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No. of Recommendations: 1
None of the above.

Ditto.

Probably 40% stocks cap gains/dividends, 30% real estate rental income, and 30% side business of DW.

JLC
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No. of Recommendations: 3
Not there yet but may be just around the corner for me.

I'd just add a slight variation on Intercst's approach since about 60% of my holdings are in 401K and a Roth IRA.

dividends and interest income inside tax deferred accounts
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No. of Recommendations: 1
Edit to add:
dividends and interest income inside tax deferred accounts and MLPs in taxable account
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No. of Recommendations: 4
... focus on funding living expenses with capital gains and tax-paid returns of capital.

A number of CEFs do the latter.

For example, NUSI (Nationwide Risk-Managed Income ETF). Distribution yield is 7.80%, paid monthly. Most of it is Return Of Capital. Non-destructive ROC, which is the good kind. Usually ROC is just a return of your money and therefore comes right out of the NAV and therefore is bad.

Fairly new fund, began in Jan 2020.

Initial NAV $25.00, current NAV $27.80. Total paid to date: $3.68. The ROC did not reduce the NAV. Good. Very complex tax & accounting treatment, something about the way options are treated lets the distributions (yield) be ROC and not taxed.
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No. of Recommendations: 0
NozRydr writes,

I'd just add a slight variation on Intercst's approach since about 60% of my holdings are in 401K and a Roth IRA.

dividends and interest income inside tax deferred accounts

</snip>


Absolutely!

I was planning on doing a big Roth conversion by year-end. But now I'm thinking it may be time to exit my position in Avis Rental Car (CAR) which will push my tax bracket beyond where the Roth conversion makes sense.

https://www.entrepreneur.com/article/391960

intercst
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No. of Recommendations: 7
100% of my retirement money is in two accounts, an IRA (75%) and a ROTH (25%). In the IRA I have my cash cushion, 16% of the total, and calculated to give me five very comfortable years of living without selling anything. The idea is that events like 2000 and 2008 have not lasted that long. The rest of my IRA and all my ROTH are invested in equities, focusing on growth. Roughly half of those are in "Saul type" companies. I keep a close eye on all the companies in my relatively concentrated portfolio, but I don't trade often. Returns have been so high that I just keep shaking my head. My current prosperity is more than I ever imagined and I haven't entirely gotten my head around it.

Normally I live off my fixed income (SS Survivor, 2 small pensions) supplemented by IRA withdrawals that exceed those. Expenses include a mortgage (2.75%) with 29 years remaining. I do ROTH conversions from the IRA when I can without creating crazy taxes. I only make such withdrawals from the IRA when the checking account gets low, so there is no scheduled or fixed amount. In just over two years I will hit age 70 and start collecting my own SS rather than Survivor benefit based on my wife's SS; that will be more than double what it replaces.

Having sold my old house this past summer, for the first time I have significant cash that is not in an IRA or ROTH. Some has been put aside for a Tesla Y. Some was used to pay the taxes on a ROTH conversion. Some is used for my living expenses, letting me avoid IRA withdrawals. Some was allocated to adding solar to the house, due in a couple of weeks. Instead I am taking them up on the offer of 0.99% financing. The remaining cash from the house will carry me well into next year, but perhaps not all the way through. Then I will revert to living off IRA withdrawals.
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No. of Recommendations: 6
I get SS ( a bit reduced since I only worked 31 of the 35 years) and my RMD which is larger than SS.

I get a very nice chunk of dividends that exceed both SS and RMD, so I live happily.

My house was paid off 20 years ago. My real estate taxes are frozen at the age 65 level as long as I live in my house.

Each year, I tweak the IRA holdings - selling some stock mutual funds - moving it to the MMF account in the IRA, to provide at least 6-9 months of RMD. In addition, dividends/interest in the IRA fills in the rest of the year as it goes along. Yeah, I miss 'out' on additional stock gains....but I also don't sweat having to sell to fund the IRA in a 2008 market meltdown either. My IRA is 50/50 at this point, but other holdings are 80/20.

I quit work long before I could set up a tax free IRA account.....and never moved money.

With the nicely rising stock market, the RMD keeps going up. Not complaining.

