Barney,
You are surrounded by very good choices and options. So I think the first thing you should do is shed any financially-induced anxiety you're carrying around. You're pretty well covered and you'd have to work pretty hard to make yourself into a disaster. I wish more people were in your position.
Fact 1: Whatever decision you make, you've got your basic security nut covered. With a need for $5,000 a month in after-tax income, you'll have a gross income of at least $6,470 a month without counting your investment income. Your income tax obligations won't come close to your $1,470 a month surplus.
Fact 2: By delaying taking Social Security until you are at least full retirement age you'll be able to increase your inflation adjusted income from Social Security substantially--- and you've got enough in your IRA that it will be relatively painless. Better still, every dollar of IRA money you use to defer taking SS benefits is another investment dollar you don't have to worry about. And since your IRA is worth $420,000 today, taking $19,600 a year from it for, say, 4 years won't diminish it much, if at all, anyway.
Fact 3: By delaying taking your private pension you can also increase it quite painlessly. Again, you'll do this by taking the needed income from your IRA account. Remember, since your lowest estimate of your guaranteed pension incomes covers your cost of living and taxes, you can go this with great freedom.
Fact 4: With virtually no effort you can raise the return on your $100k reserve fund--- and perhaps lower your tax liabilities at the same time. With a current and guaranteed income that covers all your living expenses, you really don't need much of a reserve fund. You certainly don't need more than a year of spending in reserve. I suggest keeping $30,000 in cash reserves and investing the remaining $70,000 in assets that provide higher returns. If they were invested index funds, for instance, your return would likely increase (current market notwithstanding) and you would be deferring most tax liabilities.
Fact 5: With a future gross income of about $7,300 a month (assuming deferring pensions) plus some investment income from your IRA, you and your wife should start thinking about what you might do with a sustainable income greater than $5,000 a month after taxes.
Scott
