Ask Terry Questions When can I stop reinvesting MRD and start using some of my money?

When can I stop reinvesting MRD and start using some of my money?

By Terry Savage on March 29, 2015 | Financial Planning / Retirement

I’m 73 and retired. Living relatively comfortably off SS & other small pensions. Currently taking MRD and reinvesting into my IRA. This is supposedly to help insure that I don’t run out of money. Also have a Cash Reserve of $25,000. Do not have any easy way to save money for modest home improvement. At what point can I take some of IRA money and use it for this purpose? I have no children and other no heirs who have any claim to my money.

Terry Says:  Congratulations.  You are now entitled to use your money — over the rest of your lifetime — to enjoy yourself.  One thing bothers me:  you say you have been reinvesting your MRDs into your IRA — but you can only do that if you have earned income (and that doesn’t include pensions and  interest).  Have you checked with your IRA custodian or tax advisor  to make sure you are entitled to “reinvest” these MRDs??  Do that right away.

OK, without knowing more about  your personal financial situation — how much money you have, your spending and expenses, and your other personal factors, I can’t tell you how much you can withdraw each year and spend (vs save) from your IRA.  But there are financial planners and mutual fund companies that can do this kind of “monte carlo” modeling for you.  I highly recommend the free services offered by T. Rowe Price, Vanguard, and Fidelity.   They have services based on this very issue.  Ask them to give you a guide as to how the money should be invested, and how much can be withdrawn each year to give you the best chances that you won’t outlive your money.  This is a very personal  calculation based on your own situation, and there are no simple formulas or “averages’ that can do this as well as this type of modeling.

One last thing to keep in mind. We never know how long we have to live.  We all dread being impoverished in our last years.  (Long Term Care insurance can alleviate some of this worry if you have it already.)  But the “best guess” is that the best years will be the ones coming along now — vs. the ones in your 80s.  So if you don’t have to leave the money to your children or someone you care for, then be sure to enjoy it now so you don’t have any regrets!

Bottom line:  get financial planning help through this kind of financial modeling, try to stay healthy and enjoy life —  and reward yourself for a life well lived.

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