Apple
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Post by Apple on Feb 17, 2017 0:40:14 GMT -5
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 hate taxes too, but if I am making too much in retirement, I'm going to be keeping myself in a higher tax bracket... 12% could net me $750 a month (after taxes). To me, that is a lot of money, and I could use now, to put toward the house fund and/or roth and taxable accounts. If my math is horribly off, I'd know after the first paycheck and then decide it's not worth it. No, I'm not struggling, but I'm also not able to fulfill my biggest "want" at this rate, and I know I'd be better if I could have built the place six years ago as planned.
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Apple
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Post by Apple on Feb 17, 2017 0:44:44 GMT -5
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. I'll check out the website. And, as mentioned, not skinflint existence, but there is that one thing (house in the woods!) that makes me want more of the money now. Part of the reason I have saved as much as I have, was that if the opportunity came to retire even earlier (I'd be eligible at age 46 if earlier than minimum age retirement is offered, which it is on rare occasion), I could do it. I wanted/needed out of my old work situation that bad. Now, well, work is much different than it was, and that high need to be able to retire asap is not as urgent, 57 seems ok now.
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Apple
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Post by Apple on Feb 17, 2017 0:52:10 GMT -5
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 $$ calculations and he was still surprised by how much he's getting every month now that he is retired... he's got a BIG surplus of money - and nothing to do with it.
That said, I may be in a similar situation $$ wise...
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.
First paragraph... That would be so hard to lose someone right at the retirement stage! Financially, too much money is not a bad problem to have, but I don't really see it as a "good" problem to have if it means putting off too much when you are younger. I don't plan to die leaving a large inheritance! I'd rather have enough saved to not every have to worry, but not so much that I didn't have time to enjoy nearly every last penny I agree... if you feel set (and you're closer than I am to know for sure), I'd move some of that and go do the things you don't do now. I find travel to be worth every penny, as well as fun things like my quilting. I could cut back on both, but I would find life more bland if I did.
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Apple
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Post by Apple on Feb 17, 2017 1:09:43 GMT -5
Keep saving. Money in the bank gives you options when things don't go as you planned. But, there is part of the rub... should all that money be in a pre-tax retirement account where you can't access it as an option? Or is it better served in some land and an extra house, or a Roth, or a taxable account along with that pre-tax account?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. The way it is currently set up, some of it moves into less risky investments as you get closer to retirement. What would happen? If I was physically/mentally capable of working longer, I'd suck it up and do it. If my pension was solid and I felt ok with what I did have saved, I'd retire anyway. I'd not get to travel as much as I want in retirement. Or, I might sell the house/property, get a camper, and travel more! To me, the real risk is everything tanking with me having to much in investments the year after I retire.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. Since I'd go at 52 if it didn't mean penalties on my pension, I'd be good with getting RIFed at 52 (if I could keep the pension, of course). Injured/not able to work... as mentioned earlier, easier to handle if not all my savings is in a retirement account that I can't really access until I retire. I could raid a roth, raid taxable investments, sell the house or the property and future house. I'd still be setting myself up to be able to take care of myself if I reduced my pre-tax savings.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? I'd cut back on my monthly paycheck from my retirement savings (all the calculations still leave me with money in the account at 95). Grandparents were in amazing physical health up into the 90s, but they didn't last through the decade, so I'm not too worried that I would, although anything is possible!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. Right now the plan is just that I have quite a bit of money in retirement, along with a paid for house/property that could be sold to help out with my care if needed. That would still be the plan if I reduce pre-tax savings, the money would just be more diversified.It's not about the money. It's about the choices that money makes possible. Yes, but I am also looking at the choices now, not just those 20, 30, 40+ years in the future.
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Apple
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Post by Apple on Feb 17, 2017 1:11:20 GMT -5
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. Who needs a fountain of youth? I just want the magical future-telling crystal ball!!
