Saving too much for retirement?

[Apple]

WWYD?

I did more retirement calculations today, and I kind of feel like I may be saving way too much.

Some details...

If I work to age 57, I can get my pension without any penalties.  If I calculate my future income at a 1% gain/year, pension, pre-tax, should be right about $4k/month.  Hopefully the actual yearly raise is more than 1% though.

Right now, I save 17% of my pay for retirement (pretax), then get a 5% match, so effectively saving 22% of my income.  I also save a fairly minimal amount in my Roth ($1040/year).  If I calculate my current balance + monthly contributions at 8% gain, compounded quarterly, I end up with over 2.5 million in 19 years (when I plan to retire).  If I set my life expectancy to 95, rate of return after retirement to 3%, and cash out $500k at retirement (you can do a one-time cash out of some of the money, and then set up the rest as monthly payments/life expectancy payments/annuity, etc), I could withdraw $7k/month and not run out of money.  If I did set monthly payments, I'd be allowed to adjust the amount once/year, so I could do much less or much more, depending on actual returns.

If I throw in an estimate of $2k/month social security (which I'm not really counting on), I'm looking at $13k/month pretax!  This completely ignores my Roth.

If I make minimal payments on my mortgage and build my house on the property in the next few years, both payments would be gone before retirement.  And, if they weren't for some odd reason, cashing out $500k at retirement would more than cover the mortgage.

I'm cash-flowing college for DS, and he is working to help cover that as well.  If all goes as planned, he will be able to finish four years without taking on any debt.  While he is in college, I can file as head-of-household, and my goal is to keep my adjusted gross income below $90k so that I can get some kind of education credit for the college expenses.  I won't be working near as much overtime this year, so I shouldn't have any problem staying below this number.  If I feel I'm cutting it too close, I'll increase my retirement contributions to reduce it more.

So...  let's say I keep this number nice and high until DS is done with college.  At that point, I could drop my savings to just the matching requirement of 5%.  I'd still have over $2 million in the account when I retire, I'd just have to take a smaller cashout to keep that same monthly withdrawal level.  (Actually, I could drop it now and still make that $2 mil number).

Once DS is done with college, I have to file as single, and no more dependent.  But, I'll also not have to save $1k + per month to help pay for college.

I don't plan to retire earlier than 57 for a few reasons-- I don't want to take a penalty on my pension, if I go until 57 I can carry my same health insurance payments (if I leave before then, health insurance is all on me), and really, I like my current job and my schedule-- it allows a lot of time for vacations (16 days off in a row every 10 weeks, plus a couple four day off stretches in addition to a few two day "weekends", during that 10 period), it's not stressful on a day-to-day bases (there are some really stressful times, but usually only in an emergency, and we try to avoid those), and there is a lot of down time I can fill up as I choose.  Things could always change, but we have the best crew, and everyone is generally satisfied with the work environment.

So, would you reduce your savings rate from 17% to 5%?   If so, would you wait until the kid is out of college to aim for those tax breaks (by lowering AGI), or would you just do it now?  Would you lower it, but to a different percentage?

In addition to the saving for retirement and college, I pay for my property, save for vacation, save for car repairs, save for a new car, save to build the house...  Extra money each month would most likely go to the house building fund to make that happen faster.  I don't plan to increase spending money with it.

I know things could always take a and all my plans go out the window, but hopefully they don't do that.  My current 12 month gain is over 18%, but I did lose money a year ago.

Basic stats, if wanted.  Single.  38.  One child (19).  No idea if I'll ever get married again, but if so, they have to be a financial goals/life stage match (which "strongly prefers" no young children).  No addictions outside of quilting (still cheaper than drinking or smoking).  Family tends to live into their 80s on one side, 90s on the other.  Grammas were of sound mind when they died, one grampa started getting some form of dementia around age 90.

I may delete details or the entire thread eventually, so my financial situation isn't out there long term.

[mollyanna58]

I don't know that there is such a thing as saving too much, unless you are saving for the future at the expense of enjoying life today.  (Meaning if you are eating cat food now so that you don't have to eat cat food when you are retired.)

Right now, my mother's monthly expenses are around $10K. That includes housing, food, and a full time caregiver. We could cut back, for example, less eating out, less buying non-necessities, but it's her money and she can afford to do as she likes.

 

[haapai]

Have you ever done retirement calculations before?  Was the result similarly rosy? 

I wouldn't cut my retirement contributions until I had done a heck of a lot more math.  Are you missing something big like taxation of withdrawals or inflation? Have you accurately guesstimated health insurance premiums in your late 50s and early sixties?   Is this whole rosy future based on current levels of income and regular raises? 

Have you been receiving any level of child support that is not included in your calculations?  (I'm not trying to be insulting.  I've just seen quite a few female acquaintances getting financially comfortable when their children were in their early teens and go into crisis when the CS and medical coverage for the child stopped.) 

