Early retiree: considerations for the future

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Tejfyy
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Joined: Mon Aug 26, 2019 9:18 pm

Early retiree: considerations for the future

Post by Tejfyy »

Most everything I know to date I’ve learned here, so thank you all!
I’m 62, retired for one year. I’m using the VPW (Variable Percentage Withdrawal strategy) provided by longinvest and like its simplicity and flexibility. I’ve created scenarios with it which I find useful.

The basics
Three years cash/IBonds living expenses
Debt: 0
Tax Filing Status: Single
Tax Rate: 12% Federal, 4% State
State of Residence: CA

Asset allocation target range: 50-60% stocks 50-40% bonds

Total portfolio
650K
BND index bond fund, SWTSX Schwab Total Stock Market Index Fund
Current retirement assets
Simple IRA 14% BND 19% SWTSX
Roth IRA 17% SWTSX
Taxable 6% SWTSX
I bonds 3%
403b TIAA-Cref Annuity 3% minimum fixed rate 30%
CDs/Savings 11%


Other useful information:
  • In 2021 I started moving $10k of CD funds into Ibonds. I plan to do that this year and into the future, tax implications permitting.
  • For the last 2 years I’ve done Roth conversions (within my tax-bracket), 2022 I will as well, and into the future to the extent I can considering the taxes.
  • I plan to take social security as late as possible 67-70, but would also take it at 65 if it made sense.
  • The CREF Annuity is the wild card in the game. I can take a lifetime income (which I’m leaning towards) or take it in increments over a couple of set periods.
  • I currently withdraw 30% less than my annual withdrawal rate provides for.
Question 1

I’m 85% certain taking the Annuity as lifetime income is the right way to go. It gives me piece of mind. On the other hand, when I figure it into my AA, my annual income is slightly higher. What else should I consider?

Question 2
If I take the lifetime income, when should I start? If I took it in lots over 5 or 10 years, when should I do that? In both cases, there are the taxes to consider. Is there anything else I should consider?
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FiveK
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Re: Early retiree: considerations for the future

Post by FiveK »

Tejfyy wrote: Tue Jun 28, 2022 8:40 pm I’m 85% certain taking the Annuity as lifetime income is the right way to go.
It very well may be, but how did you arrive at that conclusion? Knowing that will help provide context.
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Watty
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Re: Early retiree: considerations for the future

Post by Watty »

Tejfyy wrote: Tue Jun 28, 2022 8:40 pm The CREF Annuity is the wild card in the game. I can take a lifetime income (which I’m leaning towards) or take it in increments over a couple of set periods.
Could you give more details on that? I don't understand how that works since that is a bit different than a lump sum. Can you roll those "increments" into an IRA?
Tejfyy wrote: Tue Jun 28, 2022 8:40 pm I currently withdraw 30% less than my annual withdrawal rate provides for.
Question 1

I’m 85% certain taking the Annuity as lifetime income is the right way to go. It gives me piece of mind. On the other hand, when I figure it into my AA, my annual income is slightly higher. What else should I consider?
Here are some;

1) A big consideration is what your numbers will look like once you start Social Security and if you will need the annuity income then. You will also have interest and dividends which may also lessen the need for the annuity income when you are 70+ years old.

There is an old saying, "Buying an elephant for a dime is only a good deal if you need an elephant and have a dime." Are you sure that you will need the annuity income after you start Social Security?

If you will be taking the annuity and just investing it in a taxable account that is hard to justify.

2) Having that annuity income could also make more of your Social Security taxable an put you into a much higher than expected tax bracket. Be sure to understand how your Social Security is taxed.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

3) If you take a lump sum instead of an annuity then you can invest the money and buy a SPIA later on if you want to. You could also buy a series of annuities when you are 70, 75,80, etc to make up the purchasing power that is lost to inflation.

4) You are single now but you might get married. I have known a number of people who got married or into long term relationships after they retired.
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22twain
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Re: Early retiree: considerations for the future

Post by 22twain »

Tejfyy wrote: Tue Jun 28, 2022 8:40 pm 403b TIAA-Cref Annuity 3% minimum fixed rate 30%
  • The CREF Annuity is the wild card in the game. I can take a lifetime income (which I’m leaning towards) or take it in increments over a couple of set periods.
To clarify, and to avoid possible confusion, this is the "TIAA Traditional Annuity", correct? Not one of the CREF annuities (e.g. CREF Stock, CREF Bond Market, etc.)?

Further, it appears from your description that this might be one of the illiquid versions of TIAA Traditional, which do not allow you to make arbitrary withdrawals. My wife and I have part of our TIAA accumulations in one of those versions. However, we are/were not required to do anything until RMD age (70 for my wife, 72 for me). My wife is taking RMDs from hers, without annuitizing.

