Ask an Advisor: I am 62, single, retired, and not taking Social Security yet. I have about $800K ($300K Roth, $220K Inherited IRA, $73K in SEP, $200K Cash). With no other income and expenses of $2K month, what funds should I use for living?

Ask an Advisor: I am 62, single, retired, and not taking Social Security yet. I have about $800K ($300K Roth, $220K Inherited IRA, $73K in SEP, $200K Cash). With no other income and expenses of $2K month, what funds should I use for living?

Good question, it’s always a bit nuanced from year-to-year based on your specific situation. What I say below, might be a good starting point for you to consider, but is by no means direct advice.

Observations:

– > Cash levels are high, for retirees, I aim for 1 year’s worth of expenses in cash but if you’re super conservative, you could even aim for 2 years in cash (~$50K).

-> You might be able to take about $15K+ a year from your Inherited IRA, (assuming it’s a non-spousal IRA subject to faster distribution rules but use that synonymously with tax deferred account like a SEP) for little to no taxes. You may want to double check your state, as there are some deductions available for IRA income and social security that excludes up to $20K for your age (i.e., Colorado).

-> Then you can choose to use cash to fill the gap of about $9K per year for the next 8 years, or $72K until you take social security and invest the remaining cash beyond what’s needed (200-72+50 = $78K). Depending on certain rules you could consider tapping the Roth here too, if you need it, but I might hold off until you work those tax-deferred assets down a bit.

The biggest keys here are:

• What are the details around the Inherited IRA?
• How are the accounts invested?
• How much cash do you actually need, are there other big expenses?
• Are you insured again “big risks”?
• How much is your social security?

Ultimately, could be a mix that changes from year to year, depending on how much social security or other income you have + deductions, etc., it doesn’t seem like you’ll crack the 12% marginal rate unless you have large tax-deferred distributions, but you have to be careful once you start taking social security as any income you accelerate may subject more of Social Security to taxes (Aka going from 0% tax rate to 22% tax rate) – it will be a good balance which by then you may want to tap Roth assets to fill some gaps to avoid pushing up Social Security into a higher taxed rate.

Happy Planning!

Anthony

P.S. – While I am a financial advisor, I am not your financial advisor, so the information above is strictly for informational and educational purposes. You should contact your financial, tax, & legal team before implementing any strategies.

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About the Author

AdvicePeriod Anthony Ferraiolo, CFP®

New York, New York

Serving Clients Nationwide

Equity Comp & Retirement Financial Planner

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