Need advice! 55 YO 2018 retire & 54 YO retired, Kids on own

[capjak]

Been here awhile but getting close to retire date (i moved from July 2017 to Jan 2018)


Looking for ideas on bridging from 62 to 70 Social Security with low risk, low cost. Risk Profile Moderate risk moving more conservative as no paycheck. Have investigated and interested in building a Floor of appx $90,000 income plus 3% inflation (62-70), so investigated SPIA and Bond Ladders. Like SPIA for Longevity but costs are high based on our age and interest rates. Bond Ladders seem to be expensive also. Concerned with Equity/bond allocation and systematic withdrawals due to sequence of return risk early in retirement.


Me: 55 YO retire January 2018
DW: 54 retired June 2017 (longevity in family)

Investable Assets:4.5 M (split 60/40 qualified/non-qualified) plus 200K bank cash
Asset Allocation Stock 46%: 38% US stock funds, 8% International
Asset Allocation Bond 43%: 38% US Bond Funds, 5% international
Asset Allocation Cash 11%:
Pension starting in 2018: Me: 42K, DW: 7K

Spending Current: $101K after tax (no mortgage,Zero debt)
Spending Retire Target: 120K after tax, retiree healthcare through company appx 7K per year 2k out of pocket

My thoughts build 7 year ladder of 90K (90k+49 pension covers it with inflation) per year to cover expenses 62-70 or purchase SPIA when 62 or start laddering SPIA to build floor and lifetime income (36K SPIA +49K pension lifetime base plus systematic withdrawal).

 

[MBAustin]

I'm having a little trouble following your numbers - is the $200K bank cash included in your 11% cash or on top of it? I assume on top, which would give you nearly $700K in cash, or about what you need to get through those 7 years. But what are you doing for the 7 years from 55-62?

Personally, this is more complicated than I would do with your level of assets and your relatively conservative AA already. Do your non-qualified investments throw off dividends? If so, I would start off by not reinvesting and using it to replenish your spending cash. Also, you don't say what your total SS will be, but it certainly won't be close to $90K, so you'll still be withdrawing some from your asset base.

What does FIREcalc say?

 

[flintnational]

We are both 57. We keep 6 or 7 years of expenses in cash/short term treasuries. This puts us to age 63 or 64. At that point, our pensions and SS will cover our inflation adjusted budget 100%. Accordingly, the rest of the assets are almost entirely in stocks. Even if the market takes a long sustained down turn the cash carries us to our pensions and SS. From a brief review of your numbers, it looks like you could do something similar. I would do a short term bond/CD ladder or cash before I would do the SPIA.

FN

 

[pb4uski]

To be honest, your WR is so low it doesn't matter much what you do. IOW, you have plenty to easily weather any sequence of returns storm.

$120k after-tax spend... grossed up for taxes... say, $140k/year... less $50k in pensions = $90k/year of withdrawals.

$90k/$4.7 million = 1.9% and that doesn't even consider SS. So at a 2% WR you have enough bonds and cash to go 27 years without touching stocks is you had to.

Do you have significant unrealized gains in non-qualified that will constrain your appetite to reposition those monies?

 

[capjak]

I'm having a little trouble following your numbers - is the $200K bank cash included in your 11% cash or on top of it? I assume on top, which would give you nearly $700K in cash, or about what you need to get through those 7 years. But what are you doing for the 7 years from 55-62?

Do your non-qualified investments throw off dividends? If so, I would start off by not reinvesting and using it to replenish your spending cash. Also, you don't say what your total SS will be, but it certainly won't be close to $90K, so you'll still be withdrawing some from your asset base.

What does FIREcalc say?

Yes 200k is separate.
200K cash is in bank plus 11% cash only 350K is accessible other is amount within funds that they are holding in cash per Personal Capital tracking.

From 55-62 I plan on taking a Level Income Pension so actual amount would be 58K to year 62 than 37K forward plus DWs 7K so 65K for 55-62 plus deferred compensation of 37K (so 102K for till 62 plus investments/dividends) at 62 pension would go down total 44k. Social Security appx 60K (not sure exactly but this should be in the ball park).

 

[capjak]

We are both 57. We keep 6 or 7 years of expenses in cash/short term treasuries. This puts us to age 63 or 64. At that point, our pensions and SS will cover our inflation adjusted budget 100%. Accordingly, the rest of the assets are almost entirely in stocks. Even if the market takes a long sustained down turn the cash carries us to our pensions and SS. From a brief review of your numbers, it looks like you could do something similar. I would do a short term bond/CD ladder or cash before I would do the SPIA.

FN

Thanks, I have been looking at ladders starting in 5 to 7 years, I think all of the rest in stock would make me uneasy. It is fine while I am working but not when I am not working.

 

[capjak]

To be honest, your WR is so low it doesn't matter much what you do. IOW, you have plenty to easily weather any sequence of returns storm.

$120k after-tax spend... grossed up for taxes... say, $140k/year... less $50k in pensions = $90k/year of withdrawals.

