Question about 4% withdrawal rate in retirement

[NW-Bound]

And the bad news: We (here) all started too late to head off the inevitable 1st world problems of high RMDs. That's why I urge the young'uns here to ROTH to the max and minimize the 401(k) - or at least do the math as they make their plans. YMMV

I dunno about minimizing 401k, at least in our case.

We both had 50% matching by our employers. So, what we have in our accounts now, 1/3 of it came from employers. Without the matching, the accounts would be only 67% of their present values.

Our tax rate even with RMD will not be that high to exceed the 33% loss by forfeiting the matching. And we have not counted the tax loss by not having the tax deduction from 401k when the contribution was made.

Secondly, back then, the max 401k contribution was $10K/year, while the IRA was a measly $2K/year. Roth did not exist, and then when it was created it was also limited to $2K, and the income limit for qualification also made me ineligible. You cannot build a big nest egg with $2K/year. I did not even think our $30K/year 401k was enough (2 accounts, plus the matching), but the market god was so generous.

 

[SecondCor521]

Calculators always say take mine at 70 hers at 62, I'm not sure it is that simple.

Most SS calculators, by their very nature, just look at SS and ignore tax-related items which may sway the conclusion.

 

[TheWizard]

... However, the RMDs goes up every year and hopefully the value of our Mutual funds will increase, so this year I will Roth convert on my wife's accounts, to bad I already did some of mine during the dip. Wanting to do as much in conversions as I can in the next 2 yrs 7 months, before I'm 70 and we collect SS. Now wondering if I should defer her SS and eliminate $20k of income and do an additional $20k of Roth Conversions. And let her check get a little bigger. Calculators always say take mine at 70 hers at 62, I'm not sure it is that simple.

The RMD percentage goes up every year, yes, but your tax-deferred balance may or may not.
So it's not at all clear if RMDs will keep up with inflation.
I'll be keeping track of mine, year by year.

If you're both in good health, then yes, delay your wife's SS beyond 62 a ways. Maybe aim for 66 and see how it goes...

 

[TheWizard]

I agree. I wish all or most of my retirement investment was in a Roth IRA.

Ok, but do you also wish you could have paid way higher taxes at the 25% or 28% marginal rate back during your entire working career?

 

[Gumby]

Ok, but do you also wish you could have paid way higher taxes at the 25% or 28% marginal rate back during your entire working career?

I would quibble with your definition of "way higher" (28% was on the low end of marginal rates for the young wife and me while we were working, and we are at 22% now), but your point is a good one -- allocating between pre-tax and post tax saving while you are working is a balancing act between current tax rates and expected future rates.

 

[Chuckanut]

T

If you're both in good health, then yes, delay your wife's SS beyond 62 a ways. Maybe aim for 66 and see how it goes...

A good choice. And you can always turn SS on earlier if you like, or decide to delay it a while longer. Having options is good.

 

[Koolau]

A good choice. And you can always turn SS on earlier if you like, or decide to delay it a while longer. Having options is good.

I agree that options are good. Modeling them can be difficult.

 

[Time2]

The RMD percentage goes up every year, yes, but your tax-deferred balance may or may not.
So it's not at all clear if RMDs will keep up with inflation.
I'll be keeping track of mine, year by year.

If you're both in good health, then yes, delay your wife's SS beyond 62 a ways. Maybe aim for 66 and see how it goes...

A good choice. And you can always turn SS on earlier if you like, or decide to delay it a while longer. Having options is good.

She's 63 now, when I start SS at 70, she will be 3 months shy of 66, I would only delay to allow more room for Roth conversions in the 12% bracket. I seem healthy compared to other 67 year olds around me, but I had some odd blood tests and have two more weeks to wait for a diagnosis. 5 weeks between blood draw and next appointment, do any blood results take that long, or is the doc just prolonging my wondering?

 

[Koolau]

She's 63 now, when I start SS at 70, she will be 3 months shy of 66, I would only delay to allow more room for Roth conversions in the 12% bracket. I seem healthy compared to other 67 year olds around me, but I had some odd blood tests and have two more weeks to wait for a diagnosis. 5 weeks between blood draw and next appointment, do any blood results take that long, or is the doc just prolonging my wondering?

All my tests (blood to biopsies) seem to be in My Chart that night. YMMV

 

[FLJim]

No secret. 70/30, good mix of stocks, funds and index funds, bought the drops in 08 and 2020, didn’t panic, only spending dividends and MF cap gains.

