I'd love some opinions....

[Itsagrind]

Hi all...


I am recently retired, age 61.5...wife is retiring this summer, also 61.5. I'd love some thoughts on investment recommendations based on our situation.



Own our home outright...could sell in this market for approximately 600K, though we intend to stay put right now.



We can live comfortably on roughly $7000 per month. Add another $2000 per month "cushion" for some travel and the inevitable "unexpected big ticket event" that comes up more than we would all like to admit. So, rough and tough, $9000 per month. (Healthcare is covered through my wife's employer to 65 when Medicare takes over.)



I receive $2000 per month pension for the rest of my and wife's life. We have $725K in non-qualified assets, roughly 60 percent diversified stocks/mutual funds and 40 percent (300K-ish) in cash in anticipation of our retirement funding needs.



Retirement assets of $1.7 million. Of the $1.7MM, about 500K is an annuity that i bought many years ago...will kick off $2750 per month guaranteed for the rest of my life and wife's life beginning at 65. Remaining 1.2 million invested in a roughly 70/30 stock/bond mix. Social security for me and wife will be about $5300 when we plan to begin taking at age 67.



The question...thoughts on whether we should essentially deplete most of our 725K over the next 5.5 years, and let qualified investments continue to grow tax free; or start taking maybe 2-3 percent (3-4K per month) from our qualified investments to protect more of our non-qualified assets.



There is also the likelihood of an inheritance down the road in the ballpark of 500K or so, but certainly don't want to count on that (nor do I like to think about it, but it can be relevant to these types of calculations.)



Thanks to all!

 

[Midpack]

Rather than give you a fish…

In most cases, keeping your effective tax rate level before and throughout retirement is probably the key to answer to your question. You should take distributions to accomplish that, and you’ll have to make some assumptions on future tax rates - something no one can do for you.

If you don’t know where to start, https://i-orp.com/Plans/index.html might help, although you will probably have to use the extended version to handle the inheritance etc.

 

[skyking1]

Oops I found it.

 

[Exchme]

So:
$725K in taxable of which $300K is cash, remainder stocks.
+ $1.2M 70/30 stocks/bonds in tax deferred plans like traditional IRAs, 401ks, 403bs, right?


plus:
You have a pension of $2K/mo for the longest survivor, does that have a COLA?
You have an annuity that will pay $2.75K/mo starting in 3.5 years for the longest survivor
You have SS with a PIA of $5,300.

A couple things to note:
Check out opensocialsecurity.com as a great resource for optimizing your SS benefit. It is often best to wait until age 70 for the larger benefit since the smaller one stops upon passing of one spouse. So it's nice to have the bigger benefit be extra large. Since SS is inflation adjusted, it's much more valuable than your pension/private annuity, especially if inflation keeps raging.

It sounds like you haven't researched your health plan options and costs. If you need ACA insurance, different plans can vary widely in the size network, number of doctors, etc. In our area there is one plan with all my doctors and no other plan has any of them! If you can keep your MAGI below 4 x the Federal Poverty Level, you can get a very large premium credit that covers the bulk of the ACA cost (think $13K+). Some plans may even be HSA eligible and HSA contributions are deducted from your taxable income and ACA MAGI. So your priority until you turn 65 will be to get that premium credit and you need to manage dividends, capital gains, Roth Conversions and any withdrawals from tax deferred to stay under that threshold.

Once you are on Medicare, you may still be in income management mode as there is a tax hump at $109K AGI where your qualified dividends and capital gains are tax free if your AGI is below that. So that's a common target for people to fill up with some Roth Conversions. That's another reason folks often wait on claiming the larger SS benefit, it gives them time to get some Roth Conversions done at low tax rates.

 

[Itsagrind]

Yes, all captured accurately, thank you! We have healthcare fully paid until 65 by my wife's soon to be former employer, so very fortunate. No COLA on pension, very good points regarding social security...we will wait as long as we are "comfortable" seeing our savings gradually (hopefully) reduced in the coming withdrawal years.



Appreciate you taking the time to provide counsel...so much to consider. Take care!







$725K in taxable of which $300K is cash, remainder stocks.
+ $1.2M 70/30 stocks/bonds in tax deferred plans like traditional IRAs, 401ks, 403bs, right?


plus:
You have a pension of $2K/mo for the longest survivor, does that have a COLA?
You have an annuity that will pay $2.75K/mo starting in 3.5 years for the longest survivor
You have SS with a PIA of $5,300.

