Withdrawal strategy for 8 year bridge to SS?

[badatmath]

Foolish to delay pension a year to make $172 a month more?

moved accidentally tried to hijack

 

[Jimonlimon]

Just as long as you understand that what SS reports as your benefit assumes you will work up to your date of taking SS and at your current income level.

Hence using SSA.tools for modeling different stop work and start SS benefits dates.

 

[Al18]

Ok, sounds good.

 

[ncbill]

And all those zero earning years prior to taking SS may mean a lower amount than expected.

Someone the OP's age has almost certainly reached the second bend point for SS.

Past that any additional earnings receive little crediting and so make little difference in one's monthly benefit.

 

[Jimonlimon]

Everyone thanks for the input. It's been very helpful.

I played around with modeling what would happen with bear markets followed by high returns vs. a more secure annuity or bond ladder. For this 8 year period it looks like security wins out over big gains- at least for my "need" amount.

My 401k plan allows a Schwab Personal Choice Retirement Account so I'll look into that. It looks like I can set it up for free at which point I can better investigate my options. At that point I'll likely be back with a whole stack of questions.

 

[big-papa]

I will be effectively doing this. I'm not setting up a specific "bridge" to get me to SS. What I am doing, however, is a close equivalent. That is, I'm using duration matching for my bonds now and I'm no longer rebalancing between stocks and bonds. So I take the NPV of future SS income streams, and use the PMT function in excel to calculate an effective withdrawal from the bond portion of my portfolio. See threads on ABW and TPAW over on bogleheads. If spreadsheets are too daunting, then creating a bond ladder will get you there too.

Cheers.

 

[COcheesehead]

I will be effectively doing this. I'm not setting up a specific "bridge" to get me to SS. What I am doing, however, is a close equivalent. That is, I'm using duration matching for my bonds now and I'm no longer rebalancing between stocks and bonds. So I take the NPV of future SS income streams, and use the PMT function in excel to calculate an effective withdrawal from the bond portion of my portfolio. See threads on ABW and TPAW over on bogleheads. If spreadsheets are too daunting, then creating a bond ladder will get you there too.

Cheers.

I did sort of the same patterned after Kitces bond tent strategy.

https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

 

[Jimonlimon]

I did sort of the same patterned after Kitces bond tent strategy.

https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

I may be dumb, but this is suddenly obvious. I have been using a planning spreadsheet that has a 20% drop my first year of retirement to account for the potential bear market.

If instead I move most of my needs for the first 5 years into 4% safe investments then it all looks much rosier. I'll play with that and do a rebalance soon. Of course should have done it Monday when I had 2% more than Friday!

 

[DawgMan]

My 2 cents... I retired last year after just turning 58. No pension here, all funding from my investments. In my case, I have 4 kids all out in the working world, supporting themselves, 2 which are married. I underwrote a couple years of runway for each of my kids once the graduated. You mentioned you had 2 kids in school still. Personally, I would underwrite a few more bogies out there until they are flapping their own wings. Also, I would take time to really get your arms around Needs, Wants, Wishes as it relates to your expenses (including taxes/Roth conversions) and give yourself some margin so you have levers to pull if the $hit hits the fan. I am also suspicious of trusting my projected SS benefits as I expect further means testing and therefore am underwriting 75% of projected $$.

Perhaps I am too conservative, but the advice given regarding liability matching, specifically with a bond ladder in the current environment, is a good one. If you elect to pull from your 401K sooner, Roth conversions may not be a necessity for you.

 

[COcheesehead]

I am a fan of Roger Whitney - the Retirement Answer Man. He just finished a series of podcasts with a real world example of a couple who appeared at retirement time to have enough only to have the bear market hit. SORR planning was not part of their strategy and today they find themselves over the cliff. So their retirement is now at risk. If anyone is interested, here is the website. The podcasts are on there or most podcast apps.

https://www.rogerwhitney.com/

 

[DawgMan]

I am a fan of Roger Whitney - the Retirement Answer Man. He just finished a series of podcasts with a real world example of a couple who appeared at retirement time to have enough only to have the bear market hit. SORR planning was not part of their strategy and today they find themselves over the cliff. So their retirement is now at risk. If anyone is interested, here is the website. The podcasts are on there or most podcast apps.

https://www.rogerwhitney.com/

+1

Would be a good resource for OP (and others). He's a big believer in liability matching and projecting future expenses.

