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Taking more out of 401K's while waiting for SS
Old 02-12-2016, 02:27 PM   #1
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Taking more out of 401K's while waiting for SS

I am taking a WR of about 3.4% from my entire portfolio so I feel that is OK (I'm 63). But almost all of it is from my 401k's which means I'm taking a WR of about 8% from them (I'm not touching our ROTH money or non-401K investments). My reasoning is that for the next 5 years I have a mortgage and kid's college that I can use for deductions against this "ordinary income" stream.

Also, why not wait until 70 to get an income stream that is not dependent on the market and is COLA'd. And in addition my wife can take if necessary. My other thought is that once I have to take my RMD's, might as well reduce the amount.

Any thoughts on this strategy?

Wild Bill shoulda taken more out of his IRA when he could have. . . .
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Old 02-12-2016, 02:51 PM   #2
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I don't have a 401K, but I have the TSP which is similar to a 401K.

During my retirement thus far I have been taking a bigger percentage from the TSP than from my overall portfolio. This was with the idea of slightly lightening my heavier tax load later in life (taking more TSP income early and less later on after I had other taxable income streams such as SS and RMDs). So, I guess my thoughts on this are similar to yours.

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Old 02-12-2016, 03:27 PM   #3
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I think you are fine with an overall 3.4% withdrawal rate. Especially if you aren't taking SS yet and can significantly reduce your WR when you start it.
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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Old 02-13-2016, 07:17 PM   #4
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Are you currently working? If not, have you considered delaying SS until 70 while w/drawing from taxable and maximizing roth conversions until 70? This will help reduce/minimize the hit from the rmd's and ss "tax torpedo"? Wade Pfau refers to this process (as I'm sure others have) as tax bracket management (pay taxes now in a lower tax bracket in order to reduce being pushed into a higher tax bracket later).

I'm using this strategy and will stay in a very low tax bracket throughout retirement as a result (unless, of course, the PF really takes off, and in that case I'll be so pleased with the higher net worth I won't care about higher taxes). Annually, I'm roth converting 3 different funds up to the 15% tax bracket, then recharacterizing the two funds of lesser value. I intend to convert each January and recharacterize in December of each year.
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Old 02-13-2016, 07:52 PM   #5
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I just turned 60, so I can start taking from my tIRA now. I'm trying to decide whether to continue to live on after tax investments (a lot of which is cash), staying in the 15% bracket and doing Roth conversions to the top of it. The other alternative is starting withdrawing from the tIRA while staying in the 15% bracket. This would stop me from converting, but would allow me to leave my after tax money alone. And it would also make my RMDs after 70 smaller.

Since I put the money in the tIRA while I was in the 25% bracket, withdrawing at 15% is a savings, but I'm thinking that over time the Roth conversion would be the best option. Especially since I'm hoping not to have to draw on it, and to be able to leave it to DD as a tax advantaged inheritance.

But either way, I'm also waiting until 70 to start SS. It and RMDs will probably put us over the 15% bracket, so I guess I should maximize the conversions while I can.
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