Life changes after SS and RMDs?

[vafoodie]

Now I think I understand the reason for the Blow the Dough thread. My husband and I both have just retired at 60 and 62. We both have pensions that I am hopeful we can live well on with perhaps some withdrawals from investments for a splurge here and there. We have no debt. I’m really hoping to avoid having to touch investments. He has been talking about RMD‘s a lot lately. I was already wondering how taking Social Security would change our lives, but now with all this talk about RMD‘s, I’m not sure if I will know what to spend that money on. At this point we have no grand children. Will we just be taking Viking cruises 24-7? Saving it up for swanky senior living digs?—really hope to avoid those money sucks but realize one may be inevitable.
So my question is, how does your life change when all that money starts rolling in?

 

[Lewis Clark]

You have to withdraw the RMD from your retirement accounts, but you do not have to spend the money. Just pay the tax and deposit in your taxable account.

If you are rolling in serious dough either you will find a way to spend it or your heirs will. Maybe RobbieB will offer some lessons. : )

 

[Masquernom]

If you need help spending the money, I can have my wife contact you. She will have a number of ideas to help you out.

 

[ShokWaveRider]

Nice to read that there are folks (Like us here) with these types of problems (Figuring out how to spend). Perhaps we should bottle it and sell it to the masses.

I for one have trouble spending for the sake of it. We have everything we want or need at the moment at least. We cannot seem to find things to splurge on. I guess when this covid thing is less of an issue, long cruises on small ships will make up for it, I am sure. But we are still not comfortable reading even here about all the Covid stories, and I would argue we are more careful than most.

 

[pacergal]

I never thought we would have the freedom and income that we do. We are not rolling in dough, but do have secure income from pensions and SS, which easily pays our bills at this time, with extra for traveling (or spending on kids/grandkids!).
RMDs in the future, but we are not pulling anything from our IRAs now.
We don't spend extravagantly, but it is a nice feeling not to need to pinch pennies as we often did while the kids were growing up. We were so busy working and raising a family, that I just did not pay attention much to our future pension income. About 5-10 years from retirement, the lightbulb came on.

We are more than blessed and grateful. And I do enjoy spending money on out kids and grandkids!

 

[Midpack]

Congrats on recognizing the (good) problem that can come from having Soc Sec, RMDs, Divs & CGs all coming in beginning in your 70’s. We start into that situation beginning in 2024 and leveling out in 2028 and thereafter. I’m doing large Roth conversions to substantially reduce taxes overall, more now, much less later. Maybe you’ve already read up on the tax torpedo and/or Roth conversions so you can take steps to reduce the overall tax burden. Your withdrawals/spending may prevent you from avoiding the tax torpedo, but at least you’ll know if you could/should have done something while you still have plenty of time, in your case.

If you aren’t aware https://www.kiplinger.com/article/t...orried-should-i-be-about-the-tax-torpedo.html

 

[Chuckanut]

You can spend some of the extra money helping others. The lower-income working folks are getting shafted by the increase in food prices. Maybe you can help somebody out.

 

[W2R]

You don't have to spend any more than you want/need to spend, as others have mentioned. Just re-invest your RMD's in your taxable accounts. And what else? Well, personally I love video gaming and will probably buy the next Nintendo console when it is released, along with a few new games.

But if there's nothing you have in mind, then look at it this way; if the scary predictions of inflation during the next few years turn out to be true, you're "inflation proof"! You can afford to pay inflated prices.

 

[daylatedollarshort]

It is not over until it is over. What if you both need a decade or more of LTC? One of your kids gets disabled? Has a special needs grandchild? All of the above? John Robbins eschewed his family fortune (Baskin Robbins) and then along came Bernie Maddoff, who swindled him out of the money he made from being a successful author. Then, after he was broke, he had special needs grandchildren who needed expensive care. And by then it was too late to get his parent's will changed (one dead and one not competent).

