[USER]

Looking for help regarding irregular retirement distributions. We retired last summer (49/55), cash flowing our first year as a sabbatical as I presume we’ll both end up working in the coming years in some fashion.

We have a pension that covers 70% of our expenses. In 2029, we’ll have an additional pension that covers the rest. We have about $1.2m in retirement assets right now.

We’ll only need to use about 2% annually until that 2029 pension hits, then it’s likely that we won’t need much, if any.

We have the following priorities:

Pay off our mortgage (our only debt) by 2029. The ARM resets then, and besides the numbers, we both want to be mortgage free. Current balance is $213k.

We are interested in buying a boat and would need a lift at our new home. This is probably 2 years out. About $125k all in.

Helping our son with his first home purchase. This is likely 8-10 years out at the earliest, and exact numbers will depend on the market and where he lives.

Looking at probably $200k-$350k. (We like the die with zero philosophy here).

I’ve run some calculators and everything says this will work just fine, so this is probably more emotional for us than anything.

We’ve worked hard and saved so much that spending now seems odd.

How would you stress test these expenses to make sure the plan is solid?

We have always been very cautious savers so we also want to make sure we are enjoying our money!

[Scott]

If you have some highly likely/near term expenses I would for sake of conservatism ‘carve out’ part of your $1.2m portfolio and see what it looks like ie assume you wrote the check today for all that.

It’s a ‘wet finger to the wind’ but if you wanted to give your child $275k in 9 years (I just used the mid point of your range) you could price out a zero coupon Treasury to estimate what you’d have to set aside risk-free today to meet that goal.

I’m not saying go out and buy a nine year zero coupon Treasury, but it’s a simple and conservative way to run the analysis proforma for today.

[Matt]

You’d be a good candidate for hiring a fiduciary advice-only CFP. They can help you assess your current goals (and likely help you ID more goals of interest), your current finances, and optimize the utility of your funds against your goals.

[Amanda]

I’m confused, do you have more $ in a non-traditional retirement account somewhere?

I would put the brakes on removing 25% of the retirement in the next 5 yrs. Do you need to take more to cover the taxes?
You have large chunks you plan to remove 213k+125k in the short term, and will pay income tax on all that.

Re: son. I’m sure you can put 75-100k in a specific fund or two (inside the retirement account) for your son, funds that you will manage to get more conservative as the time comes.

Or better yet, in a non retirement account.

You will get clobbered with taxes and perhaps IRMAA (but only one year) if you take it all out at once.

The 55 yr old will be 63 in 8 yrs & Medicare looks back 2 yrs prior for IRMAA calculations. Consider removing $ up to a tax bracket each year.

You may want to continue working to save (boat & son home) & pay down the mortgage.

IMO working now for the fun stuff can be rewarding. You know you can stop any time, but are just there for the spending money.

Still take the 2% and work and get the boat & mortgage & home fund started.
Enjoy the sabbatical!

[Bill]

You’ve got plenty of money to do these things. You just need to map it out to minimize taxes. It’s almost never a good idea to take huge chunks out in a single year.

You want to just fill up the lower brackets each year with withdrawals or Roth conversions.

You don’t have to spend the money but because you took it out of the traditional account.

You can just pay the taxes and reinvest.

[Frank]

You don’t need to “stress test” anything if your withdrawals are that low. You will die at your highest net worth.

I would be giving your son some money every year and helping him invest it.

[Author]

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