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Apple
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Post by Apple on Feb 17, 2017 1:41:36 GMT -5
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. 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! I think, honestly, this is at the heart of it. I've wanted this house since I was three-years-old! (my parents had friends with a log cabin outside of town, "in the woods"--although it's hard to have woods in the desert, it was just surrounded by orchards...) I got so burned on trying to make it happen years ago (crook contractor, I lost $60k with no way to get it back), that I just gave up. Then the work stuff started happening, and it took all my energy just to survive day-by-day. Now, I have the work/life balance I have craved. I have hobbies I love. I have a child getting ready to move out soon (this fall or next fall). I have a nice base in my retirement account that can continue to grow from compounding interest, even if I cut back on my contribution (10% total is not what I would call an irresponsible contribution). It's only been the last year that I've been able to go to the property and relax again, and just love it the way I did before the crook. I think I've given up on the log part of the house (unless I purchase the little neighboring lot in the future and put a little tiny log cabin on it--like a one room cabin). If I can net $800/month more to put toward building, I want to do that. Also, knowing my payment could be pretty much equal to what I pay for the property alone? That is big. Then the state tax on top of that (would have been an $8k tax savings this year). A coworker recommended a builder recently (he built her house), so I should really contact him and see if we can get some ballpark figures. I don't want to say "I deserve it", but dammit, I kind of feel like I do I believe in saving for the future, and do so, but there are also some dreams I don't want to sacrifice. And it's not like I want a McMansion, I just want a little house surrounded by lots of trees and few neighbors. If I had to sell the property tomorrow, I could do it and make a profit. It's a very desirable piece of land, and many were shocked that I was "allowed" to buy it (the man had been offered much more, but he liked me and wanted to see it go to me or the neighbor lady, I just happened to ask first.) Hell, I've already been approached about selling it... I think I really need to talk to a builder, get a ballpark estimate for a house. If it's under $200k, between what I currently pay for property and my state taxes, I'd be fine once they were both eliminated by a regular mortgage. Any advice on how much to have saved in cash before building a house?
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teen persuasion
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Post by teen persuasion on Feb 17, 2017 10:50:11 GMT -5
Apple, I noticed that you keep repeating that you can't access $$ in retirement accounts before 59 1/2 - not true.
There's a Roth conversion ladder - basically you convert a sum that you want to withdraw in 5 years, while using either taxable money or Roth withdrawals of contributions for current expenses. Repeat each year. By year five, the first conversions have seasoned and can now be withdrawn tax and penalty free. As long as you have 5 years of expenses in taxable/Roth contributions to prime the system, you can convert your tIRA to Roth a bit at a time and siphon off for living expenses.
There's SEPP, no ladder needed but more inflexible as you are locked in for 5 years or until age 59 1/2, whichever is later.
You can also just withdraw from your tIRA, as needed, and pay the 10% penalty.
The general idea is that if you retire early (by choice or need), your nonworking income/expenses are probably lower than while working (no commute, FICA, retirement savings, etc) so your taxes will be lower, too. You are contributing now to retirement accounts to save on your high tax bracket, but when you take that same money out you pay taxes in a lower tax bracket.
Saving "too much" for retirement would mean you are in a higher tax bracket due to income beyond your control (pensions, SS, RMDs) later in life. It is preferable to saving too little, but if you hit your savings goal early you can choose to retire early. This gives you the time to control your investments and their taxation, shift the buckets they are stored in.
Your pension is the dual edged sword - it's a great benefit, so you want to continue working to be eligible. But you don't want to put all your eggs in one basket and rely solely on the pension, because they do sometimes disappear. So you put backup funds in other retirement accounts while waiting on the pension. At some point you may have enough to retire early without the pension, but who wouldn't hang on to get the pension, too? Now you've got more than you need (bonus!), but higher taxes and less room/time to maneuver to optimize the tax hit. The pension income makes it harder to Roth convert at low tax rates.
Options: Ride it out, waiting for pension, but stop contributing to retirement accounts. Con is no tax benefits of retirement contributions, or pension goes poof and accounts are underfunded. Keep contributing to retirement accounts. Retire early when accounts large enough, with or without pension. Keep contributing to retirement accounts and wait for pension. Deal with higher taxes.
Of course, it isn't really an all or nothing decision. You can reevaluate each year as things unfold. Just do some projections for how each scenario could play out under average, best case and worst case details. You may find that a suboptimal option now (pay higher taxes now) might be best long-term (Roth over traditional). A mix of taxable, tax deferred, tax exempt is probably most flexible. What is your mix now? How does your state tax various retirement income sources?
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janee
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Post by janee on Feb 17, 2017 11:14:11 GMT -5
You said: "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."
Definitely take another look at it. I like it a lot. On the first page there is a box in the lower left hand section where you input your spending, how much you have saved and number of years you think it should last. In my case I use 35 years.
After you click Submit it shows you a graph with a lot of lines. Basically it shows you how your portfolio would have worked over every 35 years period (there are 111 35-year cycles). The most important number is how many cycles failed. For me, it fails 8 out of 111 time periods (of 35 years each) for a success rate of 92.8%.
But, on the first page at the top there is a series of tabs. The first one is "Other Income/Spending" if you click on that tab, you can add in social security and pension payments or put in expected large expenses. If I add DH and my Social security to my numbers, there are no 35 year time periods where my portfolio would not cover my spending (which is also adjusted for inflation). Hope that's helpful.
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Deleted
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Post by Deleted on Feb 17, 2017 11:22:30 GMT -5
You said: "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."
Definitely take another look at it. I like it a lot. On the first page there is a box in the lower left hand section where you input your spending, how much you have saved and number of years you think it should last. In my case I use 35 years.
