OT: Optimal withdrawal from retirement funds

[smontanaro]

Fast closing in on retirement, so will soon begin to start withdrawing money from my various pots of money (alas, no pots of gold). I know about common recommendations like the 4% rule. I'm more interested in deciding how to allocate whatever I decide to withdraw from the various pots (traditional IRA, Roth IRA, etc). Searching for "optimal retirement distribution" yields a number of interesting links which I need to pick through.

I could have sworn I saw references to at least one app (from an Internet Unicorn as I recall), but can't find it now. I wonder if something is out there or if I just dreamt it. Now that us Boomers are retiring left and right, it would seem there's got to be someone out there trying to monetize this calculation. Bonus points if it works offline to guarantee it doesn't share any numbers with its masters.

[Ozz]

Clearly, the "bike forum" answer is: Buy a new bike

The answer is always N + 1

;)

PS - lots of smart guys here...you will get better advice than what I offered.

[kppolich]

Save the ROTH IRA for last. No RMD's for that when you eventually hit 70 1/2.

What types of retirement plans require minimum distributions?
The RMD rules apply to all employer sponsored retirement plans, including
profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.

The RMD rules also apply to Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRAs while the owner is alive.

Link:
https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions

Redemption Strategies are an area of focus for our business (software for financial advisers). It might be worth 1 sit down to just talk for an hour and learn from a pro. I wouldn't let them manage your money, but find an hourly consultant type. It will save you tax money, as focused on here:

https://www.fidelity.com/viewpoints/retirement/tax-savvy-withdrawals

[dem]

https://www.i-orp.com/ - is good for a tool.

https://www.bogleheads.org - is best to get qualified eyes on your specific circumstances

[jischr]

As mentioned above, think a about taxes. Taxes for the next couple years are as low as they will likely ever be. Consider moving as much taxed defered money to a taxed acccount without jumping from the 24% to the 32% bracket. If you have zero annual income that would be around $300K a year for a married filing jointly. Most moves are made in November when you have a good idea what your annual income for the year will be.

[teleguy57]

The financial planning world of the past couple of decades, particularly for retirement planning, looks about to be turned on its' head... and not necessarily in a good way with the likely elimination of stretch IRA provisions.

https://www.forbes.com/sites/jlange/2019/06/13/the-secure-act-is-it-good-for-you-or-bad-for-you/#391db92045f6
https://www.financialpathways.net/blog/congress-bipartisan-secure-money-grab

This is a time to work with a financial professional who is keeping on top of this stuff (surprising how many are not), who works as a true fiduciary with your best interested as a requirement (need I comment on that???) and being clear on your own goals and aspirations. Easy peasy... :eek:

[makoti]

Clearly, the "bike forum" answer is: Buy a new bike

The answer is always N + 1

;)

PS - lots of smart guys here...you will get better advice than what I offered.

I don't think so...

[smontanaro]

Thanks for all the help/suggestions/recommendations, folks. I will follow up. I must say though, dhere is something attractive about the N+1 approach. Not sure my wife would agree. ;)

[echappist]

Save the ROTH IRA for last. No RMD's for that when you eventually hit 70 1/2.

What types of retirement plans require minimum distributions?
The RMD rules apply to all employer sponsored retirement plans, including
profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.

The RMD rules also apply to Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRAs while the owner is alive.

Link:
https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions

Redemption Strategies are an area of focus for our business (software for financial advisers). It might be worth 1 sit down to just talk for an hour and learn from a pro. I wouldn't let them manage your money, but find an hourly consultant type. It will save you tax money, as focused on here:

https://www.fidelity.com/viewpoints/retirement/tax-savvy-withdrawals

good points;

to the OP, RMD are no laughing matter, especially if you have a sizeable pension. The tax-deductible retirement vehicles may be converted (all at once or portions at a time) into Roth vehicles, advantage being you can convert at a tax rate advantageous to you

bogleheads is the right place for this type of question

[rccardr]

Skip, I'm five years into successfully figuring this stuff out.
If you want to hit me up for an over-a-beer conversation at Coppi, let me know.
Doc

[rnhood]

Plan on withdrawing money so that your last check bounces. Then you planned it well.

Don't try leaving money for your kids to blow. The law will be changing, I believe, to hinder this. Its your money, so spend it.

[MikeD]

I think you should have a sizeable amount in cash or fixed income investments, enough to ride out a recession and drop in the stock market. You don't want to be selling stocks and real estate investments during a downturn.

[Bob Ross]

Whoa, in for later. Good thread

...especially that "N+1" thing.

[smontanaro]

Skip, I'm five years into successfully figuring this stuff out.
If you want to hit me up for an over-a-beer conversation at Coppi, let me know.
Doc

Doc,

Sounds like a plan. Definitely looking forward to the ride, festivities and swag. Can't hurt to have some useful conversation as well. Hope I won't be walking up too many hills.

Skip

[el cheapo]

Have to plan to live to 100 or.... die next week. Wouldn't it be great if we all came with an expiration date like on a milk carton.

[fkelly]

Good points here and I'd also recommend Bogleheads.

Annual RMD time is also a good time to review your overall asset allocation. First, your RMD will to some extent affect that. But second, we all need a reminder to periodically update that. With the market going up and up and up it's very easy to get over-weighted in stocks versus safer assets and you will eventually pay for letting that happen.

[JasonF]

Here's the generally-accepted hierarchy of income sources. How much you can take is something that is hotly debated, and something that I've spent a lot of time researching (personally and for my business). It's a source of endless fascination to me to read the research.

1) Required Minimum Distributions from tax-deferred Accounts

2) Taxable account dividends, capital gains distributions, rental income

3) Guaranteed payments (Social Security, pension, SPIA)

4) 457 money (if you have it)

5) Taxable assets with high basis

6, 7, 8) Taxable assets with low basis, additional tax-deferred withdrawals, and tax-free withdrawals (i.e., Roth)

Most folks will have to take additional IRA/401k funds over and above the RMD amount. But if you have funds not held in an IRA that you can use to pay the taxes, consider Roth conversions shortly after you're retired when income is low.

Regarding how much to take, read some of Michael Kitces' pieces on the 4% rule (where many retirees end up amassing a nest egg that's far in excess with what they started out with taking just 4%) as well as Wade Pfau's work (where the 4% rule may be too aggressive a draw).

Congrats on your retirement!

[dumbod]

As mentioned above, think a about taxes. Taxes for the next couple years are as low as they will likely ever be. Consider moving as much taxed defered money to a taxed acccount without jumping from the 24% to the 32% bracket. If you have zero annual income that would be around $300K a year for a married filing jointly. Most moves are made in November when you have a good idea what your annual income for the year will be.

Be really careful before making a decision based on the idea that tax rates will go up in the future. The general rule of thumb is to defer tax payments for as long as possible. I put together an admittedly quick-and-dirty model that suggested that future tax rates would have to go up approximately 30% before it would make sense to pay taxes now instead of 5 years from now.

I’m not saying that paying now is a bad idea but it isn’t a slam dunk either. It requires a fair amount of analysis based on your particular situation. I would certainly consult a ‘pro’ before I embarked on that strategy.