Where should you pull retirement money from first?

[K Frame]

Interesting article I saw a coworker reading.

https://www.msn.com/en-us/money/retirement/where-should-you-pull-money-from-first-in-retirement-here-s-the-standard-order-new-us-retirees-need-to-know/ar-BB1p6Qqz?ocid=entnewsntp&pc=U531&cvid=4c490a831a4045cfa323a1aaf12fbf12&ei=145

In further discussion, he made a very interesting point about social security. He's thinking of signing up for payments when he's first eligible and, every month, putting that money into an S&P index fund or something similar.

I'm actually liking that strategy.

I'm almost to the point where I can start distributions. I'm thinking of draining the small funds I have -- a 401K from an old employer and a couple of IRAs, and putting that money into an index fund.

[zxcvbob]

I've been retired a year and a half and not taking Social Security yet.  I am collecting a pension but it's only $265 per month. 🤣

I've been drawing down my cash reserves and withdrawing the dividends from my taxable brokerage account, and avoiding large purchases for a while.  A few months ago I started taking $750 a month from my domestic stocks "growth and income" IRA, and $250 a month from my international stocks IRA.  Part of the reasoning for that was just to reduce my RMDs a little when I turn 72.  With the high interest rates we've been having lately I've mostly just been living off interest and dividends and not touching the principal; my bank accounts are down just $10000 or so, and my investment accounts are up more than that.  But 5+% interest rates on CD and money market have already dropped to 4.5% or less, so I can't count on getting so much interest next year.  And I'm getting tired of living like a miser; that $1000 a month from my IRAs does give me a little breathing room but not enough.

I was planning to delay SS until my wife reaches full retirement age (she's a year older than me) then both of us apply at the same time.  My benefit is more than twice hers, so hers will get bumped up to half of my rate -- so any penalty for taking mine early gets multiplied.  But I ran the retirement simulator at Fidelity with it set for market returns "significantly below average", and taking my SS now instead of larger payments a year or two from now projected me a significantly higher net worth 40 years from now if I live that long.  So I just signed up tonight to start collecting my SS when I hit 65 (that's 22 months early)

[Brad Johnson]

Interesting conundrum, but there's also the consideration of how big a hickey you'll take on the combination of early participation benefits reduction and income-overage penalties. Taking SS at first opportunity is about a 30% reduction IIRC. As for income limits, well, I don't specifically recall but I think it's something like a dollar benefit reduction for every three dollars income over your limit. Folks with a lot better info need to chime in on that, though, as I'm running on a vague memory.

Presuming my questionable memory is correct, anyone opting in early and making a salary in the high five or low six figure range is going to take it on the chin. An up-front 70% reduction in overall benefits, plus an additional 1:3 reduction based on limit-exceeding income. Is that enough to change the dynamic on Taking and Investing versus Waiting and Collecting?

Brad

[Ben]

versus Waiting and Collecting?

Brad

I started taking mine at the first opportunity. I absolutely don't need it. I either blow it on ridiculous LARPer gun stuff, or toss it into my retirement or high yield savings accounts. "Waiting and collecting" assumes I'll be alive at the end of "waiting". The gov already screwed me by taking this money from me in the first place. I'm getting as much of it back as I can, as soon as I can.

[zxcvbob]

Interesting conundrum, but there's also the consideration of how big a hickey you'll take on the combination of early participation benefits reduction and income-overage penalties. Taking SS at first opportunity is about a 30% reduction IIRC. As for income limits, well, I don't specifically recall but I think it's something like a dollar benefit reduction for every three dollars income over your limit. Folks with a lot better info need to chime in on that, though, as I'm running on a vague memory.

Presuming my questionable memory is correct, anyone opting in early and making a salary in the high five or low six figure range is going to take it on the chin. An up-front 70% reduction in overall benefits, plus an additional 1:3 reduction based on limit-exceeding income. Is that enough to change the dynamic on Taking and Investing versus Waiting and Collecting?

Brad

If you're making low six-figures in earned income, and you take SS early, I don't think there will be anything left after the penalty.  The year you turn 65 for the months before your birthday, they reduce your monthly payment $1 for every $3 over about $60000.  The years before your full retirement age, they reduce it $1 for every $2 you make over about $22000.

