Thought we were in good shape until we came here. Please help!

[calnomore]

Hi to all and thanks to anyone who takes the time to read this and post their recommendations.
We’ve saved well but haven’t invested too well, especially lately.
2020 is a good example on why you can’t time the market!
Here we go.
Married. No children. Both 60 and retired for 4-1/2 years.
Wife retired so we were able to stay on the medical (BCBS) from her previous employer at a great price.
SS estimate at 62: 21,000 and 18,500.

Yearly income from DW’s pension is 23,000 until 62 then 6500. That’s the way she took it. More now and less when she turns 62 and can start SS.

Yearly expenses: 40,000.

Total assets: 1,666,000
TIRAs (2) total: 1,055,000
Roths (2): 55,000, 56,000
Savings: 300,000
House: 200,000
Two older low mileage vehicles that I maintain. Hope to keep them forever.

Liabilities:
No debt – pay credit card balance monthly.
Everything in SWVXX (Schwab Value Advantage Money Fund) right now.

Next year we plan to sell our house and move. We will use the proceeds and add about 150K to it for the purchase.

We really don’t have a plan but need one. We can use some help with things like:
Should we convert to the Roth’s.
Investing plan?
We both planned to take SS at 62 but are now having second thoughts after lurking on the forum.
Thanks again!

 

[ivinsfan]

How solid is your expense number. And no your used care will not last forever..

so in two plus years your annual outside income will drop to 6500?


Then it's either 6500 plus withdrawals from savings or 6500 plus SS checks?

 

[JoeWras]

The plan to take SS at 62 needs a second look. Are you both healthy? Is there a good chance you'll both live to 90? If so, then delaying SS until FRA or beyond makes sense because then you'll have a COLA'd pension of sorts. You don't have much of one now.

We have a whole active thread on Roths and RMDs. With your current TIRA balance, RMDs may not be a huge worry. But you should consider at least converting up to the top of the 12% bracket. You'll never see tax that low if you do nothing and naturally let RMDs occur.

Finally, how are your TIRAs invested? (EDIT: I see you are in SWVXX. I need to look that up.) Do you have a good balance of assets? You shouldn't be either too conservative, or too aggressive.

 

[njhowie]

I think you're fine. Once SS kicks in it will be that much easier.

 

[Gumby]

Welcome aboard, Calnomore

If I understand your post correctly, your current yearly expenses are $40k per year (is that including all taxes and health insurance?) and your income is $23k from your wife's pension, for a net draw on the portfolio of $17k per year, which is withdrawal rate of only 1.5% of your current portfolio (I didn't count the house value). In two years, assuming zero growth of your portfolio, you spend $34k on living expenses, and you use $150k to trade-up your house, you'll have $46K income ($21k for your SS, $18.5k from her SS and $6.5k from her pension). If your expenses remain $40k per year, you'll have 0% withdrawal rate on a $1.282 million portfolio. In that scenario, I think you'll be okay.

If one of you should die early, the survivor's income will be cut roughly in half (if I have the allocation of SS correct). Suppose you are the survivor and your income is now $21k per year, because her SS and pension go away (assuming no survivor provision). Your expenses probably will go down, but not by by half, maybe by 30%. So you'd have $21k in income and $28k of expenses, requiring a portfolio draw of $7k per year on a portfolio of $1.282 million = 0.5% withdrawal rate. She would be in slightly better shape if she were the survivor. But in both circumstances, still good.

I think it would probably be wise to Roth convert every year up to the top of the 12% bracket so you can avoid the RMD tax torpedo at 72. That will also help the survivor should one of you die early (since the survivor will be in a higher tax bracket as a single)


Some questions to ponder:

1. Are your all-in expenses really $40k?

2. Will they stay at $40k after you move? You'll probably need to furnish and you may want to renovate that new house. A higher price house probably will also mean higher property taxes.

3. What happens to your health insurance if your wife dies?

 

[JoeWras]

Just looked up SWVXX. Money market. Ouch. I see you were talking about "market timing." I suspect you got burned. Don't worry, happens to most of us. (Ignore the braggarts on this board, and oh yes, there are a few. They make no investment mistakes.)