A couple things to note:
Check out opensocialsecurity.com as a great resource for optimizing your SS benefit. It is often best to wait until age 70 for the larger benefit since the smaller one stops upon passing of one spouse. So it's nice to have the bigger benefit be extra large. Since SS is inflation adjusted, it's much more valuable than your pension/private annuity, especially if inflation keeps raging.

It sounds like you haven't researched your health plan options and costs. If you need ACA insurance, different plans can vary widely in the size network, number of doctors, etc. In our area there is one plan with all my doctors and no other plan has any of them! If you can keep your MAGI below 4 x the Federal Poverty Level, you can get a very large premium credit that covers the bulk of the ACA cost (think $13K+). Some plans may even be HSA eligible and HSA contributions are deducted from your taxable income and ACA MAGI. So your priority until you turn 65 will be to get that premium credit and you need to manage dividends, capital gains, Roth Conversions and any withdrawals from tax deferred to stay under that threshold.

Once you are on Medicare, you may still be in income management mode as there is a tax hump at $109K AGI where your qualified dividends and capital gains are tax free if your AGI is below that. So that's a common target for people to fill up with some Roth Conversions. That's another reason folks often wait on claiming the larger SS benefit, it gives them time to get some Roth Conversions done at low tax rates.[/QUOTE]

 

[Bigdawg]

We can live comfortably on roughly $7000 per month. Add another $2000 per month "cushion" for some travel and the inevitable "unexpected big ticket event" that comes up more than we would all like to admit. So, rough and tough, $9000 per month. (Healthcare is covered through my wife's employer to 65 when Medicare takes over.)

How solid is that 9K/month expense? The reason I ask is that DW and I have a 3K/mo mortgage, live high on the hog and our expenses are just a hair over 9K/mo. Sometimes these financial questions can be answered on the expense side of the ledger and not just the income/assets side. Good luck and congrats on being in a pretty good financial position.

Edit: My bad. Just saw the 7K vice the 9K.

 

[skyking1]

here is the link to opensocialsecurity. It is a really handy tool for maximizing your benefits as a couple.
Open Social Security: Free, Open-Source Social Security Calculator

 

[Itsagrind]

Thanks very much Bigdawg! Yeah, the 7-9K per month is on the high side….but by nature I like to err on the side of caution. Appreciate the pat on the back as well…sometimes one wonders…could I have done better, etc…but I know that overall, we’re more than okay. Best to you and your family!

How solid is that 9K/month expense? The reason I ask is that DW and I have a 3K/mo mortgage, live high on the hog and our expenses are just a hair over 9K/mo. Sometimes these financial questions can be answered on the expense side of the ledger and not just the income/assets side. Good luck and congrats on being in a pretty good financial position.

Edit: My bad. Just saw the 7K vice the 9K.[/QUOTE]

 

[Itsagrind]

Thanks so much!

 

[pb4uski]

I presume that most of your $1.7m in retirement assets are in a 401k or 403b or tIRA and are tax-deferred rather than tax free. If so, then you have a golden opportunity ahead of you to do low-tax cost Roth conversions for about 10 years.

What do you project your marginal tax rate to be once your pensions and SS are going and your are subject to RMDs. I'm guessing that you'll be in the 22% tax bracket. You will likely be able to do Roth conversions between now and when RMDs begin for 10-12%, and cut your tax bill in half.

Will your $2,000/month pension continue to grow if you defer starting it right away? If so, and the growth is reasonable then you might consider deferring... that will give you more room for low-tax cost Roth conversions.

I suspect that your numbers will be similar to ours. We have been living off of taxable account funds. Absent Roth conversions we would pay $0 in income taxes, but we do Roth conversions to the top of the 12% tax bracket and pay about 9.5% in tax (some of the Roth conversion is offset by the standard deduction, some is at 10% and some at 12%). We've done over 1/2 million of Roth conversions over the last 10 years and our tax deferred balance is actually 11% higher than when we retired due to growth... but our tax free balances are 10x what they were when we retired and our taxable/tax-deferred/tax-free balances are now 12/57/31 vs 44/53/3 when we retired.

 

[finnski1]

I presume that most of your $1.7m in retirement assets are in a 401k or 403b or tIRA and are tax-deferred rather than tax free. If so, then you have a golden opportunity ahead of you to do low-tax cost Roth conversions for about 10 years.

What do you project your marginal tax rate to be once your pensions and SS are going and your are subject to RMDs. I'm guessing that you'll be in the 22% tax bracket. You will likely be able to do Roth conversions between now and when RMDs begin for 10-12%, and cut your tax bill in half.

