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November 01, 2011

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A suggestion would to look at #6 now so that you can start to understand taxes before you retire.

Depending on your 401k or IRA and how much money you have in it there is a item call Minimum Required Distribution or MRD that kicks in at 70 1/2. I find that depending on how much you have in a traditional IRA or 401k the MRD may be more than you want to take out in a year and put you in a higher tax bracket. It may make sense to take some of that money and convert it to a roth.

I do want to research this more so that in the 10 years before I retire I have a plan on how to take the money out of these accounts and minimize my taxes.

>6. When to pay taxes.

I don't think this one is that hard- do quarterly estimated tax payments based on your income. This is what you have to do if you are self employed.

Since you know how much your expenses are you should know how much income you will need to take and how much you will need to pay in taxes. You can always use last year's tax table to get a good estimate.

-Rick Francis

You will get Social Security, but it will get less.

I think you might should consider taking Social Security as soon as possible. Laying aside the possibility that Social Security might not always be available (which could happen), it makes better financial sense too.

Consider a person who just turned 62 and earned $50,000 his last working year. If he takes SS now, his benefit will be $1024/mo. If he waits until he's 66, he gets $1408/mo. Let's assume he'll live to 85.

If he takes it at 62, he'll get a total of $282,624 by 85.
If he takes it at 66, he'll get a total of $321,024 by 85.

That's a difference of $49,152.

But lets's say that from 62 to 66, he takes that $1024 and invests it conservatively and earns 5%. By the time he's 66, it'll be worth $54,415.85.

So, not only does he come out slightly ahead, but he's also avoided the risk of dying early and having all that money go poof, AND avoided the risk of Social Security going bust and not being able to pay him anything.

Something to think about, at least.

I can only recount my own experiences that worked out very well indeed.

1) I was planning on retiring in March '93 at age 58 when my retirement pension would receive its next increment. In September '92 the company announced a voluntary early retirement program with the inducement of receiving 1 week's pay for every one of my 32 years of service. I jumped at it and used the money to pay off the mortgage on our home.

2) I decided that "A bird in the hand is worth two in the bush" and took my SS at age 62.

3) I was eligible to stay in my company's group insurance plan which was better than anything else available.

4) Spending money is not an issue for us as our investments have grown by a factor of over 19 since retiring and they generate a very large annual tax deferred and tax exempt income.

5) Our investment risk today is extremely low since we are 100% invested in bonds that we will be holding until they mature.

6) Every December to satisfy our MRD requirements I move a large amount from our IRAs into our Trust account. I then have Fidelity withhold our estimated Federal and State taxes. The State and the IRS treat this payment as if it was received monthly during the year which alleviates the need for filing quarterly returns.

7) We did not move after retiring, we live in the heart of Silicon Valley which has, arguably, the best year round climate in the USA.

8) We don't need our home or beach condo to finance our retirement.

9) After retiring I started actively managing our investments. Over a 2-3 year period this led to producing a very comprehensive mutual fund analysis computer program which I marketed for several years. It was an MS-DOS program that is now almost obsolete but it served its purpose, especially during the dot.com bubble.

10) We did a huge amount of travelling between 1993 and 2010 but age has a way of catching up on you and these days we lead a very quiet life and don't stray too far from home.

Totally off topic:

I hate the new "click this story to expand" setup. I liked being able to skim the most recent few articles without having to expand each one individually.

LotharBot --

Since you asked...

Welcome to the age of Google -- where they are now dictating what sites look like by saying load speed will impact search rankings. And the best way to decrease load speed is to cut articles short on the homepage. I'm still paying with how much I lead with before the "click", but I'm trying to include enough to give you a sense of what the piece is about before you have to click.

Another option is to include the entire article, but only have the last five posts on the homepage, instead of the last 10.

I'll be testing out options over the next month or so, and your continued feedback (from everyone) is appreciated.

1. When? April 30, 2012.
2. SS? Before my 62nd birthday is 30 seconds old.
3. Health Ins? Both Health and LTC are covered.
4. Expenses? I figured around $70,000 but I bet we get by on $50,000. Either will be OK.
5. Investment Risk? About a 4 on 1 - 10 scale.
6. Taxes? This is something that I haven't even thought about. I guess I always paid annually and always would. But now I will research it.
7. Where to Live? Right where I am in middle Tennessee.
8. Home? I will live in my home for as long as possible. Mortgage was paid up in 2009. It is 3,000 sq ft with an acre lot so at some point we won't be able to care for it all and then we will downsize.
9. Work? Hell no!
10. What will I do? Don't know but it will not be work!

I agree with Lotharbot. Maybe you can set a max byte count and push oldest articles out. Great topic btw.

FMF, you're talking about perhaps a few thousand characters -- that is, a few KB -- that don't require any extra disk reads or other slow operations on the server end. Text length isn't going to hurt your load time significantly. (For comparison, your top image is 144 KB, and your ads run from 4 to 33 KB, some of which load from remote servers. Each post has 3 "related post" images that are about 3 KB each.)

http://googlewebmastercentral.blogspot.com/2010/04/using-site-speed-in-web-search-ranking.html has some nice tools linked. Matt Cutts, co-author of that piece, mentions at http://www.mattcutts.com/blog/site-speed/ that key factors to be aware of including blocking scripts and slow third-party widgets; I've never heard him mention text length as a serious issue. (Matt is also a super nice guy.)

LotharBot --

Thanks. I'll check out those links...

I am about 4 years from retirement and I have started looking at all these issues.

Regarding taxes, my mom who is retired, started having to pay quarterly taxes because of about $500 monthly income she gets from her investments. The rest of her income is from my late father's federal pension and her small teachers pension. Also in some states (like where she lives in Louisiana), federal govt pensions are exempt from state taxes. Her teachers pension is also exempt from state tax I believe.

Unless you have a small income, you will probably have to pay federal taxes on 85% of your Social Security income. My state of Virginia exempts Social Security income from state taxes if your income is less than a certain amount. There is some formula you have to use to determine that. I think I figured that at retirement income of around $60K, my SS income would be exempt.

I remember finding a good Website that listed all the tax issues per state that one would want to consider for retirement. I may find it again and post it here.

I am just starting to learn about the 401K withdrawals vs transfer to IRA and impact on taxes and when tax is or is not withheld. Actually I am federal employee with a TSP account. And I thought that if you transfer some of the TSP into Roth, taxes are not withheld, but then you must come up with the tax money from your other funds. And then there is the whole RMD issue. So there is a lot to plan for so you don't have any surprises.

When trying to figure out my budget for when I retire, how much tax I would be paying was one of the trickiest. You also have think about whether you will still have large mortgage deductions or not.

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