I have the situation where my house is paid off and I have a reasonable amount put away in my 401k and Pension. However my post tax assets are much lower. Iam not yet 59.5, but is is still worth making 401k withdrawals to enhance my lifestyle even if it incurs a penalty ?
The financial folks say you have to be very conservative, but what is the point in having money when you are old and unable to enjoy it ?
Medical bills of course is an issue , but is it still worth being too conservative ?
@-4fid, how do you know that person is not independently wealthy and has been for years, and is not just clowning around on this site to get a reaction? I wouldn't be so quick to judge that everyone else is a poor fool.
All your money will disappear soon, it does not matter how much you have in your accounts. Present financial system is going to collapse very soon.
@GyBlk8Q-4qrs, whatever you say or think is not going to change The Truth. Happy Retirement!!!
@GyBlk8Q-4qrs, whatever you say or think is not going to change The Truth
Pay no mind to 4qxm. He's an individual with no real savings or prospects for retirement. The first thing to do in this forum is to ignore the trolls. Just gloss them over and don't respond to their taunts or immature comments.
@GyBlk8Q-4qxm, you go ahead and do that Pal, climb down into your survivalist fallout shelter. Don't leave the lights on for us.
All your money will disappear soon, it does not matter how much you have in your accounts. Present financial system is going to collapse very soon. Prepare yourself to be absolutely autonomous.
@2kss, what you said and referenced is correct. The 10% IRS penalty on ESIP 401k withdrawals after age 55 is waived if you are retired from Chevron. Generally the withdrawals are subject to 20% Federal Tax Withholdings. However the IRS exempts the account holder from Federal Tax withholding on stock dividends if they prefer to receive it instead reinvesting it. The 72(t) account you mentioned is one found in IRA investing, not 401k.
Chevrons 401K with Vanguard basically has an exemption for people who retire at age 55 or older such that the 10% penalty before 59-1/2 does not apply to withdrawals. This is covered in the Employee Savings Investment Plan (ESIP) Summary Plan Description (SDP) effective January 1, 2014 (pages 37 -40) that I pulled from Chevron HR website. When I contacted Vanguard to get my Chevron Stock Dividends send to me, they said there would not be any tax withheld, despite what the SDP says about "Generally, the IRS requires that 20% of the taxable amount of your distribution be withheld from the distribution". As a result, I did not have to do a 72t method.
Good Question -1poq.
-1ykf, Are you doing the 72(t) method?
1nov, why do you not have to pay the 10% penalty?
No -1axl, I do not have all of my retirement in Chevron Stock. But my point to the OP is that he may have options available to withdraw from his Vanguard 401K without 10% penalty and taxes being taken out of the distributions sent to him.
Does that mean you have all of your retirement in Chevron Stock ? If so, that does increase you risk/reward profile
I retired last April @ age 57. I have enough Chevron Stock in my Vanguard 401K that I can withdraw the quarterly dividends paid on that stock to cover my normal living expenses. There is no 10% penalty and no income tax withheld by Vanguard. But i will need to pay taxes on the withdrawn dividends as part of my yearly tax filings. I am paying quarterly estimated taxes.
Understood, Iam going to splurge a bit (new car and some luxury Travel ). Should still be okay barring the worst case scenario of huge medical bills. Hopefully it will work out.
I think you should do the math yourself , do your budget while you are still the young and sprightly person that you are. Check out Early-retirement.org for tips. They have some good advice for do-it-your-selfers in the finance department. If you have patience and are not jumpy with market swings it's pretty easy. There's no way anyone on this board can really advise you correctly without knowing the details of your budget. It's all in the math. SS will be heading your way, and from what most people say - at least 75% of it will still be there even if problems are not addressed. Throw that into the mix. So you can take more of your own savings/distributions up until then. You are right about the question- what's the point in saving it for old age. Don't think of 70 as too old to enjoy life though. The comment by -1zxz is correct. We spend less. You most likely can do a lot of what you want as long as you budget it properly. Of course - be smart - don't blow your savings in the first 5 years. However, no one one this board can specifically answer your question with out the math.
You have minimum distribution at 70.5. Don't leave it to your kids, enjoy yourself.