It's not particularly common for someone with a child half her age to be looking at such a rosy future. 

[resolution]

I would caution you that 20 years is a long time to stay at the same employer and still enjoy your work. If you had asked me 10 years ago, I would have never anticipated leaving my employer before retirement age, but right around that time I ended up meeting my husband and moving across the country. Work has really gone downhill for me since then and I have been bouncing around a bit trying to stay in the retirement system. At this point I only need four more years for full retirement so I am hanging in there, but if I weren't tied to the pension system and health insurance I would have been long gone.  For that reason I would advice you to keep putting the 17% into retirement so that if your situation changes down the road you would have more options and not be tied to the pension.

You mentioned that if you cut back on retirement saving you would put it in a building fund. What sort of building are you planning and how much would it hurt your lifestyle to have it take a little longer so you can keep saving? If it is too big of a hit, have you considered a construction loan or something of that nature? I would say to scale back on the savings a bit if it is really impacting your lifestyle, but to explore other alternatives first.

[Apple]

Feb 15, 2017 23:20:59 GMT -5 haapai said:

Have you ever done retirement calculations before?  Was the result similarly rosy? 
Yes, many times, using many calculators (bankrate, aarp, pension estimator through work that adjusts for all the work kinks).  Always end up with calculations that put me way ahead of the curve.  Some raises have been 3%, some years were frozen, so I figure calculating 1% is fairly safe.  Most years I've done better than 8% gains, but I can lower that to even 6% and still be fine.  

I wouldn't cut my retirement contributions until I had done a heck of a lot more math.  Are you missing something big like taxation of withdrawals or inflation? Have you accurately guesstimated health insurance premiums in your late 50s and early sixties?   Is this whole rosy future based on current levels of income and regular raises?  I've been doing the math for years!  I've calculated my high three so many times, that I just saved a template as an excel spreadsheet and adjust it each year to use my current wages to project from.  The AARP site allows you to enter inflation, I usually put 3%.  I calculate the high three based on both a 1%/year raise, and a 1.5% year raise to see how my pension would change.  I use the lesser value to do my actual calculations though.  The pension calculator that I can only access from work (which will do all the weird stuff), puts my pension range between about $3200/month and $4k/month, depending on which number I use.  I used $3k in my OP, so lowered it even more.  Hard to estimate health insurance, even if I said it was going to be $2k/month, it would still have me at a very large monthly income.

Have you been receiving any level of child support that is not included in your calculations?  (I'm not trying to be insulting.  I've just seen quite a few female acquaintances getting financially comfortable when their children were in their early teens and go into crisis when the CS and medical coverage for the child stopped.)  Child support goes directly to DS since he turned 18, I do not include it in any figures, other than his contribution to the college savings since he does not spend it.  He takes a small monthly allowance from his wages.  With the job and CS combined, he saves over $1k/month toward future college expenses.  He will be able to collect for almost two more years.

It's not particularly common for someone with a child half her age to be looking at such a rosy future.  Agreed.  What has helped me is that I started maxing my retirement when I was 21 (when "max" was 12%) and have raised it each year.  I also bought my first house when I was 19--those late 90s 0% down housing loans may have caused a mess for some, but it was a huge boost for me.  I drive crap cars I paid cash for.  I live in a LCOL area and have a good job.  I no longer commute, so only have to fill my gas tank once or twice a month.  I did pay for private school for DS from pre-k to Jr High, but it wasn't terribly expensive and was worth it at the time (Aspergers, so wouldn't have done well in the public elementary school).  Child care wasn't horrible either, but I was so glad when he turned 12 (13?) and I no longer had to pay for it.  I am very careful to prioritize my spending to my goals/"real" wants, so not a lot of waste, imo.  I really ramped up my savings when I was going through the sexual harassment situation, because I was not sure what would happen to me.  Really though, nothing beats time when it comes to compounding interest, and I am so thankful I started when I was 21 (oh, and financially thankful that the spendthrift ex decided to leave a year later).  I'm on track to have $500k before I'm 40, which is a goal I've been aiming for.  When I found out I was pregnant, while a senior in high school, I told myself I would never "be a statistic".  Definitely hasn't been easy, but I have a stubborn streak!

[Apple]

Feb 15, 2017 23:09:44 GMT -5 mollyanna58 said:

I don't know that there is such a thing as saving too much, unless you are saving for the future at the expense of enjoying life today.  (Meaning if you are eating cat food now so that you don't have to eat cat food when you are retired.)

 

I don't suffer... still do vacations, eat good food, and have a piece of property I love, even if it's not cheap and I can't use it daily!  However, more money now would mean more money to build the house sooner.