Gives me incentive to spend more, but with COVID, the travel was down by 70% in the past year.....so places to go to spend the money! No conventions - all canceled. No activities. Canceled. I'm not going to hop on a plane to anywhere - even now.... nor drive through less 'smart' areas of the country like most of the 'middle' of the country.

Waiting for my booster approval - Moderna.....

t.
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No. of Recommendations: 8
I don't seem to fall into any of the four types that Wade Pfau has defined.

I retired in 2013 and am now 76. I receive Social Security benefits and was classified as a maximum wage earner in the 35 years used to calculate my benefit. I had paid FICA/OASDI for 54 years when I retired.

I receive VA Disability Compensation for service-connected disabilities received during the Vietnam War Era. In 2019, I discovered that my VA records were missing data on my disability. I had my records updated and my disability rating was changed from 50% to 90% and doubling my monthly benefit. The VA Healthcare System provides medical care and prescription medicines to me at no cost due to my disability rating.

In addition I have two small pensions from former employers.

My IRA consists of two accounts. The smaller has a "classic" 70/30 split between equities and bonds. The second and significantly larger account is 100% equities. The RMD for the accounts is around $150K and for now is simply transferred to my taxable investment account. Roughly 1/3 of the income in my taxable investment account is from tax-exempt municipal bonds. If needed I can use the income in this account to pay my Federal and state income taxes but haven't had to so far.

The mortgage was paid off 20 years ago. The house was sold after my wife died in 2019. I was able to use the $500K capital gains exemption when I filed my last MFJ return in 2019. I moved into my mother's house and am, basically, a renter now Paying her room & board and helping with other expenses. She's 98 so I may have to look for some other place to live in the near future.

I'm also waiting for the VA to call me to come in for my Moderna booster.
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No. of Recommendations: 2
None of the above.

Howie52
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No. of Recommendations: 3
"I'm also waiting for the VA to call me to come in for my Moderna booster. "

Don't have to wait.

Walgreens and CVS doing booster shots and they are FREE by government mandate.

Walgreens doing booster shots for Moderna starting today


t.
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No. of Recommendations: 1
None of the above.

Ditto.

Probably 40% stocks cap gains/dividends, 30% real estate rental income, and 30% side business of DW.

JLC
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No. of Recommendations: 5
I think the income styles are an interesting concept and perhaps a better alternative to the useless risk tolerance metric traditional financial planning uses as a panacea for their clients. Use of a Risk tolerance MAY BE appropriate for some during the equities accumulation phase of retirement, but what about the deployment of ALL types of assets when in retirement?

That said, no summary can adequately summarize the facets of retirement covered in this book—-This is not a quick fix or simple how to book and is only for those inclined to take an extensive DEEP DIVE on retirement planning. The book serves as a step by step guide with an action plan for those who want to know how and figure out how they can plan ahead if they are younger or make it thru retirement with what they’ve accumulated based on their “income style”, not a risk tolerance that doesn’t have much use in the deployment phase.

I haven’t read the whole book yet, but have taken part in several of Wade’s retirement researcher webinars. His research shows that while folks are squirreling away (or not) money for retirement via 401ks and IRAs there hasn’t been a whole lot of thought and/or knowledge as to how to deploy those assets in retirement—-not to mention other types of assets.

I can only wish, at this point, that I had had all my ducks in a row as you all do on this and other TMF boards. This is meant as a thank you and compliment to you all. I rarely have much to contribute but follow your lead, thoughts and ideas as much as I am able.

The average person who relies on the financial services industry for advice and help, can understandably get confused when trying to sort out accumulation of and future deployment of assets. As Wade puts it right in the beginning of the book……

…the financial services profession remains quite siloed. There is an old saying that if the only tool you have is a hammer, then everything starts to look like a nail. This tendency is alive and well within the financial services industry as those on the investment side tend to view an investment portfolio as the solution for any problem, while those on the insurance side tend to view insurance products as the answer for any financial question. Financial advisors and other pundits tend to support the approach they feel most comfortable with or are otherwise licensed or incentivized to provide, with little consideration for what may be best for any given individual. The prevalent idea is there is one objectively superior retirement income approach for everyone, and anyone suggesting otherwise must be guided by a conflict of interest.

To this I say touché! Hit that nail on the head—-is there really such a thing as a “financial advisor or planner” that truly acts as a fiduciary?

