2021 (& Beyond) Retirement Income Plan - Please Advise

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Topic Author
bkweathe
Posts: 232
Joined: Fri Feb 06, 2015 4:02 pm

2021 (& Beyond) Retirement Income Plan - Please Advise

Post by bkweathe »

Emergency funds: We've already used it, but we have some cash in our retirement assets.  We should probably re-establish a separate emergency fund.

Debt: Mortgage ($98K @ 3.875%, ~21 years to go)

Tax Filing Status: Married Filing Jointly

Tax Rate: 2019:  10% Federal, 6% State
            2020:  10-12% Federal, 6% State

State of Residence:  Missouri

Age:  58 (wife is 62)

Desired Asset allocation: Currently 70% stocks / 30% bonds but probably should shift to 60/40 or even lower
Desired International allocation: 30% of stocks; 20% of bonds

Retirement Portfolio as of 3/15/20  ~$604K (Including mine & wife's)
Traditional IRA & 401Ks (all in my name)
Vanguard Total Bond                            25.7%  (part in a fund that is extremely similar to Vanguard Total Bond; even the ER is the same)
Vanguard Total International Bond        6.3%
Vanguard Total Stock                            45.8%
Vanguard Total International Stock       19.2%
Vanguard Prime Money Market             1.6%

Roth IRA (all in wife's name) (we meet all the requirements to take out all of it)
Vanguard Prime Money Market            1.6%

Pension
I'll get about $3K/year starting about 2024.  No COLA adjustments.  We haven't factored it into the following plan, so it provides a little cushion.

Other Assets (not included above)
Whole Life Insurance Policy
Face value $25K+
Cash value about $14,500
My parents bought this when I was very young.  I have an inexpensive level-premium term policy that I can keep for about another 10 years, so I don't think I really need this for insurance.

Health Savings Account
$13K in some kind of money market-like account (we have about $2K in medical expenses that we haven't gotten reimbursed yet)

Notes:
1. I'm retired.  We hadn't planned for me to retire quite so early, so we don't have everything lined up as we'd like them to be.  We'd appreciate suggestions about how we can get where we should be.
2. Our 401Ks are not eligible for a Rule of 55 distribution.
3. We're not eligible to take a corona virus-related early distribution from our traditional retirement assets.
4. We live in a low cost of living area.  We expect to need about $50K/year. 
5. 2020 & early 2021:
  • 1. We need about $53K to live on from now until May 2021, when I'll turn 59.5.
  • 2. We would especially appreciate advice about what we should do during this time period.
  • 3. We could take two distributions (for 2020 & 2021) of a series of substantially equal periodic payments (SEPP) from our traditional retirement assets and avoid the usual 10% penalty on early distributions.  IRS dictates we would have to segregate part of these assets & use that part only for SEPP for five years.  Of the amount that we segregate, IRS would let us take about 5% annually.  So, segregating about $300K would provide $30K ($15K each year) before May 2021.
6. Late 2021 - 2023:
  • 1. We'll need about $135K to live on for this time period.
  • 2. We plan to start taking penalty-free distributions from our traditional retirement assets in May 2021 to provide for our needs.
7. 2024 & beyond:
  • 1. Social Security says we should get at least $37K/year starting in 2024.
  • 2. $350K in our traditional retirement assets at the beginning of 2024 will provide the remaining $13K/year (3.7% distribution rate).
Questions:
1. We need about $53K between now and May 2021. What should we do?  Which of these options provide tax breaks, etc. that we should try to save for later?
  • 1. Distribution from our HSA (up to $2K)
  • 2. Distribution from our Roth IRA (up to $9K)
  • 3. Cash out my whole life insurance policy (up to $14K)
  • 4. SEPP distributions from our traditional retirement assets (probably up to $30K; please see note 5.3 above)
  • 5. Early distribution(s) from our traditional retirement assets (10% penalty) (up to $53K)
  • 6. Loan from HELOC to be repaid in May 2021 (up to $40K)
  • 7. Use a credit card w/ 0% introductory APR & pay it off in May 2021 (up to $20K, if we could get that credit line; that's about what we normally spend w/ credit cards, and pay off monthly, in a year)
  • 8. Work
  • 9. Other suggestions?
2. What asset allocations should we use for our retirement assets?  Should we make our whole portfolio more conservative than we normally would (because of the large amount needed in the next few years)?  Separate out a big chunk of what we need for the next few years & go more conservative with that part?
3. How should we get to that/those AA(s)?  Switch some amount each month until we get to our goal percentage(s)? Go all at once right away?