Most old timers here will have similar responses. Someone will do the math and find something like a 7% YoY...nothing outrageous. Basic market performance.

I think I'm an old timer. Retired over 11 years ago long before I found this website. NW of about 2.25M then. Heavy in equities; no bonds. Today NW is about 4M. We spend like drunken sailors (no offense to the Navy) and the passive income keeps coming in and increasing. (Investing has been my hobby for 40 years). Never panicked on drops - they call those 'sales'. Never got greedy and enjoy dividend growth stocks. Have no idea what my YoY percentages are, don't really care. Slow and steady! (I'm 74 now, wife 73)

 

[target2019]

All my tests (blood to biopsies) seem to be in My Chart that night. YMMV

+1

 

[Henry Lili]

I'm in the same situation. All of my retirement income is taxable. No tax-free accounts. Looking back, would have done it differently as well. But I have to deal with being in the 22% marginal tax bracket when I retire.

By the time Roth came into play I was already beyond the income limit for a Roth IRA. No employer ever offered a Roth 401k so I have a big tax bill due. Started gradual conversions last year at age 55.

 

[Time2]

All my tests (blood to biopsies) seem to be in My Chart that night. YMMV

I have my blood test results, but I have no diagnosis, 16 more days to see if the doc has any ideas. I'm a bit concerned, I have 12 tests that are out of
normal range.

 

[Exchme]

Most SS calculators, by their very nature, just look at SS and ignore tax-related items which may sway the conclusion.

Yep, the SS benefit is nearly "actuarially fair", meaning it goes up about enough to compensate for the fewer lifetime checks the average person would receive by deferring. If Roth Conversions are favorable for you in general, then it's very possible that the best use of the low tax space in those early years is to do Roth Conversions and defer SS for the lower earning spouse longer than the SS only type calculators like opensocialsecurity.com would find.

Once you reach the age where SS benefits aren't adjusted upwards for deferring (for OP it would be age 70), then obviously it's time to claim. Also, if any health issue were to come up that indicates that one or both spouses has a shorter than average life span, it's time for the lower earner to claim.

 

[Koolau]

I have my blood test results, but I have no diagnosis, 16 more days to see if the doc has any ideas. I'm a bit concerned, I have 12 tests that are out of
normal range.

Yes, blood tests need interpretation by your doctor. Many tests (x-rays, CT scans, ultrasounds, etc.) are typically listed with diagnosis. Sometimes, it may be better to wait to talk to the doc than to look at the diagnosis. It's not fun reading things like "stage four" and "metastatic" at 10:00 PM on a Friday.

 

[Bigdawg]

I have my blood test results, but I have no diagnosis, 16 more days to see if the doc has any ideas. I'm a bit concerned, I have 12 tests that are out of
normal range.

Strange. I had a full blood panel on Monday for Surgery on the 9th. Results were back on Tuesday. I would make some phone calls.

 

[Koolau]

Strange. I had a full blood panel on Monday for Surgery on the 9th. Results were back on Tuesday. I would make some phone calls.

Yeah, I think what Time2 is saying that all the blood test results in the world don't mean you have a diagnosis. You might know something is out of specification - or even "wrong" but you don't know what it means to you until you see your doctor. (Heh, heh, even then, he may do what my doc does and rub his chin and hurumph! a lot.)

I agree about the phone calls. Who wants to wait days to find out what all those numbers mean? Now, let's hope the doc knows!

 

[Time2]

Strange. I had a full blood panel on Monday for Surgery on the 9th. Results were back on Tuesday. I would make some phone calls.

I have the blood test results, I got them through the docs portal and I got them on the Quest website. Yes, I usually have them available the next day at Quest. I have not seen the doc for his diagnosis from the blood test results. I suspect he made 5 weeks until the next appointment is to get another set of blood test as confirmation. I'll know if I show up and they want more blood drawn.

 

[Crabby Mike]

Once you reach the age where SS benefits aren't adjusted upwards for deferring (for OP it would be age 70), ...

Isn't it 70 for everyone?

 

[SecondCor521]

Isn't it 70 for everyone?

At the moment I believe that's correct.

 

[Crabby Mike]

At the moment I believe that's correct.

As in, has been for a long time, and will be until/unless Congress passes a new SS law, I think ...