Retirement income planning is such a complex subject that we can all benefit from hearing what others think. What do you think?
“If you estimate your life expectancy as 20 years…”
How can one know?
Also, I don’t think Roth conversions count as a RMD event so if you are mostly in traditional IRAs, it is painting yourself into a corner waiting til your 70 or so to convert a traditional IRA to a Roth.
I mention this because you can let a Roth IRA ride without having to tap into it.
Next time we have a major market sell-off, consider converting some of the depressed price mutual funds in your traditional IRA to a Roth.
The best scenario is to see your retirement income portfolio grow in value enough to provide a perpetual income stream.
That means that it needs to be large enough, and diversified enough, to throw off the needed income and stay ahead of inflation and provide a buffer to absorb the ups & downs of the applicable markets and grow in value, not shrink.
In today’s dollars, I wouldn’t pull over $75K/yr out of a base investment of $2M.
Wht the complexity of the retirement decumulation phase, even DIY types may benefit with input from a fiduciary hourly advisor. Lots of moving part: tax considerations, Roth conversions, use of inflation protected securities in the fixed-income portion of a portfolio, withdrawal strategies for income source from tax deferred/tax free/taxable accounts, etc.
My whole take on this was to just leave my retirement investments the way they are since it got me this far and just to withdraw 4% each year as long as the market was up and just to use nonretirement income to live on during the years the market was down. It seems like it would be a simple plan.
It would… IF you have the reserves to fall back on… but if you don’t… then what?
I’ve always heard that retirees should wait as long as possible and withdraw only the minimum from IRAs, 401ks, etc and let it go tax-free as long as possible.
But, I’ve come to disagree with that approach somewhat.
My dad had that idea – withdraw the minimum. When he passed, we inherited money, which was nice, but now we have the tax headaches that he didn’t have. As beneficiaries, we have 10 years to with draw all of the money from the traditional IRA, 401k, and Roth accounts. That counts as income for the beneficiaries, who might not be in a low tax bracket as a retired person might be. The Roth money is tax-free, but does count as income when things like Medicare premiums are calculated (if a beneficiary is on Medicare).
I’ve decided for my own money, that since I am retired and in a lower tax bracket, I’ll withdraw more than a minimal amount. If it creeps a little into the next marginal tax bracket, it’s not the end of the world! I still have IRA money growing tax-free. I can put the withdrawals in, say, tax-free bonds if I’m really worried about taxes. I’m also looking at the possibility of doing a Roth conversion, pay the taxes, and keep the $$ tax free.
My goal is that I don’t create a tax headache for my beneficiaries because I’m living it now !!
I don’t say that this is the answer for everyone, but it’s something to consider – a retired person is giving themselves a tax break, then passing the headaches onto their beneficiaries.
my 2 cents…
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I’m also considering that, but have not yet run the numbers. Not sure it would be good for me, but need to examine it.
Doesn’t getting money given to you equal more money that you then have, even AFTER you pay taxes on it??? A marginal tax bracket doesn’t mean that you pay the marginal rate on ALL your income, just the amount that falls within that higher marginal bracket.
"The Roth money is tax-free, but does count as income when things like Medicare premiums are calculated (if a beneficiary is on Medicare)."
For Medicare IRMAA, your AGI and Tax Exempt Interest is used to determine your Medicare premium. Roth distributions are not considered for IRMAA.
If the beneficiary drains the inherited TIRA/401k in one year, the IRMAA surcharge may only affect the beneficiary for one year.
And if the beneficiary is at least age70-1/2 years old they can take advantage of QCDs from their own and inherited TIRA and give QCDs up to $100,000 per year.
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If you didn’t have enough in reserves, then you would have to withdraw the minimum amount you would need, and it would not become a good plan. I’m 59 now and on SSDI and I doubt if I will ever need to take out of my retirement plan, if I live long enough it will just be the RMD’s and that should be a big tax burden as well. I think I am going to do what NancyM Father did, I don’t want to create a big tax burden for myself and will let the heirs worry about it.
Yes and no. I have 10 years of trying to balance out how much to withdraw from the inherited accounts, and if I withdraw and raise my income too much, then I lose qualifications for other (state) programs, such as property tax programs, etc.
My siblings who are still working can be thrown into even higher tax brackets (federal or state).
My main point was that in considering one’s own retirement savings/withdrawals, remember that if you give yourself a tax break on IRA/401k, your beneficiaries will then have up to 10 years of figuring out how best to withdraw it, and they pay the taxes that you didn’t.
Yes, it’s inherited money, and I’m not complaining.
The Roth and non-retirement accounts for beneficiaries are much easier because the taxes were already paid.
It’s just one thing to consider in your retirement/estate situation.
Are you saying you don’t want additional wealth because it might disqualify you for programs that give you additional income?
NO, that’s not what I’m saying at all.
Then the question is… if someone hands you a quantity of money and you have to pay tax on it, aren’t you better off?
I don’t get the disadvantage for receiving untaxed money, why would you turn it down? What are you complaining about?
If you become disabled or chronically ill you might be able to get out of the new 10 year rule.
You can always Dis-claim an inheritance.
I suppose there are reasons to dis-claim but I can’t think of any.
I’m not complaining. I’m describing and explaining a situation that I’m in that relates to the original question, which was about withdrawing money in retirement.
I posted that one thing people don’t consider is that if they leave everything in untaxed accounts, then the beneficiaries have a tax headache. They are paying taxes because you didn’t.
I was giving examples, and reflecting on my own experience. That is not complaining. That is not me being ungrateful.
My point, which you missed, is that ONE thing to consider in retirement money planning is how your decisions affect your beneficiaries. It depends on age/situation, but I’m finding that as a benficiary of accounts that owe taxes, I have to thread a fine needle to do the withdrawals so my own situation doesn’t get messed up. Plus, I have to research the right way to file fed/state taxes (I don’t have an accountant).
The money I inherited in already-taxed accounts (Roth or non-retirement accounts) causes me no problems.
So I’m just giving a description of the effect of these decisions on beneficiaries.
Going through this is changing my own planning – I question the conventional wisdom of keeping so much of my retirement money untaxed (IRA etc), both for my beneficiaries and for my own tax/income situation in 10+ years. It’s a good argument for Roth IRAs.
I was just making a point about ONE thing to consider about retirement money, but you see it as a complaint or my being ungrateful.