We will appreciate whatever help you can give us!

Brad
btenny
Posts: 5702
Joined: Sun Oct 07, 2007 6:47 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by btenny »

Did you just get layed off? Is this why you are now retiring? If so you should go apply for Unemployment Insurance right away. It will help a lot for this year.

The best way to cover your bills for the next few years is to try to go back to work. Are you sorta healthy or do you have medical issues that preclude working any longer? Look around. In my area there are lots of new jobs at grocery stores for stocking clerks and delivery drivers. Amazon, Whole Foods, etc. are hiring for sure. Plus in my area the construction companies are still working full bore. So lots of jobs in that sector. I know these jobs do not pay much but some $$ is better than zero and it will keep you busy (and you may get health insurance) so you are not spending $$ for fun activities.

As a FYI I taught skiing after I retired for 5 years for very low wages. It kept me busy and it paid my food and gas and play budget. So it worked for me.

Is your wife working or is she also retired? Can she go to work?

You mention taking Social security in 2024. Is your wife eligible for SS on her own account? Or does she have to use your account? What is her projected SS if she takes it early at 62?

Things will get better. Good Luck.
Topic Author
bkweathe
Posts: 232
Joined: Fri Feb 06, 2015 4:02 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by bkweathe »

btenny wrote: Wed Apr 08, 2020 12:44 pm Did you just get layed off? Is this why you are now retiring? If so you should go apply for Unemployment Insurance right away. It will help a lot for this year.

The best way to cover your bills for the next few years is to try to go back to work. Are you sorta healthy or do you have medical issues that preclude working any longer? Look around. In my area there are lots of new jobs at grocery stores for stocking clerks and delivery drivers. Amazon, Whole Foods, etc. are hiring for sure. Plus in my area the construction companies are still working full bore. So lots of jobs in that sector. I know these jobs do not pay much but some $$ is better than zero and it will keep you busy (and you may get health insurance) so you are not spending $$ for fun activities.

As a FYI I taught skiing after I retired for 5 years for very low wages. It kept me busy and it paid my food and gas and play budget. So it worked for me.

Is your wife working or is she also retired? Can she go to work?

You mention taking Social security in 2024. Is your wife eligible for SS on her own account? Or does she have to use your account? What is her projected SS if she takes it early at 62?

Things will get better. Good Luck.
btenny,

Thanks for your note!

I don't qualify for unemployment benefits, but I'm glad you mentioned that.

I don't want to go back to work if I don't have to. I think I have enough resources; I just want to use them efficiently.

I have health issues that would make it unwise for me to work in a job that would expose me to COVID-19, especially since that would also expose family members who are even more at-risk. Otherwise, I could work; I might eventually work for low pay or as a volunteer for a charity.

My wife doesn't have enough SS credits to get a benefit of her own except for her spousal benefit.

Thanks again!

Brad
trueblueky
Posts: 2365
Joined: Tue May 27, 2014 3:50 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by trueblueky »

Some say, if you are retired, it's all an emergency fund.

I think low-hanging fruit is the HSA reimbursements $2,000 not taxable; cash out whole life $14,500 not taxable (I would do this regardless after double-checking current values).

Maybe see if you can lower the interest rate on the mortgage.

