Plan to wipe out savings

[fivefive]

Hi Y'all,
I'm 53 and looking at 55 as the year I can retire. I've run the numbers time and again. Only 2 years away, so the figures are more accurate than if I was planning decades out.
I will change my home before I retire and recheck the math taking the new home costs into consideration.

My 401k , roth, annuity, and two pensions will be left untouched until needed around the "normal" retirement age. I'm Mortgage free by the way. And yes I've allowed for insurance.

In the mean time, age 55 till 62, I'll have savings to last me 7 years. This isn't income from savings, its me withdrawing from savings. If I don't work at all, the money will be gone at age 62. Of course I hope to stretch that with some part time or occasional work.

Of course were not talking a simple savings account, but some form of low risk moderate return vehicle. (I'm investigating a new fangled "2 year annuity" ladder designed to compete with CDs.)

Hope all that info wasn't too muddled.

I'm looking for your input on this unconventional plan. Admittedly the idea of a non sustainable withdrawal rate is lunacy to some.
My other long term accounts with continue to be vested in the market and (we all hope) grow.

I try to look at it like I'm buying a 7 year vacation. We don't know if inflation will sky rocket, the safest thing for everyone is to work till they drop.

Please encourage m or set me straight. Thanks

 

[REWahoo]

Doesn't sound all that unconventional, your plan is similar to how many of us who retired "early" mange(d) our spending prior to SS and/or pensions kicking in.

Have you seen this? http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

 

[aaronc879]

Seems reasonable to me however I would start withdrawing from my 401K at age 59.5. Just don't go over the 15% income tax threshold. If you spend ALL of your low risk cash then you may be forced to sell off some of your 401K after a drop in value which isn't ideal. With an annuity, two pensions, and SS you should be fine anyway. Good luck.

 

[imoldernu]

We didn't do it for the same reason, but our plan worked essentially the same as what you describe, though I'm guessing with considerably less in assets. Nonetheless, as we near the four score mark, it hasn't been necessary to engage in gainful employment, though that was the safety net.

http://www.early-retirement.org/forums/f27/sharing-23-years-of-frugal-retirement-62251-2.html#post1214041

I am an advocate for doing what doing those things that give the most satisfaction and sense of fulfilment. For some, that means staying in the w*rkplace, for others... pursuing hobbies, travel or altruistic interests.

A second benefit of retiring early, is the opportunity to experience managing expenses on a planned fixed income, rather than the free floating budget that often accompanies lifestyles that are accustomed to an ongoing, continous income. This has served us well in the later years.

Best wishes and good luck...

 

[Donzo]

The first 5 years of my retirement came from a 5 year CD ladder(4-6%). Good thing - I retired in June 06 and was able to not touch investments thru the 08-09 mess. Now I draw from from a money market acct that is fed from investments when I feel the time is right. Recently added a full year of cash to MM. So what you are doing sounds about right to me

 

[pb4uski]

Seems reasonable to me however I would start withdrawing from my 401K at age 59.5. .....

+1 I would use tax deferred funds beginning at 59.5 rather than totally deplete taxable savings. Money is fungible - IOW it doesn't matter whether you use taxable or tax-deferred.

Also, some companies 401k plans allow penalty free withdrawals if you leave after age 55 so if your employer allows that it may create additional flexibility for you.

Also, if you will be in a higher tax bracket once your pensions and SS start, you should consider doing Roth conversions from ER to when those start to reduce your taxes later in life.

Also, while it is fine to plan to take pensions and SS at 62 if you need to, retain the flexibility to start them later as longevity insurance if it turns out that you can afford to defer.

 

[Bestwifeever]

I don't know what a new-fangled two year annuity ladder is but does it keep your savings easily accessible in case you need them for an emergency?

Otherwise your strategy seems sound.

 

[foxfirev5]

I have a similar plan in that my 401k SV fund can't be rolled over at ER. I plan to take a year or two cash requirements (within the 15% tax bracket) and roll the rest into a ST or Low duration bond fund. While I continue to w*rk with a case of OMY syndrome I will gradually lower the SV holding depending on my AA and market conditions. If I'm still working when I turn 59.5 I'll take a distribution to bolster my after tax holdings in cash.

 

[jkern]

This is essentially the same plan I chose. Retired at 51, fund ages 51 through 62 with savings (not counting rental income) and plan to add SS and 403b at 62 with savings nearing depletion.

 

[heeyy_joe]

Control taxable income to maximize PPACA subsidy. Be prudent with 401k withdrawls.

 

[mrfeh]

I am not recommending you do this, but I wonder what a 5 year SPIA would cost...

 

[fritz]

Control taxable income to maximize PPACA subsidy. Be prudent with 401k withdrawals.

+1 PPACA has presented withdrawal issues for us.

 

[jimnjana]

I would do 72t withdrawal from your 401k

 

[foxfirev5]

+1 PPACA has presented withdrawal issues for us.

This is another reason why I should have not put the max in my 401k over the last 30 years. You really need a balance of pretax, Roths and after tax investments to manage taxes and PPACA etc.

