I am now approaching retirement, and need to determine how to finance it. I’m 60, and while I have saved for retirement generally, I don’t have a real plan on how to provide income during retirement.
A lot of my expectations and information is from my Father, and others of his generation. But my Father had a pension. Once he was retired, he didn’t have to do anything to continue getting a paycheck. And when he died, that same income has continued with my Mother. My older brother also has a pension.
But me, I will have no pension. I went off to school and came out with a Ph.D. After 10 years as a professor, I went off to industry — high tech. So I have a 401(k) plan.
Actually it’s a bit more complex. My University plan got rolled into a rollover IRA, so I have that plus the 401(k). And while I was at the University, I wrote a couple of text books. One actually returned some money. Since I couldn’t depend on that income, I got a financial adviser and started saving/investing that money. He had me put 25% in a Keogh, which I eventually also rolled into the IRA.
Plus, my financial adviser suggested I start a plain IRA and put money into it, even though I made too much to deduct it. So this IRA has a basis of funds that have already been taxed, plus the growth which has not. This gets the maximum amount allowed — $6,000 a year now.
And I’m still putting money in my 401(k) plan — the maximum amount allowed, which is now somewhere around $22,000 a year. This gets me an employer match. A couple years ago, they introduced a Roth 401(k), and I diverted all my 401(k) money into that. The employee match still goes into the regular 401(k).
There is also money that I have just saved, in a brokerage account. All of this money is invested according to an asset allocation mechanism. About once a year, I rebalance everything to keep close to my defined asset allocation.
After 25 years of saving and investing, a couple of job changes, a nasty divorce, and getting two kids through college, it comes down to retirement. I’m just about to pay off the mortgage (another 3 months), which leaves me with no debt, a 15-year-old car, and my savings:
- $587,000. Brokerage savings. Already taxed.
- $160,000. IRA. Already taxed basis of $60,000.
- $900,000. Rollover IRA (the old Keogh and such).
- $475,000. Current 401(k).
- $70,000. Roth 401(k).
This should put me in a good position for retirement, but I need to figure out how to convert this savings, both tax-deferred, tax-free, and already taxed accounts, into a regular income stream to live off of. Which is the point of this blog.
From what I read, I am sort of the poster boy for my generation. No pension, everything in my 401(k) and the IRAs. I’ve saved regularly. I’ve invested reasonably well, using a well-defined asset allocation with most of my money in low-cost mutual funds. Now what?
There are a number of questions that I want to try to answer over the next couple months, as I develop my retirement plan, including:
- How much money do I need to generate? What are my expenses. My older brother and a retired neighbor both suggested that their annual costs are about $60,000.
- Was putting the money in tax-deferred accounts (the IRA, the Keogh, the 401(k)) worth it? Or will I actually pay more in taxes, in the long run than if I had not used these accounts, but just saved the money in an after tax brokerage account?
- How do I use the tax-deferred money, to minimize what I pay in taxes?
- How does Social Security fit in?
- What can I do to generate a dependable income stream — something that approximates a monthly “paycheck”?
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