I am confident that I will reach my goal in retirement, of having a fully paid house and having enough money to last me well into my 90s if I live that long. When that day comes, I do not want to spend much time worrying how my retirement savings is doing today. I want my biggest worry to be figuring out how much money I should donate to charities this week, what kind of fish to catch today, how to cook my catch and what type of wine goes well with my catch. So as soon as I stop working, I will re-allocate my assets this way, 25% in a Large-Cap value fund, 25% in a Mid-Cap value fund, 40% in a government Bond Fund and 10% in a Money Market fund. I will limit my withdrawals to 4% per annum or the RMD (required minimum distribution) whichever is lower. Finally, I will re-balance my portfolio each quarter.
Note that there is a strict rule on RMD. Penalty is severe, a whopping 50% on the required undistributed amount. So please pay attention. You must take the RMD by April 1 of the year following the year you turned 70 ½. Open these IRS links for more information,
The IRS links above will take you to a worksheet to figure out your RMD. If you are still working at age 70 1/2, you don’t have to take RMDs from your current employer’s 401k plan until you leave your job. For this reason, it is a good idea to transfer all of your other taxable retirement accounts, traditional 401k and IRAs to your current employer’s plan so as to avoid the annual RMD. If you have retired and are one of the lucky top 10% who have more than a million dollars in your retirement accounts, take the annual RMD and pay the taxes. If your required RMD is $55,000 a year for 27 years, pay the tax each year. It would not be so bad. Don’t be too greedy. Some financial advisors recommend buying a QLAC (Qualified Longevity Annuity Contract) at this point to defer RMD and tax payment, but I would not recommend them. See the chapter below, “Annuities, what are they?” Pay the taxes annually now at this point in your life rather than try to defer the taxes for later. If you have dependents depending on you for financial support, give them some of the after-tax money. Check with your tax accountant if you may be able to claim any of them as dependents on your tax return so as to reduce your taxes. Better still, give a big portion of the money to charity to reduce taxes. If you are adamant about minimizing taxes on your RMD, one option that many financial gurus advocate is to start a foundation to reduce taxes. Click on the link below to learn more:
According to these financial gurus you may be able to deduct many business expenses (*wink wink*) from your tax returns if you have a foundation. Examples of these “business expenses” are: vacations, cruises, casino trips, cars, yachts, gardening, janitorial services and many other expenses. As for me, do I really want to get involved in this in my old age? If I have 2 million dollars at the age of 70, I want my biggest worry to be what kind of fish I am catching today, how to cook my catch and what kind of wine I will pair with my catch. I also want to plan a trip every couple of months to every exotic location in the world I can think of. Right now I am thinking of Seychelles, Bhutan, Myanmar, Galapagos, Maldives, Alice Springs, Cape Town and many others. Geeeeeez, I can’t wait!