How about getting back into the market over time? I don't know much about schwab, but it looks like they give you the option to buy something like VITWX, which is basically a 50-50 low cost fund. You don't have to jump all in. You could convert as much or little as you want on a regular basis. Every month, quarter, whatever. You can still keep a position in money market if you have concerns.

I will say if you stay that conservative, you are at a risk of failure in later life. I ran a firecalc for you with 1% growth and although it looks "OK" at age 90, I'm afraid your 40k per year spending may not be realistic. Cars fail, roofs fail, insurance surprises you with unexpected increases, the tax man cometh, etc. Bump up your spending to 70k and firecalc flat out fails at a 1% growth rate.

Of course, if you really think your spending can stay at 40k, then your SS will cover it and you are golden, no matter what you do with your IRAs.

EDIT: I see Gumby is also concerned about the 40k. Gumby gives good advice, especially the health insurance! I too have a good deal BC/BS through her insurance. I lose it if she dies! I have a back up plan in place, but it will cost me about 20K per year. All part of contingency planning.

 

[Gumby]

The plan to take SS at 62 needs a second look. Are you both healthy? Is there a good chance you'll both live to 90? If so, then delaying SS until FRA or beyond makes sense because then you'll have a COLA'd pension of sorts. You don't have much of one now.

Social security is a COLA'd pension even if you start at 62. The question is how much you're going to get early versus normal age and how much you can afford to spend out of the portfolio until you start drawing. What I would do is run FIRECalc under two scenarios that both start assuming I am 62 with $1.282 million portfolio, expenses of $40k (or whatever it really is) and "additional income" of $6.5k. First scenario with social security starting at 62 and second scenario with SS starting at 67. Then compare the results.

Edit to add: You could also play around with you and your wife starting SS at different times. You can use the calculator on SSA.gov to get the different amounts.

 

[pb4uski]

Unless you have health issues, I think you would be better off waiting to start SS. That way you can use the years from now until when you start SS to do very low cost withdrawals for living expenses and/or Roth conversions.

I'm guessing that you have ~$3k a year of income from your savings... that, plus your DW's $23k pension would put you just barely in the 10% tax bracket currently.

Later, your SS, along with your wife's reduced pension and RMDs you would put you in the 12% tax bracket.

So it is a no-brainer to at least do Roth conversions to the top of the 10% tax bracket and given how much you have in IRA money, probably the top of the 12% tax bracket.

So while your wife's pension is $23k, you could do as much as $79k of roth conversions and still stay in the 12% tax bracket. That $79k would cost ~$9k in tax (11.5%)... slightly less than the 12% that you would pay later. I'll admit to you that it is hard to "voluntarily" pay more taxes than you have to by doing Roth conversions, but it is better to pay less than 12% now than pay 12% later.

Between 62 when you're wife's pension decreases you can do even more... as much as $95k a year of Roth conversions at an average tax cost of less than 10%. In the meantime, what you need for spending on top of your wife's pension and taxable account interest would come from taxable account withdrawals and once the taxable account is gone you can then shift to Roth withdrawals.

But the idea is to tap the tIRA now while you can do so at a low tax cost before SS starts.

You may want to check out opensocialsecurity.com to see what your optimal claiming strategy is. Be sure to check the advanced alternative box at the top of the page.

And at some point soon you'll want to get into investments other than that money market fund, which is losing to inflation every day.

 

[pb4uski]

Deferring SS is like buying a COLA-adjusted pension annuity from the federal government. If your combined SS at 62 is $39,500 then at 67 it would be $56,100.... so you'll get $16,600 more a year for life by forgoing $197,500 of SS... a very attractive 8% payout rate. Also, if one of you dies, the survivor will get the higher of your two SS benefits for the rest of their life.

Most people take SS at 62 because they realistically have no other choice since they have no or little retirement savings. Your wealth gives you a choice that others don't have.... choose wisely.

