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Hello Retirement

Richard Connor

MY WIFE AND I CONTINUE to modify our retirement plan in response to changes in our lives. Most of the changes have to do with the timing of both our retirements. But there’s also the puzzling question of which investment accounts we should draw on for income. More on that later.

First, a bit of background: I started receiving my pension at the end of 2017, after I stopped working fulltime. We expected to start drawing on our retirement savings in 2018. But an unexpected career opportunity for my wife, plus some attractive consulting gigs for me, made that unnecessary.

I just turned 64. My wife is six months younger. She originally thought she’d work through the end of 2021, but she stopped at the end of June. This required us to switch from her insurance to mine for medical benefits.

During the pandemic, I’ve had limited opportunity for additional consulting work. That could change next year or even in the fourth quarter. But I’m not counting on a lot of income. Anything I earn, I’ll consider “found” money.

With work winding down, it’s time to execute our retirement plan—including starting portfolio withdrawals in 2022. Here’s our general framework:

  • Pension. When I started my pension, I chose the 75% joint-and-survivor option. Should I predecease my wife, she’d continue to collect three-quarters of my pension.
  • Housing. We are now settled into our home on the New Jersey shore. We’re planning upgrades to the bathrooms, but those should be the last big-ticket improvements for a while.
  • Health insurance. We’ll use my pension’s retiree medical plan until we enroll in Medicare. We chose a high-deductible plan, and use our health savings account to pay out-of-pocket costs. Once we’re enrolled in Medicare, we can join a subsidized Medigap plan offered by my pension plan.
  • Retirement income. We have enough cash in our Vanguard Group accounts to fund three years of spending. I plan to automate monthly transfers to our online checking accounts.
  • Social Security. We intend to delay Social Security at least until full retirement age. For me, that’s 66 and six months. For my wife, it’s 66 and eight months. We might delay payments until 70 to maximize our benefits. We’ll evaluate this each year to see if anything has happened to change our decision.
  • Taxes. I plan to watch this closely, especially as we take withdrawals from tax-deferred retirement accounts. I’ll also look for opportunities to make Roth conversions.

Like many people, we have multiple financial accounts. We have joint checking, savings and taxable investment accounts. We each have rollover IRAs and Roth IRAs, plus I have a solo 401(k). We invest primarily in low-cost index funds.

This raises a question I hadn’t thought about previously. When spouses each have individual retirement assets, whose traditional IRA should we draw from first? Until we reach age 72, there’s no requirement to withdraw any amount from these accounts.

Should we draw from whoever’s account is currently largest? Should we draw from the person with the shortest life expectancy? I did some research, but couldn’t find consistent guidance on how to treat multiple accounts owned by a couple, so I’m still pondering the question.

I’ve never tried to have each of our accounts mirror the others in portfolio composition. Instead, I’ve looked at the whole of our accounts to make sure they match our overall asset allocation target.

For example, my wife’s IRA is primarily invested in U.S. stocks. My account is a bit larger, so I’ve used that account to diversify across U.S. shares, foreign stocks, cash and bonds. I use my account to rebalance our overall portfolio as thing change. This has worked well for us so far. I plan to keep this structure, taking annual withdrawals from my account and allowing hers to grow.

But is that the right strategy? I’d be interested to learn how others have approached this question. Any advice?

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.

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