My first blog cuz I need some advice

[Gossetba]

I am 53 and would like to retire in 2 years. My current salary is $200K and my wife about $20K. We spend about $6,500 per month including a mortgage of $2,500. House is valued at $600K with $300K owed. We currently have a 401K slightly over $1M, a pension of $425K and a
Title over $100K in savings.

My dilemma is if I leave at 55 I receive 50% medical. If I go until 60 I leave with 85% & 80% for my wife. Additionally, if my 401K can reach $1.2M and the pension will likely be at $500K, How do I access the money without penalty or going on fixed distributions (72T). How do I generate the $6500 per month plus an additional estimated $750 for medical if I leave at 55. Or is it best to wait until 60?

 

[obsessed]

Many (but not all) 401K plans allow early distributions for people that retire at age 55 or later. I would check your plan documents or with the plan provider to see if that is an option.

 

[WyomingLife]

What do you mean by a “pension of $425K and a Title over $100K in savings”?

 

[jollystomper]

What do you mean by a “pension of $425K and a Title over $100K in savings”?

My guess is that the phrase should be "pension of $425K and a little over $100K in savings” ?


Maybe the pension number is a lump sum?

 

[Gossetba]

Yes, $425K is the pension fund and there is $100K in the bank... * little over.... not title

 

[Ready]

Is the pension only accessible as a lump sum rather than an annuity?

 

[pb4uski]

I am 53 and would like to retire in 2 years. My current salary is $200K and my wife about $20K. We spend about $6,500 per month including a mortgage of $2,500. House is valued at $600K with $300K owed. We currently have a 401K slightly over $1M, a pension of $425K and a Title over $100K in savings.

My dilemma is if I leave at 55 I receive 50% medical. If I go until 60 I leave with 85% & 80% for my wife. Additionally, if my 401K can reach $1.2M and the pension will likely be at $500K, How do I access the money without penalty or going on fixed distributions (72T). How do I generate the $6500 per month plus an additional estimated $750 for medical if I leave at 55. Or is it best to wait until 60?

You're in a good position to retire at 55 or at 60... it is all a matter of what you want to do, whether you enjoy your work or not, how important money is to you, etc.

Your spending excluding mortgage is $48k a year from what you wrote, but in reality it may be higher unless you have already included periodic car replacements, furnace/HVAC/roof replacements, increased travel in retirement, etc.

Also, you and your wife have social security as well, right? Also, does your pension include options for monthly benefits as well as a lump sum? And if there is a monthly benefit option are payments fixed or adjusted for cost-of-living?

As you have noted, since you are retiring early one issue will be penalty free access to your money for spending from when you retire until you turn 59 1/2. If you stay until 55, it is likely that you'll have penalty free access to your 401k, but you need to check into that and whether there are any restrictions on rule of 55 withdrawals by your plan. Some plans limit penalty-free withdrawals to once a year... and some are more onerous.

If rule of 55 withdrawals are not a good option and if you plan to stay in your house might be to do a cash-out refinancing before your retire to raise cash that could be used for spending and then pay it off aggressively once you have penalty-free access to your retirement funds. Or shift current retirement savings for the next couple years to just enough to capture any employer match and the rest either efter-tax or in a Roth where contributions can be withdrawn without penalty. While there is a tax cost to that given your high income the fact that you have so much in tax-deferred may put you in a high tax bracket in retirement once your pension and social security start so paying more in taxes now might not be a big deal.

 

[Jerry1]

I’m no expert, but I believe I read that with a 72T, once you turn 59-1/2, you can turn it off. So, if the reason you don’t want to consider that option is because you don’t want to lock in a specific withdrawal rate for the rest of your life, you might want to do some research on that. I apologize if I’m incorrect, but I’m pretty sure it’s possible and I makes sense given that you could withdrawal the entire amount, penalty free once you hit 59-1/2, so why not say I want no further withdrawals at 59-1/2? At least until RMD’s kick in.

Did some research:
https://www.irs.gov/retirement-plan...garding-substantially-equal-periodic-payments

The substantially equal period payments must generally continue for at least five full years, or if later, until age 59 ½. For example, if you began taking payments at age 56 on December 1, 2006, you may not take a different distribution or alter the amount of the payment until December 1, 2011, even though your fifth payment was taken on December 1, 2010.

