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Retired and then what?

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ukrkoz
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Retired and then what?  Reply with quote  

I have maybe a stupid question, but somehow, I can not find a straight answer to it.
Everyone tells you what to do and how to do to be ready for retirement.
NO ONE tells you what to do, AFTER you retired.
What are exact mechanics of being retired with 401K, IRA, and pension?
I mean, quite easy with pension. You receive (hopefully) your check in mail or directly deposited.
But what about the other retirement engines? And when you need a little xtra for say new car or unexpected expenses? Sell your stock? But that may sell out to nothing fast and furious...

How exactly is all this done?
Post Sun May 05, 2013 6:20 pm
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oldguy
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quote:
And when you need a little xtra for say new car or unexpected expenses? Sell your stock? But that may sell out to nothing fast and furious...


That's how you do it. When you need money, you sell part of your IRA. Most of us, at retirement, roll the 401k into an IRA at an investment company. When you need money you sell some of your holdings - we usually sell something about twice a year to rebuild our checking account. And if you want to pay cash for a new car, same thing - sell some of your holdings and buy the car.

After age 70 1/2 you hit the Required Minimum Distribution rule - the govt requires you to sell some each year (they want the tax income). In our case, that is when we started selling some, we didn't need any of the money at 59 1/2 when it was available so we let it ride for those 11 yrs.

As for selling out to nothing fast and furious - well yeah, if you spend it all, lol. But if you invest for 30 years while work and build up an account of several million, and if you only pull out 4% or 5% every year, it normally keeps growing - ours is bigger now than it was when we started selling some.
Post Sun May 05, 2013 7:36 pm
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ukrkoz
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Thank you. So there is no special magic to it, just regular hold/sell.
Yeah, we are late starters. Wish we had 30 years at our current wages. I'd not be asking stupid questions then.
Reason we had this conversation with my spouse today is we paid off mortgage, and $$ are basically staying in checking account, as we live frugal and earn quite well I'd say.
I believe we are not investing enough, she believes she's doing grand, with 403B and her previous job 401K, both growing slow but steady.
I, on the other hand, started 401K only 2 yrs ago( 58 now) and have basic IRAs opened for myself and her. I say we need to hit 100K in savings and then pump as much as we can into retirement funds we have, but then Mr IRS says - no, you can set aside only yey much.
And so we got into this "what is after you retire" conversation and I posted it here.
Why roll into IRA from 401K?[b]
Post Sun May 05, 2013 7:47 pm
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clydewolf
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Re: Retired and then what?  Reply with quote  

quote:
Originally posted by ukrkoz
I have maybe a stupid question, but somehow, I can not find a straight answer to it.
Everyone tells you what to do and how to do to be ready for retirement.
NO ONE tells you what to do, AFTER you retired.
What are exact mechanics of being retired with 401K, IRA, and pension?
I mean, quite easy with pension. You receive (hopefully) your check in mail or directly deposited.
But what about the other retirement engines? And when you need a little xtra for say new car or unexpected expenses? Sell your stock? But that may sell out to nothing fast and furious...

How exactly is all this done?

I believe you forgot SS benefits. But the popular thinking is to delay starting SS benefits until you reach your full retirement age.

Generally it is best to move your 401k money to an IRA. It can be your existing IRA or to another IRA custodian if you prefer. The best way to do this is by a trustee to trustee transfer. That trustee to trustee transfer is a non taxable event.

Having your retirement money at one IRA custodian makes things easier.

Having both an IRA and a 401k account after age 70 1/2 you would need to take RMDs from your IRA and a separate RMD from your 401k account each year. The RMD requirement of the 401k can not be merged with the RMD from your IRA. But having several IRAs, the RMD requirement of each IRA can be merged and taken from one IRA.

When you take your RMD and you do not need that for current expenses, with your pension and SS, you can invest it for future use. This could be an accumulation fund, maybe to buy the new car, or unplanned medical expenses.

