Column by Wade Pfau. Briefly approaches include:
1. Spend conservatively (invest aggressively, but spend so little that you can survive starting concurrently with a down market)
2. Be flexible ("at the extreme ... withdraw[] a constant percentage of remaining assets")
3. Reduce volatility (e.g. with pensions, annuities or other income guarantees, increasing equity allocation over time, ...)
4. Avoid selling at losses (keep 3 year cash buffer - see Buffett, keep line of credit from home equity)
https://www.forbes.com/sites/wadepfau/2017/04/12/4-approaches-to-managing-sequence-of-returns-risk-in-retirement
Comments
Sketchy advice, to say the least. Ask around and see what kind of response you get to this notion.
Unused or lightly / prudently used heloc always a good idea, sure.
http://mutualfundobserver.com/discuss/discussion/9501/new-strategy-for-equity-investing-during-retirement-ignites-debate
Here's Kitces column. It contains a link to their paper.
https://www.kitces.com/blog/should-equity-exposure-decrease-in-retirement-or-is-a-rising-equity-glidepath-actually-better/
ron said in Dec, 2013:
To abuse the metaphor, you've got eggs in multiple baskets (traditional IRA, Roth, 401k, taxable), and you're just required to move some eggs from one basket to another. You don't have to crack open any of those eggs - the IRS lets you move your investments in kind from your IRA to your taxable account.
The 4% rule refers to how many eggs you can take out safely, regardless of which basket they come from.
But this is the same taxable event as in-IRA selling and receiving the RMD cash directly, right?
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Added: I've taken to "withdrawing" my annual RMD at T Rowe by simply moving the correct amount out of TRBUX (IRA) and into TRBUX (TOD). It's that simple. Also, I've checked and have found it's possible (with some important qualifications) to continue converting portions of one's Traditional IRAs to a Roth IRAs, even after reaching mandatory distribution age. Under some circumstances (mainly, I think, market valuations) it might make sense to use RMD withdrawals to cover the tax cost of converting portions of an IRA to a Roth.
Not intended to be investment or tax advice.
After that, what you do with the distributed (withdrawn) assets is up to you. That's why how to deal with RMDs is not so much a retirement planning issue (e.g. 4% drawdown schedules) as it is a tax planning concern (e.g. when to take distributions to minimize the tax consequences of RMDs).
I do see merit in living within your means (keeping living expenses low) and Investing agressively or as @Ted would say..."Letting the Big Dog Bark".. (stock allocation, not bond allocation should equal your age).
As a side note, if I were to move, not crack my eggs from a tax deferred status (as a result of RMDs) to a taxable status I would strongly consider owning stocks instead of mutual funds so as to insure that these investment, if not spent, would be inherited with the benefit of the "stepped up basis" provision.
Q. Are EFTs treated to the same "stepped up basis" provision as stocks in taxable accounts?
>> Actually, the Roth (not subject to RMD) is a tax boondoggle for the wealthiest among us
No it's not, in fact, depending of course on how you define 'wealthiest':
http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/roth_ira/contribution_limits
Indeed you might say (and many have said) that Roths are specifically prohibited "for the wealthiest among us." Part of the point when it was conceived, actually.
(According to your link) the allowable yearly contribution is graduated downward as income increases (presumably to help the poorest among us). However, the lowest step (highest allowable contribution) for a married couple filing jointly is at a "measly" $186,000 annual income. After that $186,000 initial step, you are correct that the allowable Roth contribution decreases. I don't know about the national averages or what incomes are in your area, but I can tell you that a combined $186,000 annual income is not considered a lowly amount in most parts of Michigan.
But there's a second aspect to all of this. While you and your spouse, just out of college, may be earning only $186,000 annually early in your careers, if from a wealthy family your Ma and Pa (or Grandma and Gramps) can gift money to you from the family's assets. I don't know if it would be legal to pay your Roth contribution tax expenses directly with such gifted money. However, practically speaking what's the difference? If you use that gifted money to pay your basic living expenses and than move the expenses that were deferred by those gifts into paying your Roth tax bill, isn't the result the same? You have a distinct tax advantage over the couple across town who earn the same amount as you, but who have no wealthy family members to help them defer living expenses.
