Which money should I spend first?

[Greystache]

Here is my situation. I will reach the minimum age (55) at which I can tap my pension later this year and plan to retire at that time.  The pension is worth $440K and I plan to take it in 10 equal annual installments of $44K. We are budgeting $60K per year between retirement at age 55 and age 59.5 when I can tap my retirement accounts (401K, IRAs, 403b) that are currently valued at $1.1M.  To fill the gap between the $44K pension and the $60K budget, I have $30K in CDs, $30K in US Savings Bonds (yes savings bonds) $52K in Franklin Templeton California Bond fund. Also about $20K in cash.  Which money should I use first? Is it as simple as using the lowest yielding money first?  That would be the CDs and cash.  Some of those old savings bonds are earning over 4%.  The Franklin Templeton CA bond fund is yielding a little more than that.  What about taxes? Should that influence my decision? 

[nereo]

Hi Greystache,

I would advise you make your decisions based on two factors: 1) whatever your AA is - if you are too heavy in one class of investments (e.g. "cash") then use that, and 2) whatever allows you to minimize your tax burden.

Also, you suggested not being able to tap into your retirement accounts until you are 59.5 - I hope you realize that there are several ways of accessing those funds penalty free before then.  Two common ways are using a ROTH-ladder and/or SEPP payments
check out:
http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/]http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/
[url]http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments[/url]

Since you are only talking aobut needing to make up a gap of ~$16k/year you might be able to get all of that from SEPPs directly from your 401(k).

Congratulations on reaching ER about a decade before most people do, and in substantially better shape ($1,5M+ in investments).

[milesdividendmd]

I think tapping the lowest yielding cash first is a no brainer.

If you sell your bonds, you will get more than face value because of the generous coupon, but you will be taxed on the appreciation as capital gains. Better to keep on pocketing the 4% and to tap the cash.