Another good blog resource is Fritz at The Retirement Manifesto. Both he and Roger are "bucket" guys, which I personally subscribe to.

 

[New Thinking]

Income Bridge

Old-timers here may recall I published a paper at The Pension Research Council about the value of delaying SS and dubbed the process "Social Security Bridge" as well as "Income Bridge" based on research I started 20 yrs. ago. I am thankful for all the great feedback I received on this forum as it enhanced my research. Then, as now, I liked the idea of using a period certain income annuity to generate cashflow during the bridge period - such as the one OP wants for 8 years. What is even better now is that you can access SPIAs with traditional commissions largely stripped out if you work with an RIA who offers the service. You don't have to use a broker or agent (who get paid by commissions) and thus the payments tend to be higher. No need to pay a commission on immediateannuites.com or blueprintincome.com or any other service anymore.

A quote today based on the $6,083 monthly benefit OP desires ($73,000 annually) solves for a premium amount of $491,270 for an 8-year period certain annuity. Plugging this into https://www.bankrate.com/investing/annuity-calculator/ , we see the internal rate of return is 4.51% for an annuity cashflow of $6,083 over 96 months....For comparison purposes, Schwab's highest yielding CDs are currently 4.75% (1 Yr), 4.25% (3 Yr.), 4.0% (5 Yr). The annuity issuer is Nationwide.

Let the insurance company do the asset/liability match and take their small piece. So much easier than creating a ladder and money never sits earning near zero or zero. The payment hits your bank account regularly each month and you move on and enjoy your early years of retirement. I haven't addressed OP being under 59.5 but wanted to share the concept if OP could fund his first year of retirement with another method and then roll into an IRA.

 

[ncbill]

+1

Would be a good resource for OP (and others). He's a big believer in liability matching and projecting future expenses.

Another good blog resource is Fritz at The Retirement Manifesto. Both he and Roger are "bucket" guys, which I personally subscribe to.

Hour-long podcasts with no transcript?

Should be banned by law.

And here's a 'never-refilled' bucket strategy for SORR that works great in backtests, and seems a lot easier than rebalancing AA via glide paths, and cheaper if your portfolio is mostly taxable:

https://earlyretirementnow.com/2018...hdrawal-rates-part-25-more-flexibility-myths/

 

[COcheesehead]

Hour-long podcasts with no transcript?

/[/url]

He summarizes the podcast to a degree and adds listener questions to his weekly newsletter.

 

[pb4uski]

Old-timers here may recall I published a paper at The Pension Research Council about the value of delaying SS and dubbed the process "Social Security Bridge" as well as "Income Bridge" based on research I started 20 yrs. ago. I am thankful for all the great feedback I received on this forum as it enhanced my research. Then, as now, I liked the idea of using a period certain income annuity to generate cashflow during the bridge period - such as the one OP wants for 8 years. What is even better now is that you can access SPIAs with traditional commissions largely stripped out if you work with an RIA who offers the service. You don't have to use a broker or agent (who get paid by commissions) and thus the payments tend to be higher. No need to pay a commission on immediateannuites.com or blueprintincome.com or any other service anymore.

A quote today based on the $6,083 monthly benefit OP desires ($73,000 annually) solves for a premium amount of $491,270 for an 8-year period certain annuity. Plugging this into https://www.bankrate.com/investing/annuity-calculator/ , we see the internal rate of return is 4.51% for an annuity cashflow of $6,083 over 96 months....For comparison purposes, Schwab's highest yielding CDs are currently 4.75% (1 Yr), 4.25% (3 Yr.), 4.0% (5 Yr). The annuity issuer is Nationwide.

Let the insurance company do the asset/liability match and take their small piece. So much easier than creating a ladder and money never sits earning near zero or zero. The payment hits your bank account regularly each month and you move on and enjoy your early years of retirement. I haven't addressed OP being under 59.5 but wanted to share the concept if OP could fund his first year of retirement with another method and then roll into an IRA.

I think a period certain annuity for the bridge to SS is a decent idea and the 4.51% IRR of the 8 year period certain annuity that you quoted is reasonably good and getting monthly benefit from the insurer is certainly convenient.