If you begin taking substantially equal periodic payments on December 1, 2005, and you turn 59 ½ on July 1, 2011, you may not take a different distribution or alter the amount of the payment until July 1, 2011.

 

[pb4uski]

Also, I seem to recall that you can have only one 72t per account, so what some people do is to split their tax-deferred into a separate tIRA and do a max 72t on that, leaving other tIRAs available to be later split off and 72t started on them if the need arises. Something like that anyway.

 

[gauss]

I’m no expert, but I believe I read that with a 72T, once you turn 59-1/2, you can turn it off. So, if the reason you don’t want to consider that option is because you don’t want to lock in a specific withdrawal rate for the rest of your life, you might want to do some research on that. I apologize if I’m incorrect, but I’m pretty sure it’s possible and I makes sense given that you could withdrawal the entire amount, penalty free once you hit 59-1/2, so why not say I want no further withdrawals at 59-1/2? At least until RMD’s kick in.

Did some research:
https://www.irs.gov/retirement-plan...garding-substantially-equal-periodic-payments

The substantially equal period payments must generally continue for at least five full years, or if later, until age 59 ½. For example, if you began taking payments at age 56 on December 1, 2006, you may not take a different distribution or alter the amount of the payment until December 1, 2011, even though your fifth payment was taken on December 1, 2010.

If you begin taking substantially equal periodic payments on December 1, 2005, and you turn 59 ½ on July 1, 2011, you may not take a different distribution or alter the amount of the payment until July 1, 2011.

I don't believe that this is the case.

I was under the impression that the 72t had to run a minimum of 5 years. IE. you could only turn it off at age 59 /12 if you started it prior to age 54 1/2. I believe that the last few sentences (ie the example) of the first of the two paragraphs after the IRS link supports this conclusion. Either way, I believe that the FAQ paragraph is poorly written by the IRS.

FWIW - I looked into 72(t) plans about 10 years ago, but then I decided that I could accomplish everything that I needed via Roth strategies -- Roth IRA contributions can be withdrawn tax and penalty free at any age. Roth conversions can be withdrawn tax and penalty free at any age as long as 5 years have passed since the conversion. Note both my and DW's 401(k) plans have always allowed (non-Roth) after-tax contributions up to the IRS limit of ~ $50,000. This gave us plenty of capacity to sock money away in Roths since the rules changed, back in 2010 or so, removing conversion income limits.

-gauss

 

[Gossetba]

The pension is available as an annuity or a lump sum

 

[Gossetba]

You're in a good position to retire at 55 or at 60... it is all a matter of what you want to do, whether you enjoy your work or not, how important money is to you, etc.

Your spending excluding mortgage is $48k a year from what you wrote, but in reality it may be higher unless you have already included periodic car replacements, furnace/HVAC/roof replacements, increased travel in retirement, etc.

Also, you and your wife have social security as well, right? Also, does your pension include options for monthly benefits as well as a lump sum? And if there is a monthly benefit option are payments fixed or adjusted for cost-of-living?

As you have noted, since you are retiring early one issue will be penalty free access to your money for spending from when you retire until you turn 59 1/2. If you stay until 55, it is likely that you'll have penalty free access to your 401k, but you need to check into that and whether there are any restrictions on rule of 55 withdrawals by your plan. Some plans limit penalty-free withdrawals to once a year... and some are more onerous.

If rule of 55 withdrawals are not a good option and if you plan to stay in your house might be to do a cash-out refinancing before your retire to raise cash that could be used for spending and then pay it off aggressively once you have penalty-free access to your retirement funds. Or shift current retirement savings for the next couple years to just enough to capture any employer match and the rest either efter-tax or in a Roth where contributions can be withdrawn without penalty. While there is a tax cost to that given your high income the fact that you have so much in tax-deferred may put you in a high tax bracket in retirement once your pension and social security start so paying more in taxes now might not be a big deal.

Yes, we both are eligible for Social Security, full payout is $4,080 for me and about half for my wife.
The annual withdrawals may be an option, I hadn’t considered that. I’ll look into that as an option to carry me through until 59.5
Great advice.... thank you