You can always leave it to your kids or charities.

 

[Dash man]

Remember you can avoid an RMD by giving a Qualified Charitable Contribution directly from your IRA to a qualified charity of your choice. We’re converting much of our IRAs into Roth IRAs and paying the tax from a taxable account. About two more years of conversions and we’ll reevaluate, likely keeping the balance of the IRAs for QCDs.

 

[Sunset]

OP - Sounds like you are at the point of when you should consider doing Roth Conversions, so that you can withdraw some $$ now at a lower tax rate than when you are 70 (pre SS).

It's a good problem to have.

 

[youbet]

So my question is, how does your life change when all that money starts rolling in?

We've been doing RMD's for several years. Nothing about our lives changed. No "money starts rolling in." In fact, our annual budget increased due to paying the federal tax due on the RMD amount as it is transferred from our TIRA's to our brokerage account each year.

Why are you picturing a RMD as a windfall of new money that you have to figure out how to spend? It's not.

In regards to the question of having "extra money," (unrelated to whether it's in a pre or post tax account), think about your lifestyle. Are you living more-or-less the way you want? Are there some vestiges of frugality left over from your accumulation phase you'd like to shed but didn't realize you could afford to put out of your life?

 

[EarlyandLate]

I'm not yet at the point of drawing my pension or SS and RMDs. However, I've never been a big spender and live comfortably on just the dividends from after tax investments. In a few short years, the flood of income will begin and I have thought some about what to do with it.

Here's one thing you can do now to put a little bit of a dent in future income. My former megacorp employer gave me an insane amount of stock, which has appreciated beyond my expectations and is in post tax accounts. It dawned me that I could give appreciated stock to charities and avoid future capital gains on it. Last year I donated an amount of stock equivalent to my total annual spending. It felt great to be able to do that.

 

[Souschef]

Depending on the amount of your RMD, it may push you over a few cliffs. One is being taxed on 85% of your SS, the other is the IRMMA increase to your SS costs.
It may also put you in a higher tax bracket. As another post here suggests, it is a great time for using QCD's for your charitable contributions. This is true especially if you are below the standard deduction.
In our case, a $1000 QCD saves us $300 in taxes.

 

[Gotadimple]

How does your life change when all the money starts rolling in?

It doesn't drastically in my experience. But, you may spend a little more now that you're not accumulating, and you feel comfortable there is enough there to cover you. Yes, you can travel now, if that's what you want. You can also think about others and how you can contribute to charities that previously you would have like to but didn't feel you had the cash to do so. How you spend goes along with how your lifestyle changes because you are no longer working and have time for other things.

You are years away from RMDs, and you can start a process to do partial conversions to a Roth IRA to reduce the amount of the RMDs you must take at age 72. It's a taxable event, and you need to pay for the taxes either from the conversion or from separate taxable dollars. Just be aware that Medicare starts for you at age 65, and you'll want to figure out how doing a partial conversion affects your Medicare Part B premiums when you turn 65 (called IRMAA - it's a surcharge you pay for going over a limit).

A lot to think about...

 

[Car-Guy]

Depending on the amount of your RMD, it may push you over a few cliffs. One is being taxed on 85% of your SS, the other is the IRMMA

Both irritate the &^%$* out of me. Success tax.

 

[Car-Guy]

Depending on the amount of your RMD, it may push you over a few cliffs. One is being taxed on 85% of your SS, the other is the IRMMA increase to your SS costs.

I think you mean Medicare cost.

 

[Midpack]

Depending on the amount of your RMD, it may push you over a few cliffs. One is being taxed on 85% of your SS, the other is the [-]IRMMA[/-] IRMAA increase to your [-]SS[/-] Medicare costs.

Taxes on SS hit long before IRMAA for what it’s worth. Most/many of us can avoid IRMAA Medicare penalties, not so with having SS taxed.

