Author Topic: Opinions on my retirement income plan  (Read 741 times)

MoMan

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Opinions on my retirement income plan
« on: March 28, 2019, 08:08:06 AM »
My plan:

I intend to turn in my notice on my 55th b-day later this year. I feel pretty good about my financial situation. I currently have about 16X my gross annual salary (which represents about 38X what I currently spend) set aside in various accounts (401k, a Roth, a couple of rollover IRAs, a taxable account and the lump sum value of my tiny corporate pension). The 401k represents about 25% of my total portfolio.

My plan is to convert my entire 401k into a 10-year income annuity, which will provide me with a little more than what I currently spend, and let everything else ride the market. (if you quit your job at age 55+ you wonít pay the 10% early withdrawal tax penalty). That gets me to age 65 when I start drawing from the taxable account. Claim SS at 70 and supplement that with $ from the IRAs, etc.

As for the pension, I could withdraw the lump sum value ($31k) after age 55, start payments at age 55, delay payments until age 65, etc. Max monthly benefit would be $353 (or grow to $56k lump sum) at 65. The company froze it a few years ago, so now they only make monthly interest accruals, and no COLA provisions. I plan to leave it alone for now and view it as a reserve source of funds/income.

Other factors: I have $0 debt. Paid the mortgage off last year. Married, no kids. My wife is a CPA who makes significantly more than me, loves her job and isnít interested in RE but is relatively frugal. Beyond groceries, utilities, home improvement/maintenance, we donít generally share our money.

Healthcare: My company offers lifetime retiree medical insurance (I still have to pay the premiums) as early as age 55, which is why Iím gutting it out for a few more months. Plus, I can add my wife later. At age 65, MegaCorp insurance becomes secondary to Medicare. (or is it Medicaid?? I will never keep the two straight in my brain!). In a few weeks I will be eligible to request an estimate of the monthly premiums, but Iím confident it will be cheaper than Obamacare or joining wifeís company plan.

If I really needed (but I donít expect to), I could freelance, turn my hobby into some minor income or do contract work in my field.

So does anyone see any glaring mistakes or omissions in my plan? Would you change what I have laid out (e.g. the order in which I plan to access the various accounts)?

About the income annuity plan: Would I be better off tax-wise waiting until the first of the year when I wonít have a corp. salary? Is there a better way to generate a reliable income stream?

Thanks all for reviewing!

DadJokes

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Re: Opinions on my retirement income plan
« Reply #1 on: March 28, 2019, 08:23:56 AM »
The fees associated with annuities would make me want to find an alternative method to bridge that gap between your retirement and the time you can withdraw money penalty-free. Have you compared the annuity method to the payouts you would get if you did a 72t withdrawal over that same 10 year period (or a shorter 5 year period)? You could also withdraw from the taxable account first and from the 401k & IRAs later.

MDM

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Re: Opinions on my retirement income plan
« Reply #2 on: March 30, 2019, 07:08:42 PM »
Annuitizing is somewhat a matter of taste in the best case.  As DadJokes noted, there can be significant costs.  Even with a "good" Single Premium Immediate Annuity, the loss of flexibility (e.g., to deal with an unforeseen large expense) would keep me away from annuitizing.

Hellohi

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Re: Opinions on my retirement income plan
« Reply #3 on: March 31, 2019, 10:36:05 AM »
Whatís the benifit of the annuity over rolling the iraís into the 401k and making withdraws there, penelity free because you are soon to be 55? 

MoMan

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Re: Opinions on my retirement income plan
« Reply #4 on: March 31, 2019, 11:05:35 AM »
Whatís the benifit of the annuity over rolling the iraís into the 401k and making withdraws there, penelity free because you are soon to be 55?

Withdrawing from my company's 401k is an all-or-nothing prospect: You can't take it out piecemeal. So my dilemma is, deciding the most attractive method for turning that lump sum into a steady income. (I could also opt to leave it in the plan indefinitely, but that doesn't appeal to me). I'm considering dropping it all into the Vanguard LifeStrategy income fund. Fairly conservative, low cost, tiny potential for growth. I should have more than enough to fund my next decade assuming my spending doesn't change dramatically. The appeal of the annuity is the guarantee, which comes at a price. Irrational but that's me being overly conservative.

lhamo

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Re: Opinions on my retirement income plan
« Reply #5 on: March 31, 2019, 11:24:53 AM »
The fees on an annuity are usually very high.  Why not just do a direct rollover of the 401k to an IRA and then see how far you get with spending down the taxable accounts, taking a supplemental withdrawal from the rolled over IRA funds as needed before 59.5?  The 10% extra penalty on that amount is most likely going to be less than you would pay for the annuity.

Alternatively, if they let you take some of the 401k money out at the same time you are doing the rollover, you could set up a cash bucket of 2-3 years anticipated expenses with that money now and avoid the penalty entirely -- though you might pay a significant tax penalty just due to being bumped into a higher bracket.