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New guideline for spending safely in retirement
Old 12-08-2017, 09:14 PM   #1
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New guideline for spending safely in retirement

I read this story today and immediately thought of this site. I kept checking to see if anybody posted it already. It goes over what some people on this site have been advocating previously: Delaying social security until age 70 by whatever means necessary, continuing to work, using money already set aside in taxable accounts or in tax deferred accounts. Here is the link:https://www.msn.com/en-us/money/savi...76j?li=BBnbfcN I don't know why in did not come up so that you can just click on it. Sorry, I am not good at doing this type of thing.

If you click on How to “Pensionize” Any IRA or 401(k) Plan – Stanford Center on Longevity it gives a report on How to "Pensionize" any 401K or IRA.

I had my DH read this. He turns 66 this month and we are thinking about him suspending his SS until age 70. (He is receiving an unreduced SS benefit.) We would start his 401K pension amount (they use the IRS life expectancy chart and send it either annually, every 6 months or every quarter, whichever you choose, in order to replace his SS amount. It would take 12.517 years until his breakeven point for SS, which would be 82 and 1/2 years old. I am affected by GPO (Government Pension Offset) and would not be eligible as a wife on his SS record. However, if he delayed SS until age 70 and died before me, I would be eligible for approximately $600.00 SS off of his record. He would be eligible for approximately $700.00 higher SS benefit on his record at age 70. His starting to take payments from his 401K would help at RMD time.

We have not used any of our 401K, TSP or IRAs yet and it makes me nervous to start using them. I have to keep reminding myself that we are getting older and we saved the money for our retirement. He will be 66 later this month and I will be 65 in March 2018. This would be a way to increase his SS for him and also as a survivor, if I were to outlive him. If he were to die right now, I would receive less than $50.00 off of his record as a survivor. My SS is $93.00 per month off of my own record. I do receive a nice CSRS federal pension. I am thinking about withdrawing my SS retirement claim and refiling at age 66. It would be nice to receive a big enough social security check to have my medicare premium deducted from it, so that I would be under the Hold Harmless provision. I told him that if I were to die before him, I would have his SS check start back up and not to wait. It would be nice to be able to leave our children an inheritance and I would hate to draw down our retirement accounts and then both of us die in our early 70s. We are both fairly healthy now. We both need to exercise more and it would be nice if DD could get to a normal BMI (he is in the obese category now). My parents and several aunts and uncles died in their 60s. However, I have 3 aunts and uncles living that are now 88, 84 and 83 and my aunt that just died was 86 1/2. They give me hope!

Any thoughts on anything that I am not thinking about? Any thoughts on what you think that we should do?
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Old 12-08-2017, 10:28 PM   #2
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Originally Posted by Dreamer View Post
I read this story today and immediately thought of this site. I kept checking to see if anybody posted it already. It goes over what some people on this site have been advocating previously: Delaying social security until age 70 by whatever means necessary, continuing to work, using money already set aside in taxable accounts or in tax deferred accounts. Here is the link:https://www.msn.com/en-us/money/savi...76j?li=BBnbfcN I don't know why in did not come up so that you can just click on it. Sorry, I am not good at doing this type of thing.

If you click on How to “Pensionize” Any IRA or 401(k) Plan – Stanford Center on Longevity it gives a report on How to "Pensionize" any 401K or IRA.



I had my DH read this. He turns 66 this month and we are thinking about him suspending his SS until age 70. (He is receiving an unreduced SS benefit.) We would start his 401K pension amount (they use the IRS life expectancy chart and send it either annually, every 6 months or every quarter, whichever you choose, in order to replace his SS amount. It would take 12.517 years until his breakeven point for SS, which would be 82 and 1/2 years old. I am affected by GPO (Government Pension Offset) and would not be eligible as a wife on his SS record. However, if he delayed SS until age 70 and died before me, I would be eligible for approximately $600.00 SS off of his record. He would be eligible for approximately $700.00 higher SS benefit on his record at age 70. His starting to take payments from his 401K would help at RMD time.

We have not used any of our 401K, TSP or IRAs yet and it makes me nervous to start using them. I have to keep reminding myself that we are getting older and we saved the money for our retirement. He will be 66 later this month and I will be 65 in March 2018. This would be a way to increase his SS for him and also as a survivor, if I were to outlive him. If he were to die right now, I would receive less than $50.00 off of his record as a survivor. My SS is $93.00 per month off of my own record. I do receive a nice CSRS federal pension. I am thinking about withdrawing my SS retirement claim and refiling at age 66. It would be nice to receive a big enough social security check to have my medicare premium deducted from it, so that I would be under the Hold Harmless provision. I told him that if I were to die before him, I would have his SS check start back up and not to wait. It would be nice to be able to leave our children an inheritance and I would hate to draw down our retirement accounts and then both of us die in our early 70s. We are both fairly healthy now. We both need to exercise more and it would be nice if DD could get to a normal BMI (he is in the obese category now). My parents and several aunts and uncles died in their 60s. However, I have 3 aunts and uncles living that are now 88, 84 and 83 and my aunt that just died was 86 1/2. They give me hope!