However again, the details of TIAA plans vary from one institution to another, which makes it important for you to make sure that you understand the details of your particular employer's plan.

I say this because I agree with Watty that you should carefully consider whether you really need to annuitize. My wife and I will together receive enough Social Security (starting at age 70 for both of us) to more than cover our current expenses. Therefore we've decided not to annuitize for now, and to take only RMDs from our TIAA(-CREF) accounts when the time comes. She started RMDs a couple of years ago at 70, I will start in a few years at 72. (I'm the younger one of us.)

Your situation may be different. If your SS is not enough in the end, to cover expenses, then you might well consider annuitizing enough of your TIAA accounts to cover the rest. We would have done that ourselves. However, if you just need a temporary "bridge" to SS, there are other ways to do it.

Like Watty, we don't want to annuitize a chunk of our assets, and then simply invest the payouts instead of spending them.
Meet my pet, Peeve, who loves to convert non-acronyms into acronyms: FED, ROTH, CASH, IVY, ...
heyyou
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Re: Early retiree: considerations for the future

Post by heyyou »

Having retired at 55 with a no-COLA pension, my delayed SS starting at age 70 has been welcome. Not because we needed the money, but I just like having the income with COLA.

Doing annual Roth conversions on my former 401k, now tIRA, before starting SS, has turned out well because the Roth IRA is now storage for stock index funds, while the traditional IRA has tax on all of every withdrawal, so slow-growth bond funds are stored there. The standard advice is to just top off your tax bracket in retirement, with the addition of your Roth conversions. Plan in advance to do that every year of early retirement, before you start your Social Security (SS).

I do like my "RMD portfolio spending method" because is does adjust my annual spending amount to my remaining portfolio value. To me, that is just living within my means during retirement. With low expenses (paid off residence in a low cost area) the variations in my annual income have not been noticed.

A willingness to adjust to some variable income during retirement would be important for an early retiree. If you choose to use 4% SWR and start it before age 65, it might be wise to not take all of every annual inflation boost during periods of major portfolio losses. Maybe re-retire at 65 on 4% SWR, if your portfolio has lost value since your early retirement date. No, I do not have data to support that suggestion.

Good luck to you. Early retirement was the best years of my life. My life past age 70, has not been as good.
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Tejfyy
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Re: Early retiree: considerations for the future

Post by Tejfyy »

FiveK wrote: Tue Jun 28, 2022 9:55 pm
Tejfyy wrote: Tue Jun 28, 2022 8:40 pm I’m 85% certain taking the Annuity as lifetime income is the right way to go.
It very well may be, but how did you arrive at that conclusion? Knowing that will help provide context.
Good question. The main reason which I decided a year before I stopped working was the idea of addressing longevity risk. Then there was the feeling that I might not want to be "dealing" with finances when I'm old old. I'm independent, live alone and I don't see that changing in the future. Comparatively speaking I'm in very good health and take care of myself, which I probably don't figure into this equation as much as I should. I'm not in the clouds about getting old and decrepit though. I know without a doubt that I will want and need more "comfort" than I have now in the future. For example, if I stay living here, I will probably want a vehicle in addition to the bicycles I use to get around.
Thank you!
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Tejfyy
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Re: Early retiree: considerations for the future

Post by Tejfyy »

22twain wrote: Wed Jun 29, 2022 12:04 am
Tejfyy wrote: Tue Jun 28, 2022 8:40 pm 403b TIAA-Cref Annuity 3% minimum fixed rate 30%
  • The CREF Annuity is the wild card in the game. I can take a lifetime income (which I’m leaning towards) or take it in increments over a couple of set periods.
To clarify, and to avoid possible confusion, this is the "TIAA Traditional Annuity", correct? Not one of the CREF annuities (e.g. CREF Stock, CREF Bond Market, etc.)?
Tejfyy wrote:Yes that's correct and there are two. The Group Supplemental Retirement Annuity (GSRA) is fully liquid. Then there's the Group Retirement Annuity (GRA), which there are lump payouts (interest still accrues) to liquidate it such as 5 increments 20% each over one year. 5 payments over 5 years, or 10 payments over 9 years. And my situation is like yours for both I'm not required to do anything until RMD time. My SS at 70 will cover 60-70% of my expenses, keeping in mind that SS is expected to be reduced by 25%? beginning in 2034/35. .
 

Further, it appears from your description that this might be one of the illiquid versions of TIAA Traditional, which do not allow you to make arbitrary withdrawals. My wife and I have part of our TIAA accumulations in one of those versions. However, we are/were not required to do anything until RMD age (70 for my wife, 72 for me). My wife is taking RMDs from hers, without annuitizing.

However again, the details of TIAA plans vary from one institution to another, which makes it important for you to make sure that you understand the details of your particular employer's plan.

