Life changes after SS and RMDs?

[Car-Guy]

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.

If you can get in and out of a Corvette with no problem at age 79, you either have some great pain meds or it's a convertible. (Or both)

 

[harllee]

I am facing these "issues." DH is 72 and I am 71. I waited to start SS until age 70 and between us we get over $60,000 per year in SS, enough for our basic needs. We are going to have fairly large RMDs (DH started this year, me next year). We will take some of our RMDs for extra "blow that dough" money. But most of our RMDs are going to charities using Qualified Charitable Distributions, we have already started the QCDs. We have some charitable causes we are passionate about. By using QCDs we can keep our taxable income down to a manageable level and achieve some of our objectives to help other people.

 

[aja8888]

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

Tomorrow. Electron Blue with a white top.

If you can get in and out of a Corvette with no problem at age 79, you either have some great pain meds or it's a convertible. (Or both)

Good legs, new hips, play golf twice per week, walk a lot. No pain meds, actually only one med (Flowmax). It's a convertible.

 

[RobbieB]

Ouuu, pickup day! Good for you -

Take 'er out for a spin, have a nice lunch while you're out and have fun!

 

[MarieIG]

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.

Edited to ad: Ahhhh, new hips I see. Carry on . . .

 

[Jeb-NY]

I converted a bunch of my IRA to ROTH to lower my RMD but should have done more. I was trying to protect IRA and spent down other money and should have spent down IRA more but it is OK. Both wife and I waited till 70 for SS so we have plenty of cash flow as you seem to be anticipating. We have been frugal so long we continue to be because we have all we want. We did buy a nicer house in a low cost of living area. Biggest change we have made I went from doing most all my own maintenance, yard work etc to hiring most of it done. If I don't enjoy doing it I pay someone to do it. Also make use of QCD.

 

[Bamaman]

2022 will be my first year of RMD's--based on 12/2021's year end balance. Needless to say, the market has bombed in the last 8 months.

I've got to withdraw more money in 2022 than my best salary in one year. That's good--or bad depending on how you look at it. But I've been retired 14 years without touching the FIDO accounts.

Nothing I can do about it. I still have a whole lot more in my accounts than when I retired in 2008. And I really have nothing to do with the funds anyway.

 

[marko]

Once again, I seem to be the outlier.

We are lightly tapping the brakes. Not cutting back, but watching and concerned about long term inflation, a slowing economy, higher taxes and general market issues.

We have a number of personal deflationary items in our favor-- DW hits Medicare, no boat$ next year, nephew'$ tuition is over which, all together will save us about $50k next year but our portfolio is down 15% YTD and I fear that MF cap gains and dividends (which currently represent 75% of our income) will be lean for several years.

Note to OP: as noted by Lewis Clark, you can reinvest your RMD. You don't have to spend it. I've heard this misunderstanding a few times.

Early in my RE, I looked at my portfolio balance, divided by 40 years and said "Wow! Even if I don't gain another dime, I'm all set!" Then I found this forum and some cruel person instructed me on the word "inflation "

 

[vafoodie]

I guess i Need to read all the long-term care threads because I know that can blow the dough. We do have a modest hybrid long-term care policy, but it will just provide a drop in the bucket if either of us has to have memory care or the like.

 

[REWahoo]

I guess i Need to read all the long-term care threads because I know that can blow the dough.

This statement was even more meaningful before you changed "dope" to "dough".

 

[ERD50]

.... 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. ...

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

I'm in agreement with the responses below (and I may have missed a few). I'm baffled as to why anyone would think of an RMD as money "rolling in"? It is your money before the RMD, and it's your money after the RMD, it has just been subjected to a forced transfer from one account to another, and taxed in the process (which would have happened if you voluntarily withdrew it as well).

Moving money from one account to another doesn't affect what you can spend (tax details aside).

This kind of comment comes up from time to time, I just don't understand the thought process behind it. RMDs are not income (though taxed as such), they are a transfer. SS/pensions are different - that's true income, you don't normally have access to the principal behind it.

-ERD50

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. ...

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

... Note to OP: as noted by Lewis Clark, you can reinvest your RMD. You don't have to spend it. I've heard this misunderstanding a few times. ...

 

[Jerry1]

I'm baffled as to why anyone would think of an RMD as money "rolling in"?

I guess I gave the OP the benefit of the doubt believing that it was only the SS that was new money rolling in.

 

[Andre1969]

I'm in agreement with the responses below (and I may have missed a few). I'm baffled as to why anyone would think of an RMD as money "rolling in"? It is your money before the RMD, and it's your money after the RMD, it has just been subjected to a forced transfer from one account to another, and taxed in the process (which would have happened if you voluntarily withdrew it as well).

-ERD50

I have a feeling this might be a more common thought process among older people. In the old days, it literally WAS "money rolling in", as they sent you a live check, that you had to do something with. Even if it was just taking it to the bank to deposit it in a checking/savings account, it's still money that you were forced to do something with. Unless of course, you just left the check sitting there, un-cashed.