[Apple]

Feb 15, 2017 23:26:44 GMT -5 resolution said:

I would caution you that 20 years is a long time to stay at the same employer and still enjoy your work. If you had asked me 10 years ago, I would have never anticipated leaving my employer before retirement age, but right around that time I ended up meeting my husband and moving across the country. Work has really gone downhill for me since then and I have been bouncing around a bit trying to stay in the retirement system. At this point I only need four more years for full retirement so I am hanging in there, but if I weren't tied to the pension system and health insurance I would have been long gone.  For that reason I would advice you to keep putting the 17% into retirement so that if your situation changes down the road you would have more options and not be tied to the pension.

You mentioned that if you cut back on retirement saving you would put it in a building fund. What sort of building are you planning and how much would it hurt your lifestyle to have it take a little longer so you can keep saving? If it is too big of a hit, have you considered a construction loan or something of that nature? I would say to scale back on the savings a bit if it is really impacting your lifestyle, but to explore other alternatives first.

I've been with the same employer 16 years now, though I just changed locations (and took a paycut) to be closer to home and in a better situation.  My employer has jobs all over the states, as well as some international locations, and I now have three skill sets to market if I want/need a change from current location (electrician/programmer, current position, and one of the desk jobs that requires a special set of skills I have--although I would hate that job!).  There is also a position open to me that pays $10/hr more than I make now, I could have the skills within a few months if I wanted to try for it, and they will have several positions to fill in the next few years.  Currently, I don't think the money is worth it, because it's a lot more responsibility, stress, and you are required to stay in one room for your entire 12 hour shift.  Right now, if things are slow, I can be anywhere within the 1 mile+ long site and be inside/outside, take photos, read, etc.  I much prefer my freedom at work to the extra money!

Building fund... I want a small house, approx 30' x 30' with a basement.  I have some equity in the property already, and also have $25k earmarked to build it.  I'd start tomorrow if I wasn't helping DS with college.  Once he is done with that and my expenses decrease, I plan to build (maybe, just maybe, if I found the right builder and price, I'd do it while he was in school).  I have thought about construction loans, and want to build it soon, because the sooner it is built, the sooner I can save on taxes (no more state tax), and the mortgage would be about the same payment as I'm making on the property alone (private contract with seller).  There is a well and septic system already, as well as electric to the property.  The trees are already cleared out and there is a hole in the ground impatiently waiting.  

[Apple]

Oh... I already feel "trapped" by the pension, and the continued health benefits is a major part of that.  It would be a hard thing to give up for a new job, although I've been tempted in the past.  However, one guy on my crew is retiring after working the job I work since '91, and he has no regrets.  People tend to leave early on, or become "lifers".  While I know things could change in a heartbeat (I've been through that!), I can only hope they don't.  Even if I were to hate my coworkers, I only have to really see them at shift change, and the more nights I take on, the more that is the case (the seeing the coworkers part, I don't hate any of them yet, lol-- we don't "hang out" together on nights, we do our rounds and keep to ourselves, which is pretty perfect for an introvert.  There are some nights we might bs for the first hour or so, but that's only if we're in the mood).  I compare it to being a firefighter.  You are there rounds, some jobs that need covered, but mostly you're there for the emergencies.  We are the only crew on site 24/7.  When I first started, I was told to "get a hobby" that I could use to fill the down time.

Me moving for a relationship?  It would have to be bloody worth it, and by that, I mean being able to become a housewife with a maid and continued contributions to my retirement fund  Really though, I'm good being single.  I'm happy, content, my son is *this close* to being on his own, leaving me to be responsible and accountable only for/to myself.  It really would take something special to make me give up my career.  However, now that I think about it, my benefits/pension/vacation and sick time would follow me to a ton of different locations.  The biggest changes would be my wages and schedule.  Once DS moves out, moving anywhere I want could be a real possibility.  But have you seen the PNW?!  It's a pretty gorgeous place to live, especially when you can have a house in the woods!

[geenamercile]

I think in your case I would try and build the house I want faster and send a little bit less to the retirements as long as it doesn't put you over that 90 thousand mark.  

[Deleted]

My only caution is the pension's durability.  I've been counting on one, but it's become scary.  It's not just public pensions that are underfunded.

Make sure your numbers work for at least a comfortable retirement without it.

[973beachbum]

Personally I would still continue to save for retirement but maybe just enough to keep it under the 90K in the 401K pretax and then maybe start maxing out a ROTH.  It doesn't reduce your income for the year like a 401K but it is much more flexible IMO.   If you needed to raid it to buy a home for example it can be used penalty free before 59.5.  Just a thought.

And although the income you put in the ROTH IRA counts for Fin Aid for college the amounts in it are still protected just like any other retirement account.

My worry would be about health insurance. You are talking about almost twenty years until retirement. That is a lot of time for things to need to stay the same in regards to pension rules and health insurance. I know lots of people who worked for public entities where pensions and free health insurance for life were part of the package and for most the free health insurance for life is already long gone. 

And the costs of health insurance for someone in their late 50's twenty years from now is a heck of an unknown IMO.

