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A Bridge to My 70s

Dennis Friedman

WHEN I RETIRED IN 2009, I had two main goals: I wanted to buy a used Volkswagen van—and I didn’t want to touch the money in my tax-deferred retirement accounts. Instead, I wanted to let that money compound for as long as possible.

What was so important about the VW van? When I was growing up in the 1960s, those vans were a symbol of freedom. While I was in college, I remember a friend spending most of his days surfing. He lived out of his van and worked a few odd jobs whenever he needed money. I admit it, I envied him.

The vans were also emblematic of a nomadic lifestyle. That’s what I wanted to do when I retired—travel from one place to another. I was planning to load a VW van with an air mattress, sleeping bag, cooler and a few other belongings. I didn’t particularly care where I was going. I just wanted to go.

Unfortunately, things didn’t work out as planned. A few months after I retired, my father was diagnosed with cancer. Later, I became a caregiver for my mother. Then I married a lovely lady who has no desire to sleep in a van while crisscrossing the country. I must confess, now that I’m older, roughing it in a van doesn’t sound so appealing to me, either.

I had better luck with my other retirement goal: leaving my tax-deferred retirement accounts untouched.

My plan was to live solely off my taxable investment account during my early retirement years. I had a good chunk of money in a Vanguard Group account. Even though I was only age 58, I thought that money could last me until I started taking my first required minimum distribution (RMD) from my retirement accounts in the year I turned age 70½. (The required starting age was later revised to 72.) I figured that, from my 70s on, my retirement account RMDs—along with Social Security—would give me enough predictable income for a financially secure retirement.

As part of my planning, during the two years before I retired, I tracked my spending using an Excel spreadsheet. My fixed expenses were low. I had no debt. Still, I doubled my estimated expenses to make sure my plan was doable.

I was eligible for a pension. I took the lump-sum payout, instead of the annuity, and rolled the money into an IRA. One reason I took the lump sum: During my early retirement years, I wanted to keep my taxable income low, so I could do larger Roth conversions without incurring a sizable tax bill. That, in turn, would help reduce my tax bill when my RMDs kicked in starting in my early 70s. On top of that, the conversions would give me a well-funded Roth IRA, which I viewed as my insurance policy in case I incurred long-term-care expenses.

I was single at the time, and that was another reason for taking the lump-sum payout. I was concerned that, if I later married, my wife wouldn’t receive any money if I took the annuity. There would be no survivor benefit upon my death. It turned out to be the right decision. In 2020, I did indeed get married.

I still haven’t withdrawn any money from my tax-deferred accounts. Thanks to the 2009-20 bull market, the longest one in U.S. stock market history, I was able to live solely off my taxable investments. My first retirement account withdrawal will be next year, when I start required minimum distributions at age 72.

I’m confident we won’t run out of money because our income from our RMDs and Social Security will be more than enough to cover our low overhead costs and our discretionary spending. In addition, we have a substantial Roth IRA to fall back on.

The financial security we have today all started with that Vanguard taxable account that I built up during my working years. The account allowed us to leave our retirement accounts to grow and to delay my Social Security benefits until age 70. The bottom line: When investing for retirement, also try to fund a taxable account—because it can be an important bridge to financial security.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on Twitter @DMFrie.

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