Best time to withdraw from deferred compensation plan, taxwise

[jriemerm]

Hi,

I am newly retired at 60, on a Minnesota state pension and also Social Security survivor benefits. At full retirement age (66 1/2) I plan on switching from survivor benefits to my own Social Security account, which will bump my income up by $1100/month, thereby pushing me into a higher tax bracket.

I have about $75K in a deferred compensation plan, so any money I take out will be fully taxable in the year I take it out. So, I'm thinking I should start withdrawing from that deferred comp plan now, while I am in a lower tax bracket before I starting collecting my own, higher social security benefits. Not withdrawing a lot--probably a few hundred a month, since I am getting by OK on just the pension and social security benefits.

Does this make sense? I'm really not worried about running out of savings, because I have more savings elsewhere, and my pension and social security is a decent income for my modest needs.

Thanks for your thoughts.

 

[RobbieB]

Yeah, might as well fill your bracket "full"

 

[GravitySucks]

A question.... Why are you.planning on giving up the 3+ years of survivor benefits instead of waiting to 70?

 

[jriemerm]

A question.... Why are you.planning on giving up the 3+ years of survivor benefits instead of waiting to 70?

I think a reasonable argument can be made for either approach, but...

I don't look at it as giving up 3 1/2 years of survivor benefits, but as substantially increasing my income while I'm below 70 and still reasonably strong and healthy for travel, etc. I could have a lot of fun with that extra $1,100/month beginning at 66 1/2, or forgo the increase for a larger bump (about $1,800 rather than $1,100) 3 1/2 years later, when I might be less healthy to enjoy it. Either way it will be easily enough to get by on.

I still have the option of changing my mind depending on how I feel at 66 1/2, but at this point I'd rather have the raise earlier.

 

[l2ridehd]

Most differed compensation plans have a very rigid withdrawal process. But if they don't I would just use that as a monthly income increase of around $1000 a month for the next 7 or 8 years depending on what it's return rate is. That way you get that extra money now and not have to start your own social security until you reach the maximum or very close to the maximum age of 70. And I am sure if you did the rate of return X the 75K over the next 120 months you could determine very close exactly what you could take every month and have it last until 70. Probably be about $800 a month with a 5% return. That way you maximize both social security and the deferred compensation.

 

[savory]

Most differed compensation plans have a very rigid withdrawal process. But if they don't I would just use that as a monthly income increase of around $1000 a month for the next 7 or 8 years depending on what it's return rate is. That way you get that extra money now and not have to start your own social security until you reach the maximum or very close to the maximum age of 70. And I am sure if you did the rate of return X the 75K over the next 120 months you could determine very close exactly what you could take every month and have it last until 70. Probably be about $800 a month with a 5% return. That way you maximize both social security and the deferred compensation.

This is good advice. I had to make a decision around 10 years ago. I missed my target and will have a year or two of overlap with SS and RMD. I am looking forward to a tough tax year or two. So, plan well.