Spending investment money in retirement.

[mrpaseo]

Given a fixed income until my demise (Pension), I have a retirement investment portfolio that I eventually will draw on after I reach the correct age. That said, I plan to live on the pension and supplementing with the portfolio. I am planning on taking only the dividends once per year, I am then planning on transferring a set amount (Total dividends / 52).

Is there something wrong with this thought process?

For example, let's assume a pension of $1,000. I will live on this income (All my basic bills).

Come December, all my dividends will be put directly into a bank account. I will then take that amount, divide it by 52 (Number of weeks in a year) and will set up an allotment to automatically send that to my budget account.

This will stop me from spending my principle portfolio.

Where is the flaws in this thought process?

Thanks.

[kork13]

Seems to be a sound plan overall. The only complication might be if the dividends don't meet whatever needs/wants you might have. Since you won't really be relying on the investments for living on, that may really just be an inconvenience.

[snafu]

Does your specific retirement program have rules that require you withdraw a minimum amount like 4% ea. year? In Canada, after age 72 each annuitant is required to withdraw on formula of about 1/18 of the value of their retirement account and pay tax since the original sums and their compounds were all tax free. Seniors who have defined benefit pensions from their careers often put that forced withdrawn sum into a regular portfolio. I'm guessing inflation can wreck your plan. I'm sure people who retired 20 years ago didn't imagine paying $ 3.50 a gallon gas. Here, where the stuff comes out of the ground and is refined, we're paying $ 5.50 a gallon this weekend...

What will the rules be when you retire? I wonder what the rules will be in 15 years when non savers have no retirement benefits and need welfare to supplement SS.

I

[snafu]

dbl pos, sorry

[mrpaseo]

Does your specific retirement program have rules that require you withdraw a minimum amount like 4% ea. year? In Canada, after age 72 each annuitant is required to withdraw on formula of about 1/18 of the value of their retirement account and pay tax since the original sums and their compounds were all tax free. Seniors who have defined benefit pensions from their careers often put that forced withdrawn sum into a regular portfolio. I'm guessing inflation can wreck your plan. I'm sure people who retired 20 years ago didn't imagine paying $ 3.50 a gallon gas. Here, where the stuff comes out of the ground and is refined, we're paying $ 5.50 a gallon this weekend...

What will the rules be when you retire? I wonder what the rules will be in 15 years when non savers have no retirement benefits and need welfare to supplement SS.

I

Good feedback, thanks. My pension adjusts annually with inflation so hopefully I can keep pace with my supplemental income. I do believe there is a mandatory withdraw amount at some point and when I hit that age I will draw the minimums.

Just found this on the internet, "you must start taking withdrawals that are known as "required minimum distributions" starting in the year you turn 70 ½.". I'm assuming this is a percentage of the portfolio balance (Not including the dividends).

Found this on 401k as well, "Once you turn 70½, you must begin withdrawals from your 401(k) unless you're still working. These required withdrawals are designed to ensure that you use the money in your account for the purpose it was intended: to provide retirement income."

I wonder if it is all rolled up into one pot or do I have to withdraw from both 401k and ROTHs.

Thanks

[Petunia 100]

Good feedback, thanks. My pension adjusts annually with inflation so hopefully I can keep pace with my supplemental income. I do believe there is a mandatory withdraw amount at some point and when I hit that age I will draw the minimums.

Just found this on the internet, "you must start taking withdrawals that are known as "required minimum distributions" starting in the year you turn 70 ½.". I'm assuming this is a percentage of the portfolio balance (Not including the dividends).

Found this on 401k as well, "Once you turn 70½, you must begin withdrawals from your 401(k) unless you're still working. These required withdrawals are designed to ensure that you use the money in your account for the purpose it was intended: to provide retirement income."

I wonder if it is all rolled up into one pot or do I have to withdraw from both 401k and ROTHs.

Thanks

There are no RMDs for Roth IRAs.

Roth 401ks, traditional 401ks, and traditional IRAs all have RMDs.

For details on how RMDs are calculated, see this:

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions#2

[dunnrobert700]

I was going to go on about inflation, but I see that's covered (20 years at 2.5% and you'll be at $1600).

If I understand your plan you are going to leave all capital gains and the principle alone and just withdraw dividends for "quality of life" above and beyond basic bills which are covered. That sounds like a great plan for someone that's going to live forever, but that would be quite a trick. I suppose you might also feel strongly about leaving an inheritance.

Barring those things, you're probably living more frugally than your circumstances require without getting any benefit in return. Maybe run the numbers and see how much of the gains/principle you could also draw down assuming...say...modest average returns (inflation+2%) and that you live to 100. I bet you'll be surprised at how much more you can take.

[snafu]

The senior community here is discussing senior housing for those unable to continue to live independently. Where and at what cost do you see expenses for ten years age 90-100+?

[mrpaseo]

The senior community here is discussing senior housing for those unable to continue to live independently. Where and at what cost do you see expenses for ten years age 90-100+?

Pension and VA benefits are until I die, supplemental income from investments (Assuming I do not spend the principle, the interest should last until I die), home is paid in full, as long as I take advantage of this paid off home, I should always have a place to stay...

Did that answer your question?

As for other expenses, I have medical coverage until I die (Tricare for life, then Medicare at 65), if long term health care is an issue, I can tap into the principle of our investments.

As for our investments, we are where we are, we have a plan to continue to contribute for about 9 more years at which time we are planning on retiring in full. If things go the way we plan, we will do some traveling for a few years then purchase a home at 53 (Of course this is our current plan and it has plenty of time to change).

[mrpaseo]

I was going to go on about inflation, but I see that's covered (20 years at 2.5% and you'll be at $1600).

If I understand your plan you are going to leave all capital gains and the principle alone and just withdraw dividends for "quality of life" above and beyond basic bills which are covered. That sounds like a great plan for someone that's going to live forever, but that would be quite a trick. I suppose you might also feel strongly about leaving an inheritance.

Barring those things, you're probably living more frugally than your circumstances require without getting any benefit in return. Maybe run the numbers and see how much of the gains/principle you could also draw down assuming...say...modest average returns (inflation+2%) and that you live to 100. I bet you'll be surprised at how much more you can take.

I agree and appreciate your input, I usually have fail safes backed into my plans and truthfully, that was one of my fail safes. Basically, if I needed some income I could draw as needed for any large purchases that could not be covered by my E-fund.