My only hang up with that approach is the loss of access and control over what in this case would be about 1/2 of the OP's assets. Schwab today is showing 1,2,3,4,5 and 10 year CDs at 4.90%, 4.85%, 4.80%, 4.75%, 4.85% and 4.60%, respectively. I would put the first year payments something like SWVXX (which is currently yielding 4.48%) and then buy 2-8 years CDs that go into SWVXX when they mature. Then set up automatic transfers of $6,083/month out of SWVXX to checking instead of a payout annuity... a little more work but better yield and continued access and control over the $491,270.

 

[Markola]

^^^^^. I too was thinking that staying flexible is a value to consider, vs. locking up assets in an instrument. For example, what if someone wants to throw money at the OP for enjoyable consulting, making him an offer he can’t refuse? It happens unexpectedly to lots of retirees, including me.

 

[Time2]

Your initial assumption of only having 500K at the end of 8 years is too conservative, in my opinion. If you stay invested in 60/40 stock/fixed income or 50/50, there’s a good chance you will still have about 1 million after 8 years.

I would hope the $1M is true, I would not want to be 66-1/2 with a need/desire to have $139K of income, and that's not inflation adjusted!
Even with that nice pension.

 

[Time2]

Someone the OP's age has almost certainly reached the second bend point for SS.

Past that any additional earnings receive little crediting and so make little difference in one's monthly benefit.

I don't think that is necessarily true. I just read this, "To get there, [the second bend point] 'snip' you're going to have to make a lot more money,You're going to have to earn millions over your career to get to the second bend point, but if you work a full 35 years, that's just $2,592,240/35 = $74,064 per year, certainly not out of reach for a professional who works a full career. What's the fastest you can get there? In 2022, the Social Security wage limit is $147,000. $2,592,240/$147,000 = 17.6 years. You'll basically need to earn at least the Social Security Wage Limit for 18 years.
I don't have even half of that earning over 43 years.
Does anyone know how or if, you can find your AIME on SSA.gov website, I'm not finding it.

 

[Jimonlimon]

My 2 cents... ...I would underwrite a few more bogies out there until they are flapping their own wings.$... take time to really get your arms around Needs, Wants, Wishes as it relates to your expenses (including taxes/Roth conversions) and give yourself some margin ...

Yes. Excellent.

• After the known college expenses, the estimated costs for the young adults "until they are flapping their own wings", and the known cost to pay off our mortgage:
• Needs: Less than my pension alone.
• Wants, realistic and inflation adjusted: Enough remaining funds for 3 years Long Term Care; $20k-$30k/yr for travel in the first 10 years; $50k for a new car in 5-10 years (already budgeted is a new car immediately upon retirement).
• Wishes: Give each kid enough for 10% down on their first home; Pay for a (moderate) wedding; Fully fund enough for at least 2 grandchildren's college expenses; Vacation condo or cottage somewhere; Pay for a big family reunion in 20 years.

... I am also suspicious of trusting my projected SS benefits as I expect further means testing and therefore am underwriting 75% of projected $$.

Perhaps I am too conservative, but the advice given regarding liability matching, specifically with a bond ladder in the current environment, is a good one. If you elect to pull from your 401K sooner, Roth conversions may not be a necessity for you.

I think a realistically conservative estimate is that SS will become fully taxable where it's 85% taxable now; Index used for COLA might be changed; FRA and current age 62 and 70 dates might all get pushed out. If we get half the projected benefit we'll be fine.

 

[Jimonlimon]

^^^^^. , what if someone wants to throw money at the OP for enjoyable consulting, making him an offer he can’t refuse? It happens unexpectedly to lots of retirees, including me.

Good point. I would probably be able to work about 1/3 time and in those years cover my expected draw from 401k.

 

[Jimonlimon]

I don't think that is necessarily true. I just read this, "To get there, [the second bend point] 'snip' you're going to have to make a lot more money,You're going to have to earn millions over your career to get to the second bend point, but if you work a full 35 years, that's just $2,592,240/35 = $74,064 per year, certainly not out of reach for a professional who works a full career. What's the fastest you can get there? In 2022, the Social Security wage limit is $147,000. $2,592,240/$147,000 = 17.6 years. You'll basically need to earn at least the Social Security Wage Limit for 18 years.
I don't have even half of that earning over 43 years.
Does anyone know how or if, you can find your AIME on SSA.gov website, I'm not finding it.

