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how to approach investments in 457 plan if your drawdown in RE uses 457 first

Home Retirement Accounts how to approach investments in 457 plan if your drawdown in RE uses 457 first

  • Avatar MaxPower 
    Participant
    Status: Physician
    Posts: 289
    Joined: 02/22/2016

    Good question. I have been participating in a non-governmental 457(b) for the past 4.5 years, and my plan is also to use the funds from this account as a bridge from early retirement to when I can draw SS or access my other accounts. Barring some catastrophe or amazing fortune, my current plan is to retire in 18 years at age 58. I can choose any distribution option I want (over how many years I want the money distributed to me), and I’m hoping to be able to get 8-10 years out of it.

    Mixing in Roth conversions during that timeframe will be tricky unless one has a boatload of cash to keep your tax rate low, unless I am missing something. Over 10 years that could be distributions of $100,000 annually from a 457. Sure that’s lower than the tax rate I’m in now, but not anywhere close to the 0% that some people on Bogleheads talk about getting to.

    The only decent ER fund in my 457 is an S&P 500 fund. I suppose it won’t matter as retirement gets nearer to move some of that money to a bond fund, even if it has a higher ER after the bulk of the heavy lifting is done. Certainly a lot to think about.

    #205922 Reply
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 504
    Joined: 08/30/2018

    Good question. I have been participating in a non-governmental 457(b) for the past 4.5 years, and my plan is also to use the funds from this account as a bridge from early retirement to when I can draw SS or access my other accounts. Barring some catastrophe or amazing fortune, my current plan is to retire in 18 years at age 58. I can choose any distribution option I want (over how many years I want the money distributed to me), and I’m hoping to be able to get 8-10 years out of it.

    Mixing in Roth conversions during that timeframe will be tricky unless one has a boatload of cash to keep your tax rate low, unless I am missing something. Over 10 years that could be distributions of $100,000 annually from a 457. Sure that’s lower than the tax rate I’m in now, but not anywhere close to the 0% that some people on Bogleheads talk about getting to.

    The only decent ER fund in my 457 is an S&P 500 fund. I suppose it won’t matter as retirement gets nearer to move some of that money to a bond fund, even if it has a higher ER after the bulk of the heavy lifting is done. Certainly a lot to think about.

    Click to expand…

    On the last point, my view is that Market downturn could cost half the 457 b value just as you are drawing down. This is a far greater risk to the funds that a trivial increase in ER when moving from stocks to a bond Fund.

    #206143 Reply

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