It's "money rolling in", depending on the vernacular you're using. It's just money you already have, being cashed out and sent to you, that's "rolling in" and you have to make a decision on it.

It's actually not a bad problem to have, but I have noticed older generations, like my Mom, and my Grandmom, being mad that they had to take their RMDs. Their attitude was "why should I have to have it cashed out if I don't need it?" but for some reason they wouldn't carry the thought process through of "but now I can do whatever I want with that money, including reinvesting if I don't need it."

I can sort of understand my Grandmom's perspective, as she's from an era where investing in the stock market might as well have been black magic. And her Depression Era thinking was, seriously, save it up because you might need it some day. And, Mom got some of Grandmom's Depression era thinking, I imagine. Heck, some of it is ingrained in me, even.

I know I've explained to my Mom, several times over, that you got to put that money away and take a tax break, and it grew tax-deferred, so the government was doing you a favor. However, eventually, they're going to want some of that tax money back. I think a lot of people just don't understand that "tax deferred" doesn't mean "tax free".

 

[ERD50]

I guess I gave the OP the benefit of the doubt believing that it was only the SS that was new money rolling in.

OK, but RMDs would still have zero effect on that. SS income is SS income, period - regardless of any RMDs.

-ERD50

 

[ERD50]

....
It's actually not a bad problem to have, but I have noticed older generations, like my Mom, and my Grandmom, being mad that they had to take their RMDs. Their attitude was "why should I have to have it cashed out if I don't need it?" but for some reason they wouldn't carry the thought process through of "but now I can do whatever I want with that money, including reinvesting if I don't need it."

I can sort of understand my Grandmom's perspective, as she's from an era where investing in the stock market might as well have been black magic. And her Depression Era thinking was, seriously, save it up because you might need it some day. And, Mom got some of Grandmom's Depression era thinking, I imagine. Heck, some of it is ingrained in me, even.

I know I've explained to my Mom, several times over, that you got to put that money away and take a tax break, and it grew tax-deferred, so the government was doing you a favor. However, eventually, they're going to want some of that tax money back. I think a lot of people just don't understand that "tax deferred" doesn't mean "tax free".

Yes, but it could be reinvested in something other than the stock market (CDs, whatever).

... I have a feeling this might be a more common thought process among older people. In the old days, it literally WAS "money rolling in", as they sent you a live check, that you had to do something with. ...

But it is "rolling in" from your own account!

Using that logic, we can go nuts on Robbie's "Blow That Dough!" thread, because we can just set up an auto-withdrawal and use money from one of our accounts to pay the bills, and it's just 'rolling in'!

Yes, it's a mental accounting problem, and I'm surprised it is as pervasive as it is.

-ERD50

 

[Romer]

I am 61 and retired this past year. I have a Pension and plan to take SS at 67. My pension, SS and Spousal SS will cover the majority of our expenses and we could live off of that easy if we needed to.

After going through the options I am doing Roth Conversions this year and next to stay within the 24% tax bracket.

Then in 2024 I will work to stay in the 22% bracket to keep the Medicare payment down in 2026. I will model it more when I get closer and see if that still makes sense.

Tax rates are supposed to go up in 2026 and I do not expect congress to stop it it

At worse case if rates don't go up I am paying now rather than later, but with taxes going up I am saving 3% minimum just on the basis of tax increases

Also, I expect the market to eventually recover and conversions now in a down market reap bigger tax free rewards when recovered

My goal is to get RMDs down to a level that is less than I would need to withdraw even in a good market

Also to have as much in ROTH to make up any differences with reduced taxes

Being in a Roth would make it easier if one of us switches from married to single tax rates due to an early departure

I plan to leave the Roth untouched until I drawdown the IRAs

On spending, we haven't cut back on our spending and want to see the market recovers before we "spend that dough". We did a long European Cruise in March flying Business class and doing a Panama Canal cruise next month so not holding back spending.

First spend that dough will be to go replace our current HVAC systems with Dual Fuel Heat pump systems making me less dependent on Utility costs and inflation. I haven't paid for Electricity since Jan when my Solar system came on line and this will reduce my need to cover an EV addition in the future further reducing my external energy needs though I will stay have a few Gas vehicles in the long term as they are my toys

 

[Amethyst]

Yes, it does seem like some people of my acquaintance do nothing but go on cruises and trips, 24/7. In between hip replacements, that is. There just is not that much for people that age to do. Eventually they'll surely move to the fancy old-people places.

Now that I have to file single, my taxes have gone up. They will go up more in future, I'm sure, even though my income is less than when I was married. So, I will be spending lots on whatever Congress decides is a priority.

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?

 

[Car-Guy]

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

So here's a different twist:

I thought about this thread this weekend while we had some friends over for a few drinks. Somehow the topic of 401k's came up and I was shocked to hear my friends DW getting so upset. She was getting mad at him for putting money in a 401k all his working years and now they are having to pay the taxes on it. Their RMD's started last year, IIRC. I started to say something about the matching funds, compounding interest of a 401k and lower tax rates in retirement but I kept my mouth shut and just decided maybe she shouldn't drink.

