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Which retirement fund's to use first?
Old 08-14-2017, 12:33 PM   #1
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Which retirement fund's to use first?

Question here about which retirement fund's to use first.

My situation: I retired a couple of years ago in my mid fifties with a very large public retirement plan along with full medical and dental for life which covers myself and spouse. My take home pay is $7,500. a month (after taxes) plus our house is paid off and in a highly sought after area ($700,000. value). Kids all out of college with no student loans. I will never qualify for SS because I never paid into enough quarters. (public employee)

My wife's the same age and still works but has a fairly low paying, high stress job with no retirement other then SS some day which will be at the maximum rate. I'm currently able to still save at least $3,000. per month which is more then my wife even take's home each month.

Our savings besides my retirement is about a million dollars. This includes $300,000 in cash, $600,000. in a tax deferred 457 account and just over $100,000. in my own stock investment account.

My thoughts are to just have my wife retire early (quit) and live off my retirement and savings. Even if I withdrew only 3% each year I'd still be bringing in an extra $30,000 (minus taxes) which would basically pay for vacation's and big ticket items.

My question though is this, if I start to withdrawal this money which account(s) do I use first? Cash, 457 account or my investment account? Is there a general rule as to what should be used first? As you might be able to tell, I tend to be very financially conservative.

Thanks for the suggestions.
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Old 08-14-2017, 02:59 PM   #2
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I'm assuming you did take a spousal benefit option, correct? I mean, if you get The Big Ache the week after retirement where does that leave your wife financially?

Also, will she be covered by retiree health insurance too?
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Old 08-14-2017, 03:38 PM   #3
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Yes, I took the full spousal continuance option and my medical still covers her after my death. Pension also has a 2% COLA.
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Old 08-14-2017, 03:49 PM   #4
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I thought I read a long time ago: After tax accounts first, tax deferred 2nd and Roth last.
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Old 08-14-2017, 04:05 PM   #5
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I thought I read a long time ago: After tax accounts first, tax deferred 2nd and Roth last.
That would be my preference too. Besides, depending on age and 457 rules, that might not even be accessible yet
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Old 08-14-2017, 04:15 PM   #6
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For me, I could have withdrawn on the 457 account as early as age 50 because that was my "normal" retirement age. I'm just required to start taking the money before age 71 1/2.
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Old 08-14-2017, 04:24 PM   #7
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Quote:
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I thought I read a long time ago: After tax accounts first, tax deferred 2nd and Roth last.
There are also tax aspects to consider, although I suspect that your pension will already put you in the 25% bracket for any pre-tax withdrawals. Eventually you will hit RMDs and that may trigger even higher tax rates.

Since you are saving equal or more than your wife makes, it seems time for her to retire with you. You can essentially live the same quality of life on your pension, and have medical insurance covered so not needing her job for that.
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Old 08-14-2017, 04:35 PM   #8
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Take a look at ORP (i-orp.com). Use the extended version for your particular situation. You may be surprised that the standard after-tax, tax-deferred, roth withdrawal plan may not be optimal.

In my situation, ER at 53, ORP has me liquidating both Roth and tax-deferred before age 60. I assume this is due to higher tax brackets once on SS and pensions.
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