I agree with the comment on financial planners. I get the feeling even if I had a Million dollars more , they would be telling me the same thing , " Be ultra conservative or you will outlive your money "
A recent study indicates that people tend to spend less in retirement than they anticipate, and most reasonably well off retirees can spend more than they are. I wouldn't worry to much about treating yourself a little. And remember financial planners generally have a vested interest in having you keep your money with them rather than spend it.
http://www.consumerreports.org/retirement-planning/retirement-savings-big-enough/
I hope any kind of means testing relates to income not net worth
It is not just a question of meeting your expenses, I can do that with If I take the annuity in conjunction with my liquid cash even though I live in California
It is a matter of "Living a little" splurging a bit , something we have never done in the 30 years of my working life. For that I would need to dip in to my retirement accounts not wait till Iam 80 like my financial advisor would advise !
What do you guys have to blow all this money on if you have your house paid up? Live in California? Make frequent trips to Vegas? Eat out all the time? I like to save money. Get more for less. I guess some people like to blow it. With a paid up house the pension alone is more than we spend.
@1plf, our politicians don't have the balls to touch the "third rail" which is social security. It's possible they may try to tinker with raising the full retirement age (FRA) by 1 or 2 years and grandfather everyone over 55 or so of age from any impact to the increased FRA. But, I fear most the prospect of means testing, like you mentioned. This is likely the route the spineless vermin politicians may take. They figure those people with large retirement accounts are fewer in number than the common working (and non working) stiff out there, so they will come after us first. It's true that the politicians have screwed up the S/S system over the last decades, mostly to curry favor and buy votes. The system will need fixing, but I hope that sound decisions are made. I worked 40 years and paid into the system. I'm now 58 years old. I expect (not hope) to collect 100% of the amount promised to me, no matter if I collect my Chevron annuity and have over $1 million in my 401k. If changes are to be made let it affect workers coming into the workforce at the age of 18 or younger. They have all their life ahead if them and the years to plan their retirement.
Don't believe in social security existing in the future a scare tactic in my opinion
They may raise the retirement age by a couple of years at worst , at least for those of us who are in our 50's.
The one concern I do have if our politicians go for some kind of means testing i.e you have too much in your 401K , so you don't get social security !
All the more reason to spend a bit more within some balance of course
Great discussion. A lot of valid points of view. Allow me to set something straight... if you left Chevron at it after 55 and are not quite 59.5 yet, be assured you can withdraw money from your Vanguard ESIP 401k without the IRS 10% penalty. Now if you took your pension and put it in an IRA account, you will incur a 10% IRS penalty. The rules between an IRA and the Employer 401k are somewhat different. Withdraw from the 401k first. If you need to tap the IRA before 59.5 years of age, talk to your advisor. He will set up a 72(t) account where you can pull the scheduled payments from. You will avoid the penalty this way. Another little trick... if you withdraw from the Vanguard 401k at any age, they are obligated to take out 20% Federal withholding tax. To avoid this, do a direct transfer of funds from the 401k to your IRA account, then make the withdrawals from your IRA. The IRS does not require any fixed Federal withholding tax percentage. You can actually request no Fed tax to be withheld. You stay in control.
@GyBlk8Q-1wgb is absolutely right. IF you are willing to take out a loan at 10% interest, go for it. Trying to decide what to do is a crapshoot. I AM 59.5 and can survive on my pension and severance pay until social security kicks in but what am I saving all that 401k money for? and the other investments? For when I can't travel anymore or when I need expensive medical care? It's hard to know the right balance.
Because of the 10% penalty, I would only withdraw money if you really need it and only withdraw as little as possible. It's kind of like taking a loan out at 10% interest. You can probably get a line of credit with a lower interest rate if you needed some extra cash.
My husband is retiring after 37 years with Chevron. He is only 55. He started really young with Texaco. We have a nice nest egg and I have a great job. We get upset also when we talk with the financial advisors, they don't want you to spend it. Really what did we work for if it isn't to enjoy it somewhat. The financial advisor drives up at your house in their Range Rover and discuss their trip they just returned from to Prague all the while telling you to be very frugal. It does upset my husband and myself also. There must be a balance, but there should be some fun too..
If you were over 55 when you left you may be able to withdraw from your 401K without penalty by setting up a Section 72(t) distribution. See for example, http://www.401khelpcenter.com/401k_education/Early_Dist_Options.html
That's the fine line you walk. Blow it all and your health cradures, you'll be in a bind. Save it all and die before you retire. It's just about finding a balance. You don't want to run out of money in retirement. Also SS will be defunct soon.