If your AA is 70/30 now, what was it before the market tanked?
User avatar
Duckie
Posts: 9777
Joined: Thu Mar 08, 2007 1:55 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by Duckie »

bkweathe wrote:We need about $53K between now and May 2021. What should we do?
I would cash out the whole life insurance policy ($14K) and try to get a job. If you can't get work then get the HELOC ($40K) and try for the 0% credit card ($20K).
Which of these options provide tax breaks, etc. that we should try to save for later?
Save the HSA, Roth IRA, and TIRA assets at least until age 59.5, longer if possible.
What asset allocations should we use for our retirement assets?
At your ages I'd be at least 60/40 and probably 50/50.
Should we make our whole portfolio more conservative than we normally would (because of the large amount needed in the next few years)? Separate out a big chunk of what we need for the next few years & go more conservative with that part?
I'd go more conservative for the entire portfolio.
How should we get to that/those AA(s)? Switch some amount each month until we get to our goal percentage(s)? Go all at once right away?
Since you will be going more conservative and all your accounts are tax-sheltered I would go all at once as soon as you have decided on your AA and fund choices.
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WoodSpinner
Posts: 3504
Joined: Mon Feb 27, 2017 12:15 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by WoodSpinner »

OP,

There are provisions in the Care act that allow You to tap up to $100,000 of your 401k without a 10% penalty—but you will pay income tax if not repaid in 3 years. This might help provide some bridge money....

You should be able to pay the taxes if you don’t repay over 3 years.

See https://www.kitces.com/blog/analyzing-t ... -pandemic/

WoodSpinner
WoodSpinner
Topic Author
bkweathe
Posts: 232
Joined: Fri Feb 06, 2015 4:02 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by bkweathe »

trueblueky wrote: Wed Apr 08, 2020 5:48 pm Some say, if you are retired, it's all an emergency fund.

I think low-hanging fruit is the HSA reimbursements $2,000 not taxable; cash out whole life $14,500 not taxable (I would do this regardless after double-checking current values).

Maybe see if you can lower the interest rate on the mortgage.

If your AA is 70/30 now, what was it before the market tanked?
Thanks for your note!

1. Well, at least I can't lose my job! However, other emergencies can come up.

2. With the whole life insurance policy, what should I be looking at w/ current value?

3. Thanks for the reminder about the mortgage rate. I'll do some checking. I'm afraid there will be out of pocket costs. Current mortgage payments are just under $1K/month including insurance & taxes, so a reduction won't help much in the short-term, but could be big longer-term.

4. My AA plan is 70/30, but it should probably be more conservative. I rebalanced 2/16 because I was stock heavy. My actual AA is about 65/32/3, as detailed in the Retirement Portfolio portion of my post; I haven't recalculated it since 3/15.

Thanks again!
Brad
Topic Author
bkweathe
Posts: 232
Joined: Fri Feb 06, 2015 4:02 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by bkweathe »

Thanks for your note Duckie!
Duckie wrote: Wed Apr 08, 2020 6:10 pm
bkweathe wrote:We need about $53K between now and May 2021. What should we do?
I would cash out the whole life insurance policy ($14K) and try to get a job. If you can't get work then get the HELOC ($40K) and try for the 0% credit card ($20K).
Thanks!
Which of these options provide tax breaks, etc. that we should try to save for later?
Save the HSA, Roth IRA, and TIRA assets at least until age 59.5, longer if possible.
Thanks! Why is it important to save these at least until 59.5?
What asset allocations should we use for our retirement assets?
At your ages I'd be at least 60/40 and probably 50/50.
Should we make our whole portfolio more conservative than we normally would (because of the large amount needed in the next few years)? Separate out a big chunk of what we need for the next few years & go more conservative with that part?
I'd go more conservative for the entire portfolio.
How should we get to that/those AA(s)? Switch some amount each month until we get to our goal percentage(s)? Go all at once right away?
Since you will be going more conservative and all your accounts are tax-sheltered I would go all at once as soon as you have decided on your AA and fund choices.
I appreciate your input!