[Deleted]

I agree with mollyanna- as long as you're not living a miserable, skinflint existence at the present, keep on saving.  Stuff happens- job loss, disability, need for extensive care in old age.  I've used these examples before but eyeglasses, dental care and hearing aids are not covered by Medicare.  They all make ageing more comfortable. 

In my last 5 working years after DS got out of college, DH and I were saving about 50% of my income (that includes company 401(k) match and some from his SS).  We'd moved to a LCOL area with no change in my salary and bought way less house than we could afford.   We thoroughly enjoyed life and splurged on travel (supplemented by loyalty points from my business travel).  When my employer was acquired in 2006, many people jumped ship immediately out of fear.  I stayed on and had 6 more good years with them- but I had the financial cushion to take that risk.  I'd planned to work till 65.  Things got ugly politically when I was 61.  I quit and never looked back.

You may want to check out early-retirement.org, which has a great discussion board of people who have retired early, or who are planning to.  I've learned a lot from them.  

[giramomma]

I would continue to save as well.

We put away 20% of our income, outside of my pension contribution for retirement. If you include my pension, it's 28%.

I think I can get out of the rat race at 58..the earliest is 55, but I don't know what will be up with my kids. My youngest will graduate HS when I'm 55.

[Deleted]

I would not cut back. You have a lot of big assumptions to reach the numbers you came up with and you're only 38...so much could happen between now and then. Pension could go belly up, you could no longer be employed for this company, the stock market could go into a 10 year long lull, you could become injured or sick and have to take an extended period off of work and not be able to contribute...you don't know what insurance/healthcare costs are going to be like and SS I would never count on to be the full amount, plus at the incomes you're projecting it would be mostly taxed.

Also is cutting 12% going to change your world much after the extra tax hit? It really isn't going to effect your take home a lot. If you had said you were saving 30 or 40%, or were struggling, I might reply differently, but it sounds like you have plenty of income to deal with living expenses and college for DS now.

I'm all for making hay when the sun shines. If everything falls in place like you hope, then what's so horrible about having more money than you need? Plus, I hate paying taxes. It would make me ill to take 10K and put it in something else knowing I'm paying thousands more in additional taxes to do so.

[tskeeter]

Feb 15, 2017 22:40:13 GMT -5 Apple said:

WWYD?

I did more retirement calculations today, and I kind of feel like I may be saving way too much.

Some details...

If I work to age 57, I can get my pension without any penalties.  If I calculate my future income at a 1% gain/year, pension, pre-tax, should be right about $4k/month.  Hopefully the actual yearly raise is more than 1% though.

Right now, I save 17% of my pay for retirement (pretax), then get a 5% match, so effectively saving 22% of my income.  I also save a fairly minimal amount in my Roth ($1040/year).  If I calculate my current balance + monthly contributions at 8%
gain, compounded quarterly, I end up with over 2.5 million in 19 years (when I plan to retire).  If I set my life expectancy to 95, rate of return after retirement to 3%, and cash out $500k at retirement (you can do a one-time cash out of some of the money, and then set up the rest as monthly payments/life expectancy payments/annuity, etc), I could withdraw $7k/month and not run out of money.  If I did set monthly payments, I'd be allowed to adjust the amount once/year, so I could do much less or much more, depending on actual returns.

If I throw in an estimate of $2k/month social security (which I'm not really counting on), I'm looking at $13k/month pretax!  This completely ignores my Roth.

If I make minimal payments on my mortgage and build my house on the property in the next few years, both payments would be gone before retirement.  And, if they weren't for some odd reason, cashing out $500k at retirement would more than cover the mortgage.

I'm cash-flowing college for DS, and he is working to help cover that as well.  If all goes as planned, he will be able to finish four years without taking on any debt.  While he is in college, I can file as head-of-household, and my goal is to keep my adjusted gross income below $90k so that I can get some kind of education credit for the college expenses.  I won't be working near as much overtime this year, so I shouldn't have any problem staying below this number.  If I feel I'm cutting it too close, I'll increase my retirement contributions to reduce it more.

So...  let's say I keep this number nice and high until DS is done with college.  At that point, I could drop my savings to just the matching requirement of 5%.  I'd still have over $2 million in the account when I retire, I'd just have to take a smaller cashout to keep that same monthly withdrawal level.  (Actually, I could drop it now and still make that $2 mil number).

Once DS is done with college, I have to file as single, and no more dependent.  But, I'll also not have to save $1k + per month to help pay for college.

I don't plan to retire earlier than 57 for a few reasons-- I don't want to take a penalty on my pension, if I go until 57 I can carry my same health insurance payments (if I leave before then, health insurance is all on me), and really, I like my current job and my schedule-- it allows a lot of time for vacations (16 days off in a row every 10 weeks, plus a couple four day off stretches in addition to a few two day "weekends", during that 10 period), it's not stressful on a day-to-day bases (there are some really stressful times, but usually only in an emergency, and we try to avoid those), and there is a lot of down time I can fill up as I choose.  Things could always change, but we have the best crew, and everyone is generally satisfied with the work environment.

