Yet another "Sanity Check" request

[Steelart99]

Well, I’ve vacillated considerably given the uncertainties this year … but I’ve ‘mostly’ decided to pull the plug this Aug/Sep. I would appreciate a bit of a sanity check on my financial picture and/or any thoughts on how best to fund my expenses post retirement. Fidelity RIP says I’m okay for 45 years and *****/firecalc give me better than 95% success. I’m not sure if I missed anything …

My wife and I have retirement accts totaling in the mid $800K range, investment accts of about $65K and cash of about $65K for a total in the just over 7-figure range. My allocation is currently 60% equities, 34% bonds and 6% cash. I have two non-COLA pensions that would total about $1200-$1300/mo. if I take them this year or next year. I can start drawing from my 401K whenever I choose (rule of 55). Taking SS at age 62 would net $1800/mo. or $2500 at age 67. DW has a non-COLA pension that she can take at 58 worth about $750/mo. and SS of $1000/mo. at age 62.

Expenses/debts: Mortgage that will be paid off at the end of 2022 at $2100/mo. Medical insurance and OOP are planned at $1200/mo. All other expenses total about $2500/mo. not counting taxes. In my overall plan I have included about $70K for home improvement and auto purchase over the next several years.

I’m 57 and DW is 49.

I’m not sure I understand the best sequence of sources to use for income (pension, cash, sale of investments, SS, etc.).

I do appreciate your help.

 

[INTJ10]

So your (non mortgage) expense are $3,700/mth and your SS/Pension income is projected to be about $4,750 (assuming 1,200+1,800+750+1,000). The million bucks can help the bridge the time to SS, cover the inflation of your expense but lack of cola'd pensions and mortgage.

It seems sensible if you confident about the expense projections. We are using a higher health care expense number. You want to keep your investments as long as you can. use the cash, then pension first.

 

[Steelart99]

So your (non mortgage) expense are $3,700/mth and your SS/Pension income is projected to be about $4,750 (assuming 1,200+1,800+750+1,000). The million bucks can help the bridge the time to SS, cover the inflation of your expense but lack of cola'd pensions and mortgage.

It seems sensible if you confident about the expense projections. We are using a higher health care expense number. You want to keep your investments as long as you can. use the cash, then pension first.

I've tracked our expenses for years and have 'planned' post retirement expenses that are somewhat lower than past actuals. DW has promised not to gift quite as much to all the children in our families . Her practice run doing that (... not doing that ) worked out quite well. So, I'm fairly confident in the projections. We're blessed to live in Colorado, so we have darn near infinite recreation opportunities within easy striking distance that do not add significant expenses.


If you don't mind me asking, what do you use for your health care expense number? For that matter, what does anyone else use?

 

[travelover]

When you did the Fidelity RIP planner, did you observe the RMD amounts and associated taxes? To minimize RMDs, I plan to draw down my IRAs first, then spend taxable accounts, then Roths.

 

[ivinsfan]

A couple questions when the house payment is gone you still had taxes and insurance to cover. have you included that?

Well at spending about 65K a year and very little after tax money to spend you are kind of in a bad spot for ACA coverage.Any IRA income will count as income for subsidy purposes. After tax money spent doesn't count. 1200 a month might be enough now, but it won't be as you get older, when you hit 60 if you have OPP expense you could spend that per person.

And last due to the fact you have the bigger pension and the bigger SS talking SS at 62 for you and your spouse means she might be left short of money you are 8 years older then her. This is basically the biggest reduction possible in both of your benefits.

I might think about working another year to pile up as much after tax money as possible to take advantage of the ACA laws. If you haven't studied ACA do so now.

 

[Steelart99]

When you did the Fidelity RIP planner, did you observe the RMD amounts and associated taxes? To minimize RMDs, I plan to draw down my IRAs first, then spend taxable accounts, then Roths.

Hmmmm ... I didn't even see the RMD amounts/taxes in RIP. I'll have to go back and check that out. Most of my funds are in my 401K, followed by an IRA. Are they treated the same for RMD? sigh ... something else I may have forgotten to address fully.

tjamls
(the above is 'Thanks' when you have one hand shifted over ...)

 

[Steelart99]

A couple questions when the house payment is gone you still had taxes and insurance to cover. have you included that?

Well at spending about 65K a year and very little after tax money to spend you are kind of in a bad spot for ACA coverage.Any IRA income will count as income for subsidy purposes. After tax money spent doesn't count. 1200 a month might be enough now, but it won't be as you get older, when you hit 60 if you have OPP expense you could spend that per person.

And last due to the fact you have the bigger pension and the bigger SS talking SS at 62 for you and your spouse means she might be left short of money you are 8 years older then her. This is basically the biggest reduction possible in both of your benefits.

I might think about working another year to pile up as much after tax money as possible to take advantage of the ACA laws. If you haven't studied ACA do so now.

Yep, I kept the house taxes and insurance covered after the mortgage payout. Most of my savings is in my 401K / IRA, so once I withdraw it for expenses ... I pay taxes on it and it should be 'income' ... right.

