Just 18 months away!

[UncleHoney]

Hi, I'm Ron

I've been lurking for a few months and decided to make my first post and see where the holes are in my retirement plan. Open to ideas at this point cause nothing is cast in stone.

The plan is to retire when I turn 62. Between my social security, my wife's social security and my pension we will have about $65k a year income which is about 75% of my current annual income. On top of that we just rolled over $500k (last night) in savings, IRA's, Vanguard 401K and CD's. About 40/60 split between taxable and tax deferred.

On the expense side things add up to about to about $40k-$45k a year. We don't have a mortgage and and no car loans and we don't play the credit card game (it's paid in full every month). Health care looks to be about $400 a month through my company plan for retirees.

So the plan is to operate inside the window of pension and SS for as many years as we can and let the CD's, 401k grow till inflation starts to catch up with us. Right now the CD's are paying between 4% and 5.75% and the 401K money is sitting on the sidelines at about 4.96% in a stable value fund till the market settles down to a dull roar. (YTD on the 401K is 6.6%. but I pushed the sell button at the end of April on the stocks)

So other than being in Income Tax Hell when I retire any major holes? Any place I can hide the taxable savings from the revenuers?

Ron

 

[dex]

What is your age now?

 

[Nords]

Welcome to the board, Ron.

Have you run your expenses and your portfolio through FIRECalc? Inflation might not be so bad.

So other than being in Income Tax Hell when I retire any major holes?  Any place I can hide the taxable savings from the revenuers?

Most of us ERs are in a far lower bracket when we retire, and FIRECalc has some words on that subject to see where you are with respect to taxes. If you're in a lower bracket, what's the concern with paying taxes?

 

[UncleHoney]

Right now I'm 60 1/2.

Maybe I'm looking at it wrong, but I see my taxable income as high as $75k each year after I retire and growing each year. $36k from pension ( not adjusted for inflation), $28.5K from SS, and about $8_10k a year from CD interest.

When I have to start taking RMD of the 401K and the IRA's things are really going to get interesting.

Looks like the taxes are really going to hit the SS income to me.

Ron

 

[Scrooge]

Welcome, Ron! It sounds like you are in a pretty good shape, but there is one unknown:

Health care looks to be about $400 a month through my company plan for retirees.

What kind of plan is it? Is it independent of the company's fortunes? If the company goes belly up next year, will you still have insurance? If not, then bridging the gap in health insurance coverage between the time you retire and the time Medicare kicks in can be quite expensive.

 

[Nords]

Maybe I'm looking at it wrong, but I see my taxable income as high as $75k each year after I retire and growing each year.  $36k from pension ( not adjusted for inflation), $28.5K from SS, and about $8_10k a year from CD interest. 
When I have to start taking RMD of the 401K and the IRA's things are really going to get interesting. 
Looks like the taxes are really going to hit the SS income to me.

Ewwwkay, but most retirees are paying in the 10-15% bracket, which you're barely at the top of after deductions & exemptions. State/locality taxes may be an issue, but that's not always a good reason to move. Your challenge would be finding a tax-free investment that's returning within 15% of taxable investments.

You could consider a Roth IRA conversion over the next eight years (or even longer if it makes sense) but one way or another you'd be paying conversion taxes or taxes on the RMDs in about the same bracket. The income-tax brackets are indexed to inflation and your pension is not, so over the next decade you'll gain some room at the top of the 15% bracket even if Congress doesn't mess with income-tax rates.

Perhaps another option would be to delay taking SS and executing partial Roth IRA conversions over the next three-four years. That might avoid SS taxation when RMDs start.

 

[yakers]

Well, I have about 18 months to go too, your figures look OK, just as dependent on expense control as additional savings/investment return. My wife retired a few weeks back. I expect to go in Nov 07, paid off house and similar pension & savings. The big difference is I still have one son in high school with unknown college costs. Since you have a good handle on your costs it looks like things line up adequately to make the jump if you want to. Things will change no matter what you do so there will always be an adjustment but you have more than some of the folks nere.

Times like this I miss JG and the low cost living folks.

 

[Nords]

Times like this I miss JG and the low cost living folks.

Low-cost living skills are always appreciated, but don't forget that in JG's ER plans you are the working spouse who holds together all of his financial "planning"...

Sadly I don't think that dumpster-diving will ever gain widespread social acceptance!

 

[UncleHoney]

Welcome, Ron! It sounds like you are in a pretty good shape, but there is one unknown:

What kind of plan is it? Is it independent of the company's fortunes? If the company goes belly up next year, will you still have insurance? If not, then bridging the gap in health insurance coverage between the time you retire and the time Medicare kicks in can be quite expensive.

The plan is funded by the company and like anything in life it isn't guaranteed forever. But currently it appears to be in good health along with the pension plan. However there have been some changes recently that will effect new hires. As of July 2005 new hires will not have medical coverage when they retire. Currently the plan covers anyone retiring over the age of 55 with 25 years or more years of service.

Like any other business ours is subject to the economy ups and downs, but has been a very stable place to work for the last 35 years. Our product is research and development and changes with the demands of the customer. Thirty years ago I was designing packaging machinery, today I design diagnostic medical equipment.

Ron

 

[uncledrz]

Welcome Ron
At 62, you're close enough to medicare that even if the retiree medical plan changes somewhat, you'll be able to find and provide medical coverage.
Your income, if Social Secuity doesn't have a radical shift in the next few years, will be partially inflation adjusted. As was commented earlier, you may want to hold off taking the Social Secuirty and do some Roth conversions now to avoid taxes in the future. I'm thinking of the same thing, but have a ways to go till then, and really don't like to pay taxes any earlier than necessary.
Based on your screen name, I figure/guess? that you've got a large family, with lots of kids running around who call you "uncle". Am I right?
Uncledrz

 

[UncleHoney]

Looks like I need to look into the Roth IRA's and what it will cost in the way of taxes to convert them. Right now I'm working on maxing out the 401K for the year to reduce the tax bite. So far so good for living on 50% of my income.


The name Uncle Honey actually came from my SIL, my wife calls me Honey so my SIL started calling me Uncle Honey. The family is large but they all live out of town but visit during holidays. We don't have any kids but there are a lot of great nieces and nephews to go around.

Ron