So, would you reduce your savings rate from 17% to 5%?   If so, would you wait until the kid is out of college to aim for those tax breaks (by lowering AGI), or would you just do it now?  Would you lower it, but to a different percentage?

In addition to the saving for retirement and college, I pay for my property, save for vacation, save for car repairs, save for a new car, save to build the house...  Extra money each month would most likely go to the house building fund to make that happen faster.  I don't plan to increase spending money with it.

I know things could always take a and all my plans go out the window, but hopefully they don't do that.  My current 12 month gain is over 18%, but I did lose money a year ago.

Basic stats, if wanted.  Single.  38.  One child (19).  No idea if I'll ever get married again, but if so, they have to be a financial goals/life stage match (which "strongly prefers" no young children).  No addictions outside of quilting (still cheaper than drinking or smoking).  Family tends to live into their 80s on one side, 90s on the other.  Grammas were of sound mind when they died, one grampa started getting some form of dementia around age 90.

I may delete details or the entire thread eventually, so my financial situation isn't out there long term.

Keep saving.  Money in the bank gives you options when things don't go as you planned.

What would happen to your plan if 2008 happened again the year before you retire?  The close to million dollar loss we took in 08/09 extended our careers by at least five years.

What would happen if you lost your job or were injured and not able to work?  It is quite common for people to get forced out of jobs or to be RIFed in their 50's.  Happened to Dad, FIL, brother and me.  Having enough to retire before your planned retirement date gives you the choice of not looking for a new job at 52.

What would happen if you lived to 105 instead of 95?  Would you be able to support yourself or would you be in a nursing home on Medicaid?

Have you planned for long term care?  Many of us will require assisted living the last several years of our lives.  That's kind of expensive.

It's not about the money.  It's about the choices that money makes possible.

[thyme4change]

My husband and I recently lowered our contributions to our 401k because so much of our wealth is in restricted accounts. So, we lowered the contribution, sucked it up and paid the taxes, and increased our savings in more flexible accounts.

Therotically, we could retire nicely without saving another dime (but continuing to work until our 60's) but soon we will have 2 kids in college.

[Apple]

Might do more individual responses later, but, "rosy" numbers or not, if you exclude my mortgage, property, and saving for college (the biggest bills/saving goals I have right now), I run my budget on less than $1200 a month (that includes all other bills, food, entertainment, household goods, and other savings).  College goes away in a couple years.  Mortgage and property payments would be gone before retirement.  I can live really cheap, and could get by on just my pension, or just my savings, even if the savings grew by half of what the numbers run.  I would not need $10k+/month, but yes, it would be nice.

I do like the idea of lowering pre tax contributions (but staying below $90k until DS is done with college), and moving the savings into a Roth and/or a taxable account.  I do have 19 years before I will be able to access the retirement savings without penalty, and I also think of "what if something happens before then", that money would be almost untouchable (I'd still consider it untouchable barring extreme circumstances, because I don't want to rob the savings).

I could do a lot with an extra $800/month now, that would still help ease the financial situation in 20 years (by getting the house built and paid for earlier, setting up a better funded Roth, etc).

Also, again, I'm single.  The money covers only me, I don't need to cover myself and a spouse.  If you run generic calculators and compare someone starting to save at 18 or 21 to someone starting at 30, the numbers can be pretty shocking.  I'm just very fortunate I was presented with the easy way to start (through the company, on a simple form, when I was signing a stack of papers).

As for getting sick and losing my job?  Having the cash on hand to pay off the house and selling the property (or, having the property with a house and selling current house) would help me more than having a bunch of money in my retirement that I can't touch for many years.

The difference could be $800 more/month now (after tax), instead of more in a retirement fund that is already estimated to be way more than I need.  It's currently at more than 4x my gross, base, income (so does not count overtime I work, which varies year to year).

[resolution]

I think a taxable brokerage account is a good compromise, because you aren't sacrificing future growth but it gives you a lot of options in case you ever need the money before you hit full retirement. You would need to watch what it does to your AGI though.  

If you invest in index funds that don't turn over a lot, you will only have to deal with dividends as taxable income, although you will have to deal with long term capital gains when you start cashing things out. 

My tax guy doesn't approve of ours, but it is a great comfort to me whenever there are issues at work, and it is fun for my husband to think about buying a fixer house with it. However for all the discussion on what to do with it, we have never actually pulled anything out of it and I don't know if we ever will.

[The Walk of the Penguin Mich]

You are going on the assumption that everything is going to remain the same.  I'd continue to save at the same rate, only because I can tell you how quickly things can turn on a dime.  I made lots of assumptions like you did.