I don't know if that money is actually forfeited, or if they add it back on the back end.

[MillCreek]

I turn 65 in January.  The SSA.gov website reports that if I file for Social Security at 65 years and 4 or 5 months (I forget exactly), my benefit will be reduced 10% from waiting for my full retirement age of 67.  This is only a few hundred dollars per month, and my IRA goes up or down more than that each day. I will probably file for it then.  This will reduce my draw from the retirement portfolio, allowing it to continue increasing, hopefully.  I have the large IRA and about $ 80K in my 403(b) from the job I retired from last month.  If I follow the 4% withdrawal rule, the 403(b) will last for two years before I start withdrawing from the IRA.

[K Frame]

The more I look into this, the more I think I need to consult a financial advisor. This has way too many moving parts.

[Kingcreek]

My full retirement age and first SS check will be in September and my retirement from my 43 year career is sept 30th.
My wife is already receiving her SS.
I will continue my part time job with flexible schedule averaging 15 hours per week so I won’t have to touch any invested funds and we will still have pretty good income with no debt.
We don’t have money to burn or a condo in Hawaii or anything but I’m feeling good about where we are.

[zxcvbob]

The more I look into this, the more I think I need to consult a financial advisor. This has way too many moving parts.

Yes it does.  The most important question (if you are less than 67) is "are you still working?"  If you're not working, or if you're 67 or older, it all pretty much falls into place even if you choose poorly.

I'm just a few months older than Millcreek.  Taking my SS 22 months early gets me a 12.2% reduction in payments.  The break-even on that (because I get 22 extra checks) is about age 80.  After 80 I'll be losing $439 a month (plus COLA adjustments) for the rest of my life.  That seems reasonable; there's an opportunity cost for those higher checks on the backend that I might not live long enough to collect.

Also I'm a bit lazy, and by signing up for SS before I turn 65 I get signed up for Medicare automatically and the Part B premiums will come out of my SS checks.  (don't know if that's before taxes or after.)  Wife had a bunch of trouble signing up for Medicare for some reason; she's not drawing SS yet, and they send me a quarterly bill for her premiums.

[K Frame]

"The most important question (if you are less than 67) is "are you still working?"

Yep. I am.

And I'm receiving a not insignificant salary with a decent amount of retirement-based and personal assets.

Last thing I want to get caught up in is a tax trap that ends up with the IRS bending me over and having their financial way with me.

[French G.]

Well, if you boomers don't drain it all I get two checks at age 60, not working a day past that. One is my navy reserve retirement and the second I will get SS for my daughter for about 4 years until she turns 18. Should be plenty.

[K Frame]

Well, I've kicked off the search for a financial advisor, emphasizing the desire to minimize taxes in retirement combined with strategies for wealth preservation. Did the questionnaire on the SmartAsset site as a starting point and got a couple of recommendations.

The big thing is that, at this time, I'm not interested in putting all of my assets under CFP or Fiduciary management. I'm only looking for planning strategies. I don't know how that's going to interfere with my ability to get a financial planner.

I also keep getting solicitations from Vanguard, my primary 401k holder, to go into their active management plan. Except their fees are... feey. FAR more than I think it would be worth.

I also sat down this morning and did something I've not done in a LONG time...

Put together a comprehensive spreadsheet of my liquid assets, retirement assets, and transitory and real estate debt. I don't know why I've not done that for awhile.

The numbers looked better than I was expecting.

Still can't shake the feeling that its.... NOT ENOUGH!

[zxcvbob]

Still can't shake the feeling that its.... NOT ENOUGH!

It's never enough.  The goal should be "almost enough" 🤣

[Kingcreek]

It's never enough.  The goal should be "almost enough" 🤣

Exactly!
That’s the issue between my wife and I. She said if we can just get to $xxxx we can retire.
We reached that goal and she says it’s not enough. Now we need $xxxxxx!
I don’t need the part time exec director job but I like doing it and I was able to show her that our income will go UP with me working 15 hours per week and both of us collecting SS and her totally retired from any obligations she doesn’t choose. She is a big volunteer in her church and community.
And I’m working on the sale/transfer of my business and commercial real estate. It’s not worth a lot but it has some value ($100K). I need to bundle it and defer income to next year for tax purposes. Our life will be much simpler with no insurance or corp taxes (FU Illinois!) etc.
I am still considering purchase of a small commercial warehouse. I can avoid any capital gain and have a place for my “stuff” if we sell our home or downsize.