The ACA 'rules' keep me perpetually confused ... you made a good point that I should increase my planned health coverage at least until Medicare starts up. I did include Medicare (and all the various 'parts') in my plan. Obviously I need to study the ACA laws a bit more.

 

[Sunset]

Your SS is much higher than your spouse's SS, so frankly if you delayed taking SS until 70, that would leave your spouse in far better shape since she is many years younger than you and women often live an extra 5 years compared to men.

Meaning your wife is facing about 13 or more years of life after you are gone, and we haven't even talked about your 2 pensions that probably won't pay her anything when you die.

What do your pensions do if you delay taking them ? Some go up , and some don't change in value at all, do you know ?

 

[Sunset]

You would have a tax penalty of 10% extra taxes if you take out IRA prior to 59.5 , So for the first 2->2.5 years you should only be looking at 401K.

 

[ivinsfan]

Yep, I kept the house taxes and insurance covered after the mortgage payout. Most of my savings is in my 401K / IRA, so once I withdraw it for expenses ... I pay taxes on it and it should be 'income' ... right.

The ACA 'rules' keep me perpetually confused ... you made a good point that I should increase my planned health coverage at least until Medicare starts up. I did include Medicare (and all the various 'parts') in my plan. Obviously I need to study the ACA laws a bit more.

On the medicare be careful, you can easily spend close to 400 per month per person for medigap and drug coverage and that's in todays dollars.

The more you can cash-flow without drawing from the 401 the cheaper your health care could be. Make this your number one issue right now.

 

[Steelart99]

Your SS is much higher than your spouse's SS, so frankly if you delayed taking SS until 70, that would leave your spouse in far better shape since she is many years younger than you and women often live an extra 5 years compared to men.

Meaning your wife is facing about 13 or more years of life after you are gone, and we haven't even talked about your 2 pensions that probably won't pay her anything when you die.

What do your pensions do if you delay taking them ? Some go up , and some don't change in value at all, do you know ?

I've considered postponing taking SS but 'thought' it was better to leave my investments alone and take SS early. Might have to rethink that. I have my pensions set up to provide 50% to DW after my death. The pensions do increase over time if I delay taking them up to age 65. At that time the delta between taking at age 58 vice 65 is ~$630/month. Neither is COLA'd.

 

[Steelart99]

You would have a tax penalty of 10% extra taxes if you take out IRA prior to 59.5 , So for the first 2->2.5 years you should only be looking at 401K.

Yes, I had planned to leave my IRA alone and only tap my 401K which has over $400k in it. Should work out okay that way. 59.5 is only 2 years away for me.

 

[Steelart99]

On the medicare be careful, you can easily spend close to 400 per month per person for medigap and drug coverage and that's in todays dollars.

The more you can cash-flow without drawing from the 401 the cheaper your health care could be. Make this your number one issue right now.

I basically kept my health care costs at $1100-$1200 per month forever (pre and post Medicare).



I'm sorry, I don't quite understand your last statement. How would using cash-flow make health care cheaper?

 

[INTJ10]

I've tracked our expenses for years and have 'planned' post retirement expenses that are somewhat lower than past actuals. DW has promised not to gift quite as much to all the children in our families . Her practice run doing that (... not doing that ) worked out quite well. So, I'm fairly confident in the projections. We're blessed to live in Colorado, so we have darn near infinite recreation opportunities within easy striking distance that do not add significant expenses.


If you don't mind me asking, what do you use for your health care expense number? For that matter, what does anyone else use?

We have been using $2,000 per month as a health care expense number estimate. I hope that I am overly conservative. If you could count on the ACA subsidies until 65 it would be less.

 

[ivinsfan]

I basically kept my health care costs at $1100-$1200 per month forever (pre and post Medicare).



I'm sorry, I don't quite understand your last statement. How would using cash-flow make health care cheaper?

Any cash you spend that you have already paid taxes on doesn't count as annual income for an ACA subsidy.
As far as ACA is concerned that money is invisable.

Money taken from a 401 0r IRA counts as part of your total taxable income for ACA purposes. What I should of said was you will have lower insurance costs if you can cash flow with after tax savings.Save a 100K that you had paid taxes on live on it for 2 years and for ACA purposes your income is zero.Read some of the ACA threads and will will see what I'm talking about.

 

[2017ish]

We have been using $2,000 per month as a health care expense number estimate. I hope that I am overly conservative. If you could count on the ACA subsidies until 65 it would be less.

This is our number as well (from 56/57 to 65, 1,000 for each of us). I hope that we are being conservative enough...

 

[travelover]

Hmmmm ... I didn't even see the RMD amounts/taxes in RIP. I'll have to go back and check that out. Most of my funds are in my 401K, followed by an IRA. Are they treated the same for RMD? sigh ... something else I may have forgotten to address fully.
...............

Yes, 401(k) and a traditional IRA both have to be tapped starting at age 70 1/2. It can be a tax torpedo that can kick you into a higher tax bracket. One strategy is to spend down the tIRAs / 401(K) first and also do Roth conversions to the top of the 15% bracket to minimize RMD taxes later.