That’s why DIY is essential when it comes to planning your retirement—-I’m preaching to the choir here. I’m not going to lie, this book is hard, and I’m not sure I’ll get through it and I like doing this stuff. TMF forums and TMF live are very helpful and easier to understand.

To answer the question asked—I believe I fall in the hybrid category Probability-Based & Commitment (Risk Wrap)

Btw, one of the TMF podcasts, Motley Fool Money, I think, recently interviewed Wade if anyone is interested.

pamstrums
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No. of Recommendations: 3
Thanks for your review of the book. It has caused me to look deeper at this thread which I had brushed off as another gimmicky post from the OP.

His research shows that while folks are squirreling away (or not) money for retirement via 401ks and IRAs there hasn’t been a whole lot of thought and/or knowledge as to how to deploy those assets in retirement—-not to mention other types of assets.

We were guilty of this, being too busy to do more than throw as much as we could in our accounts, both taxable and deferred. We have some general strategies that we have tucked away in our knowledge base, like the 4% withdrawal rule, but even 3 years in to an early retirement we really haven't studied the matter in depth or devised a strategy. Haven't really had to do so yet, for reasons I won't get into, other than decide it's time to spend more money on something other than investments. Sounds like this book would be a good tool towards that goal.

I can only wish, at this point, that I had had all my ducks in a row as you all do on this and other TMF boards. This is meant as a thank you and compliment to you all. I rarely have much to contribute but follow your lead, thoughts and ideas as much as I am able.

IMO the best part of TMF is the multiple POVs, (and occasionally the worst but there is Pbox for that,) where a proposed way of doing something gets challenged by others, and feedback is received on ideas. Keep on raising your voice if only to ask questions. It is surprising how few people do that and your questions will no doubt help others as well. Not everyone got here as early as they would like, but better late than never.

IP
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No. of Recommendations: 8
Method #3: Safety first (which appears to be generally unpopular here--and that's perfectly fine with me.)

Between our Social Security and my plain-vanilla TIAA annuity, all of our income needs (and wants) have been covered for the past five years in retirement. That includes a second-home condo in Waikiki and regular trips abroad. We also have a decent-sized investment portfolio at Schwab, self-managed.

All of this is the result of 40 years of LBYM and continuing education from TMF starting from its days as a folder inside AOL. We're very grateful, every day.
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I like safety! But I'm also where I am because of my investing. As a TMF author once argued, if it ain't broke don't fix it. My investing is (overall) successful, so why change?

That said, once I retire I plan to divest myself of a great chunk of company stock. ESPP was very efficient at gathering lots of shares. When my income falls close to zero, I'll start selling. Not all of it, but a lot of it. I have shares that have increased 50x because I've held them so long (25 years). That's a big cap gain if I'm still pulling in a salary.

I plan to live on some of that money, and reinvest the rest.
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ESPP was very efficient at gathering lots of shares. When my income falls close to zero, I'll start selling.

Be sure that you understand the tax treatment of the shares you will be selling, including the need to account for the discount that you received as ordinary income, rather than as capital gains.

AJ
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No. of Recommendations: 3
My retirement income style is KISS (Keep it Simple, Stupid), which we can do thanks to DH's pension, which covers all our living expenses and then some (we still put money into savings every month, also into our grandson's 529), and which we earned; although I must admit that, in addition to hard work and rigorous frugality, we had extraordinary good luck.

Details:
- Most of my time as a SAHM was spent with the children, but some was spent fixing up the fixer-upper houses we'd bought. (I.e., some of our balance sheet is due to sweat equity.) I returned to work when the children were older, to help pay their college expenses.
- Back when I was working, I contributed a bunch to my 401k's, but fees were high, so every time I left a job I rolled the 401k over to my Traditional IRA at Vanguard.
- We converted our Traditional IRA's to Roths last March during the market dip, and paid the taxes for that then. So, going forward, no worries about RMD's, taxes on withdrawals, or taxes on whatever gains occur within those accounts.
- 1/3 of our assets are in cash (i.e., savings accounts that pay a pittance), 2/3 are in VBIAX, VWENX, and FLPSX. This year I did dip a toe into more aggressive investing, buying CRWD and then selling it months later. Made more than I would've if I'd left it in the index fund, but not enough to make it worth the vigilance.
- We'll collect SS starting at age 70.