Any thoughts on anything that I am not thinking about? Any thoughts on what you think that we should do?
I think the plan depends on the percentage of your 401k/iras that you would have to draw to make it to 70 for him. In addition to getting an increased benefit at 70, you also need to have the ability to absorb financial shocks with the remainder of your portfolio. Is it large enough to survive the draw down to 70 for him? If he is 66 now, 4 more years is not too long to plan for, knowing that he can draw at any time if needed. There are many variables in your decision that requires careful thought. The good news is that if you change your mind, he can draw at any time before 70.

VW
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Old 12-08-2017, 10:50 PM   #3
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One advantage to drawing some of your husbands IRA/401k now is that will reduce the RMD when he turns 70.5... and when he'll be taking SS.
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Old 12-08-2017, 11:06 PM   #4
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OP - People can answer in generalities, but without knowing approx value of: "401K, TSP or IRAs" , it is hard to say things for certain.

Example if you have a low amount in total for all pre-tax accounts (IRA's etc) then spending them down to avoid a tax torpedo at age 70.5 might not be the best thing, since there will be no torpedo.
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Old 12-09-2017, 03:48 AM   #5
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700/4 means 8% of his FRA is $175 so FRA is $26250/yr. Age 70 would be $34650. So if maintaining income at that level for the next 4 years, means putting aside (mentally or in a separate account that earns roughly 4%) about $130k. So the question becomes, “Is a $130k reduction in your NW, which provides you with a $700/mo COLA annuity, and lower taxes of ~ $1600/yr (includes paying Fed tax on 85% of SS and reduced RMD amount in 25% bracket, but open you up to Medicare increases for the next 4 years), so figure $830/mo, (~$10k/yr) worth it to you?” Does that amount provide you with a higher level of comfort and not appreciably reduce what you wish to leave your heirs?
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Old 12-09-2017, 09:19 AM   #6
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OP here. We would still have approximately $740,000 left in the 401K, TSP and IRAs. We also have a much smaller amount in Roth IRAs. So there would be some inheritance left for the kids, just not as much. If we need to use the money, then of course we will.

Perryinva: If we stop the SS and take payments from the 401K, our income should be about the same, I think. My DH does not have to pay Medicare increases now and we should not have to pay them next year either.

I was surprised in the article, that it talked about leaving the rest of your money invested 100% in stocks. I know that a few people on this site, do invest heavily in equities, but don't think that I could do it myself.
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Old 12-09-2017, 09:49 AM   #7
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I made a spreadsheet that went out until we were 112 and we looked at how much income could we have between pensions at 55, SS at 62, and a .5% real return portfolio (what we can get with a TIPS ladder or equivalent) and we plan to spend that amount or less each year. That was our version of a simple safe spend plan.
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Old 12-09-2017, 10:51 AM   #8
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I guess that we are spreadsheet challenged. We have never made a spreadsheet in our life. I usually use pen and paper to try to figure things out.
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Old 12-09-2017, 11:08 AM   #9
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The next best thing I have found is the Fidelity Retirement planner. Many of these articles are written either for the general public who do not have a lot of savings or for the benefit of advertisers who want to keep you working until you drop so you can leave your money invested with them. Running the numbers for all sorts of different scenarios and investment strategies is going to give you the clearest picture for your particular situation.

If you are planning on a 30 year retirement you can safely withdraw 3.33% with even a zero real return, which is more than many of the pundits are recommending as safe withdrawal rates with more volatile portfolio mixes.
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Old 12-09-2017, 11:12 AM   #10
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An RMD/SS strategy is pretty foolproof if it meets your spending needs. I do slightly object to the study title including the term "pensionize", which is only used in the report once in the introduction. Common understanding of the word "pensionize" would lead the reader to believe this was a constant-income plan. RMD-based withdrawals are a variable withdrawal plan.
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Old 12-09-2017, 11:14 AM   #11
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OP here. We would still have approximately $740,000 left in the 401K, TSP and IRAs. We also have a much smaller amount in Roth IRAs. So there would be some inheritance left for the kids, .....

Perryinva: If we stop the SS and take payments from the 401K, our income should be about the same, I think. My DH does not have to pay Medicare increases now and we should not have to pay them next year either.

