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Dear HD readers: We had so much fun with the original version of this post, that I thought it might be fun to add a 3rd possible route to funding retirement at $138,000/yr. Of course, there is no reality in this, no real personal info, it is just a scenario. And, most important, any legal route that get you to your desired retirement income is the right one for you.
One of my friends is hitting 73 in August and we were discussing his need to do an RMD this year. I’m older and have been doing them for some years already. Our financial affairs have one major difference; he has a significant pension and I do not have any pension. I’d say that we are both comfortable. I think he likes his situation, and I like mine.
I thought it might be interesting to create a possible scenario where three people might arrive at the same retirement income through different routes.
Joe has a pension, SS and some savings split between taxable and tax deferred (25/75). He makes around $138,000 per year.
Bill has no pension, he has SS and savings split between taxable and tax deferred(25/75). He makes around $138,000 per year.
Paul has no pension, he has SS and savings split between taxable and tax deferred (67/33). He makes around $138,000 per year.
They are the same age, are retired receiving SS. The all receive $48000 per year in SS. Joe has a $5,000/Mo no COLA pension, and takes 4% of his $750,000 savings each year to reach his $138,000 income. Bill takes 4% of his $2,250,000 savings each year to reach his $138,000 income. Of course, as Bill ages, he will have to take larger RMDs, but he can lower what he takes out of his taxable account to try to keep his income the same as Joe and Paul. Paul has been investing in Dividend Kings and collects $60,000 in dividends from his taxable account. He also takes a 4% withdrawal from his approximately $750k tax deferred account. His dividends have been growing around 5% on the average each year.
All have a reasonable allocation to equities in their financial assets. They all own a home without a mortgage.
I suspect that Joe had some kind of government job and that Bill worked for a corporation. Bill might have had a higher income while he was working. Paul owned a small business.
We might be discussing Sally, Cheryl, and Elizabeth instead of Joe, Paul and Bill….the names are just for convenience.
So, which might you like to be and why?
Joe and Bill are about to have an ugly blind date named IRMAA.
Bill, even though I really like guaranteed income. So I would delay SS to maximize the COLA, perhaps buy a deferred annuity like a QLAC and use a TIPs ladder to mitigate inflation risk. (Not that different from what we are actually doing although we do have 3 small pensions, one with a diet COLA.
I suspect the responses maybe affected by recency bias. With the stock market doing so well for so many years, higher savings appears to have the stronger case. Would the responses change if we had just experienced a recession, or long overdue correction?
Where is the pension … In a rust belt school district teetering on insolvency or the federal government? Big difference