Will your $2,000/month pension continue to grow if you defer starting it right away? If so, and the growth is reasonable then you might consider deferring... that will give you more room for low-tax cost Roth conversions.

I suspect that your numbers will be similar to ours. We have been living off of taxable account funds. Absent Roth conversions we would pay $0 in income taxes, but we do Roth conversions to the top of the 12% tax bracket and pay about 9.5% in tax (some of the Roth conversion is offset by the standard deduction, some is at 10% and some at 12%). We've done over 1/2 million of Roth conversions over the last 10 years and our tax deferred balance is actually 11% higher than when we retired due to growth... but our tax free balances are 10x what they were when we retired and our taxable/tax-deferred/tax-free balances are now 12/57/31 vs 44/53/3 when we retired.

A blended, net 9.5 % rate now will look really good on those conversions if you end up at 22% or higher down the road. Heck even if you only end up at 12% it is a pretty good deal. I know you now this obviously. Just saying it to myself reinforces the whole concept. Thanks.

 

[pb4uski]

Without Roth conversions about 20-40% of our RMDs would be in the 22% tax bracket.. with Roth conversions most will be 12% but some will be 22%. Still, I'm ok with picking up 2.5% especially given the likelihood that tax rates will be increasing across the board and that if one of us were to die then the surviving spouse would be in a much higher tax bracket as would those pesky RMDs.

So if we both live long then we only win a little, but if one of us dies then we win bigger.

 

[finnski1]

Without Roth conversions about 20-40% of our RMDs would be in the 22% tax bracket.. with Roth conversions most will be 12% but some will be 22%. Still, I'm ok with picking up 2.5% especially given the likelihood that tax rates will be increasing across the board and that if one of us were to die then the surviving spouse would be in a much higher tax bracket as would those pesky RMDs.

So if we both live long then we only win a little, but if one of us dies then we win bigger.

Yes it is a win -win for you. The RMD angle as another benefit for the surviving spouse is another important consideration. One that I have to consider more seriously as well.

 

[skyking1]

you have all pounded that home for us. We are lean FIRE, and it makes all the difference of never getting to the 24% tax bracket at all, as a single survivor. That is golden.

 

[Still Learning]

Itsagrind;


I see you have health care but do you have long term health care covered for both of you?

 

[Itsagrind]

Ah, that is a great question. So, I do have LTC insurance...my wife does not. We have been thinking about purchasing a life insurance product (Lincoln) that has a LTC rider...it is quite expensive...we would need to spend at least 100K (which can be paid out over time) to get relatively meaningful benefit (even then, if needed the pool of benefit would only cover part of what LTC will cost in 15, 20 years.



We'll probably bite the bullet and do it...it does have a death benefit equaling the $$$ put in if my wife never needs long term care.

... I see you have health care but do you have long term health care covered for both of you?

 

[skyking1]

we looked at the costs and are self insuring with nest egg. We have no heirs to worry about. If we do well then our favorite charities do well

 

[Koolau]

Ah, that is a great question. So, I do have LTC insurance...my wife does not. We have been thinking about purchasing a life insurance product (Lincoln) that has a LTC rider...it is quite expensive...we would need to spend at least 100K (which can be paid out over time) to get relatively meaningful benefit (even then, if needed the pool of benefit would only cover part of what LTC will cost in 15, 20 years.



We'll probably bite the bullet and do it...it does have a death benefit equaling the $$$ put in if my wife never needs long term care.

LTCi is often discussed here. If you haven't already, maybe take a look at previous threads on the subject. My suggestion would be to talk to a CFP (Certified Financial Planner) - not a sales person but hourly fee - and go over everything with her/him. They can crunch your numbers and give you some ideas. My gut says you're good with your numbers, but a CFP can help you evaluate some scenarios you want to explore.

At 75, I'm wanting to visit a CFP to plan for my (or DW's) demise - with specific issues of taxation (since the last of the couple will be taxed as a single.) Lots of help here, but I like to sit with someone with a financial calculator. YMMV

 

[Itsagrind]

Thanks very much, Koolau. I will check out those LTC threads. Best to you and your family...it all goes way too fast, doesn't it?

LTCi is often discussed here. If you haven't already, maybe take a look at previous threads on the subject. My suggestion would be to talk to a CFP (Certified Financial Planner) - not a sales person but hourly fee - and go over everything with her/him. They can crunch your numbers and give you some ideas. My gut says you're good with your numbers, but a CFP can help you evaluate some scenarios you want to explore.