Brad
Topic Author
bkweathe
Posts: 232
Joined: Fri Feb 06, 2015 4:02 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by bkweathe »

WoodSpinner wrote: Wed Apr 08, 2020 8:30 pm OP,

There are provisions in the Care act that allow You to tap up to $100,000 of your 401k without a 10% penalty—but you will pay income tax if not repaid in 3 years. This might help provide some bridge money....

You should be able to pay the taxes if you don’t repay over 3 years.

See https://www.kitces.com/blog/analyzing-t ... -pandemic/

WoodSpinner
Thanks, WoodSpinner, for your note!

As I said in my OP, we're not eligible to take a corona virus-related early distribution from our traditional retirement assets. Of course, that could change, either because our status regarding the current provisions changes (e.g. one of us gets COVID-19) or because we "Meet some other reason that the IRS decides to say is OK." (as your article put it). So, we'll be watching for the detailed rules.

Thanks again,
Brad
User avatar
Duckie
Posts: 9777
Joined: Thu Mar 08, 2007 1:55 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by Duckie »

bkweathe wrote:
Duckie wrote:Save the HSA, Roth IRA, and TIRA assets at least until age 59.5, longer if possible.
Thanks! Why is it important to save these at least until 59.5?
Withdrawing before age 59.5 triggers the 10% penalty. Waiting avoids that.
Topic Author
bkweathe
Posts: 232
Joined: Fri Feb 06, 2015 4:02 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by bkweathe »

Duckie wrote: Thu Apr 09, 2020 6:06 pm
bkweathe wrote:
Duckie wrote:Save the HSA, Roth IRA, and TIRA assets at least until age 59.5, longer if possible.
Thanks! Why is it important to save these at least until 59.5?
Withdrawing before age 59.5 triggers the 10% penalty. Waiting avoids that.
Thanks for the explanation, Duckie!

I think we're OK, though.
  • HSA - only plan to reimburse ourselves for medical expenses - no taxes
  • Roth IRA - owner (wife) is 62
  • TIRA - using a SEPP would avoid the penalty, but make life more complicated. I would have to have 2 IRAs (which I can do @ Vanguard), 1 that I take SEPP from for 5 years & 1 that I take regular distributions from starting after I turn 59.5. The rules are tricky, but I think I have a good handle on them.
Brad
Topic Author
bkweathe
Posts: 232
Joined: Fri Feb 06, 2015 4:02 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by bkweathe »

Any other feedback would be appreciated! We need to start implementing our plan, whatever it ends up being.

We're leaning towards using the HSA (1.1 above), Roth IRA (1.2), whole life policy (1.3), & credit card (1.7). That leaves us about $8K short, so maybe we'll dip into the HELOC (1.6) around 2/21 to cover that gap. Maybe we'll use the SEPP (1.4) only in the case of an emergency.

Suggestions?

Happy Easter!
Brad
Topic Author
bkweathe
Posts: 232
Joined: Fri Feb 06, 2015 4:02 pm

Re: 2021 (& Beyond) Retirement Income Plan - Please Advise

Post by bkweathe »

Any additional feedback or suggestions would be appreciated!

We're working on implementing the plan, but it's not too late to make changes.

We have the 0% credit card. The credit limit is lower than I'd hoped, but I'll ask for an increase. When's the best time to do that? After we've had it for awhile? Right away?

We plan to cash in the whole life insurance policy very soon. Is there anything we should to know about that? The policy is w/ MassMutual. It was issued in 1964, when I was 2. The basic policy is for $10K. It has $12,445 of fully paid additional insurance & a $350 settlement dividend (whatever that is!) for a total of $22,795. The cash values are $5,721 (basic), $8,280 (additional), & $350 (settlement div.) for a total of $14,351. Premiums are $110/yr, but the 2019 dividend was $485, so the $375 extra bought $564 paid-up additional insurance. Is there any reason not to cash this in? Any other options I should consider? Any articles, etc. I should read?

Brad
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