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Like many of you, I have investment funds in a couple different accounts (after-tax and tax deferred). Plus Social Security and a cash cushion in the bank. So what to withdraw from first? How to keep taxes down? How to ensure I'm not taking too much and depriving myself thereby leaving too much for my ungrateful heirs. Also, I don't want to take to much and cause the funds to run out too soon.

I considered paying a Financial Advisor for a retirement plan, but I'm not sure I can get what I need. Recently, a Foolish article I was reading pointed to a on-line retirement planner: i-ORP.com. It uses linear regression so that many points of data are used to compile results.

I tried the quickie results, then re-ran it with more of my investment details. The results are amazing! It showed me what my income will be each year (increased by 2.5% inflation each year) and where and how much to withdraw. Taxes are minimized. The plan goes year by year to age 92 or whatever age you want. Its only a "guide", so, use it with common sense (if the market is down, I'll make adjustments to the plan). I plan to run it each December to update my plan for the coming year.

Let me know if you find planners that are better online. i-ORP.com
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You should also check out the bogleheads forum. They have a decent wiki page and some very good people willing to answer posts.
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I would say the first thing to do is establish how much you need annually to live your lifestyle.
Multiply that by 25 and if you have more than that then you're in decent shape.

Using that annual figure, establish the upper limit of the tax bracket you expect to be in if that were all taxable income.
Aim to use taxable money (SS + Tax Deferred distributions + LTCG) to fill that bracket (if you are MFJ and standard deduction, you are in the 12% bracket up to $102,950 - 22% after that).
Use the Roth money as needed to avoid the next highest bracket if there are years you need more.

That's the concept.

Details though include whether you are already taking that SS so you might be able to defer that income.
If you are over 65, the standard deduction is increased a little.
If your RMDs will be high when you turn 70 1/2, you might want to use more of the IRA money before you take SS in order to bring that requirement down - remember that you will be taking SS at that time too.
If you are not on Medicare yet, there are wrinkles about keeping taxable income down to manage ACA costs/subsidies.
In the end, the details are the personal things that make this simpler or harder.
Eventually you will be paying tax on the IRA distributions as ordinary income, so all you are doing is trying to manage your tax brackets when you will be paying it.
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Thanks for your post. I'm already at retirement, and didn't think I had enough dough. But the i-ORP "optimized" my resources to make it last to age 92! I'm starting Medicare and won't need ACA subsidies. My plan keeps me at the same or lower tax bracket throughout my retirement.

So, no worries, I now have time for all that hiking, pickleball, painting, dancing, reading, geocaching, and spoiling my grand kids!

All the best,
Tina
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Lassie222 ,
I just ran this online i-ORP.com report. Very interesting results. I liked it.
If you did into it on the extended reports page, there is a link at the bottom of the report to save as a csv file which then opens in excel with all your numbers. Quite Useful.

When you first use it remember .... All Asset Dollar values are in thousands. 10 = 10,000, 100 = 100,000. All income values are for the Year. Pension amounts, Social Sec Amounts are for the year.

Thanks for the link.

Mike
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No. of Recommendations: 8
Let me know if you find planners that are better online.

I don't like that i-ORP as only optimizes based on the program's assumptions, like:
- House/business is sold at age 80
- Plan only to age 92, and that you don't want to leave anything
- 60/40 mix for asset allocation, rather than using your actual holdings
- Uses 'typical' returns, rather than letting you put in your expected rate of return

Additionally, it only has 1 place to enter 'other' illiquid assets like rental real estate, art/collectibles that you may plan on selling, etc.

I like Fidelity's "Full View" better. It's much more flexible and allows you to choose things like:
- assume 'one-time' changes like selling your house or buying a car
- how much of a legacy you want to leave
- how long you want to plan for
- what rate of return you expect
- that your spending may vary

AJ
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I would say the first thing to do is establish how much you need annually to live your lifestyle.
Multiply that by 25 and if you have more than that then you're in decent shape.


It's slightly more complicated than that. For example, someone determines they need $40,000 per year to live. The above calculation says they need $1 million in savings. If they retire, this person will receive $25,000 in a pension and $15,000 in SS. They covered the $40,000 in expenses. A less financially savvy person would think they couldn't retire until they had $1 million saved so they keep working.

PSU
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"If they retire, this person will receive $25,000 in a pension "

You are correct of course, but I don't think that many people are currently retiring with pensions and was trying to keep it simple.
Perhaps safest to add a line about how much you need annually to live your lifestyle then subtract known income (pension and SS) when determining IF you can retire.
Obviously for the tax strategy, the pension would go with the taxable income bucket. I think the rest still applies for most people.
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You are correct of course, but I don't think that many people are currently retiring with pensions and was trying to keep it simple.
Perhaps safest to add a line about how much you need annually to live your lifestyle then subtract known income (pension and SS) when determining IF you can retire.


