me a cash buffer in case of a market downturn, and possibly a year or 2 of income.

Let the words of wisdom rain down upon me...
Thanks!

 

[RobbieB]

If you only need 50 grand a year and you have 1.6 mill you are good to go. Fire away!

 

[Ian S]

Since you file jointly, to plan Roth conversions, you'll need to consider the joint income each year. Does your wife want to do conversions too? You also have to determine what tax bracket you want to stay in while doing the conversions. TBH, with $1.6 Million in IRA's I'm not sure how big a dent you can make in that IRA total prior to minimum required distributions. Depends on if you want to stay in the 22% bracket or the 24% one I guess. You say your wife retired early: if she's more than ten years younger than you, you are likely looking at a reduced RMD at 72. So many things to consider.

 

[Fotodog]

Good points Ian. I understand that I’ll need to add my wife’s info for an accurate projection. Since I’m very early in the process, I have just been using my financial info to get a feel for how the different software works.

I wondered the same as you, if it would make any difference to convert a relatively small percentage of my IRA’s to Roth. According to my understanding of the numbers in OnTrajectory, it does. Converting $50k a year for 4 years providers a nice increase to my portfolio by end age, but converting higher amounts doesn’t seem to be worthwhile. I’m still in the 22% tax bracket in the highest years.

 

[Sunset]

OP - I would keep the cash as cash for emergencies and when you need extra for new car and don't have quite enough to swing it.

I would take money out of the IRA for spending, yes you will pay taxes on it, but it will reduce the RMD amount taken out later. It's also a good time (high stock market) to use the IRA stock money rather than your $50K cash.
Use the $50K cash when the market has plunged 40% and stays down for a couple of years.

We keep our finances separate, but not quite as separate as you. We do discuss lots of financial stuff and coordinate our actions so we don't accidentally cause tax issues.
Hopefully you folks do the same.

 

[Koolau]

OP - I would keep the cash as cash for emergencies and when you need extra for new car and don't have quite enough to swing it.

I would take money out of the IRA for spending, yes you will pay taxes on it, but it will reduce the RMD amount taken out later. It's also a good time (high stock market) to use the IRA stock money rather than your $50K cash.
Use the $50K cash when the market has plunged 40% and stays down for a couple of years.

Be sure to run it by your accountant, but I like this idea. Your 401(k) is the bulk of your assets, so I'd consider getting "rid" of some of it before spending the cash. Of course, you could invest in some taxable stuff with some of the cash. In any case, I have found myself having more 401(k) money than taxable and it can lead to tax issues later and cash pinches now. YMMV

 

[Fotodog]

Thanks for your replies Sunset and Koolau. The strategy of pulling money from my IRA’s first does sound like a logical progression to reduce RMD’s in a few years. I have started running scenarios with my wife’s pension, SS, and RMD’s added when she is 72, and it will push our income much higher than we need for expenses. We are in our lowest income years until that time, which strengthens the case for Roth conversions.

The calculations get more complex once my wife’s information is added, particularly when I try to keep the finances separate. The OnTrajectory software is very good, but I’m wondering if there is something better that is especially adept at Roth conversions for both spouses. Any recommendations are appreciated.

 

[Koolau]

Thanks for your replies Sunset and Koolau. The strategy of pulling money from my IRA’s first does sound like a logical progression to reduce RMD’s in a few years. I have started running scenarios with my wife’s pension, SS, and RMD’s added when she is 72, and it will push our income much higher than we need for expenses. We are in our lowest income years until that time, which strengthens the case for Roth conversions.

The calculations get more complex once my wife’s information is added, particularly when I try to keep the finances separate. The OnTrajectory software is very good, but I’m wondering if there is something better that is especially adept at Roth conversions for both spouses. Any recommendations are appreciated.

I have heard (here) good things about IOrp https://i-orp.com/Plans/index.html but I've never used it.

There are some "pay" planners out there as well. The only one I know of was put together by Laurence Kotlikoff. https://esplanner.com/ It's called ES Planner - there may be a free (short version) version available. I know nothing about it except Kotlikoff has a reasonable reputation in the Retirement Industry and has written a couple or more books on the subject. I have read his book "The Coming Generational Storm" and it resinated with me. https://mitpress.mit.edu/books/coming-generational-storm

Don't recommend anything, but above are a couple of ideas to pursue. As always, YMMV.

 

[Brat]

Do you plan to stay in California? If you plan to move to Nevada or Washington, states with no income tax, I would make Roth conversations then.