Roth conversions, taxes, SORR

[corn18]

I've developed a spreadsheet that allows me to model my withdrawals throughout retirement. One of the variables is if/when to do Roth conversions from my 401k. The best approach from a tax standpoint is to convert to the top of the 12%/15% tax bracket until age 70. If I do that, I can probably get everything converted before RMD's. This keeps me from getting hit by the tax torpedo @ 70. Taxes are fairly flat @ $9500k / year.

But, I also have the option of not converting anything and paying lower taxes until age 70 and paying higher taxes when RMD's hit. This seemed stupid to me. But when I ran both scenarios through firecalc, I got a higher probability of success if I do no conversions. This piqued my interesest. If I do no conversions before 70, my taxes are $2700 / year until I hit 70 and RMDs kick in. Then taxes jump to $15k / year. The total additional taxes through age 90 are only about $10k vs. 100% conversion before 70.

The conclusion I drew from this was that SORR was reduced with the reduced spending from 56-69. I kindof like that. If I want/need to, I can control my taxes early in retirement to minimize SORR. The higher taxes later suck, but that's when SS kicks in and I really don't need any savings at that point as my COLA pension + SS covers all my expenses. Just need a little savings to cover the higher taxes.

Am I interpreting this correctly?

Corn

 

[Humbooster]

What is SORR ? Sorry it is probably a stupid question but....

 

[kaneohe]

What is SORR ? Sorry it is probably a stupid question but....

probably.......sequence of returns risk.........the risk that your assets drop to 0
(or uncomfortably low level) due to market declines early in your retirement before they get to bulk up.

probably a non-conventional acronym.......even google is stumped https://www.google.com/search?q=sor...0l2j69i61j0.1230j0j7&sourceid=chrome&ie=UTF-8

 

[mrfeh]

I've developed a spreadsheet that allows me to model my withdrawals throughout retirement. One of the variables is if/when to do Roth conversions from my 401k. The best approach from a tax standpoint is to convert to the top of the 12%/15% tax bracket until age 70. If I do that, I can probably get everything converted before RMD's. This keeps me from getting hit by the tax torpedo @ 70. Taxes are fairly flat @ $9500k / year.

But, I also have the option of not converting anything and paying lower taxes until age 70 and paying higher taxes when RMD's hit. This seemed stupid to me. But when I ran both scenarios through firecalc, I got a higher probability of success if I do no conversions. This piqued my interesest. If I do no conversions before 70, my taxes are $2700 / year until I hit 70 and RMDs kick in. Then taxes jump to $15k / year. The total additional taxes through age 90 are only about $10k vs. 100% conversion before 70.

The conclusion I drew from this was that SORR was reduced with the reduced spending from 56-69. I kindof like that. If I want/need to, I can control my taxes early in retirement to minimize SORR. The higher taxes later suck, but that's when SS kicks in and I really don't need any savings at that point as my COLA pension + SS covers all my expenses. Just need a little savings to cover the higher taxes.

Am I interpreting this correctly?

Corn

i can certainly understand how that could be.

In the end, we all need to understand this is not an exact science. Planning the next 30 years of your finances is built on a series of assumptions and best estimates.

You need to do whatever makes the most sense for your personal situation.

 

[kaneohe]

What were the 2 probabilities of success........wondering if the difference between them was statistically significant? Probability of success sounds like a useful figure of merit.

Wondering if total tax paid is meaningful though............
If you convert 100K at 12% you pay 12K in taxes and have 88K left. If that doubles , you end up w/ 176K after taxes.

If you don't convert the 100K and it doubles , you end up with 200K. If you can manage to pay the tax at 12% (over a few yrs), you pay 24K in taxes and end up w/ 176K after taxes. In both cases you end up w/ 176K but pay 12K in taxes in one case but 24K in the other. That's why I'm wondering if total taxes paid is a useful figure of merit.

I think i-orp uses total spending available ? as a figure of merit.