Shortcut Navigation:

Question for the Money Doctors

Question submitted on Sep 4, 2022.

Question

I am 60. My wife is 63. She currently is. Collecting social security of 751 per month. I am planning to begin collecting at 65 1/2. Using the SS calculator it will be about 2750 per month. We have 1,250,000 in an IRA that we withdraw 2100 per month from. We also have 150000 in cash and 2 smaller IRA’s. I will also begin to receive a 630 a month pension at 65. Longevity runs in my family.
My monthly living expenses are about 2600 per month. Would it be safe to withdraw more from our IRA every month, and about how much could that be. Thank you.

Answer

It sounds like you’re able to comfortably cover your base living expenses with the IRA withdrawals supplementing your wife’s social security.  That’s a great start for your long term planning since your cash flow from those 2 sources cover about $900/month of non-essential, discretionary expenses.   At your current IRA withdrawal rate of $2,100 per month, your IRA would last about another 50 years, not factoring in market fluctuations, growth and possible future increases to cover inflationary pressures on your living expenses.  Depending on the specifics or your tax picture, your cash flow needs for non-essential spending, and your long-term estate, retirement, and financial planning objectives, you could consider increasing your withdrawals from the IRA by 50%-100% each month if that’s one of your objectives.

Other factors you may want to consider:

  1. Do you have plans to gift to beneficiaries during your lifetimes or leave an inheritance?  Other long-term estate planning thoughts?
  2. Have you considered potential medical expenses that may arise in the coming years, including post age 65 when you’re both having to look at Medicare options?
  3. Market fluctuations – when the markets are thriving you may feel more comfortable withdrawing more for non-essential needs, or other years in uncertainty can withdraw less to only cover your base needs.  How do you react to market volatility within your portfolio?
  4. Tax Rate – how would increasing your withdrawals impact your tax picture?  Assuming you have a traditional IRA, your withdrawals will be included in your taxable income and your wife’s social security could be taxed more than it is now. 
  5. Is there a long-term financial and tax plan in place to employ strategies to for the IRA between now and Required Minimum Distribution (RMD) age of 72?  How about when you turn age 65 and your pension begins?  This will impact both your cash flow and your tax picture.
  6. Should you consider withdrawing the $2,100 a month from the $150k for now?
  7. Should you delay your Social Security beyond age 65-1/2 to provide a longer window for planning strategies to have the most impact?
  8. Depending on who’s IRA is the $1.25M – you will most like have large RMDs at reach age 72, dramatically altering your tax picture when layered on top of the 2 social securities and a pension.  The RMDs will most likely be higher than the current withdrawals and tax rates are expected to be higher than they are now.  Once you reach that phase of life you with those 4 items are generally locked in to a tax situation with limited techniques available.

 

Talking with a CPA Financial Planner to evaluate the next several years and beyond with your personal financial goals may prove beneficial to your overall financial situation.  A strong plan can enhance your life and stretch your overall resources while minimizing your long-term retirement tax rates.  Best wishes with your retirement.


For additional information visit //www.360financialliteracy.org/

close