One wrinkle is that we're now renting. I'd always assumed "paid-for house" would be part of our retirement balance sheet, but we moved a couple of times recently for family reasons, so, so much for that. We're pretty happy here, and the rent is reasonable, so we'll just stay put indefinitely. The odds of the rent increasing to unaffordable levels are low, for several reasons, but if that does happen we'll probably buy something then. And yes, housing prices will be higher then (presumably), but our index funds will also have increased in value (also presumably) and the pension and SS have COLA increases, so I'm not feeling too panicky about housing.
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Yes. Our HR department is very good. They give us a form that has all the numbers we need. I've sold a few shares in the past, and the form they give us has everything we need for the schedule D.

Hopefully they will still send them out after I retire. Will this be qualifying dispositions if I no longer work there? We regularly have to fill out a form declaring qualified or non-qualified dispositions (or declare "didn't sell any").

I believe the ESPP shows up on our W2 the year we get the shares, and then we back-out some of that basis (as I recall...it's been several years since I sold any).

1poorguy
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No. of Recommendations: 1
That said, once I retire I plan to divest myself of a great chunk of company stock.

Hey 1poorguy. That's kinda what I did when I retired. I had a boatload of company stock after a 30 plus year career. I retired at 59 1/2 and for the first 4 or 5 years I would sell enough company stock to live on. It worked out good for me. In the meantime the roll-over of my 401K and separation package were working for me in an IRA.

There is something known as NUA 'Net Unrealized Appreciation' that you can use to your advantage come tax time. Over a long career such as yours you probably bought company stock at a much lower price than it's going for now.

I'm sure I've probably stated something that is not in compliance with current tax law so YMMV.

Good luck and enjoy your upcoming retirement.

Regards,

ImAGolfer (retired '03)
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No. of Recommendations: 3
There is something known as NUA 'Net Unrealized Appreciation' that you can use to your advantage come tax time.

NUA is for employer stock held in 401(k)s. It allows you to transfer the employer stock to a taxable account by paying ordinary income taxes (and penalties if you're under 59 1/2) on the cost basis of the stock, rather than the entire value of the stock. If you sell the stock upon the transfer, the gains are then taxed as long term capital gains, rather than the ordinary income tax rates that you normally have to pay on all withdrawals from a 401(k).

There are some pretty strict rules about actually doing NUA distributions:
- NUA is only allowed after a 'triggering event': leaving the company; turning 59 1/2; dying or becoming disabled;
- You cannot have taken a distribution from your 401(k) after the triggering event and before you take the NUA distribution;
- You must do a lump-sum distribution of the entire 401(k) account balance in the same year that you do the NUA distribution - note that rollovers to an IRA are considered 'lump-sum distributions'.

Kitces has a really good article on how the NUA process works, pitfalls to avoid, and why it may not always be a good idea to do: https://www.kitces.com/blog/net-unrealized-appreciation-irs-...

AJ
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"dying or becoming disabled"

*********************************************

Rather extreme methods to obtain a tax advantage if you ask me.

Howie52
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Our HR department is very good. They give us a form that has all the numbers we need.

That's actually been an IRS requirement since 2010 or 2011. But as far as I know, it's for employees, so I'm not sure what happens after you leave employment. You probably want to check with your employer to be sure.

Will this be qualifying dispositions if I no longer work there?

Whether a disposition is qualifying or not is dependent on the timeframe you've owned the stock, not whether you're employed by the company.

AJ
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No. of Recommendations: 1
Rather extreme methods to obtain a tax advantage if you ask me.

I agree, for the original owner. But I will point out that, especially with the requirements for non-spouse beneficiaries to fully disburse retirement accounts within 10 years, these rules might be useful for the beneficiaries if there is a substantial amount of company stock in the 401(k) account.

