Mechanics of the RE Phase

[Gumption]

As I get closer to the RE Phase I am wondering what options are out there as far as withdrawing cash for yearly expenses.

I have read about the Roth ladder --  I can't really see myself doing that, but perhaps I need to warm up to that idea as one needs to start that process 5 years out I believe. I might work here or there during RE though, and I don't necessarily want to lock myself into this ladder as working/additional income would only complicate the matter.

I plan on keeping an 80/20 mix, with the 20% portion in a brokerage account (vanguard total bond fund.) I can draw down from this and rebalance yearly as necessary.

Any experience or advice with pre-planning for the early RE Phase out there?

[fattest_foot]

It definitely takes some forethought.

My plan is that we can withdraw the principal from our Roth accounts.
We've also started up a taxable account finally.
In the last year of work, maybe 18 months, we can stockpile a year or so of cash instead of investing it (likely whatever the difference between our available Roth/taxable accounts and our 5 year projected expenses would be). This would be the "immediate" money needs.

At that point, any spare tax space cap we have (difference between our actual income and paying more than 0% taxes) would be Roth conversions, a la Go Curry Cracker's method.

Worst case scenario is we have to withdraw some tax deferred accounts and pay a 10% penalty. 10% is still a lot better than paying 15-25% taxes though.

As far as working part time during ER, I wouldn't let that dissuade you from using the ladder. More than likely your income now dwarfs whatever you'd have in retirement, so it'd still be worthwhile to take advantage of it.

[anotherAlias]

I'm still 4-5yrs out from RE but by the time I'm ready to start withdrawals, my 401k/rollover IRAs should be about 50% of my savings, another 33% would be in my after tax brokerage account and the remainder will be in Roth vehicles.  My current thought is to take half of my needed expenses from my tax advantaged accounts via 72(t).  This amounts to my bare bone budget amount.  My more discretionary spending will come from my brokerage account so I can ramp up or down as needed without penalties.  This also helps me to minimize my federal taxes by quite a bit.  This strategy should get me to 59 1/2 with plenty of room to spare.

[Gimesalot]

We have a mix of accounts to allow us to withdraw from different sources.  Our breakdown is as follows:

3% CDs (added to our expected rental income, this will provide two years of spending)
33% Taxable trading account
39% 401k
5% HSA
4% Traditional IRA
16% Roth IRA

Our taxable account is expected to last us between 10 to 15 years, at which time, we will be rolling money over from the 401k to the Roth IRA.  Since the Roth IRA is almost 10 years old already, by the time I need to draw on it, it will be over 25 years old and contributions will be enough to support our withdraws without penalty or tax. We prefer the Roth ladder to 72t withdrawals due to the increased flexibility.

We plan on earning money with some small part-time work, and I don't really understand what you mean by causing "complications".  It's just one additional line on your tax return, and one more number to subtract when calculating your tax bracket.

[Eric]

I have read about the Roth ladder --  I can't really see myself doing that, but perhaps I need to warm up to that idea as one needs to start that process 5 years out I believe.

Why can't you see yourself doing that?  It's relatively simple.  Transfer some money from your tIRA to your Roth IRA, wait 5 years, and withdrawal.  But you wouldn't start 5 years ahead of time.  The time to start is after you retire when your income is low/none, since the conversion is a taxable event (taxed as regular income).  Use your taxable account, cash savings, and Roth contributions as needed to bridge those first 5 years.

I might work here or there during RE though, and I don't necessarily want to lock myself into this ladder as working/additional income would only complicate the matter.

That's actually the beauty of the Roth conversion ladder.  You're not locked into anything.  You can stop at anytime, change the amounts at anytime, and generally customize it to your liking.  If you happen to earn a bunch of money one year, simply forgo the conversion that year.  Your other penalty free option to access pre-tax money is to use SEPP 72(t) withdrawals.  But those actually lock you in, as once you start them, they have to continue until you're age 59.5 (or minimum of 5 years).