On a different topic, are you telling us that you have over $1.3m in a money market fund?

 

[JoeWras]

And at some point soon you'll want to get into investments other than that money market fund, which is losing to inflation every day.

On a different topic, are you telling us that you have over $1.3m in a money market fund?

Someone here -- heck, it may have even been pb4uski -- helped get me off my behind and get back into the market. It was probably around 2014, and I complained that I had let my cash portion go too high, and now the market is sky high and it is a terrible time to get in! The market had just undergone a huge jump from the 2008 lows. I didn't want to do it. Too much worry.

They suggested starting to buy in on a schedule. The thread then went into dollar cost averaging and lump sum buying, etc. Got complicated. I decided to just keep it simple and start buying about 1 to 2% of my portfolio per quarter. I did this for a few years, including the doldrums of 15 and 16.

Flash to today: glad I did so!

So OP, you don't have to go all-in. I suggest you keep it simple. A nice low cost fund or ETF that tracks a wide range of stocks. Buy on schedule, and then almost forget about it. Avoid temptations to worry over it during downturns. You'll still have your conservative base. You have a long game to play here.

 

[calnomore]

All I can say is WOW!
Thanks for all of the great replies and awesome info.
I've read them a few times to understand how to go forward. Many things we haven't thought about but that's why we're here.
I truly wonder how most will make it thinking SS will be enough. That's the plan for most of the people I know with little savings.

Expenses are pretty accurate and includes medical and taxes.
Right now we only pay state taxes due to low income (23K). That will change once we pull from tIRA.
Yes, all in money market. I know it's terrible.
We do think (like others) that tax rates are very low. We will do a ROTH conversion at least to the top of the 12% bracket. We were actually pondering going into the 22% bracket. Does that make sense?
Thanks again!

 

[pb4uski]

No, I don't think 22% makes sense as your "ultimate" tax bracket, once SS is online and pension will only be 12%... so it makes no sense to pay 22% now to avoid paying 12% later.

If you delay SS until 67 and live off that $300k in taxable and convert to the top of the 12% tax bracket, I get that you'll be able to covert ~$633k over the next 5 years and pay $64k in tax... and you'll need to use ~$135k of withdrawls for living expenses... so you'll still have over $100k in taxable savings but your SS will be $17k a year higher... forever.

 

[ivinsfan]

All I can say is WOW!
Thanks for all of the great replies and awesome info.
I've read them a few times to understand how to go forward. Many things we haven't thought about but that's why we're here.
I truly wonder how most will make it thinking SS will be enough. That's the plan for most of the people I know with little savings.

Expenses are pretty accurate and includes medical and taxes.
Right now we only pay state taxes due to low income (23K). That will change once we pull from tIRA.
Yes, all in money market. I know it's terrible.
We do think (like others) that tax rates are very low. We will do a ROTH conversion at least to the top of the 12% bracket. We were actually pondering going into the 22% bracket. Does that make sense?
Thanks again!

How cheap is your cheap insurance.. ACA insurance would be virtually free, but you would need to check what your DW's insurance offers for Medicare coverage as you probably couldn't rejoin once you opt out.

 

[calnomore]

How cheap is your cheap insurance.. ACA insurance would be virtually free, but you would need to check what your DW's insurance offers for Medicare coverage as you probably couldn't rejoin once you opt out.

We pay $175/month. BCBS 80/20 with a 300 deductible for each. They also have Medicare supplement once we turn 65.

 

[38Chevy454]

You are leaving a bunch of money on the table staying in the money market account. Look into something more aggressive. A 60/40 blend fund is easy and still quite safe. Unless you are very risk averse, staying in money market is costing you real money vs inflation. Even low as inflation has been, your money market pays less.

Can't change past results, but you can change future.

 

[JoeWras]

We pay $175/month. BCBS 80/20 with a 300 deductible for each. They also have Medicare supplement once we turn 65.

That's a great deal. Just be aware things could change. DW's plan went from $100 to $550 over a few years time. Her corp has had to back away from zero cost retiree insurance, to rising costs. It involved some painful messaging since they made (non binding) promises over the years.

