10 years and counting

[OINC]

I am 45 and my wife is 49. I have lurked here for years and actually posted on this thread a few years back. Now that we are 10 years out from our planned retirement date, I know I have to get more serious on issues like social security strategy, withdrawal strategies, and healthcare options. We have about $900,000 saved so far mostly in tax deferred accounts. We have no kids and both have solid jobs and can save about $100,000 per year. Right now, we are focused on paying off our mortgage (our last debt ) which will completed by late 2014. Our biggest concern is bridging the gap between retirement and the start of Medicare and social security. Not sure how much to budget for medical insurance , travel, and expenses in retirement. I have a good handle now on our costs, but no clue about retirement costs. We really want to travel and are considering living abroad for a few months at a time too. Mainly I just want to get more involved with the group here and their wealth of information and experience.

 

[obgyn65]

Welcome to the forum.

 

[OINC]

Thanks ! OB

 

[heeyy_joe]

Plan on having about 5 to 7 years of time where you will want to control your adjusted gross income to gain a significant federal subsidy for PPACA (Obamacare). With $900k in deferred, you should be doing ROTH IRA or ROTH 401K if that is available to you.

 

[OINC]

Thanks Joe!

Unfortunately, no Roth 401k available at work and over the income limit for Roth IRA. Have thought about conversions, but have difficulty figuring out whether it is or isn't the right thing to do, so never pulled trigger on a conversion. Even though I dont approve of Obamacare, it is the law and it would be foolish to ignore the option if available.

 

[heeyy_joe]

Thanks Joe!

Unfortunately, no Roth 401k available at work and over the income limit for Roth IRA. Have thought about conversions, but have difficulty figuring out whether it is or isn't the right thing to do, so never pulled trigger on a conversion. Even though I dont approve of Obamacare, it is the law and it would be foolish to ignore the option if available.

If Roth is not an option, then take a look at accumulating via a variable annuity.
I also decided that it was worthwhile to do some Roth conversions to help with the period of ages 58 through 64.

 

[samclem]

OINC,
Welcome (back).
It sounds simplistic, but puting money in plain ol' after-tax accounts could be a very good approach in your situation (if a Roth isn't available). I would do that before putting any money in an annuity. If you have no pensions or other income in the early years of retirement, you might easily find yourself in the 15% tax bracket and enjoying 0% taxes on cap gains and dividends. So, that means all withdrawals from these accounts would be tax free, and wouldn't count as income for purposes of the ACA (thus allowing you to qualify for a bigger subsidy). Depending on your situation with regard to the ACA subsidies, you might also still have room (in that 15% bracket) to do conversions to the Roth IRA from your tIRA or 401K during those years, maybe saving you in taxes later.

These are situations many folks are grappling with, you'll find a lot written here in various threads.

 

[OINC]

Thanks Sam!

That's pretty much my strategy right now, I don't like annuities though there may be some acceptable ones out there. Once we finish paying off the mortgage in late 2014, we will be able to funnel $60,000+/year into taxable funds or stocks. Even if the market returns 0%, we should have at least a half million in taxable accounts by our target date. Any thoughts on withdrawal strategies? My thought is taxable first, then non-Roth tax deferred, and then the Roth (hopefully we don't get to that point as we half very little in roths

 

[samclem]

Any thoughts on withdrawal strategies? My thought is taxable first, then non-Roth tax deferred, and then the Roth (hopefully we don't get to that point as we half very little in roths

That subject could fill volumes. One big factor: Will you be receiving subsidies under the ACA to pay for your health insurance? If so, or if you hope to, then you may want to "tailor" your O-MAGI each year to remain under the "cliff" that occurs at 400% of the federal poverty level (see other recent threads on this). Going $1 over the limit could cost many thousands in "free" government money (from your taxpaying friends and yourself). Aside from the ACA subsidies, it still makes sense to weigh a few factors and craft an annual withdrawal scheme that minimizes taxes. For example, if you take your taxable stuff withdrawals first you might have very low taxes, but then when these funds run out you'll take tIRA money and every dollar of that is taxable--you might have some dollars taxed at the 25 or 28% rate if you do this. it might be better to take some tIRA in the early years and then "top off" with the after-tax money, allowing your highest taxable income to stay within the 15% bracket for far longer. And then there's the complexity of SS benefits taxation: the higher your other taxable income, the larger the % of your SS benefits that are taxed.
The program i-orp (i-orp web site) is supposed to optimize some of this (but it doesn't take into account the ACA subsidies). I've gotten some results that are highly suspect, and also it appears it might not be current with the latest tax law changes. I would recommend you not take the i-orp results as gospel. It's definitely a subject that would benefit from computer/software analysis. There may be other software packages that do this.