[K Frame]

Couple of weeks ago I had a phone conversation with one of the financial advisors I'd matched with. Liked what I was hearing.

So, I forwarded a lot of information -- statements, mainly -- of my various holdings, and today at 10 a.m. we're going to have a sit down (zoom) to talk about it all.

Let's see where this goes.

[Kingcreek]

I wish things weren’t so complicated.
You’ll get different advice from different FAs with the same information.
My wife wants me to delay SS for the 8% annual increase.
I might delay it one year but not until the max benefit age 70.

[JTHunter]

Couple of weeks ago I had a phone conversation with one of the financial advisors I'd matched with. Liked what I was hearing.

So, I forwarded a lot of information -- statements, mainly -- of my various holdings, and today at 10 a.m. we're going to have a sit down (zoom) to talk about it all.

Let's see where this goes.

Good luck.

[K Frame]

Just got off the zoom call.

I'm very impressed with their approach and strategy.

They provided comprehensive answers to some burning questions I had regarding how to exit some of my very productive personal holdings in a manner that won't kill me with taxes.

I need to sit down a review the stuff we went through in the meeting, but I'm pretty sure I found the financial advisory firm I need to move forward towards retirement.

[Bogie]

Stupid question: If you're drawing SS, but it looks like you are going to be going over $22k, can you stuff cash into an IRA? Or do they only look at gross income?

[K Frame]

Stupid question: If you're drawing SS, but it looks like you are going to be going over $22k, can you stuff cash into an IRA? Or do they only look at gross income?

Not a clue.

[K Frame]

Holy hell, the Dow is down 900 points... all of the major indexes are down 2+%.

It's my fault, because I was talking to a financial advisor.

At least $3 a barrel (4%).

[MillCreek]

Over the past couple days, the Dow is down 1500, the S&P down almost 200 and the NASDAQ down 1050 to date.  And it will probably be more by the time the market closes today.

[K Frame]

OK, I've spent the last 24 hours looking at this stuff (not continually, digesting a bit here, a bit there, walking away, coming back)... it's a LOT to digest.

But, I'm liking the strategy, and I'm liking the potential numbers (yes, I know returns are not guaranteed, but this is more I'm liking the numbers geared towards asset preservation). It's a conservative strategy which lines up with my desire to ensure that I don't run out of money in retirement. And, at any time, it can be pivoted quickly if I want to go more aggressive to take advantage of prevailing market conditions or if I want to pull back.

Fees are 1% of assets under management annually, which appears to be pretty standard in the industry for someone at my level of assets. That's for active management. Fees go down as my assets go up.

Yeah, it crinkles my colon a little bit thinking about paying someone that much money to manage my assets for me when I've done a pretty good job of it myself over the years (something that they complimented me on), but if I were to make one or two mistakes in how I maneuver, it could end up costing me a lot more than that in taxes.

I do have some more questions for them, but those can very likely be answered via e-mail, so I'm going to send those off in a little bit.

One of the other things I like about this company is that the offer comprehensive services on top of financial management. They have on-staff attorneys who can advise on trusts, wills, charitable giving, etc. They have CPAs who can handle the daily grind of dealing with day to day expenses outside of retirement assets, if I want. And, they even offer tax prep services if I want. And, it sounds like (another question I have) they even have people who had help navigate questions about Medicare plans and the like. That's something that my parents (and most people, I think) struggle with mightily because it's so confusing.

I very jokingly said that one of my plans is to "have an epic retirement." I didn't have the heart to tell them just how boring my version of an epic retirement is truly going to be.

[K Frame]

Emailed the guy who will be my primary contact a question this morning. Something I thought of and figured I'd better get it sent out while it was fresh in my mind.

Less than 20 minutes later I had my answer.

Still haven't made the final decision, but I'm about 95% there.

I want to go through this stuff one more time before I drop the other 5% and agree to it.

[K Frame]

Made my decision.

Going with these people.