I was surprised in the article, that it talked about leaving the rest of your money invested 100% in stocks. I know that a few people on this site, do invest heavily in equities, but don't think that I could do it myself.
If your income were to remain the same the same whether you suspended at 66 and filed at 70 or kept collecting SS then there would be little point in suspending, IMHO. The whole point of filing at 70 is to reduce taxes and increase income, for the long term. It is obviously a loser in the short term, regardless. Delayed filing is longevity insurance, like any annuity, plain and simple, but with your assets which are very appropriately the same as ours (we both have higher SS benefits and a bit more saved) , if you do not increase your income, all you are doing is letting the tax deferred accounts grow even more, so if you DO really see age 83, then your RMDs become 7.5% of a much larger number, causing a forced income that is much higher and taxed at a higher rate.

Once the tax is deferred in to an IRA, unlike a Roth, the benefit is over. Now the challenge becomes getting your money and earnings out at as reduced a tax rate as possible. Whether you pay taxes on the gains of an IRA or an after tax account that is not tax preferenced, it is exactly the same; taxed ordinary income. The whole point of filing later and using deferred accounts to replace that income is to get as much of your money out of the IRA as soon as possible at as low a tax as possible. You don’t HAVE to spend it, but just invest what is not spent in a tax preferenced vehicle. So, then now you pay at most 15% on LTCGs or low/no tax munis on the gains only when you want to, and are not forced by RMDs to pay at the highest rate. The other popular approach is to roll over as much as you can afford in the current tax bracket from your IRA to your Roth, so then you never worry about taxes on that income again. That is where so many people got their $500k+ Roths from. Certainly not from contributions!! Ideally one could roll over all of an IRA to a Roth. But if forced to pay too high a tax up front, then the gains are negated. So the best approach is often to just reduce RMD liable accounts to a level where the RMD is the same or less than you would have taken out anyway, so it becomes a moot income liability.
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Old 12-09-2017, 11:54 AM   #12
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I saw the article and it was interesting but I really didn't fully understand what they were saying (other than waiting until 70 for SS). I've done a lot of research and thinking since I started thinking about retirement and visiting this site has helped a lot. I'm at the point now where I have a pretty good basis of understanding of the issues but I need a more formal plan. I went to one seminar where the FA showed a plan that was interesting but at a much lower income bracket than me and DW. He basically showed how to stay at zero income tax and to fund a ROTH to bring you right up to the limit. I fully understood that but now I want to do that with my scenario.

I have used Fidelity retirement planner, but I'm not fully comfortable how it's considering taxes and RMD. Since you enter an average tax rate, I'm pretty sure it's not too sophisticated. Does anyone have a FA or a site to go to that doesn't cost a fortune to model out a retirement life of withdrawals and the tax implications? I'm looking with my spending assumptions to stay under the 15% tax bracket.
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Old 12-09-2017, 12:47 PM   #13
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I have used Fidelity retirement planner, but I'm not fully comfortable how it's considering taxes and RMD. Since you enter an average tax rate, I'm pretty sure it's not too sophisticated. Does anyone have a FA or a site to go to that doesn't cost a fortune to model out a retirement life of withdrawals and the tax implications? I'm looking with my spending assumptions to stay under the 15% tax bracket.
I don't know any site with that level of detail which is why I use a spreadsheet and tax caster:

https://turbotax.intuit.com/tax-tool...ors/taxcaster/
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Old 12-09-2017, 01:34 PM   #14
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I have used Fidelity retirement planner, but I'm not fully comfortable how it's considering taxes and RMD. Since you enter an average tax rate, I'm pretty sure it's not too sophisticated. Does anyone have a FA or a site to go to that doesn't cost a fortune to model out a retirement life of withdrawals and the tax implications? I'm looking with my spending assumptions to stay under the 15% tax bracket.
I-orp is mentioned often and might do what you want. http://www.i-orp.com I believe.
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Old 12-09-2017, 04:11 PM   #15
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I-orp does seem to be more in line with what I'm looking for. I'll need to understand it a lot more, but it's graphs seem to be on the track I was looking for. One thing it has that I really like is (apparently), after analyzing your input, it give you a number you can use as a maximum disposable income. I've been looking for that for some time. I'm a person who wants to know what I have (as in how much can I spend) where as most planners, want you to enter what you think your expenses will be. I see the value of attacking it from both directions, but when I see the number I-orp creates, I say to myself, I can live at that level. Sure, I understand it's a max and I understand I need to understand it better, but I like that direction better. Tell me what I have and I'll find a way to live within that framework. Of course, if it indicated my annual max was say, $25,000, I'd realize that I need to keep working.
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Old 12-10-2017, 05:50 AM   #16
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a number you can use as a maximum disposable income.
FIRECalc will do that too, and I've found it to generally be fairly close to the number I get from I-Orp. That gives me confidence, since they are different methodologies.
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