AJ
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No. of Recommendations: 0
One wrinkle is that we're now renting. I'd always assumed "paid-for house" would be part of our retirement balance sheet, but we moved a couple of times recently for family reasons, so, so much for that. We're pretty happy here, and the rent is reasonable, so we'll just stay put indefinitely. The odds of the rent increasing to unaffordable levels are low, for several reasons, but if that does happen we'll probably buy something then.- YewGuise

-------------------

As long as you are comfortable with being a renter, not owning a house does make for a simpler estate plan. In my case, I have two kids but only one pretty valuable property. I don't want to leave the property to both of them, where they have to agree on everything from maintenance to taxes to realtor selection to evaluation of offers. It will lead to lots of friction. So I haven't quite decided details yet but my general plan no joint ownership of anything so leave my land and personal property to my daughter and balance that with a bigger slice of my investment accounts to my son.
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No. of Recommendations: 3
bighairymike:

{{{One wrinkle is that we're now renting. I'd always assumed "paid-for house" would be part of our retirement balance sheet, but we moved a couple of times recently for family reasons, so, so much for that. We're pretty happy here, and the rent is reasonable, so we'll just stay put indefinitely. The odds of the rent increasing to unaffordable levels are low, for several reasons, but if that does happen we'll probably buy something then.- YewGuise}}}

-------------------

"As long as you are comfortable with being a renter, not owning a house does make for a simpler estate plan. In my case, I have two kids but only one pretty valuable property. I don't want to leave the property to both of them, where they have to agree on everything from maintenance to taxes to realtor selection to evaluation of offers. It will lead to lots of friction. So I haven't quite decided details yet but my general plan no joint ownership of anything so leave my land and personal property to my daughter and balance that with a bigger slice of my investment accounts to my son."

Have you had any conversations with your children about this plan? The land comes with annual tax and insurance costs, and eventually more substantial costs of sale.

And personal property can be divided between the two without joint ownership instead of giving it all to one child. Curious as to why yo believe that your daughter would prefer the land and personal property? And personal property can have different sentimental value to each of the two
of them (or no sentimental value at all).

Regards, JAFO
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No. of Recommendations: 2
You could specify that your house be sold, and the proceeds divided equally. I think divvying up your assets in a way that results in inequality is unfair.

Meanwhile, have you discussed your concerns with an estate planning attorney? They’ve dealt with these issues.

One way to avoid gridlock is to name one child as executor (aka personal representative) with the other as backup, instead of naming them co-executors. It won’t avoid friction necessarily, but it will minimize it.
Similarly, only one child as POA and Trustee (if you use a Trust).

When my dad went into assisted living and I sold his house, one of my brothers had a fit, protesting that I was moving too fast (without specifying what exactly I should’ve waited for). That was difficult to deal with, but at least he couldn’t legally hold things up. I was Trustee and he wasn’t.
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I don't want to leave the property to both of them, where they have to agree on everything from ... realtor selection to evaluation of offers.

Oh, I see you're already planning for the house to be sold. Yep, just one POA/Trustee/Executor, with the other as back-up, is cleanest.

I asked all my siblings to go through Dad's house and take whatever they wanted to keep/sell/donate, before I started prepping it for sale. They came and took very little, leaving the bulk of the clean-up to me. Just as well. I didn't actually need their help (although it would've been nice), I just needed them to have their chance so that later they wouldn't complain about whatever I did.

There are 1000's of decisions to make: what to keep vs sell vs donate, what repairs and/or improvements to make vs what to just disclose, which contractors to do the work, what to DIY vs delegate, what light fixture to replace the rusty one, what color paint, what type of carpet, which stager, which Realtor, which offer,...
The odds of any two people agreeing on everything are zero, even if they normally get along.

So it's great you're planning to minimize conflict in that regard, but I don't think "no joint ownership of anything" is the best solution.
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No. of Recommendations: 1
One way to avoid gridlock is to name one child as executor (aka personal representative) with the other as backup, instead of naming them co-executors. It won’t avoid friction necessarily, but it will minimize it.
Similarly, only one child as POA and Trustee (if you use a Trust).


The Countess is executrix of her parent's wills and their Family Trust, with POA. Her sister has said that she doesn't trust her to divide the estate fairly. She has taken the papers to a attorney to have it checked out. Could become an issue when MIL passes. (FIL died earlier this year.) I hope SIL doesn't do anything foolish, like contesting things in court which would only have the effect of diluting the estate by the amount of the legal fees. The estate, while substantial (at least by our standards), is not in the multi-million range. I (for one) think the Countess will be scrupulous in her division, and will even favor her sister, but money can do awful things to a family's relationships.

