Retirement Investment vs liquid funds.

[joyalton]

I am facing a curious decision. I will retire in 3 years at which time I will be faced with the RMD. I can take the RMD and avoid additional taxes or I can take more and pay some additional tax. I could have as much as $150,000 cash money split between checking, ER fund and short term funds. In addition, my monthly retirement will be between $8000 to $9000 depending on what I do with my IRA RMD.
I think it would be good for me to talk to a tax specialist and get advice concerning my RMD. Any other advice from anyone?

[finleyjr]

My mother had a very similar question recently since she is looking at retirement and her school pension offers a range of options (25% lump sum with reduced payments, get the standard payments without a lump sum or any combination in-between).

I can't say for certain how your financial situation differs from my mom's, but in the long run you typically will be better off without any lump sum. That being said it will be important for you to sit down and make sure that your monthly budget will not put you at risk in the near future. I would also try to include other values that you will have to consider (health insurance / inflation / etc).

As for my mom's case, taking a lump sum would give her 300,000 now, but she would be out of funds in 27 years and without the lump sum she would surpass 40 years and still have money in the bank.

In my opinion, it's always better to skip the lump sum and not have to stress later in life.

Best of luck in retirement!
J

[jIM_Ohio]

I am facing a curious decision. I will retire in 3 years at which time I will be faced with the RMD. I can take the RMD and avoid additional taxes or I can take more and pay some additional tax. I could have as much as $150,000 cash money split between checking, ER fund and short term funds. In addition, my monthly retirement will be between $8000 to $9000 depending on what I do with my IRA RMD.
I think it would be good for me to talk to a tax specialist and get advice concerning my RMD. Any other advice from anyone?

Basic planning process

1) Have a budget/ cash flow analysis- what money is coming in, what money is going out.
2) Have a list of assets and liabilities
3) Link the assets and liabilities to the cash flow analysis, how will these change over time, and what tax implications exist? There are many scenerios.

a) Roth conversions- take some of the assets, and convert them to a Roth IRA. Do conversions only to top of current tax bracket. This will lower RMDs.
b) look to open taxable investment accounts to lower taxable income (which would help Roth conversions even more)
c) look at investments to know how the cash for the RMDs will be generated. For example I keep 3 years cash for my clients which take RMDs.

[ACarboni]

Basic planning process

1) Have a budget/ cash flow analysis- what money is coming in, what money is going out.
2) Have a list of assets and liabilities
3) Link the assets and liabilities to the cash flow analysis, how will these change over time, and what tax implications exist? There are many scenerios.

a) Roth conversions- take some of the assets, and convert them to a Roth IRA. Do conversions only to top of current tax bracket. This will lower RMDs.
b) look to open taxable investment accounts to lower taxable income (which would help Roth conversions even more)
c) look at investments to know how the cash for the RMDs will be generated. For example I keep 3 years cash for my clients which take RMDs.

Thanks Ohio for this basic planning process as this is what I was also looking for.

[Retired To Win]

I am facing a curious decision. I will retire in 3 years at which time I will be faced with the RMD. I can take the RMD and avoid additional taxes or I can take more and pay some additional tax. I could have as much as $150,000 cash money split between checking, ER fund and short term funds. In addition, my monthly retirement will be between $8000 to $9000 depending on what I do with my IRA RMD.

I think it would be good for me to talk to a tax specialist and get advice concerning my RMD. Any other advice from anyone?

I won't have to deal with the RMD for 3 more years, but I've started this year to withdraw money from my IRA even though I don't need IRA money to make my ends meet. What I am doing is taking out as much as I will be able to get to fall within the IRS 15% tax bracket by year's end.

I figure, sooner or later I'll have to pay taxes on that money. Better to take the money out at the lowest tax cost I can arrange.

In your case, you might want to review and take into account how much of your planned withdrawals will fall within each of the tax brackets that are going to apply to you.

Good luck.

[scfr]

What I am doing is taking out as much as I will be able to get to fall within the IRS 15% tax bracket by year's end.

I figure, sooner or later I'll have to pay taxes on that money. Better to take the money out at the lowest tax cost I can arrange.

Not retired yet but this is the approach I plan to take after retirement before the RMD kicks in, take as much as I can to the upper limit of the lowest tax bracket.