draw down taxable account to push out SS?

[skipro33]

I’ll be grateful to make it to 72... heart disease and cancer and HIV (for over 40 years) makes it a stretch goal. That said I’ve been told to prepare for the end a couple times already so I may just surprise again. Am 59 now and we are well funded so we are going to enjoy the next few years. FIRE was both a goal and necessity. What I do want is years of quality over quantity but also leave my DH a very comfortable life thereafter.

Best wishes and prayers for making your goal for quality of life and thanks for the poignant reminder that a surviving spouse deserves financial independence going forward.

 

[albireo13]

I’ll be grateful to make it to 72... heart disease and cancer and HIV (for over 40 years) makes it a stretch goal. That said I’ve been told to prepare for the end a couple times already so I may just surprise again. Am 59 now and we are well funded so we are going to enjoy the next few years. FIRE was both a goal and necessity. What I do want is years of quality over quantity but also leave my DH a very comfortable life thereafter.

Hugs

 

[albireo13]

Aside from the money issues, I see the 65 - 75 yo stretch as our chance for travelling, being active, reaching goals. After 75 ... not so much.
This makes me think that sacrificing income until the 70+ yo spigot gets turned on may not be optimal.

 

[RunningBum]

Aside from the money issues, I see the 65 - 75 yo stretch as our chance for travelling, being active, reaching goals. After 75 ... not so much.
This makes me think that sacrificing income until the 70+ yo spigot gets turned on may not be optimal.

What has that got to do with anything here? You said yourself in the first post:

In order to help with cash flow, I could either start pulling my SS or, instead, dip into the taxable account for monthly withdrawals.

 

[albireo13]

What has that got to do with anything here? You said yourself in the first post:

Not sure what your point is?!

 

[RunningBum]

The first part sounds like you don't want to wait until 70 to take SS. But you correctly pointed out in your OP that you could dip into taxable to replace the benefits. Why the conflicting statements? Or if that's not what you meant in your first point, then I'll ask you what your point is?

 

[Dtail]

Here's my plan to maximize early spending, and hopefully minimize overall taxes (if tax rates don't change):

Age 55-72: Take tax-deferred distributions equal to at least the standard deduction for MFJ. This is tax-free income! Sell taxable equities, keeping MFJ Taxable Income to <$80K (limit of tax-free distribution on LTCGs). The goal is to lower the tax-deferred account values as much as possible by 72, so that the tax bite is lowered when taking SS and RMDs kick in.

Age 70-72: Take SS, take tax-deferred distributions, continue selling taxable investments as needed.

Age 72+: Take SS, RMDs, and taxable distributions.

I have a year-by-year spreadsheet showing where the distributions are planned to come from. The result is that for the first 7 years of ER, I'll pay no $ to $3K in federal income tax, while I draw down the 401(k), IRA, and inherited IRA prior to my RMD age. It ignores creating carryover losses, and selling low-yield investments (bond funds) when equities are lower.

Bolded by me - Would Roth converting to the top of MFJ and play around more on the taxable side vs. just taking the tax deferred distribution be a better play?

 

[albireo13]

Here's my plan to maximize early spending, and hopefully minimize overall taxes (if tax rates don't change):

Age 55-72: Take tax-deferred distributions equal to at least the standard deduction for MFJ. This is tax-free income! Sell taxable equities, keeping MFJ Taxable Income to <$80K (limit of tax-free distribution on LTCGs). The goal is to lower the tax-deferred account values as much as possible by 72, so that the tax bite is lowered when taking SS and RMDs kick in.

Age 70-72: Take SS, take tax-deferred distributions, continue selling taxable investments as needed.

Age 72+: Take SS, RMDs, and taxable distributions.

I have a year-by-year spreadsheet showing where the distributions are planned to come from. The result is that for the first 7 years of ER, I'll pay no $ to $3K in federal income tax, while I draw down the 401(k), IRA, and inherited IRA prior to my RMD age. It ignores creating carryover losses, and selling low-yield investments (bond funds) when equities are lower.

Interesting.

Have you run that through Firecalc?

 

[pb4uski]

I don't think you can run a scenario like that through FIRECalc.... FIRECalc doesn't differentiate between taxable, tax-deferred and tax-free accounts.

Nor does FIRECalc calculate RMDs.

 

[ncbill]

Setup a HELOC and borrow instead?

 

[albireo13]

I don't think you can run a scenario like that through FIRECalc.... FIRECalc doesn't differentiate between taxable, tax-deferred and tax-free accounts.

Nor does FIRECalc calculate RMDs.

Hmmm .. I guess you are right on that.

 

[albireo13]

Setup a HELOC and borrow instead?

Number-wise that isn't too crazy. Rates are very low right now plus, the interest is tax deductible.

Still, I would find the idea of growing my debt very repulsive!

Why not take out a HELOC and invest the $$ into index funds??

 

[2cheap2eat]

I’d wait to 70 as others stated. You didn’t mention health issues, otherwise could consider taking SS now.
May need to consider what DW SS will be if she waited until 70 and take take now.

 

[FatBob]

I retired last Sept and have a modest pension. My wife still works and plans to continue another 3+ yrs.
I am 65 and my SS FRA is Feb 2022, in 1 yr. I haven't started SS yet.
While my pension helps, it doesn't help enough with cash flow to make up for my loss of salary. Unfortunately, the youngest two sons aren't quite financially independent yet.

Our IRA nestegg is substantial and I also have a taxable account of $180K.

In order to help with cash flow, I could either start pulling my SS or, instead, dip into the taxable account for monthly withdrawals.

Deferring SS seems the way to go, at the expense of drawing down my taxable account. I figure I will need to pull about $20K/yr. This will need to go on for maybe 3 yrs. Once my wife retires, and we both are puling SS, we will be golden.

Any thoughts or gotchas on this idea?

My one caveat is the uncertainty over the future of SS. IMO, there is no guarantee the SS trust fund will not be raided by politicians in the future.
It might make sense to start pulling it sooner, rather than later.

I've thought about this situation for myself as well. I honestly think I would take the SS before I touch my IRA or Investment Account. My thought is that the SS dies with me (or my wife) but the tIRA and Investment Account can continue to growing and go to my kids.