Author Topic: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?  (Read 1297 times)

quelinda

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I realize that this is an early retirement forum, but that ship has sailed, and my DH will be retiring at age 60 or older. (Iím a SAHM.) All our investments are in a 401K, an HSA, Roth IRAs, and an inheritance IRA.

The simplicity and commonsense approach of the FIRE community really resonates with me, but most of the advice applies to younger people with taxable investment accounts. Is there a resource out there that discusses retirement for people in our situation, but with the flavor of the FIRE movement?

terran

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #1 on: October 29, 2019, 02:47:50 PM »
What is it that you you're concerned about? You have easy and immediate access to your retirement accounts so you don't need to worry about that like an early retiree, you have a better idea of what you'll get from social security and you don't need to fully support yourself without it for as long, you have a shorter time before medicare starts, and your portfolio doesn't have to last as long, but all the same basic principles apply.

My wife and I have access to a ridiculous amount of tax advantaged space, so while we will be retiring early we're likely to have little if anything outside retirement accounts either. We'll need to make sure we have 5 years of spending in Roth contributions or my wife's 457(b) (no penalty for early withdrawal) so we can get a Roth conversion ladder started, but you don't need to worry about that since you'll be over 59.5 .

quelinda

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #2 on: October 29, 2019, 03:55:43 PM »
What is it that you you're concerned about? You have easy and immediate access to your retirement accounts so you don't need to worry about that like an early retiree, you have a better idea of what you'll get from social security and you don't need to fully support yourself without it for as long, you have a shorter time before medicare starts, and your portfolio doesn't have to last as long, but all the same basic principles apply.

My wife and I have access to a ridiculous amount of tax advantaged space, so while we will be retiring early we're likely to have little if anything outside retirement accounts either. We'll need to make sure we have 5 years of spending in Roth contributions or my wife's 457(b) (no penalty for early withdrawal) so we can get a Roth conversion ladder started, but you don't need to worry about that since you'll be over 59.5 .

Just the most basic things, like which accounts to tap first and what to have them invested in, what to do if the market is down or up, when to take Social Security, etc. I guess I want it laid out simply without having to wade through the things that only really apply to people who are retiring super early.

terran

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #3 on: October 29, 2019, 04:10:46 PM »
Hmmm... Yeah, most of that is pretty similar. You could try https://www.bogleheads.org. They're a little less pro FIRE (more cautious), they follow basically all the same principles, but there are more older members, so they might offer more complete advice on things that only apply for more traditional age retirees.

I guess it's actually a little more complicated for you in some ways because an early retiree can arguably just ignore social security since the amount they need to save to get to that point isn't that different than the amount they would need to save if social security wasn't a thing. In your case it could change the amount you need to save quite a bit, so it would be silly to ignore it. https://opensocialsecurity.com/ is a good resource for figuring out when you should claim. If you'll retire before your full retirement age (probably 67) remember to get a good estimate of your benefit as the one on your social security statement assumes you continue to work until FRA.

Which accounts to tap are the same for you as an early retiree if you claim before medicare. It all comes down to tax brackets and ACA subsidies. After medicare you don't have to worry about subsidies, just tax brackets, and maybe IRMAA (which increases medicare premiums if you income over $170k). You might consider posting a case study here (in the case study section) or on Bogleheads.

quelinda

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #4 on: October 29, 2019, 04:24:32 PM »
Thank you, I appreciate the advice!

BicycleB

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #5 on: October 29, 2019, 04:37:21 PM »
The ideas so far are good ones! By the way, I am older myself (50something) and routinely map out year by year withdrawal plans, or at least contingencies, from now until Social Security eligibility and beyond. The case study idea is important, because exact decisions can depend on specific factors in your case, so there's not a single simple checklist that automatically produces the best decision. Posting a case study wall carry you through the exact details to decide wisely, or at least get you much closer.

Generalizing, there is a period after retirement and before age 70 where you have decisions to make about which accounts to withdraw from. After 59 1/2, you can withdraw without penalty from all of the accounts instead of just the Roth, so you will have lots of flexibility. But as Terran alluded to, the tax and income effects of drawing from different accounts will affect your tax rates and any ACA health care that you buy, which you may find important until you're both on Medicare.

To do a good case study, track your spending as well as be able to quantify your investment accounts. Also download your spouse's Social Security record and projections from the Social Security website, because SS is a key piece too. Be ready as well to think about / discuss whether you expect to do any significant changes in lifestyle, such as moving to a different state.

quelinda

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #6 on: October 29, 2019, 05:02:58 PM »
The ideas so far are good ones! By the way, I am older myself (50something) and routinely map out year by year withdrawal plans, or at least contingencies, from now until Social Security eligibility and beyond. The case study idea is important, because exact decisions can depend on specific factors in your case, so there's not a single simple checklist that automatically produces the best decision. Posting a case study wall carry you through the exact details to decide wisely, or at least get you much closer.

Generalizing, there is a period after retirement and before age 70 where you have decisions to make about which accounts to withdraw from. After 59 1/2, you can withdraw without penalty from all of the accounts instead of just the Roth, so you will have lots of flexibility. But as Terran alluded to, the tax and income effects of drawing from different accounts will affect your tax rates and any ACA health care that you buy, which you may find important until you're both on Medicare.

To do a good case study, track your spending as well as be able to quantify your investment accounts. Also download your spouse's Social Security record and projections from the Social Security website, because SS is a key piece too. Be ready as well to think about / discuss whether you expect to do any significant changes in lifestyle, such as moving to a different state.

Thank you! I will think about posting a case study. We still have kids at home, so health insurance for them as well as us will be a consideration. We'd also like to help the kids with college if we can. I'm honestly not sure if my DH retiring at 60 is doable, but I'm aiming for that with the caveat that it might be longer, depending on how things play out.

