Comments on the Cashing Out Case Study
The Steven and Bertha Case Study is close to my situation so I've reread this a few times to have it sink in. I think the discussion leaves out an important consideration.
As shown in Table 3, page 163, the difference in consumption between starting the 401k withdrawals at age 62 versus 67 is $78,438 and $78,851 respectively. The text states that the age 67 withdrawal is preferred due to the 0.6% increase in consumption.
Start withdrawals at age 67, however, means using up $394,225, or 79% of the couple's regular assets. I think retaining more of the personal assets would make the age 62 start a better choice. I would gladly give up the $413 per year in consumption to have those personal assets available for unanticipated expenses or major purchases.
Am I alone in thinking this way?
Bob
RSS
I don't have the book in front of me, but I suspect that some folks would agree--that the security of having the assets in hand is worth what you sacrifice each year of your life in living standard.
I will need to get the book out, but you say it's only .6%?
It's not only the security but the potential loss to taxes by having to increase withdrawals above the consumption level.
Yes, it's only 0.6%
As usual it's a matter of personal preference and your belief in what will happen to Social Security.
The math says that waiting to 67 maximizes your consumption but there is a cost, you use up resources while you wait.
Behavioral economics probably has something to say about this, but if sacrificing consumption gets you something in return (in this case, a feeling of security), do it. If it doesn't, don't.
Best,
Dick Munroe