JMHO

[giramomma]

We have a decent sized taxable account. If we didn't have that, there's no way I'd consider retiring early.

The upside, too, is that you get a passive income stream. One of my retirement goals was to have 25% of our income come from dividends, etc.

We won't get there unless something drastic happens. But we are ate 10% right now, and I could see it going up to 15%.

[janee]

I think you're in a great situation. As another calculator to try, check out firecalc.com.  It lets you see over the history of every 30 year time (you input time) period how your numbers would have worked.  It will give you confidence in your plan.

I agree with Southern Susana's concern about pensions.  My dad passed away last year and this year the Fortune 500 company he retired from is changing retirees health care so I'm guessing it would have cost him more than it did.  Their pension is solid, but I know many are not. 

I had worked for a company for 22 years and it was sold when I was 45 years old.  I started a business and stopped retirement investing.  I needed the cash in the early years and then we bought a second vacation home.  That will end up our retirement home.  Like you, I had started saving at 21 years old and compound interest is now doing all the work. By all calculations, I will make more in retirement than I do now so I'm comfortable with not saving more.  I have a husband already retired and we are not touching any retirement accounts until I retire in a few years.  Our fall back plan is to eventually sell our current home and live in the retirement home.  In the end years will probably sell the retirement home (on a lake and worth more) and buy into an assisted living scenario.

I would only change your saving rate to the point where it's do-able if your pension or health care costs net you half of what you expect.

Bottom line is I think you can ease up on the savings for retirement.

I think you've done a great job of figuring this all out.

[phil5185]

and my goal is to keep my adjusted gross income below $90k so that I can get some kind of education credit for the college expenses. I won't be working near as much overtime this year, so I shouldn't have any problem staying below this number.

Is that edu credit a significant amount?  In many of the gov't programs, the credit is only a few thousand dollars - ie, you might net more by earning an extra $10k and skipping the "program".  (Currently I see kids trying to keep their income artificially low for about 10 yrs so that part of their loans are forgiven- in most cases they would do better by getting a better job and earning an extra $10K or $20k for 10 yrs and skipping the 'offer'.)

[Tiny]

I think that you can 'save too much for retirement'  in the terms of "I could have retired sooner OR done more stuff without impacting my retirement."      My oldest brother, sort of did retirement $$ calculations and he was still surprised by how much he's getting every month now that he is retired... he's got a BIG surplus of money - and nothing to do with it.  (His wife died suddenly BEFORE he retired, he doesn't have a big circle of friends, he doesn't have a hobby/hobbies that lends itself well to being older).   Thankfully, he didn't just 'stop' living... and over the past couple of years he's been trying/working on figuring out what do with himself and his Big Pot of money.    He has voiced a regret - that he wasn't more actively looking at retirement as he got into his 50's... he just assumed he'd work until 65 (his wife died when he was 60 and then he worked til he was 62.  he could have stopped working at 60... but he needed something to do (I don't mean that in a bad way).  ).   If he had looked at his finances with an eye to retiring BEFORE 65 when he was in his 50's - he probably would have done things differently in his 50's... .

That said,  I may be in a similar situation $$ wise... at age 40 I got serious about 'front loading' as much money for retirement as I could.  I also got serious about  building wealth.   I'm 53, I've got some serious 401K money, 20 years with my employer (with a pension available to me at 65 - even if I quit today), and quite a bit of other investments (wealth).  All of which, in theory, add to my pile of wealth without me doing much.    I just need to let it all grind forward until I retire.     

I put about 25% of my income into long term savings (401K, Roth, HSA, post tax account).  I'm thinking I may re-allocate 5% of that to short term savings - and then change up my current 'bare bones' life style...  I might start trying some new activities or plan a trip or do something that enriches my life (versus buy more consumer goods to decorate my house).   This would give me more valuable "life stuff" now without dramatically impacting my live after age 63/65.

[Peace Of Mind]

Feb 16, 2017 11:58:09 GMT -5 alwaysbeoptimizing said:

Apple, the only thing that strikes me is I'd like to see you get that house that you desperately want built sooner rather than later. I fear it's one of those things you could wait forever to do, but if it really gets you out of the commissar's of OR for income tax, that 5-8% on your 90K income alone is worth thinking hard about building that little house you really want and moving NOW vs, waiting 5 more years.


You've talked about it forever and I think if you started getting things in motion, your son might actually be about done with college by the time the big expenses for the house start coming in  (it takes time to design, permit, build - ask me how i know!)


I would agree to keep saving, but if it takes another $800/month out of your budget to finance the house NOW, i'd do it and be happy.  before you know it, DS college expense will drop off and you can go back to full tilt investing and debt paydown.


IMO


also, i don't know why you'd hand over child support to your son AND pay for his college.  I'd think that you should contribute something beyond what your XH does towards DS college and expenses, but it shouldn't be that huge of a drain??