MDM

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #7 on: October 29, 2019, 05:52:12 PM »
Just the most basic things, like which accounts to tap first
https://www.i-orp.com/Spend/extended.html may give you some ideas.

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and what to have them invested in,
terran's Bogleheads suggestion is good. You won't go far wrong with some version of a Three-fund portfolio that matches your desired Asset allocation.

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what to do if the market is down or up,
In short, nothing different.

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when to take Social Security, etc.
A guess often good:  the lower earner at Full Retirement Age and the higher earner at age 70.  But the openSS calculator will probably have the best guess.  Even that will still be a guess because it doesn't consider things such as taxation of traditional->Roth conversions you might want to do.

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I guess I want it laid out simply without having to wade through the things that only really apply to people who are retiring super early.
Actually, most of the standard advice (e.g., the "4% rule") does apply to you.  The super early retirees have to take more care about exceptions to the "rules."

Exflyboy

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #8 on: October 30, 2019, 11:35:25 PM »
I am 58 and DW is 54.

We buy a bronze plan with a high deductible and contribute the max to an HSA.

I sell after tax investments from our brokerage account so that our MAGI consists of capital gains plus qualified dividends plus rent (which is our only "real" income).

The net result of this is our MAGI runs at about $32k but the money we have to spend is just over $50k.

This maximises our ACA subsidy, sets our Federal income tax at zero%. We still end up paying about 5% in State income tax (Oregon).

You might be able to do something similar using your Roth IRA as that is tax free, combine with tax advantaged money to set your MAGI where you want it to be.

Car Jack

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #9 on: October 31, 2019, 09:04:51 AM »
Hi quelinda,

I'm in the same boat, but have been on both Bogleheads and MMM for a while.  While there's lots of "FIRE" talk and points of view from very young people here, you can ignore the trendy words (side hussle = part time job, gig = lower than minimum wage job) and still focus on the basics.  I'd also point you to Bogleheads.org and look for the wiki and the section on withdrawal strategies.

There are some fairly easy basics that you can start with.  You'll need to know what you spend each year.  With kids still at home (me too) but being near social security age (I'm 62, so right there with ya), I find it helpful to use excel and plot out a year by year chart.  That way, entering all the normal investments with assumed % gain each year along with expected spending can have the short term costs like college or buying a car or putting a new roof on (all of those are going on for me right now) can easily be added in the expected years.  I've got social security payments for both my wife and me in the years they'll start (70 for us) and in my case, I have a small pension which I'll take as a lump sum at 65.  Oh, and in your spread sheet, assume a reduced social security payment when the trust fund goes to zero...around 2034 to something like 80% of full payments.

I originally built my spread sheet to see where my wife would be when I die (yes, I've chosen when I'm going to die and put it on the spread sheet).  Seeing that big number helps me know where she'll be.  In my case, I've got a ton of US Savings bonds, so the spread sheet also shows me when I should start to use those up.  You can also include RMDs which have to be separate for some accounts, so read up on that.  You don't have to have taxable accounts to stop working, but it's very much advisable to know what you'll need and if you've got enough to cover it.  If you don't, keep working.

Lastly, you CAN be financially independent and still work.  I am.

freya

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #10 on: October 31, 2019, 09:34:58 AM »
I'm also going to be FIRING at around that age - it still counts!

With a lot of tax-deferred assets, careful management of those accounts is going to be key.   iORP is a godsend for this.  If you spend just a few minutes with it (use the detailed version), you'll immediately see that the calculator pushes you to delay taking Social Security as long as possible while you furiously Roth-convert as much of your tax-deferred assets as you can in the limited time you have.   It might be a good idea to run the plan you come up with using the tool past an accountant or financial advisor, if you're not so confident about all the novel financial moves you'll be needing to make.

If you go the Obamacare route, you'll have a relatively low ceiling for your annual Roth conversion, so be careful that you're not going to end up paying more future taxes than you're saving with the Obamacare subsidy.  The ideal is to protect enough of your assets in a Roth that you will avoid taxes on Social Security income, and pay as little as possible on the RMDs.  You may want to start out with a full calendar year on COBRA for this reason, or simply forgo the Obamacare subsidy in some years (or maybe all of them).

The idea is to do this while spending down your taxable assets to zero, so you don't waste tax space on interest, dividends, and capital gains.

blue_green_sparks

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Re: Retiring over age 60 with only tax-advantaged/tax-deferred accounts?
« Reply #11 on: November 05, 2019, 04:31:35 PM »
I'm also going to be FIRING at around that age - it still counts!

With a lot of tax-deferred assets, careful management of those accounts is going to be key.   iORP is a godsend for this.  If you spend just a few minutes with it (use the detailed version), you'll immediately see that the calculator pushes you to delay taking Social Security as long as possible while you furiously Roth-convert as much of your tax-deferred assets as you can in the limited time you have.   It might be a good idea to run the plan you come up with using the tool past an accountant or financial advisor, if you're not so confident about all the novel financial moves you'll be needing to make.

If you go the Obamacare route, you'll have a relatively low ceiling for your annual Roth conversion, so be careful that you're not going to end up paying more future taxes than you're saving with the Obamacare subsidy.  The ideal is to protect enough of your assets in a Roth that you will avoid taxes on Social Security income, and pay as little as possible on the RMDs.  You may want to start out with a full calendar year on COBRA for this reason, or simply forgo the Obamacare subsidy in some years (or maybe all of them).

The idea is to do this while spending down your taxable assets to zero, so you don't waste tax space on interest, dividends, and capital gains.

Thanks for posting this freya. I just opened up a Roth IRA to take advantage of the tax free earnings.  Spending down my tax deferred nest egg while delaying SS income seemed counter intuitive until I churned some numbers.

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