It is still a good deal and we have no complaints.

But it could and probably will go higher. And if we lose it, my corp offers coverage at 4x that price with huge deductibles. Yikes!

Just something to think about in your planning. Plenty of stories on this site about cost of health insurance.

 

[Dtail]

We pay $175/month. BCBS 80/20 with a 300 deductible for each. They also have Medicare supplement once we turn 65.

Depending on the county/state you live in, you still might be able to improve on that 175 monthly number with using the ACA insurance by keeping your MAGI under 150% of FPL, which would be somewhere under 25k yearly (with using some taxable monies as a supplement to cover the 40k expenses).

Worth checking it out.

 

[ivinsfan]

Depending on the county/state you live in, you still might be able to improve on that 175 monthly number with using the ACA insurance by keeping your MAGI under 150% of FPL, which would be somewhere under 25k yearly (with using some taxable monies as a supplement to cover the 40k expenses).

Worth checking it out.

At 60 and with the company offering medicare options on their retirement plans, I'd have to think twice about dropping that coverage...Medicare coverage will cost them way more then cheap ACA coverage.

But they certainly have enough cash to go the ACA route. And of course company coverage can change at the drop of a hat.

 

[JoeWras]

I'm guessing the OP has a really good plan. Insurance is more than cost. The network of approved doctors is crucial.

So, be careful on any changes.

When I looked at ACA plans for me, none of my usual providers were in their network.

 

[davebarnes]

I would put 100% of the IRAs into a USA market index fund. Low cost, of course.
Today.

 

[pb4uski]

^^^^^ I would want to know why the OP is totally in money market and their risk appetite before making a recommendation like that.

OP has won the game... no particular need to play unless they want to.

And i personally wouldn't go all in on stocks while they are at/near all-time highs and the economy is wounded and a pandemic is ongoing.

 

[davebarnes]

And i personally wouldn't go all in on stocks.

They would still have $300K in cash. 7 years of expenses.

 

[pb4uski]

Ok, all in wasn't right, but I wouldn't go 77/23 with stocks at/near all time highs and the economy precarious either

 

[calnomore]

All of the money in the ROTH's are contributions and returns.
If I convert:
Does the converted money have to stay in there for 5 years?
Does that also include the returns on the converted money?

 

[cnocmmz]

Welcome aboard, Calnomore

If I understand your post correctly, your current yearly expenses are $40k per year (is that including all taxes and health insurance?) and your income is $23k from your wife's pension, for a net draw on the portfolio of $17k per year, which is withdrawal rate of only 1.5% of your current portfolio (I didn't count the house value). In two years, assuming zero growth of your portfolio, you spend $34k on living expenses, and you use $150k to trade-up your house, you'll have $46K income ($21k for your SS, $18.5k from her SS and $6.5k from her pension). If your expenses remain $40k per year, you'll have 0% withdrawal rate on a $1.282 million portfolio. In that scenario, I think you'll be okay.

If one of you should die early, the survivor's income will be cut roughly in half (if I have the allocation of SS correct). Suppose you are the survivor and your income is now $21k per year, because her SS and pension go away (assuming no survivor provision). Your expenses probably will go down, but not by by half, maybe by 30%. So you'd have $21k in income and $28k of expenses, requiring a portfolio draw of $7k per year on a portfolio of $1.282 million = 0.5% withdrawal rate. She would be in slightly better shape if she were the survivor. But in both circumstances, still good.

I think it would probably be wise to Roth convert every year up to the top of the 12% bracket so you can avoid the RMD tax torpedo at 72. That will also help the survivor should one of you die early (since the survivor will be in a higher tax bracket as a single)


Some questions to ponder:

1. Are your all-in expenses really $40k?

2. Will they stay at $40k after you move? You'll probably need to furnish and you may want to renovate that new house. A higher price house probably will also mean higher property taxes.

3. What happens to your health insurance if your wife dies?

Yeah 40k seems awfully low?? I.e. taxes and medical will add up. Just a thought