In retirement you should still have a cash emergency fund. This fund would not need to be as large as your EF in pre-retirement days.

The amount to spend each year is estimated at about 4% of your savings. It does not matter if this is from your savings, investment account, IRA or 401k. The idea is to make this money last as long as you do.
Post Sun May 05, 2013 7:50 pm
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ukrkoz
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RMD being???? Regular ............?
Post Sun May 05, 2013 7:54 pm
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clydewolf
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quote:
Originally posted by ukrkoz
but then Mr IRS says - no, you can set aside only yey much.
And so we got into this "what is after you retire" conversation and I posted it here.
Why roll into IRA from 401K?[b]

Mr. IRS administers the taxing plan approved by Congress.

RMD = Required Minimum Distribution.

The transfer to the IRA just makes things easier. And generally your beneficiaries have better options with the IRA vs the 401k plan.


Last edited by clydewolf on Sun May 05, 2013 8:34 pm; edited 2 times in total
Post Sun May 05, 2013 7:56 pm
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ukrkoz
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I got it. Required minimum distribution.
Still need more clarity on why IRA over 401K?

Thank you. She is very reluctant to do any changes, will take a canon to the temple to convince her to do any transitions.
Post Sun May 05, 2013 7:57 pm
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clydewolf
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quote:
Originally posted by ukrkoz
I got it. Required minimum distribution.
Still need more clarity on why IRA over 401K?

Thank you. She is very reluctant to do any changes, will take a canon to the temple to convince her to do any transitions.

Using a low cost cost IRA custodian such as Vanguard or Fidelity will cost you less to keep the IRA vs a 401k or 403b account. That means more money for the account owner.

In an IRA your investing options are not limited to a short list of funds offered by the 401k or 403b plan.

Read the Summary Plan Description (SPD) for the 401k and the 403b plans. Then read the equivalent documents for your IRAs. You will see that beneficiaries have some better choices especially for spousal beneficiaries. These choices can be for stretching the account over the surviving spouse's lifetime. The 401k or 403b may have a requirement for depleting the account within 5 years. Such a requirement would increase your annual tax bill.

At age 70 1/2 RMDs must be taken from Each 401k and each 403b plan. You can take your total IRA RMD from one IRA account if you choose. If you use one IRA custodian you will receive one set of paper work reporting the status of your account. Keeping the 401k and 403b plans you will receive a set of statements from them.

At age 70 1/2 some 401k plans will issue you 2 checks, one for your RMD and a second check for the remaining balance. Both checks will have had 20% withheld for income tax. Read your SPD to determine how your RMD will be handled.

Some 401k plans have an increased charge for non employee 401k accounts.

Using the IRA at one custodian just makes life more simple.
Post Sun May 05, 2013 8:32 pm
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ukrkoz
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Now that's what I was looking for. Thank you.
So custodian automatically starts withdrawing $$ for you and sending them to beneficiary?
Can they be circled back and re - invested into same account?
Post Sun May 05, 2013 8:37 pm
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blixet
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Not the same account, but it could be the same investment choice, if available. It would need to be in a new or existing taxable account once it is distributed from the tax-deferred account.

Information is more valuable sold than used – Fischer Black
Post Sun May 05, 2013 10:08 pm
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clydewolf
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quote:
Originally posted by ukrkoz

So custodian automatically starts withdrawing $$ for you and sending them to beneficiary?

Reread the previous post. SOME 401k plans do that.
Which means SOME 401k plans do not automatically start the RMD.

Taking the RMD is the responsibility of the 401k account owner (that would be you).
quote:

Can they be circled back and re - invested into same account?

No, as Blixet posted, the RMD is money leaving the 401k account and is taxed by our friendly IRS. Now you can do any legal activity with that money. You can invest it in the same or similar fund in an investment account. In the investment account you will pay annual income tax on dividends and capital gains.
Post Mon May 06, 2013 7:50 pm
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