I don't think these guys are rich but they seem to be comfortable. So, she doesn't seem to have a problem with the 401k money rolling in, but she somehow feels they shouldn't be paying anymore taxes, now that they are retired, even on their deferred money. Hey that is a nice thought.

I may suggest to my friend that he explains the incredible value of a 401k for us "commoners", once she sobers up.

Hey my RMD's starts soon, so maybe I should be sure my DW understands that too since she heard all of this. 1st world problems...

 

[athena53]

Now that I have to file single, my taxes have gone up. They will go up more in future, I'm sure, even though my income is less than when I was married. So, I will be spending lots on whatever Congress decides is a priority.

Yep. If I had it to do over again I'd put less in 401(k)s and more in after-tax. I don't think I realized till I was very close to retirement that EVERYTHING coming out of pre-tax is ordinary income, even LT gains and dividends. For me, the whole song and dance of "you'll be in a lower tax bracket when you retire" is a lie, due mostly to that but also due to taxes (Federal AND State ) on my SS and IRMAA surcharges.

 

[Midpack]

So here's a different twist:

I thought about this thread this weekend while we had some friends over for a few drinks. Somehow the topic of 401k's came up and I was shocked to hear my friends DW getting so upset. She was getting mad at him for putting money in a 401k all his working years and now they are having to pay the taxes on it. Their RMD's started last year, IIRC. I started to say something about the matching funds, compounding interest of a 401k and lower tax rates in retirement but I kept my mouth shut and just decided maybe she shouldn't drink.

I don't think these guys are rich but they seem to be comfortable. So, she doesn't seem to have a problem with the 401k money rolling in, but she somehow feels they shouldn't be paying anymore taxes, now that they are retired, even on their deferred money. Hey that is a nice thought.

I may suggest to my friend that he explains the incredible value of a 401k for us "commoners", once she sobers up.

Hey my RMD's starts soon, so maybe I should be sure my DW understands that too since she heard all of this. 1st world problems...

Funny story. He should have started Roth conversions so he would have paid more taxes beforehand, and (much) less in taxes thereafter. Then she could have been upset years ago and he'd look like a genius now. My DW accepted higher taxes due to Roth conversions beginning in 2019 after I explained it all to her, so I'm looking forward to her accolades starting in a few years...

 

[Car-Guy]

^^^^^

I wasn't about to get involved while she was drinking.

 

[ShokWaveRider]

Yep. If I had it to do over again I'd put less in 401(k)s and more in after-tax. I don't think I realized till I was very close to retirement that EVERYTHING coming out of pre-tax is ordinary income, even LT gains and dividends. For me, the whole song and dance of "you'll be in a lower tax bracket when you retire" is a lie, due mostly to that but also due to taxes (Federal AND State ) on my SS and IRMAA surcharges.

Highlighted by me. Exactly what we did, we saved 50% in Qualified and 50% in Non Qualified ever since I can remember. Now we have 65% of our nest egg in Non Qualified. We just withdraw from it when we need it. We do pay tax on the income it generates though. When I take RMDs in 3 year's time it should be manageable as DW has 8 years till her RMDs, we are evenly split with our IRAs as far as funds are concerned.

 

[athena53]

Highlighted by me. Exactly what we did, we saved 50% in Qualified and 50% in Non Qualified ever since I can remember. Now we have 65% of our nest egg in Non Qualified.

I'm at 50-50. I followed the conventional wisdom of "Max out your 401(k) first" but I'm grateful I had money left over for after-tax savings, too. I plan to make QCDs next year when I'm eligible and then will be able to make a large part of my RMDs as QCDs. It will help.

 

[Jerry1]

If I had it to do over again I'd put less in 401(k)s and more in after-tax.

Like most things, it depends. I’m currently filling up the 12% bracket. That is a lot less than I was paying while working. If one has other income, like a nice pension and then adds SS to that, then yes, the tax savings will be minimal. I’ll be in that boat when RMDs kick in. Until then, I’ll do my best to stay in the lower tax bracket and do as much ROTH conversions as makes sense.

Though, I will admit that I do wish I had more in my after tax account going into retirement. The flexibility the after tax account provides in income targeting is nice to have. I guess I should have been a little more frugal to save that extra after tax money.

 

[ERD50]

Yep. If I had it to do over again I'd put less in 401(k)s and more in after-tax. I don't think I realized till I was very close to retirement that EVERYTHING coming out of pre-tax is ordinary income, even LT gains and dividends. For me, the whole song and dance of "you'll be in a lower tax bracket when you retire" is a lie, due mostly to that but also due to taxes (Federal AND State ) on my SS and IRMAA surcharges.

I can't easily go back and figure my marginal tax rates during my earning years, so I can't really say if I should have put in less to the 401K or not. We did have some company match, so that factors in (50% on the first 3% IIRC? really not sure).

At any rate, it's water under the bridge, and I've been doing Roth conversions, so at least for the next few years I am in a lower tax bracket in retirement.

-ERD50