CNC
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So it's great you're planning to minimize conflict in that regard, but I don't think "no joint ownership of anything" is the best solution. - Yewguise

--------------------

Thanks YewGuise. I assume your opposition to no joint ownership lies in the likelihood of an uneven split. Anyway, that is a question that is on my mind. I am starting a new thread on my estate dilemma and in it you may better understand where I am coming from. Any advice or observations would be most welcome.
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The Countess is executrix of her parent's wills and their Family Trust, with POA. Her sister has said that she doesn't trust her to divide the estate fairly. She has taken the papers to a attorney to have it checked out. Could become an issue when MIL passes. (FIL died earlier this year.) I hope SIL doesn't do anything foolish, like contesting things in court which would only have the effect of diluting the estate by the amount of the legal fees. The estate, while substantial (at least by our standards), is not in the multi-million range. I (for one) think the Countess will be scrupulous in her division, and will even favor her sister, but money can do awful things to a family's relationships.

CNC


-----------------

Thanks CNC. I think I see in your post that the Countess had issues when one sibling is beholden to the other in order to get hew fair slice. I think the no joint ownership approach avoids these issues. If one of the siblings feels slighted, that is on the decedent, not the sibling.
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And personal property can be divided between the two without joint ownership instead of giving it all to one child. Curious as to why yo believe that your daughter would prefer the land and personal property? And personal property can have different sentimental value to each of the two
of them (or no sentimental value at all).

Regards, JAFO


-------------------------

Thanks JAFO for your concerns. I should have been more complete in my initial post but it is a subject that troubles me. I am going to start a new thread to better decsribe my circumstances.
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In <2 years I will be 59 1/2. A year after that I will fully vested in my (hopefully) last company's 401K contributions.
* an anachronistic fully vested traditional company pension, lifetime of about $30K a year (up to $37K if I wait to 65 to start). That can pay housing and utilities, regardless of whether I sell the house or not. (low interest long mortgage, LTV ~25%, no state income tax, high property taxes).

* A traditional IRA, collection of rollovers of 401ks over 37 years working. Invested currently "balanced", using mechanical GTAA. Slightly larger than the 4% inversion of the pension. Max 65% in equity classes, with about 10% in aggressive growth "Saul-ish" stocks. Fortunately, it's grown to 8+x the size of any of the below and slightly larger than the 4% inversion of the pension plan.
* A small Keogh from a brief self-employment period on top of a severance.
* My wife's modest traditional IRA, rolled over from the state ee retirement system 26 years ago. 60/40 invested.
* A joint taxable account about the same size as that.
* My wife's more modest inherited IRA (BDA), already on the now-legacy MRD plan for inherited IRAs based on her life expectancy, not her mother's. 60/40 invested.
* My SS after 66 2/3
* My wife's smaller SS after *she's* 66 2/3 in <4 years

I guess? hope? I'm within 3 years of "retirement" as then my wife will be Medicare eligible, and without traditional income I would be eligible for *reasonably priced* ACA plans for the 5 years after I RE. DD is past 26 as of a week from now.

I am trying to save as much as feasible now, while spending $10-$20K a year on "nice" travel to enjoy life now.

No interest in actual "annuities". But I need to learn a lot about optimizing withdrawals from which account and by selling what on top of SS. I lean toward not waiting to 70 because life doesn't wait. I assume the general pattern will be to sell up to 4% across the board, and perhaps 3% (75% of the 4%) from equity classes to keep the risk profile from creeping up.

FC
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FC:" I assume the general pattern will be to sell up to 4% across the board, and perhaps 3% (75% of the 4%) from equity classes to keep the risk profile from creeping up."

Depending what your 401/IRA balance is, and the fees collected each year, if you have a near zero cost IRA, your dividends on your stocks will likely give you half of your RMD each year. You won't have to sell much of anything each year in the IRA.

Same for investments outside your 401K/IRA.

If you take your pension too soon, you might find that your 'low cost' ACA plan isn't all that low cost. You've got to be low 'taxable income' to qualify for big discounts.

If your company offers COBRA you might want to check into that....

You need a plan from 59 1/2 to the point when you take your pension and or SS.

Then a plan for after that......

Then integrate the two.

t.
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