 

[fritz]

This is another reason why I should have not put the max in my 401k over the last 30 years. You really need a balance of pretax, Roths and after tax investments to manage taxes and PPACA etc.

Everyone's retirement scenario is unique - we've just got investments (52/48 stock/bond, no pensions) and SS for retirement income. Been retired/withdrawing 5 years now. Taxable accounts are our main issue. For us - we withdraw only dividends off our taxable and Roth accounts. Our Rollover IRA account dividend withdrawals were shut off as of last year when I started taking SS @ 62. This keeps us within subsidy reach in the PPACA. Roth accounts are the only withdrawals for us that don't affect income counted against the PPACA subsidy in one way or another. Government tweaking of the PPACA law changed the SS income reporting - now all SS is counted as income. We did have extra savings set aside for a few years (pre-SS) that caused no appreciable taxable income scenario, but that is depleted.

It's become a delicate dance for us, as to where we source extra money. Taxable account changes last year exposed $8,000 in capital gains, along with a good year end - exposed another $15,000 in taxable account capital gains (all of which is reinvested). Needless to say, this would really hurt our PPACA subsidy this year. Cost us in state taxes also - Illinois doesn't tax retirement income (pensions and 401K/IRA) "so far", but does tax all taxable account earnings. For us - it's a very complex issue, as where we source income affects taxes as well as the PPACA subsidy. Sort of a Catch-22. As luck would have it - even with the subsidy, we still pay more for health insurance than before, with coverages pretty much the same.

As for Roth conversions, thinking we'll have to wait for 4 years until we are both on Medicare (67/65). Even then, income affects Medicare participant costs as I understand it.

 

[foxfirev5]

With all the caveats it may not be a bad thing to tackle retirement with a large cash stash in savings

 

[Independent]

We did something like this. I retired at 59 and we had laddered I-Bonds and CDs to bridge the gap from 59 to SS start.

There was a poll some years ago about how people were investing to cover those early years before SS, or maybe a pension. started. IIRC, about 1/3 said they had designated assets for that time period. About 1/3 said they would just do higher withdrawals from their long term savings. The other 1/3 hadn't thought much about it.

 

[fivefive]

Thanks

Thanks very much to everyone. Although I've discussed my plans with two trusted friends, this was my first feedback from a large group.

I'm quite reassured now. Especially from an experienced group of like minded folks.

Someone asked about my phrase "laddered 2 year annuities", I meant "laddered" as in anything laddered...CD, bonds, etc. Recently the bankers have been pushing these 2 year annuities as an alternative to CDs. The most recent pitch was 2% to 4% return. "safe" principle, fully vested in the market but capped as to how high it can go.
I've just started investigating, so that's all I know now.

Someone mentioned conventional annuities. I ran the numbers through some calculators. On a 7 year term it seemed the return was very low. Especially when you consider that they'd just be sending me my own money for most of that period.

 

[REWahoo]

Someone mentioned conventional annuities. I ran the numbers through some calculators. On a 7 year term it seemed the return was very low. Especially when you consider that they'd just be sending me my own money for most of that period.

What? You mean you didn't buy the "guaranteed 8% minimum return" sales pitch?

 

[jollystomper]

Hi Y'all,
In the mean time, age 55 till 62, I'll have savings to last me 7 years. This isn't income from savings, its me withdrawing from savings. If I don't work at all, the money will be gone at age 62. Of course I hope to stretch that with some part time or occasional work.

Your strategy is very similar to ours. We plan to keep enough in cash to make up the difference between my pension and our budgeted lifestyle, and to cover planned major expenditures, to last between the time I retire (age 57) to taking SS at 63. This way we won't be forced into touching our taxable and 401K/IRA investments when the market might be on a down trend. Of course we'll adjust yearly based on what we actually spend and how the market does. What savings we have left at age 63 will determine if we actually take SS or delay. Your plan makes sense to me.

 

[NW-Bound]

In Jan 2013, I made a poll to see how much of people's investable assets was in taxable accounts. The responses showed a fairly wide spread from less than 10% to nearly 100%.

See: http://www.early-retirement.org/forums/f28/percentage-of-taxable-money-in-portfolio-64714.html.

I had 30% in savings that I could draw on until I could get my grubby fingers on my own IRA and 401k without penalty and without the rigidity of 72t distributions. I just checked again, and I am currently at 25%. The percentage change is due to expenses since then, but more importantly the taxable accounts include low-risk low-yield investments which have not kept up with the IRAs and 401k's accounts that are more heavily in equities.

I still have a couple of years till the age of 59-1/2 for IRA access, and more years till SS, but the money still left in taxable accounts should be enough for a while.

 

[NW-Bound]

I just checked. In dollar amounts, my low-yield taxable accounts by themselves still provided enough income and capital gain to cover 3/4 of my expenses since Jan 2013.

In percentage points, the drop of taxable accounts from 30% of total portfolio down to 25% is mostly due to the growth of the IRAs and 401k's. Nice! Here hoping this will last.