Books/Recommendations for withdrawing $..when the time comes.

[Midpack]

Your Retirement Income Blueprint is a book I recently read and found helpful.

Looks good, though my enthusiasm was dampened once I realized it was written for Canadians. Their government programs are quite different as we all know. Hopefully it will still be largely applicable, I plan to check it out this week. Thanks!

 

[marber]

I primarily use a mix of Vanguard Target Retirement funds, Cd's & I bonds with an asset allocation of 31% stocks & the remainder in cash & bonds. Retirement will be July 2012. I have 2 years of needed assets in readily available CD's and I Bonds. I keep a 3rd year of assets in short term bonds. I plan to tap these funds only if the market is tanking. Otherwise I'll be drawing from the Target Retirement funds. About 3/4 of our assets are in Target Retirement 2005 which will be merged with Target Income Fund in February. Haven't quite figured out the actual process I'll use for withdrawing money.

One thing I've been pondering is when to draw qualified funds vs non-qualified funds. The following link advises drawing your IRA money 1st before drawing any non-taxable taxable monies such as your non-IRA savings.

https://retirerxcom.s3.amazonaws.com/modules/report/7/eReport_Social_Security_Booklet-1.pdf

A quote from page 6:
"As will be demonstrated in what follows, the correct timing for the use of the three categories of money by the average retirees is: use IRA money first, delay Social Security as long as possible, and position your non-qualified money correctly and use it last or to supplement your retirement income. "

The author "Dr. Shelby Smith, says that since SS benefits are taxed differently than other income, there are major tax benefits of delaying SS as long as possible and using up your IRA money 1st. He gives an example comparing 2 couples requiring 90K/yr and shows how the couple that delays taking SS enjoys major tax savings.

I've gone through the author's examples, plugging in my own figures and don't see an advantage for me but OTOH, my draw from SS will only be about 28K at age 70. Has anyone else considered this strategy?
Marc

 

[Independent]

I've gone through the author's examples, plugging in my own figures and don't see an advantage for me but OTOH, my draw from SS will only be about 28K at age 70. Has anyone else considered this strategy?
Marc

I thought about taxation of SS benefits when I retired. The important thing to me was that the band limits ($32,000 and $12,000) are not indexed.

When I used modest rates of inflation, assuming both SS and non-SS income would keep up with inflation, I got a situation where 85% of our SS benefits would be taxable if we were spending our "desired" amount.

I played around with some scenarios, but didn't see any clear winner that stood up against the various unknowns.

We are moving trad IRA money to Roth IRA just to fill up a low initial tax bracket. But we'd be doing that regardless of how SS is taxed.

But, I'm a rookie in this discussion. I'd be happy to see other opinions.

 

[Huston55]

A good summary, somewhat related, by Wade Pfau...

Pack-

Thx for the post. I first read Pfau on this forum in a thread from Nords, and it makes sense to me. Note that Nords gets a mention at the end.

This (floor with upside potential) is our most likely plan. We will use SS + small COLAd pension + SPIA (or another vehicle) to guarantee income for "essential" expenses, then an equity/bond AA at a SWR (using Clyatt's 95% rule) for remaining "discretionary" expenses.

However, we'll need to use withdrawals from our nest egg for several years until both the pension and SS have kick in. I've just run ORP for the first time to get guidance on where to take/move the funds from/to.

OK, since this post, I've read Otar's Myths and am now wondering who's correct: Pfau or Otar.

Clearly Pfau, along with others like Clyatt, support a "variable" spending plan. Pfau's includes the added feature of having the floor (essential expenses) covered by guaranteed income sources. However, if I understood Otar correctly, his analysis shows that no reasonable amount of variable spending reduction substantially increases portfolio survival probability.

What thoughts do you have on this? Have you read anything that compares/contrasts the two?

 

[walkinwood]

Bob's financial page has links to most of the papers written on the subject. I also second Otar's book above. Another source is Bob Clyatt's Work Less, Live More.

Bob's Financial Website

 

[devans0]

Our portfolio will probably be as interesting as can be for getting a best SWR answer. Roughly speaking, we will be at 1/3 Roth IRA, 1/3 IRA and 1/3 taxable equities. We will probably retire using pensions to fund us, within two years. That combined with an eventual social security draw will be enough to meet our basic needs.

With our basic needs met, I haven't convinced myself that any bonds are needed at current low rates. (I see probable losses with bonds if accounting for taxes and inflation.)

IRA RMDs will kick us up to a high tax bracket. For us, best plan is to spend IRAs, convert to Roth IRAs as we can, without upping our tax rates, then move to taxable equities, and lastly hitting the Roths IRA. We are close to the break point that pulling from taxable or IRAs could be a wash, depending on what happens to fund returns in the next few years.

With politicians rooting after more money, I'm expecting them to rob the bank, 'cause that's where the money is. We are the bank. Who knows if Roth's will withstand the assault.

 

[REattempt]

Unveiling the Retirement Myth by Jim C. Otar

+1 +1 +1 +1

No question worth the $5 for the pdf version!

 

[Ed_The_Gypsy]

In retirement, I withdraw my SWR from both the TSP and taxable accounts in Vanguard. The money withdrawn from Vanguard is from my portfolio cash in Vanguard money market (where I have the dividends sent), and I don't have to sell anything for my withdrawals. Not so for the TSP, but I want to lower the balance there and take some of the tax hit before I get to age 70.5 and the mandatory withdrawals begin. Overall I spend less than my dividends.

Your last sentence bears thinking about.

At 70.5, we are required to take Minimum Required Distributions from IRAs according to a schedule set up by the IRS, which consists of an annual fraction = 1/your expected remaining years of life, according to actuarial tables (also by the IRS) times your balance on Dec 31 (if I recall correctly). (Same table as used for early distribution per 72T.) Vanguard will do this for you automatically but you have to tell them what you want.

I am sure that more than one here will be in the situation where their MRD is more than they typically spend. What to do with that excess?

Perhaps the simplest solution is to send it to a savings account at your bank and spend out of that. It builds an emergency fund at a time in life where it may become necessary.

Has this been discussed before? What are your thoughts?