Yes, not many people have retirements but there are plenty of people who are frugal and can cover a good portion of their retirement with SS. I would guess there are more people wondering if they can retire at 62 instead of 67 than there are who are wonder if they can retire at 55 than at 62. Yes, I would agree that subtracting off income streams before using multiplying by 25 would be a good idea.

PSU
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Evaluating your spending and assets every year is really the only way to guarantee that your spending isn't drawing down assets to soon.

Items to consider:
1.) Do you expect to need to spend your Traditional IRA(TIRA) before your death?
TIRA are the worst to inherit. A Qualified ROTH is the best.

If you expect to use your TIRA for long term care then it maybe possible that those expenses will be a deduction lessening taxes on the distributions.

2.) For funds that you don't expect to spend, a partial conversion from a TIRA to ROTH during low income years is an option.

ROTH IRA (currently) doesn't have an RMD. (401K ROTH and inherited ROTHS do have RMDs)

When calculating a ROTH conversion, it is necessary to consider lost investment gains on the taxes paid.

3.) ROTH IRA should be the last drawn down.

Pre-tax distributions from a TIRA during low tax years may reduce lifetime income taxes. It all depends on other income and how much of your Social Security is currently taxable.
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No. of Recommendations: 2
vkg,

You wrote, When calculating a ROTH conversion, it is necessary to consider lost investment gains on the taxes paid.

Why?

I thought multiplication was associative. Only the effective rate paid should matter.

- Joel
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When calculating a ROTH conversion, it is necessary to consider lost investment gains on the taxes paid.

It's probably more necessary to account for the tax rate differential, especially since the tax rates are scheduled to increase in 2026, per current law.

AJ
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AJ, Thanks, Will look at the Fidelity Full View.
Just FYI, I was able to change some options, like age to plan for in the extended i-ORP. Just takes some getting used to.
Also the i-ORP assumes a rollback in Social Security in 2035 which might happen but may not. It also has the Monte-Carlo option which shows the good and downside of where things might head in the future.

Always appreciate your input.

Mike
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Yes, not many people have retirements

OCD one day later: pensions
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vkg,

You wrote, When calculating a ROTH conversion, it is necessary to consider lost investment gains on the taxes paid.

Why?

I thought multiplication was associative. Only the effective rate paid should matter.

- Joel


If taxes weren't paid then the funds would be available to invest. Estimated future effective tax rates is probably different from current effective tax rate.
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It's probably more necessary to account for the tax rate differential, especially since the tax rates are scheduled to increase in 2026, per current law.

AJ


or effective tax rate decrease in 2026 (depending on individual's situation)
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The difference in tax rates at different times - now, or later - is all that matters when calculating the numeric impact of converting from a regular IRA to a ROTH. There is no reason to consider lost investment gains. If the tax rates are the same at the time of the possible conversion are the same as at the time of the eventual withdrawal, it is a total wash.

But there is more to it than numbers. As someone already mentioned, inheriting a ROTH is much simpler than inheriting a regular IRA.
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No. of Recommendations: 4
or effective tax rate decrease in 2026 (depending on individual's situation)

The rates themselves will increase back to the prior rates. What will also change is that deductions will also go back to their prior structure, which may result in lower taxable income for some, so they may be in a lower bracket, with a lower effective tax rate. That said, since only 30% were itemizing before the TCJA, and it's estimated that 10% are still itemizing, that population is a minority of taxpayers.

That said, being able to pay a 22% or 24% marginal rate on a conversion now, as opposed to having to pay a 25% or 28% marginal rate on an RMD in the future, IS a lower rate.

And what's not changing is that the chained CPI will be used to ratchet up the brackets, so it will be harder for everyone to stay in the lower brackets, resulting in a higher effective tax rate for all than if the old rules had stayed in place.

AJ
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Thanks for your input AJ!

Yes, the i-ORP optimizer DOES have a place to make changes.
--how much you want to leave your heirs
--house sale or not
--amounts in various accounts
--all sources of income
--amount of stock vs bonds and you set the expected returns

I'll be living in Washington, with no personal state income tax. There is a place for that in the i-ORP optimizer too.

I'll try the system you mentioned. Should be interesting to compare.

All the best!
Tina
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Interesting post vkg,

"Do you expect to need to spend your Traditional IRA(TIRA) before your death?"

Actually, I'm starting retirement now. At age 70, the IRS Required Minimum Distributions (RMD) begin taking chunks out the IRA each year.

The i-ORP optimizer estimates the RMD and takes that into account to keep me in the 22% or 24% tax brackets throughout retirement -- keeping taxes low and steady with no surprises.

I'll run the i-ORP system each year with any changes to my situation.