 

[marko]

Hmmmm ... I didn't even see the RMD amounts/taxes in RIP. I'll have to go back and check that out. Most of my funds are in my 401K, followed by an IRA. Are they treated the same for RMD? sigh ... something else I may have forgotten to address fully.

But don't freak out over RMD. I many cases, people's RMD are about the same as their regular withdrawals (my projected RMDs are less than what I withdraw now).

All it means is that you have to withdraw a certain amount...it's not money that is going away from you (outside of the taxes) nor is it an 'on-top-of' tax...it might just bump you into another bracket and can often be minimal hit.

 

[Htown Harry]

I've considered postponing taking SS but 'thought' it was better to leave my investments alone and take SS early. Might have to rethink that.

I came across an article this week that summarizes the various scenarios pretty well.

Social Security: Four Steps for Claiming Survivor Benefits

The posters noting the importance of thinking through the pension and SS income scenarios are correct, Steelart. You want to be comfortable that the ranges of possible longevity for the two of you all add up to an "enough" result.

Don't be discouraged by our responses. The short answer to your question is that you are ready. The majority of the responses you' re getting fall into the category of optimization.

 

[Steelart99]

I came across an article this week that summarizes the various scenarios pretty well.

Social Security: Four Steps for Claiming Survivor Benefits

The posters noting the importance of thinking through the pension and SS income scenarios are correct, Steelart. You want to be comfortable that the ranges of possible longevity for the two of you all add up to an "enough" result.

Don't be discouraged by our responses. The short answer to your question is that you are ready. The majority of the responses you' re getting fall into the category of optimization.

Yeah, optimization is what I'm looking for ... well ... also to make sure that some obvious shortfall has been overlooked. Wish I could say that I've never fallen into "THAT" trap.

I am one of those people that believe that the longevity tables we are accustomed to are obsolete. I think that we are on the cusp of some life extending technologies. (Kurzweil's Singularity). But that is a topic for another conversation.

Thanks for the SS link. I'll go read it when there is a bit more light ... not the middle of the night. Somewhere I bookmarked a good online SS benefits optimization calculator. I'll go find that link too. I'd kinda forgotten about that.

 

[Steelart99]

We have been using $2,000 per month as a health care expense number estimate. I hope that I am overly conservative. If you could count on the ACA subsidies until 65 it would be less.

So, I'll update my modeling to be $2000/mo until Medicare and then $800-$1000/mo (inflation adjusted) for after that. Obviously I'll have to finesse that properly given our different ages.

 

[ivinsfan]

Yes, when you read all the SS facts remember that if you are eligible for an ACA credit, once again, SS counts as income for ACA purposes. So not only will you get a reduced SS payment, your ACA credit will be reduced unless you withdraw less from your retirement accounts when you receive an SS check. It requires constant monitoring to hit optimum ACA credit amounts. It's completely legit but you have to keep an eye on it.

I'm not certain I agree with HH that you are "go to go" I think you have greatly underestimated what your health care will cost.

The fact your wife might be let short of income in the event of your demise is a concern also. Your wife isn't 50 yet she could need 40 years of income. And the sinking fund of 70K for auto and home repair/improvement isn't going to last for 40 years...I think your expense number need some work.

 

[Steelart99]

Yes, when you read all the SS facts remember that if you are eligible for an ACA credit, once again, SS counts as income for ACA purposes. So not only will you get a reduced SS payment, your ACA credit will be reduced unless you withdraw less from your retirement accounts when you receive an SS check. It requires constant monitoring to hit optimum ACA credit amounts. It's completely legit but you have to keep an eye on it.

I'm not certain I agree with HH that you are "go to go" I think you have greatly underestimated what your health care will cost.

The fact your wife might be let short of income in the event of your demise is a concern also. Your wife isn't 50 yet she could need 40 years of income. And the sinking fund of 70K for auto and home repair/improvement isn't going to last for 40 years...I think your expense number need some work.

It has become obvious that I might have underestimated health costs so that is something I'll update appropriately and re-run the models to see where my issues might lie. I have to say that I've not tried to model what might happen should I pass away significantly earlier than my wife. I currently have sufficient life insurance to carry her, but that will go away (in its current form) when I retire.

The $70K I had 'modeled' to get through the next 5 years or so, but I also keep in a line item in my expenses for home repair. Other than appliances, we've made an effort to get the house fully painted/repaired/etc. before we pull the plug.

I appreciate the caution about expense so I'll definitely readdress that to see what I might need to do. Thanks.

 

[Steelart99]

Yeah, optimization is what I'm looking for ... well ... also to make sure that some obvious shortfall has been overlooked. Wish I could say that I've never fallen into "THAT" trap.

I am one of those people that believe that the longevity tables we are accustomed to are obsolete. I think that we are on the cusp of some life extending technologies. (Kurzweil's Singularity). But that is a topic for another conversation.

Thanks for the SS link. I'll go read it when there is a bit more light ... not the middle of the night. Somewhere I bookmarked a good online SS benefits optimization calculator. I'll go find that link too. I'd kinda forgotten about that.

I found the SS optimization calculator that I was thinking of:

SSAnalyze - Bedrock Capital Management

It seems to help in addressing various scenarios to aid in making a decision.