Reference this post for my situation
http://www.early-retirement.org/forums/f28/hypothetical-withdrawal-rate-scenario-30582.html
This all starts in 7 years.
I have $55000 pension
Wife will have the same pension but it starts 4 years later.
We will have ~$1.7M in 401k, IRA, taxable accounts..ect
As stated in the referenced post, I will withdraw ~$120K the 1st 4 years and then less as my wifes pension kicks in.
Total income in retirement estimated at ~$175000
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Heres the part I want you to look at as I just thought of it. We have a clause in our pension that allows you to defer pension payments. The dererred payments go into an account that draws interest. The interest is currently guaranteed 10%. Yes, 10%. It will always be 8-10% and can change only .25% any given year. Its based on how well the pension fund is doing and its obviously doing well if its paying 10% interest in this interest rate environment.
Some people go into the deferred retirement program and keep working. Their pension benefits dont accrue higher but they still get paid by the city and their pension checks go into the DROP account.
D=delayed
R=retirement
O= ??
P=program.
I dont plan to do that as we dont need to, but what I thought what might be beneficial is this:
Upon retirement, instead of drawing the $55K and withdrawing $120K from investments I would draw the entire $175K from investments and let the pension checks grow in the DROP account. After the 4 years, my wifes pension kicks in and we would let that go into her DROP account as well.
We would live off of our investments until they run out entirely all the while allowing the DROP accounts to grow at 10%. From that point on, we would have guaranteed 10% income which I assume would result in higher income long term?
Some numbers and assumptions:
Assuming constant 8% returns in the stock market, the $1.7M would run out in approx 18 years. In that time the DROP accounts will grow to about $4.3M.
Withdrawals from a $4.3M account that guarantees 10% interest is MASSIVE in comparison to my $175000 yearly draw (and I still get the 2 $55K pensions).
Now I know there are alot of assumtions and projections in here, namely the constant 8% returns stated for the 18 years, but the main question is does the principal of letting the pension checks go into the DROP accounts untouched for as long as possible while living off of the other investments until they run out entirely make sense?
The problem I see is that Im giving up possible bigger gains in the stock market if it returned 12-15% during an extended stretch for the safety of guaranteed 8-10% returns for life.
If the market was totally flat from the day I retire, our $1.7M would still last about 10 years. In 10 years the DROP account grows to about $1.35M so i could draw $135000 on top of the 2 $55K pensions which is till more than the $175000 and this is just about worst case scenario (the stock market is flat for 10 years).
It cant be this simple. What am I missing?
http://www.early-retirement.org/forums/f28/hypothetical-withdrawal-rate-scenario-30582.html
This all starts in 7 years.
I have $55000 pension
Wife will have the same pension but it starts 4 years later.
We will have ~$1.7M in 401k, IRA, taxable accounts..ect
As stated in the referenced post, I will withdraw ~$120K the 1st 4 years and then less as my wifes pension kicks in.
Total income in retirement estimated at ~$175000
***********************************************
Heres the part I want you to look at as I just thought of it. We have a clause in our pension that allows you to defer pension payments. The dererred payments go into an account that draws interest. The interest is currently guaranteed 10%. Yes, 10%. It will always be 8-10% and can change only .25% any given year. Its based on how well the pension fund is doing and its obviously doing well if its paying 10% interest in this interest rate environment.
Some people go into the deferred retirement program and keep working. Their pension benefits dont accrue higher but they still get paid by the city and their pension checks go into the DROP account.
D=delayed
R=retirement
O= ??
P=program.
I dont plan to do that as we dont need to, but what I thought what might be beneficial is this:
Upon retirement, instead of drawing the $55K and withdrawing $120K from investments I would draw the entire $175K from investments and let the pension checks grow in the DROP account. After the 4 years, my wifes pension kicks in and we would let that go into her DROP account as well.
We would live off of our investments until they run out entirely all the while allowing the DROP accounts to grow at 10%. From that point on, we would have guaranteed 10% income which I assume would result in higher income long term?
Some numbers and assumptions:
Assuming constant 8% returns in the stock market, the $1.7M would run out in approx 18 years. In that time the DROP accounts will grow to about $4.3M.
Withdrawals from a $4.3M account that guarantees 10% interest is MASSIVE in comparison to my $175000 yearly draw (and I still get the 2 $55K pensions).
Now I know there are alot of assumtions and projections in here, namely the constant 8% returns stated for the 18 years, but the main question is does the principal of letting the pension checks go into the DROP accounts untouched for as long as possible while living off of the other investments until they run out entirely make sense?
The problem I see is that Im giving up possible bigger gains in the stock market if it returned 12-15% during an extended stretch for the safety of guaranteed 8-10% returns for life.
If the market was totally flat from the day I retire, our $1.7M would still last about 10 years. In 10 years the DROP account grows to about $1.35M so i could draw $135000 on top of the 2 $55K pensions which is till more than the $175000 and this is just about worst case scenario (the stock market is flat for 10 years).
It cant be this simple. What am I missing?