I say this because I agree with Watty that you should carefully consider whether you really need to annuitize. My wife and I will together receive enough Social Security (starting at age 70 for both of us) to more than cover our current expenses. Therefore we've decided not to annuitize for now, and to take only RMDs from our TIAA(-CREF) accounts when the time comes. She started RMDs a couple of years ago at 70, I will start in a few years at 72. (I'm the younger one of us.)
Tejfyy wrote: This makes sense and I don't need to do anything right now. And I have 8 years before I turn 70, assuming I'll take SS at 70. What money should I be using in that timeframe? Should I be drawing down the IRA, maintaining my AA? Taking the TIAA lump sum payouts? That's what I'm wondering about.
Your situation may be different. If your SS is not enough in the end, to cover expenses, then you might well consider annuitizing enough of your TIAA accounts to cover the rest. We would have done that ourselves. However, if you just need a temporary "bridge" to SS, there are other ways to do it.

Like Watty, we don't want to annuitize a chunk of our assets, and then simply invest the payouts instead of spending them.
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Tejfyy
Posts: 224
Joined: Mon Aug 26, 2019 9:18 pm

Re: Early retiree: considerations for the future

Post by Tejfyy »

Watty wrote: Tue Jun 28, 2022 10:35 pm
Tejfyy wrote: Tue Jun 28, 2022 8:40 pm The CREF Annuity is the wild card in the game. I can take a lifetime income (which I’m leaning towards) or take it in increments over a couple of set periods.
Could you give more details on that? I don't understand how that works since that is a bit different than a lump sum. Can you roll those "increments" into an IRA?
Tejfyy wrote: Tue Jun 28, 2022 8:40 pm I currently withdraw 30% less than my annual withdrawal rate provides for.
Question 1

I’m 85% certain taking the Annuity as lifetime income is the right way to go. It gives me piece of mind. On the other hand, when I figure it into my AA, my annual income is slightly higher. What else should I consider?
Here are some;

1) A big consideration is what your numbers will look like once you start Social Security and if you will need the annuity income then. You will also have interest and dividends which may also lessen the need for the annuity income when you are 70+ years old.

There is an old saying, "Buying an elephant for a dime is only a good deal if you need an elephant and have a dime." Are you sure that you will need the annuity income after you start Social Security?

If you will be taking the annuity and just investing it in a taxable account that is hard to justify.

2) Having that annuity income could also make more of your Social Security taxable an put you into a much higher than expected tax bracket. Be sure to understand how your Social Security is taxed.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

3) If you take a lump sum instead of an annuity then you can invest the money and buy a SPIA later on if you want to. You could also buy a series of annuities when you are 70, 75,80, etc to make up the purchasing power that is lost to inflation.

4) You are single now but you might get married. I have known a number of people who got married or into long term relationships after they retired.
Tejfyy wrote: Thank you these are all good ideas. I need to review the taxation on SS again and I forgot about SPIAs. To answer your question above, the details about the Annuities are in my response to 22twain.
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Tejfyy
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Re: Early retiree: considerations for the future

Post by Tejfyy »

heyyou wrote: Wed Jun 29, 2022 12:21 am Having retired at 55 with a no-COLA pension, my delayed SS starting at age 70 has been welcome. Not because we needed the money, but I just like having the income with COLA.

Doing annual Roth conversions on my former 401k, now tIRA, before starting SS, has turned out well because the Roth IRA is now storage for stock index funds, while the traditional IRA has tax on all of every withdrawal, so slow-growth bond funds are stored there. The standard advice is to just top off your tax bracket in retirement, with the addition of your Roth conversions. Plan in advance to do that every year of early retirement, before you start your Social Security (SS).

I do like my "RMD portfolio spending method" because is does adjust my annual spending amount to my remaining portfolio value. To me, that is just living within my means during retirement. With low expenses (paid off residence in a low cost area) the variations in my annual income have not been noticed.

A willingness to adjust to some variable income during retirement would be important for an early retiree. If you choose to use 4% SWR and start it before age 65, it might be wise to not take all of every annual inflation boost during periods of major portfolio losses. Maybe re-retire at 65 on 4% SWR, if your portfolio has lost value since your early retirement date. No, I do not have data to support that suggestion.

Good luck to you. Early retirement was the best years of my life. My life past age 70, has not been as good.
Tejfyy wrote: Thank you, this is helpful. Could you describe your "RMD portfolio method"? I don't follow you about "adjusting to some variable income in early retirement". I use a variable withdrawal method already, if that's what you mean, which calculates a 50% decrease in my portfolio. I don't even withdraw that lower amount. I'm withdraw well below it. And I'm sorry to hear things have not been good past 70 for you.
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