Will it last? Looking forward, the system has me deducting from the IRA and brokerage accounts a total equaling less than 3% (remember the old 4% rule) of my total portfolio up until about age 86. Dividends and interest help to preserve the funds in my accounts for years into retirement.

Cheers!
Tina
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Here is the Boglehead review of Fidelity's Full View service copied verbatum:

"Fidelity offers an online service called "Full View", where you can have Fidelity automatically retrieve information from outside investment accounts, bank accounts, credit card accounts, I think even frequent flier accounts, and make all that data fully visible to you (with analysis) as well as all of one's Fidelity accounts on one's Fidelity account webpage when a customer is logged in.

That seems extremely convenient, since one's entire portfolio can be visualized at any time, not only one's Fidelity accounts, and information is (I believe) updated automatically for any accounts the customer enters.

Does this add any significant risk regarding the vulnerability of data to attack? All of my account numbers and information would then be accessible in one place, and in theory with one login password. They use Yodlee, Inc.

The scary part to me is that it requires providing Fidelity (and I suppose Yodlee) with one's login username and password for every other external account one adds to "Full View". It is possible to just update the information manually rather than sharing the access info with Fidelity, but that would largely defeat the purpose of convenience.

A number of customers seem to also complain that the data is not being collected and displayed correctly, but that is a separate issue.

They also offer apps which I have not explored.....I suspect they would make the info available via smartphone (which I assume is probably not a good idea)."

So, after reading this review, I assume that Fidelity's Full View is not really a retirement planner. Seems to be more of a collector of all accounts (and passwords).
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Hello All,
Here is a review on the Boglehead site for the i-ORP retirement planning optimizer:



How I use I-ORP, and Who Shouldn't
Post by LeeMKE » Thu May 11, 2017 1:47 am

I fit the parameters to use I-ORP, and it has been a big help:

1) I am principally invested in tax deferred accounts (IRA and 401K) and had done some IRA to ROTH conversions, but wanted to know if more would optimize my taxes during retirement.
2) My estate is not over $5 million, so no estate tax consideration is needed.
3) Optimizing our income is our goal. We are not optimizing to leave an estate.
4) For us, postponing Social Security needs to be balanced against portfolio withdrawals to cover any period we delay Social Security.

If you have 3 or 4 of these same parameters, I-ORP may be very helpful. If you have just two, this tool might help, but might mislead. If you have only one, I-ORP is unlikely to be helpful IMHO.

Social Security — I had tried a few other tools, but was uncertain because the various tools gave different results. For us, the question was whether to take Social Security or dip into savings for early retirement. Most tools ignored the choice between early social security or drawing down from savings while waiting for social security payments. I-ORP shows that we are on the cusp, so that’s why slight variations in the formulas of different tools would show different results.

IRA to ROTH conversions — I discovered “The Hump” 7 years ago when it showed up on my Fidelity Retirement Income Planner. One of my Fidelity reps told me to use these last few years to convert IRA to ROTH because we were destined to be in a higher bracket in retirement. I made conversions I thought would erase that hump. But once I did that, I wanted to confirm I'd done enough, and see whether there was any benefit to converting more.

I-ORP gave me much better specifics as to how much more to convert and the net effect was easy to see because our spendable cash changed, with and without more conversions.

Withdrawal Strategies — I suspected the usual default of most of the planners was not optimum for us. Most planners are static in emptying first taxable accounts, followed by 401K and IRA, and leaving ROTH accounts to the end of plan. This is the best financial planning, but is not the optimum strategy for human beings:
A) If you die before the end of plan, ROTH may not be the best asset to leave behind. And dying before end of plan is the goal.
B) ROTH can be used to smooth out tax peaks, but only if you set things up correctly years in advance and spend just enough from ROTH to float your tax bracket down a notch, but not too much.

The guidance as to how much to take from each type of account is key to lowering our tax bracket throughout retirement. I-ORP did a great job of optimizing which accounts, and how much to take each year.

So, the last 3 years I’ve pulled an I-ORP report to track how I’m doing. Along the way, the author of I-ORP is also improving and enhancing his tool.

Spending Strategies — This year, I discovered a new option: different spending strategies. The results were intriguing, so I read more about each on the Boglehead Wiki, as well as the White Paper on the I-ORP site. In my case, these talk about an issue I am thinking about, spending too little early, when you are younger and able to travel, and ending up with too much money leftover at end of plan. Right now, these strategies are just thinking points for us. I'm finishing up McClung's Living Off Your Money and have more thinking to do about which strategy we will use. But having a ready calculation for a variety of strategies is very helpful for my deliberations.