$90k/$4.7 million = 1.9% and that doesn't even consider SS. So at a 2% WR you have enough bonds and cash to go 27 years without touching stocks is you had to.

Do you have significant unrealized gains in non-qualified that will constrain your appetite to reposition those monies?

WR would be low as long as the market does not tank and stay there like Japan Market. But yes based on history should be good with just doing withdrawals, I am just thinking why take risk.

I don't want to do much with Non-Qual this year as we are in the highest tax bracket in 2017 will be lower moving forward so will look at doing that in 2018 forward as well as starting a Roth (I thought).

Where/How would you reposition those assets?

 

[RobbieB]

I wouldn't do anything, you are plenty conservative already and should be generating well over 90 grand a year.

 

[pb4uski]

WR would be low as long as the market does not tank and stay there like Japan Market. But yes based on history should be good with just doing withdrawals, I am just thinking why take risk.

I don't want to do much with Non-Qual this year as we are in the highest tax bracket in 2017 will be lower moving forward so will look at doing that in 2018 forward as well as starting a Roth (I thought).

Where/How would you reposition those assets?

Since qualified dividends and long-term capital gains are subject to preferential tax rates (0% for those in 15% tax bracket and generally 15% for those in higher tax brackets) I think it makes the most sense to have your non-qualified/taxable money in equities. Also, to the extent that you have international equities in taxable accounts you can use the foreign tax credit... which goes to waste when international equities are held in tax-deferred accounts. This is what I do and I essentially have a negative tax rate on my taxable equity portfolio because the foreign tax credit exceeds the tax on non-qualified dividends.

If you are truly risk averse you could set up a CD ladder or bond ladder or target-maturity bond ETF ladder with $90k on each rung. If you can't do that in your taxable accounts without incurring a big tax bill you could do it in your tax-deferred accounts and then as each rung matures buy $90k of stock in your tax-deferred account and sell $90k of stock in your taxable account and use the proceeds for living expenses.

 

[capjak]

Since qualified dividends and long-term capital gains are subject to preferential tax rates (0% for those in 15% tax bracket and generally 15% for those in higher tax brackets) I think it makes the most sense to have your non-qualified/taxable money in equities. Also, to the extent that you have international equities in taxable accounts you can use the foreign tax credit... which goes to waste when international equities are held in tax-deferred accounts. This is what I do and I essentially have a negative tax rate on my taxable equity portfolio because the foreign tax credit exceeds the tax on non-qualified dividends.

If you are truly risk averse you could set up a CD ladder or bond ladder or target-maturity bond ETF ladder with $90k on each rung. If you can't do that in your taxable accounts without incurring a big tax bill you could do it in your tax-deferred accounts and then as each rung matures buy $90k of stock in your tax-deferred account and sell $90k of stock in your taxable account and use the proceeds for living expenses.

Great advice pb4, we have been treating each account as separate instead of looking at the whole picture. We will need to do an overhaul in 2018. I've been to a lot of free chicken dinners and the advisors all want to help us. They know they can make their fee back plus

 

[Blue Collar Guy]

Great advice pb4, we have been treating each account as separate instead of looking at the whole picture. We will need to do an overhaul in 2018. I've been to a lot of free chicken dinners and the advisors all want to help us. They know they can make their fee back plus

Hahah, its the ones that serve surf and turf you need to steer clear of!

 

[exnavynuke]

I put $4.5M as your portfolio value with a 40 year retirement and all other values at default in FIRECalc. Then I ran it to show your 95% success rate spending level and got

A spending level of $164,619 provided a success rate of 95.3% (107 total cycles, of which 5 failed). This spending level is 3.66% of your starting portfolio. (Your spending is assumed to come from any Social Security and pensions you entered, as well as from the portfolio.)

That didn't include your pension or SS. Adding in a $49k, non-COLA pension beginning in 2018, the results become:

A spending level of $188,855 provided a success rate of 95.3% (107 total cycles, of which 5 failed). This spending level is 4.20% of your starting portfolio. (Your spending is assumed to come from any Social Security and pensions you entered, as well as from the portfolio.)

To get extra conservative, let's bump that to a historically 100% chance of success and still leave out SS and we get:

A spending level of $172,815 provided a success rate of 100.0% (107 total cycles, of which 0 failed). This spending level is 3.84% of your starting portfolio. (Your spending is assumed to come from any Social Security and pensions you entered, as well as from the portfolio.)

I'd say your being way, way, way conservative

 

[pb4uski]

Great advice pb4, we have been treating each account as separate instead of looking at the whole picture. We will need to do an overhaul in 2018. I've been to a lot of free chicken dinners and the advisors all want to help us. They know they can make their fee back plus ��

I suggest that you do-it-yourself.... nobody cares about your money more than you.... you can engage a fee-only financial planner to help you with the initial set-up and an occasional check-up and save a boatload over paying 1% to a AUM based planner.

Not rocket science.