I love the Roth. However, I had to work very hard to cover the extra tax hit incurred in having one. And came into them relatively late in life. Not sure that's the case with those from wealthier families.
Here's a couple reality checks:
Average U.S. Household incomes 2016 - https://www.fool.com/retirement/2016/10/30/heres-the-average-american-household-income-how-do.aspx
Median Household Income by State - 2015 https://www.advisorperspectives.com/dshort/updates/2016/10/14/median-household-income-by-state-a-new-look-at-the-data
In the unusual case where the current value is less than cost, it may make sense to sell prior to death to recognize that loss. The tricky part is knowing when you're going to die.
(You can't take a loss on your residence, however.)
When it was conceived, there was no way for higher earners to contribute to Roths. Now there is.
Forgive me, what is that way?
Hank's post seems only to make my point. And is confused to boot --- who said anything about 185k joint income being lowly anywhere? My point. What am I missing?
Yeah, generational transfers help everything. Not sure this has to do with the point.
My mil left a non-large pot for her grandchildren, and the one who did not go to grad school got hers every year, as we doled it out to fund her Roth, since the kid herself could not afford to (not on her middling salary; she did hit her 401k fully for match). Those few years of grandma-origin diverted Roth funding were a bull market, so last month she withdrew all of grandma's money plus 10k of the gains for condo downpayment.
RPP, sure, and a good outcome.
Nothing to do with Roths and the very wealthy.
It is not unheard of for a tech-educated couple in this area in jointly earn 90k each after a few years out of school, or right away in some other fields (consulting, law, medicine, blah blah), nor even in Pittsburgh or Atlanta, and those couples are precluded from Roths from the getgo. All I was saying.
Look at the schedule you linked in an attempt to refute my earlier comment that the Roth is a tax boondoggle for the wealthy. Your point was probably that, since the schedule shows a decreasing threshold for the allowable dollar amount of annual Roth contributions as incomes (married filing jointly) rise, the wealthy benefit less than lower income couples. Yes - that's accurate and partially proves your point as I alluded.
However, my comments were to the effect that the highest yearly contribution amounts allowed (either $5,500 or $6,500 depending on age) still favor the category of married couples earning up to $186,000. That income figure ($186,000) may appear "low" on the schedule you linked (compared with the higher incomes listed), but is in reality far above both the national average and median incomes for families as reported in recent years.
IRAs all favor the people who can afford to contribute the most. (Duh) But an enhanced IRA, like the Roth, favors those who can afford to contribute the most even more. At risk here of going outside my limited knowledge base. But I've seen enough of the Roth to think that for most people it represents a superior long-term tax-advantaged investment vehicle compared to the Traditional IRA. The "kicker" is that one has to have the additional resources beyond their actual contribution to cover the additional taxes a Roth demands early on. That's where the more affluent gain a real advantage.
Look at the income percentiles, for heaven's sake, before going back and forth about this, okay? Did you do that?
Everyone I have known ever since Roth was implemented whom you or I or anyone would call truly wealthy, in every part of the country, has not been able (allowed) to contribute. Period. And has not. They lament it, but accept it.
There is no covering "additional taxes a Roth demands." It's after-tax bucks, yes, for sure; everyone gets that.
Like normal non-retirement investing, except any growth is tax-exempt, woohoo.
Perhaps you see investment sites as pertaining to trad IRAs and 401k / 403bs only?
Also, from Morningstar, 2015: "It has been five years since the income limits on IRA conversions were lifted, effectively putting Roth IRA investments within reach of higher-income individuals who had previously been shut out because they earned too much to make a direct contribution."
Addressing possible discussion about my use of the word "contribute": the IRS term for these moneys is "conversion contribution". From Pub 590a:
@Hank, I am baffled that you keep agreeing and yet think there is disagreement. I say aftertax, and you say no, it's aftertax. Reading comprehension, or something
>> You appear to have a lot of rich friends.
No, did not say that either, was just citing a sample of the "wealthy".
Too tiresome to continue. Roths were conceived not to be available to the wealthy. And there are ways around that, to an extent.
And there were worse ways too; msf and some others may recall this:
http://politicalconundrum.lefora.com/topic/8137920
Me too.
Thanks @davidmoran You're a good sport.
Regards