I guess what i'm saying is, son probably shouldn't "profit" from college.  if he gets out with a 5,000 car, a degree and no debt, he's in a great spot to start his life as an adult.


in fact, you might do him a bigger favor to tuck a few thousand a year into a roth IRA for him now so it can start growing like crazy)

Everybody made great points but this ^^^ is my final answer.  Get your house.  You've waited and worked your ass off (and put up with tons of crap doing it) long enough.  You could end up hurt, ill, disabled and will regret not doing this while young and healthy.  I don't think you will be hurt, ill, or disabled but why give up your best years doing something you've always wanted to do and enjoying life to the fullest when you can afford to?

We did that and have not looked back once and had no regrets.  We still save a lot but we are doing what we want and enjoying every minute of it.  If something bad happens when we get older we can be happy knowing we did (what we knew at the time) what we wanted.  If we decide we want to do something different in years to come we'll change things accordingly. 

You've done a great job and should be very proud of yourself! 

[Apple]

Feb 16, 2017 12:16:42 GMT -5 phil5185 said:

and my goal is to keep my adjusted gross income below $90k so that I can get some kind of education credit for the college expenses. I won't be working near as much overtime this year, so I shouldn't have any problem staying below this number.

Is that edu credit a significant amount?  In many of the gov't programs, the credit is only a few thousand dollars - ie, you might net more by earning an extra $10k and skipping the "program".  (Currently I see kids trying to keep their income artificially low for about 10 yrs so that part of their loans are forgiven- in most cases they would do better by getting a better job and earning an extra $10K or $20k for 10 yrs and skipping the 'offer'.)

The credit would be somewhere between $1k and $4k.  I earned too much with overtime last year to get the credit, even if I could have maxed my pre-tax retirement contributions.  I'm fine with that, I like earning lots of money.  However, this year my overtime will likely be cut in half (or less), because we are now full-staffed (last year we were down three people, two took different jobs, one was killed in a motorcycle wreck).  So, my "artificially lowering my income" would be done by making sure that I don't go over that AGI by bumping up my retirement contributions, if I need to.  Depending on how much/little overtime I am offered, I may not need to do any adjusting.  I never turn down overtime, and I have a good money/life balance, no need to get a higher paying job where I lose everything I like about mine now.

Basically, with my base income and retirement contributions, I'm below $90k AGI.  Depending on how much overtime I work (again, I work all that is offered), I might risk going above $90k AGI if I don't increase my retirement contributions.  I'd rather be at an artificial $90k because I contributed another $2k pretax, and be able to get the credit, than have $92k AGI and no credit.  If I decide to keep my retirement contributions high through this year.  

I would never give up $10k earnings to get $2k, but I would move $2k into my retirement fund if it meant I then got $1k credit on my taxes.

[Apple]

Feb 16, 2017 9:44:06 GMT -5 thyme4change said:

My husband and I recently lowered our contributions to our 401k because so much of our wealth is in restricted accounts. So, we lowered the contribution, sucked it up and paid the taxes, and increased our savings in more flexible accounts.

Feb 16, 2017 10:36:27 GMT -5 resolution said:

I think a taxable brokerage account is a good compromise, because you aren't sacrificing future growth but it gives you a lot of options in case you ever need the money before you hit full retirement. You would need to watch what it does to your AGI though.  

If you invest in index funds that don't turn over a lot, you will only have to deal with dividends as taxable income, although you will have to deal with long term capital gains when you start cashing things out. 

Feb 16, 2017 6:50:53 GMT -5 973beachbum said:

Personally I would still continue to save for retirement but maybe just enough to keep it under the 90K in the 401K pretax and then maybe start maxing out a ROTH.  It doesn't reduce your income for the year like a 401K but it is much more flexible IMO.   If you needed to raid it to buy a home for example it can be used penalty free before 59.5.  Just a thought.

And although the income you put in the ROTH IRA counts for Fin Aid for college the amounts in it are still protected just like any other retirement account.

My worry would be about health insurance. You are talking about almost twenty years until retirement.

I think I like the idea of having a better funded Roth and a taxable account to go with my pre-tax account. It would definitely open up options if I were to run into a situation earlier. I'd still be saving, just differently than I do now.

Right now I pay for health insurance for both my son and I.  If the rates magically didn't change, I'd pay less than half when my DS is off my insurance.  I know I will always pay some, but the exact amount is unknown. The fact that carrying the health insurance into retirement is available now is definitely figuring into my choice of waiting until I can get all the retirement benefits to go anywhere.  If that option were to disappear, it would factor into my future choices.  If my costs go up 10x by retirement, I wouldn't be happy, but I could still cover it. 

[Deleted]

Apple, I get it, struggling with the same thing, tomorrow when I'm not hung over I'll post details, love rare Friday's off.

