I was using i-orp to assess the income impact of converting an IRA to a Roth IRA. I kept current tax rate and investment rate assumptions consistent with future rates.
These numbers are simplified but reflect our situation:
DW and I are both 60. Recently retired. Current income is $50k from dividends. We were planning to take care of our additional income needs by selling equity/bonds in after tax account. Future income from non-cola pension ($18k @ 65) and Social Security ($50k @ 67).
Current savings. Overall asset allocation is 50% equity/bond:
$2.5 million in after tax funds. 70% equity/30% bonds.
$1 million in IRA funds. 100% bonds.
Assuming we live until 90, i-orp shows that we would maximize income by withdrawing the funds from the IRA directly as income in equal amounts over the next 5 years rather than converting to a Roth IRA and withdrawing Roth IRA funds later.
I had planned on converting to a Roth IRA up to the 22% (or maybe 24%) marginal tax rate each year until SS starts. However, the i-orp result calls this strategy into question.
The plan was to sell equity (taxed at capital gains rate) and bonds from the after tax account for added income needs above the $50k in dividends. This would make it relatively easy to manage the asset allocation to remain at 50%. If I follow this new strategy and take out bonds from the IRA for added income instead. However, I would have to also sell, at least, some equity in my after tax account to keep my asset allocation at 50%.
I would very much like to hear what others think.
Thanks
Global1
These numbers are simplified but reflect our situation:
DW and I are both 60. Recently retired. Current income is $50k from dividends. We were planning to take care of our additional income needs by selling equity/bonds in after tax account. Future income from non-cola pension ($18k @ 65) and Social Security ($50k @ 67).
Current savings. Overall asset allocation is 50% equity/bond:
$2.5 million in after tax funds. 70% equity/30% bonds.
$1 million in IRA funds. 100% bonds.
Assuming we live until 90, i-orp shows that we would maximize income by withdrawing the funds from the IRA directly as income in equal amounts over the next 5 years rather than converting to a Roth IRA and withdrawing Roth IRA funds later.
I had planned on converting to a Roth IRA up to the 22% (or maybe 24%) marginal tax rate each year until SS starts. However, the i-orp result calls this strategy into question.
The plan was to sell equity (taxed at capital gains rate) and bonds from the after tax account for added income needs above the $50k in dividends. This would make it relatively easy to manage the asset allocation to remain at 50%. If I follow this new strategy and take out bonds from the IRA for added income instead. However, I would have to also sell, at least, some equity in my after tax account to keep my asset allocation at 50%.
I would very much like to hear what others think.
Thanks
Global1