Here's the link to the long form I used: https://i-orp.com/ORPparms.html"

Cheers!
Tina
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The scary part to me is that it requires providing Fidelity (and I suppose Yodlee) with one's login username and password for every other external account one adds to "Full View". It is possible to just update the information manually rather than sharing the access info with Fidelity, but that would largely defeat the purpose of convenience.
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So, after reading this review, I assume that Fidelity's Full View is not really a retirement planner.


Technically, Fidelity's "Full View" is an account aggregator using Yodlee. Fidelity's "Planning and Advice" application takes the information from the "Full View" aggregation to do the retirement planning analysis, which is why I just called it "Full View". You can also manually enter everything into the Fidelity "Planning & Advice" application if you don't trust "Full View". The thing is - if you want to use your actual holdings as a basis for the planning, which is more realistic than just putting in a portfolio stock/bond ratio, you have to give the planner access to your accounts, or enter things manually each time.

I have tried other retirement planners, including those from other brokerages, my 401(k) and stand-alone planners. I first tried Fidelity's planner when my 401(k) was at Fidelity. When my 401(k) was moved away from Fidelity, I searched around for other planners and still kept going back to the Fidelity one, because it seemed to offer the most complete way to adjust scenarios with the least effort, because of the "Full View" aggregation.

As far as being concerned about the security of the account aggregation sites - I'm not particularly worried, as I have my data entered into multiple aggregators associated with various banks/brokerages, as well as Mint and Personal Capital. I figure as long as I monitor the information fairly regularly, they give me an overall way to look at my accounts, and see if there is something weird going on.

As always, YMMV.

AJ
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Tina, Thanks for that info. Will play with I-ORP some more.
Mike
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I-ORP looks interesting and I am eager to see what it says about me.

However, I am wondering what happens when you turn 92 and are not dead or dying? Who pays for what at that age?

And why does it assume you will sell your home at 80? Where are you going to live?
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However, I am wondering what happens when you turn 92 and are not dead or dying? Who pays for what at that age?

That's the problem with 'optimizing' software. You have to choose an age that you want your assets to be depleted, and then you have to die at that age (in the "Essential ORP" case, on your 92nd birthday), or your asset withdrawal strategy won't be optimal. The "Extended" version of i-ORP does allow you to choose a different age that you want to plan to - but if you optimize to run out of assets at a particular age and follow the tool's guidance (updating each year, as their forecasts will be wrong), you will run yourself out of assets at that age, and will end up living on just your 'guaranteed income'.

Another option in the extended version is that you can tell it you want to have $x in assets left at the end of your planning timeframe (that's called the "Plan Surplus"). That way, if you live past your planning timeframe, you will still have some assets left, in addition to your 'guaranteed income'. But then you are guessing at two different things - the age that you want to have a particular amount of assets, and the amount of assets that you want to have.

And why does it assume you will sell your home at 80? Where are you going to live?

The assumptions for the 'Essential' version were probably set to mimic some 'average' age that retirees tend to sell their homes - in this case, the age of 80. If you use the extended version, you can change the age that you will sell your home at, or you can say that you aren't going to sell the house at all. Presumably, if you sell the house, the assumption is that the revenue from selling the house will pay for some type of housing going forward, at least until you deplete your assets.

Because of the 'optimizing' limitations, it i-ORP doesn't seem like a very useful retirement tool to me. 'Optimizing' forces you to choose a particular age that you want to optimize until - which is basically choosing when you will die. If we actually knew that date, it would be a lot easier to do planning for retirement. Any deviation from the planned date means that you will not 'optimize' by either dying with too many assets, or you will run out of assets before you die. So, what's the point of 'optimizing'?

I suppose that it can help those wanting to know an absolute max on their spending, if they want their assets to last until a particular age. But I prefer to start my planning with spending assumptions, and figure out what my assets need to be to support that level of spending, and adjust (up or down) as the actuals deviate from the plan.

I will say - when looking at the Roth conversion options, using the 'Unlimited conversions' choice, the optimizer did confirm what I had already figured out for myself - that my 'optimal' conversion strategy would be to convert up to the top of the 24% bracket until I end up with about a 50/50 mix of tax deferred (Traditional) and tax free (Roth). i-ORP actually is more aggressive about when I should do the conversions than I had planned to be - suggesting that I do most of the conversions from 2019 - 2021, rather than doing them through 2025.

As always, YMMV.

AJ
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Thank you AJ.
That helped.
I like that "top end of 24%".
Retired since May 1st. I am still settling into what my yearly total is. Thinking of staying in 22% if possible for 2019 and 2020 to pay off $69k mortgage. My understanding is 24% bracket is not that much more. I am using 457b money that I don't have immediate needs and keeps growing, but paying off condo will give me a recession hedge and $1k more of guaranteed income.
Of course, I am currently up 42% YTD in my 457b doing my own self directed trades on half of the money. (It was 102% before August but it will come back just like last year)

I always look forward to your replies. Thanks.

MoneySlob
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