[Apple]

Feb 16, 2017 11:48:47 GMT -5 janee said:

I think you're in a great situation. As another calculator to try, check out firecalc.com.  It lets you see over the history of every 30 year time (you input time) period how your numbers would have worked.  It will give you confidence in your plan.

I agree with Southern Susana's concern about pensions.  My dad passed away last year and this year the Fortune 500 company he retired from is changing retirees health care so I'm guessing it would have cost him more than it did.  Their pension is solid, but I know many are not. 

I had worked for a company for 22 years and it was sold when I was 45 years old.  I started a business and stopped retirement investing.  I needed the cash in the early years and then we bought a second vacation home.  That will end up our retirement home.  Like you, I had started saving at 21 years old and compound interest is now doing all the work. By all calculations, I will make more in retirement than I do now so I'm comfortable with not saving more.  I have a husband already retired and we are not touching any retirement accounts until I retire in a few years.  Our fall back plan is to eventually sell our current home and live in the retirement home.  In the end years will probably sell the retirement home (on a lake and worth more) and buy into an assisted living scenario.

I would only change your saving rate to the point where it's do-able if your pension or health care costs net you half of what you expect.

Bottom line is I think you can ease up on the savings for retirement.

I think you've done a great job of figuring this all out.

Thanks

My dad also got screwed on his pension, receiving much less than was promised (he was a cop and then a sheriff).  There was nothing they could do about it, and while it has changed some of their plans, they are doing ok (paid off house has made them much more emotionally/financially comfortable).  If the savings grow anything like calculated, I'd be ok without the pension, but have to hope nothing will happen to it!

At this point, I think lowing the pre-tax contributions (but still contributing enough to stay below $90k AGI) would not damage me too much, even if I calculate using lower percentages, etc.

I checked out firecalc at one time, but it was confusing and I wasn't sure how to use it.  I should go back and try it again.

[Apple]

Feb 16, 2017 11:58:09 GMT -5 alwaysbeoptimizing said:

also, i don't know why you'd hand over child support to your son AND pay for his college.  I'd think that you should contribute something beyond what your XH does towards DS college and expenses, but it shouldn't be that huge of a drain??


I guess what i'm saying is, son probably shouldn't "profit" from college.  if he gets out with a 5,000 car, a degree and no debt, he's in a great spot to start his life as an adult.


in fact, you might do him a bigger favor to tuck a few thousand a year into a roth IRA for him now so it can start growing like crazy)

This part first...

Oregon requires that the support goes directly to the child at age 18.  It has to be direct deposited to an account in his name (although, I'm still a joint on the account, I opened it for him when he was a baby).  The child support is about $6k/year.

I have committed to trying to average $1k/month toward his senior year of HS.  If I work a bunch of overtime, I'll contribute more.  He works part time (two 12 hour shifts on the weekend so work never interferes with his classes).  He has to chip in $125 for bills (car insurance, cell phone, and gas) and he gives himself $150/month to fund his own extras (entertainment, food if he wants to eat out, video games...)  The rest he saves for college.  And a Roth  I had just been waiting for him to get earned income so he could open one!

He knows that if costs go beyond what I can comfortably cash flow, what he can earn, and what he gets in child support, he will need to take out loans and/or more work.  He graduated with 57 credits through AP classes (which are accepted as college credits for a degree).  He is going to the community college on a grant that pays about 2/3 the tuition.  Cost to "us" for this last semester?  $400.  If he stays at the community college one more year, he'll save that much more on tuition/housing (not sure if grant money will be there next year).  If he waits until next his junior year to go to a four year school, he should go into junior year with at least $50k in college savings (more if I make my $1k/month goal).  

I don't mind helping him, and I'll put off some of my wants to see him through, but I won't be the one to take on debt to do it! I also won't pay for years and years...

[Apple]

Feb 16, 2017 11:44:49 GMT -5 The Walk of the Penguin Mich said:

You are going on the assumption that everything is going to remain the same.  I'd continue to save at the same rate, only because I can tell you how quickly things can turn on a dime.  I made lots of assumptions like you did.

JMHO

I know you went through hell.  However, having all my savings tied up in a retirement account is getting less appealing, and if major crap did happen, it would be hard to access.  If I filter some of that pre-tax savings into a taxable fund and building on the property, I feel like it gives me more options if something bad were to happen between now and retirement.

I could raid taxable investments.  I could raid Roth contributions.  I could sell off the property (with future house) or my current house.  Or, if I got extremely desperate, I could sell both and build a "tiny house" and park it on my parent's property.  Or a trailer.  Really though, that "parent's property" option is truly last resort, I moved out when I graduated HS and never looked back.

But, if all my money is tied up in harder-to-access retirement, where I'd have to take a penalty to get it, my options decrease.  

If I wanted to reduce my savings to blow money, I'd be more worried.  But, I'd reduce pre-tax savings to invest in other areas, even if one area, building the house, is mostly just investing in a dream.  At least it is a tangible dream I could cash out if I had to!