DEAR BRUCE >> My wife and I are 62 years old and recently retired. We have substantial federal defined-retirement pensions totaling $80,000 per year that pay our current expenses, plus we have no significant debts. I assume we will forever remain in a fairly high federal income tax bracket with these pensions.
My question is related to the $1.2 million in various other savings we have accumulated (no doubt by listening to your radio show 35 years ago when I was starting my career!). We have $700,000 in traditional IRAs, $300,000 in Roth IRAs and $200,000 in nontax-deferred investments (stocks/mutual funds).
We now want to spend a small portion of our funds on travel, a motorhome and hobbies to enjoy retirement. If we want to withdraw about $75,000 now and maybe $30,000 per year for travel and other fun, from which category of our savings should we withdraw funds first, and is there a best overall hierarchy for tapping these savings categories?
DEAR JIM >> Seems to me that you have the world by the tail! Unless you have very expensive habits, an $80,000 annual defined-retirement pension is substantial, and it will be substantially taxed, no question about that. But having $1.2 million in various other savings, you could certainly take out the $75,000 withdrawal that you envisioned and have a good time with that money.
You still have more than a million dollars, and even earning a conservative 5 percent, that's $50,000 year coming in addition to your $80,000, giving you $130,000. You also indicate there are a few more dollars lying around. It seems to me that you have earned it. Go out and enjoy it.