At 75, I'm wanting to visit a CFP to plan for my (or DW's) demise - with specific issues of taxation (since the last of the couple will be taxed as a single.) Lots of help here, but I like to sit with someone with a financial calculator. YMMV

 

[Retired Expat]

Hi all...


I am recently retired, age 61.5...wife is retiring this summer, also 61.5. I'd love some thoughts on investment recommendations based on our situation.



Own our home outright...could sell in this market for approximately 600K, though we intend to stay put right now.



We can live comfortably on roughly $7000 per month. Add another $2000 per month "cushion" for some travel and the inevitable "unexpected big ticket event" that comes up more than we would all like to admit. So, rough and tough, $9000 per month. (Healthcare is covered through my wife's employer to 65 when Medicare takes over.)



I receive $2000 per month pension for the rest of my and wife's life. We have $725K in non-qualified assets, roughly 60 percent diversified stocks/mutual funds and 40 percent (300K-ish) in cash in anticipation of our retirement funding needs.



Retirement assets of $1.7 million. Of the $1.7MM, about 500K is an annuity that i bought many years ago...will kick off $2750 per month guaranteed for the rest of my life and wife's life beginning at 65. Remaining 1.2 million invested in a roughly 70/30 stock/bond mix. Social security for me and wife will be about $5300 when we plan to begin taking at age 67.



The question...thoughts on whether we should essentially deplete most of our 725K over the next 5.5 years, and let qualified investments continue to grow tax free; or start taking maybe 2-3 percent (3-4K per month) from our qualified investments to protect more of our non-qualified assets.



There is also the likelihood of an inheritance down the road in the ballpark of 500K or so, but certainly don't want to count on that (nor do I like to think about it, but it can be relevant to these types of calculations.)



Thanks to all!

Hi Itsagrind ( but soon not!). We did two important things in planning our retirement. Moved to a much much lower cost home but equally nice in a more rural LCOL area. Using our free time to pretty much self perform all the chores we used to pay people to do. Between the gardener, pool guy and housekeeper ( who still comes regularly but for less time we saved 1 month’s of our prior expenses. Cooking at home and buying in bulk made a big difference too. Moved some money into rental properties to generate monthly cash and@ reduce the WR from 4% years o 1.5% so I can sleep like a baby!

 

[Itsagrind]

Great input and I'm glad you're enjoying your well earned retirement. Stay well and thank you very much!!!

Hi Itsagrind ( but soon not!). We did two important things in planning our retirement. Moved to a much much lower cost home but equally nice in a more rural LCOL area. Using our free time to pretty much self perform all the chores we used to pay people to do. Between the gardener, pool guy and housekeeper ( who still comes regularly but for less time we saved 1 month’s of our prior expenses. Cooking at home and buying in bulk made a big difference too. Moved some money into rental properties to generate monthly cash and@ reduce the WR from 4% years o 1.5% so I can sleep like a baby!

 

[Almost There 2021]

Social Security

looking at your financial situation my recommendation is to delay until 70. In the three years after 67 you will receive a nice 8% annual increase plus COLA. This year it was 6.8%. Combine the two and of course have a 14% return on your investment. Guaranteed!!!!!!!!! Even if COLA drops a couple of points you will have approx. 10-12% guaranteed return. You cannot get that guarantee anywhere else..
GL

 

[Itsagrind]

You are unquestionably correct here...I will absolutely shoot for holding off until 70 but I have modeled for 67...to "take some of the pressure off..." I am hopeful that when I get closer to 67, I will see that delaying Social Security to 70 is quite doable. The increase in benefit is undeniable.



I appreciate your input. Stay well!

looking at your financial situation my recommendation is to delay until 70. In the three years after 67 you will receive a nice 8% annual increase plus COLA. This year it was 6.8%. Combine the two and of course have a 14% return on your investment. Guaranteed!!!!!!!!! Even if COLA drops a couple of points you will have approx. 10-12% guaranteed return. You cannot get that guarantee anywhere else..
GL

 

[Almost There 2021]

Monthly Dividend Payers

Will take the pressure off. A couple suggestions" STWD- 8%, PDI- 12%, UTG- 7%, UTF- 8%, &-T- 5.5%, VZ- 5%. All have been rewarding me well. Now is the time to start nibbling as you are getting a better cost basis everyday. Will make up for the SS need.