I appreciate how this group is helpful no matter what your income level. Some people worry about paying 37% tax on their RMD's and others how to get their SS benefit up to $1,000. This group provides information and tips for everyone.

After you set up your SSA.gov account, go over to private (but free) website ssa.TOOLS and copy your earnings table from SSA.gov. .TOOLS does a great job of showing the math and what your benefit would be based on different work/retirement/SS_draw scenarios.

In my case lowest inflation-adjusted earnings for my top 35 years is $95k. I'm well past the 15% "bend". My expected FICA earnings for next year would be the $147k cap. (ignoring the increase in the cap), so effectively the 95k year gets bumped out of the benefit calculation and replaced by the $147k year. The annual increase in my FRA benefit is based on the difference between $147k and $95k, averaged over 35 years, and multiplied by 15%, or $222 per year increase. I ain't workin' another year for $4.29 a week!

 

[Jimonlimon]

Back to my original "Withdrawal strategy for 8 year bridge to Social Security".

I think I have a workable plan. Obviously there are many ways to go.

Summary of issue- Fund the roughly 8 years from retiring and starting my pension draw until my wife and I reach Social Security Full Retirement Age of 67.

• My wife and I each have a 401k with about $500,000. For this proposal we would only use mine for this bridge; leaving hers to continue to grow until such time as we need it later.
• My 401k is with Nationwide Retirement and I can start withdrawals immediately upon retirement using the "rule of 55". This option is well documented by both Nationwide and my employer (State of California). Through Nationwide I can open a Schwab Personal Choice Retirement Account (PCRA) which is a self-directed brokerage account (SDBA).
• Pension will cover more than 75% of our current spending including health insurance.
• Pension plus Social Security (SS) for both starting at age 67 will cover at least 110% of our current spending (inflation adjusted, extrapolating current tax rates); I don't expect to need to draw from our 401k's for any normal expenses after this time.

The plan:

• Move half my 401k value ($250,000) into Schwab. Buy a "ladder" of secure investments- whether guaranteed annuity, CD, bonds, etc. I still haven't gotten to the point of exactly what to buy, but I plan to temporarily park the money out of market fluctuations while I work that out. For planning purposes I'm assuming 4% annual returns.
• This $250k will be enough to supplement my pension to result in net income slightly more than our current annual expenditures, increasing at 3% annually to account for anticipated inflation.
• The remaining $250k I'll leave with Nationwide in a mix of index and managed stock funds. We will likely draw from this when the values are up and refrain when they're down. If it goes well we may push our SS start dates out.
• Wife's $500k 401k will be held for emergencies; helping kids with home down payments; self-funding LTC; etc. We wouldn't intend to touch this until after we start SS so it's an extra safety net.

 

[cnocmmz]

So you’re 57.5 yrs old and have about 1.5 M and want to retire in 1 year.
Not sure what your income stream is besides SS and investments? Sounds like you want to spend near 100k annually?
-Just know that your SS estimate is prior to Medicare and taxes; so you can subtract about 400.00 monthly there.
-Also, not sure if you are covered for medical being 7 years early out?
- I am also a fan of the laddering of bonds, t-bills etc. taking 75k out of your 401k annually at your age for 8 years to me is unwise. To many uncertainties and just think if you have 3-4 years like last year’s negative returns?? Think it through and use FireCalc to just see the results. All the best

 

[Jimonlimon]

So you’re 57.5 yrs old and have about 1.5 M and want to retire in 1 year.
Not sure what your income stream is besides SS and investments? Sounds like you want to spend near 100k annually?

I think it was buried up in a previous reply but my pension will be $107k annually. 2% annual COLAs with extra to keep purchasing power at least 75% of original. It includes healthcare.

Combined 401k is $1 million. Combined SS at 67 FRA is $68k.

If my pension loses 25% to inflation it will be worth $80k. That plus $68k SS should give us $130k after taxes using standard deductions for California and Federal. This is more than our current spending including two kids in college.