Again, if you file as an individual with a total income that’s less than $25,000, you won’t have to pay taxes on your Social Security benefits in 2022. For the 2022 tax year (which you will file in 2023), single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security benefits. If your combined income is more than $34,000, you will pay taxes on up to 85% of your Social Security benefits.

For married couples filing jointly, you will pay taxes on up to 50% of your Social Security income if you have a combined income of $32,000 to $44,000. If you have a combined income of more than $44,000, you can expect to pay taxes on up to 85% of your Social Security benefits.

 

[athena53]

You don't have to spend any more than you want/need to spend, as others have mentioned. Just re-invest your RMD's in your taxable accounts.

That's my plan. I just got a big bump in SS (filed at age 69) going from Survivor to my own record and am freely spending/donating what I don't need to pay the extra taxes on the additional SS. I plan to start with QCDs as soon as I can (about a year from now) and will reinvest the RMDS in after-tax when I get to that point, holding back enough to pay the extra taxes.

Most/many of us can avoid IRMAA Medicare penalties, not so with having SS taxed.

It's twice as hard to avoid IRMAA if you're single.

 

[Walt34]

DW will start SS next spring, and a while back a nephew asked "What are y'all going to do with all that money?" (They know we just don't spend much and are not poor.) My response was "I know what she's going to do with it. She's going to spoil your kids rotten". Which is probably true to some extent.

Of course, there is no upper limit on what one can spend on either R/C models or photography gear so if we need to find something to spend it on that's always easily solved.

 

[Andre1969]

My Mom and stepdad have this same basic "problem" They both retired in 2011, her at 62 and him a bit later that year, at 59. Mom was in the federal government, under the old CSRS system, so she never paid into SS. She started drawing her retirement right away. My stepdad was able to take an early retirement from the utility he worked for. He's eligible for SS, but kept putting it off until this year, I think, when he hit 70.

Anyway, they don't even spend anywhere near what their combined pension is, so their invested assets have done nothing but grow. A few years back, when Mom hit 70.5 and had to start doing RMDs, she was complaining. And got even madder when they changed it to 72, because she just missed the cutoff.

Now that my stepdad's going to be getting SS (or might even be getting it by now), I'm sure they're complaining even more about their money "problems."

I hate to say it, but I think some of that attitude is rubbing off on me a bit. I'm in the process of selling the old family homestead, and I'm guessing after commission and taxes (I've been out of it too long to get the principal residence $250K exclusion), I figure I'll clear about $125K for my half of it. My uncle gets the other half. And, I have no idea what to do with the money!

There's nothing that I really want, that I couldn't afford already. My only debt is my mortgage, and at 2.875% I'm going to just let that ride. My uncle is the same way, too. I've been handling everything with selling the house, and when I got an offer, I wanted to get his input before counter offering. He was just like, "I DON'T CARE!! As long as I can get something to eat whenever I want, and get a drink whenever I want, I just DON'T CARE!"

 

[athena53]

DW will start SS next spring, and a while back a nephew asked "What are y'all going to do with all that money?" (They know we just don't spend much and are not poor.) My response was "I know what she's going to do with it. She's going to spoil your kids rotten". Which is probably true to some extent.

Yep. I have grandchildren. Most of my excess $$ (after making sure I have enough to fund LTC) will go to their 529s and to charity but it's fun to spoil them along the way.

 

[RobbieB]

If you are rolling in serious dough either you will find a way to spend it or your heirs will. Maybe RobbieB will offer some lessons. : )

Buy a boat. Buy a really big boat;

And have fun!

 

[aja8888]

Buy a boat. Buy a really big boat;

And have fun!

So my question is, how does your life change when all that money starts rolling in?

I just made a deal on a very clean used Corvette, and yes, I can still get in and out of it with no problem.

Why not, my 79th birthday is less than a month away. Oh, and a new driver for $500 that should help my golf game.

 

[RobbieB]

Post it up! I love "little red corvettes" -