Options to "Drawdown" the PP in Retirement?

[coinstar]

I'm running a full PP for my main money savings. Most of my savings are in various tax-deferred and sheltered entities like 403B, 401k, Tax Sheltered Annuities, Roth IRA, Traditional IRA. I'm self-employed so I put a large chunk of money into a Solo 401k each year.

I max out all of my options for tax-deferred accounts and then put any extra cash into gold coins and prepaying down the mortgage. Call me crazy or call me blessed BUT I HAVE NO MORE THAN A FEW MONTHS LIVING EXPENSES IN LIQUID ASSETS!!!

In truth, I don't make enough money to both max out all of my options (like HSA, 401k, IRA, etc) and still save money in a regular taxable account beyond the 25% of my portfolio that's gold. In other words, more than 75% of all new investing dollars I get access to invest are used within tax shelters of one kind or another. So I can't maintain a 4x25 split and keep all my gold as physical coins.

I really hate paying taxes so everything is locked up. So what happens when I drawdown my assets in retirement? Here's some general thoughts on my situation:

1) Keeping money in tax deferred accounts for as long as possible allows you to maximize the value of tax deferral

2) If the only assets outside of tax deferred accounts are gold coins, then maybe selling gold coins first makes the most sense and can maintain 4x25 split by buying a gold ETF within one of the 401k brokerage accounts so even though I'm slowly selling all of the gold, the 4-way-split works out.

3) Paper ETF gold is not as safe as gold coins, so possibly NOT selling the gold coins first makes sense, even though it means my only other option is to start drawing down the tax deferred accounts like 401k/IRAs.

4) If I do decide to sell the gold coins first, then maybe in the 3 to 5 years leading up to retirement, instead of buying gold coins with my liquid assets, I keep that money in a CD and "buy" gold within the 401k as ETF gold. It feels wasteful to buy gold coins in the year (or a few years) leading up to retirement if you're only going to sell them immediately and eat a 3% to 5% dealer spread transaction cost.

[Tyler]

First, congrats on maxing out all of your tax-deferred options.  Your future self will thank you!

I think you may want to reevaluate your risk weightings.  I personally would find the risk of being unemployed more than a few months to be much higher than the risk of a gold ETF crashing and definitely worth the tax "penalty" (realistically probably only a few dollars a year at today's rates) of having some cash on hand.  Step one is to get some cash into your liquid account.  You can do that either by selling gold or by pausing the mortgage pre-payment for a while.  I personally like to have at least a year's worth of PP cash readily available, retired or not.

As for the drawdown question, it depends on a lot of factors but to me there's a similar weighting issue.  You're choosing to sacrifice flexibility in exchange for maximum tax-deferred growth.  That's a reasonable choice, but perhaps there's a sweet spot that will be "good enough" for both.  I personally maintain two separate PPs (one taxable, one tax-deferred) to give me more flexibility for cash flow and rebalancing in early retirement rather than go all-in on tax optimization. 

[sophie]

You can absolutely access your retirement savings before age 59 without paying the 10% penalty.  There are several ways to do it:

1) HSA funds can be accessed at any time.  Keep records of your medical expenses so you can use them to get money out later.
2) Roth IRA contributions can be withdrawn at any time.
3) You can convert money from your 403b or 401k accounts to your Roth IRA in the usual way.  Then five years later you can withdraw the amount you converted from your Roth, penalty and tax free.
4) You can set up 72(t) payments from your 401k or 403b account.  If you do this, I'm not sure you'll be able to do the Roth conversions, and you have to keep up the payments for at least 5 years.

If you use option 3, the trick will be to have enough funds in taxable and via options 1 and 2 to get you through the first five years.  Sounds like you should consider not prepaying the mortgage unless it will be paid off well before you plan to retire.  Selling gold coins and shifting tax-advantaged cash to gold ETFs is equivalent to saving cash in taxable and buying said ETFs now, but you might consider it as the buy-sell spread on gold coins makes selling them a bit expensive.

As a last resort, you might consider that withdrawing from your 401K and paying the 10% penalty might still be a better deal than paying the taxes on the contribution initially.  And just maybe, the 10% penalty may be worth spending more time in retirement.  Just some stuff to think about.

[MediumTex]

A 72(t) election for a person with plenty of money who wants to retire early is a great opportunity to avoid the 10% early withdrawal penalty.

For adventurous married people, you might consider getting a divorce and under the terms of the divorce award 100% of your retirement accounts to your spouse and 100% of your spouse's retirement accounts to you.

Withdrawals taken by a former spouse pursuant to the terms of a QDRO (the court order used to divide retirement accounts) are not subject to the 10% penalty, though they are, of course, subject to ordinary income taxes.

Once the transaction above is completed, you might decide to reconcile with your former spouse and re-marry them.

I wouldn't recommend this maneuver myself, but I have seen it performed a number of times.

[AdamA]

Once the transaction above is completed, you might decide to reconcile with your former spouse and re-marry them.

But the divorce seems like the main benefit of the plan!