After you click Submit it shows you a graph with a lot of lines. Basically it shows you how your portfolio would have worked over every 35 years period (there are 111 35-year cycles). The most important number is how many cycles failed. For me, it fails 8 out of 111 time periods (of 35 years each) for a success rate of 92.8%.
But, on the first page at the top there is a series of tabs. The first one is "Other Income/Spending" if you click on that tab, you can add in social security and pension payments or put in expected large expenses. If I add DH and my Social security to my numbers, there are no 35 year time periods where my portfolio would not cover my spending (which is also adjusted for inflation). Hope that's helpful.
Actually, the number of years is supposed to be the number of years from now until the "end of the plan" (expected death), not the number of years in retirement. That's a very common error. If you're not yet retired, then you go to that tab and put in the year that is going to start and the amount you're going to contribute until then.
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janee
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Joined: May 14, 2014 10:04:48 GMT -5
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Post by janee on Feb 17, 2017 11:31:10 GMT -5
You said: "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."
Definitely take another look at it. I like it a lot. On the first page there is a box in the lower left hand section where you input your spending, how much you have saved and number of years you think it should last. In my case I use 35 years.
After you click Submit it shows you a graph with a lot of lines. Basically it shows you how your portfolio would have worked over every 35 years period (there are 111 35-year cycles). The most important number is how many cycles failed. For me, it fails 8 out of 111 time periods (of 35 years each) for a success rate of 92.8%.
But, on the first page at the top there is a series of tabs. The first one is "Other Income/Spending" if you click on that tab, you can add in social security and pension payments or put in expected large expenses. If I add DH and my Social security to my numbers, there are no 35 year time periods where my portfolio would not cover my spending (which is also adjusted for inflation). Hope that's helpful.
Actually, the number of years is supposed to be the number of years from now until the "end of the plan" (expected death), not the number of years in retirement. That's a very common error. If you're not yet retired, then you go to that tab and put in the year that is going to start and the amount you're going to contribute until then. Yes, that's correct. If you're not retired, there is another tab to enter year of retirement and expected years you'll need the cash. It's an interesting tool to see historically how you have fared if you had retired at different points. For me, I need to have a number in the high 90's percent success rate to feel comfortable with having enough for retirement. I don't have a pension but I have heard other people say to take the amount you receive for pension and multiply it by 25. That gives you the equivalent worth of your pension if you were taking out the Safe Withdrawal Rate of 4% per year.
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tskeeter
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Post by tskeeter on Feb 17, 2017 11:39:44 GMT -5
Keep saving. Money in the bank gives you options when things don't go as you planned. But, there is part of the rub... should all that money be in a pre-tax retirement account where you can't access it as an option? Or is it better served in some land and an extra house, or a Roth, or a taxable account along with that pre-tax account?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. The way it is currently set up, some of it moves into less risky investments as you get closer to retirement. What would happen? If I was physically/mentally capable of working longer, I'd suck it up and do it. If my pension was solid and I felt ok with what I did have saved, I'd retire anyway. I'd not get to travel as much as I want in retirement. Or, I might sell the house/property, get a camper, and travel more! To me, the real risk is everything tanking with me having to much in investments the year after I retire.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. Since I'd go at 52 if it didn't mean penalties on my pension, I'd be good with getting RIFed at 52 (if I could keep the pension, of course). Injured/not able to work... as mentioned earlier, easier to handle if not all my savings is in a retirement account that I can't really access until I retire. I could raid a roth, raid taxable investments, sell the house or the property and future house. I'd still be setting myself up to be able to take care of myself if I reduced my pre-tax savings.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? I'd cut back on my monthly paycheck from my retirement savings (all the calculations still leave me with money in the account at 95). Grandparents were in amazing physical health up into the 90s, but they didn't last through the decade, so I'm not too worried that I would, although anything is possible!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. Right now the plan is just that I have quite a bit of money in retirement, along with a paid for house/property that could be sold to help out with my care if needed. That would still be the plan if I reduce pre-tax savings, the money would just be more diversified.It's not about the money. It's about the choices that money makes possible. Yes, but I am also looking at the choices now, not just those 20, 30, 40+ years in the future.Apple, I think you've got it pretty well dialed in. Your thoughts about easily accessed savings in taxable are a great idea. Although real estate is a popular retirement investment, I think it has some significant limitations. First, home appreciation averages about 3% - 4% a year. Well below the return of other investments. Second, real estate is not a very liquid investment. At a minimum, it would take a month or more to convert a house to cash. Other investments can be converted in a matter of hours. Third, the carrying cost of real estate is high compared to other investments. Property taxes, 1% to 2% a year for maintenance, insurance, other miscellaneous costs. Where I think real estate makes sense is if you follow Phil's approach to keep property highly leveraged. Minimizing how much of your resources are tied up in real estate magnifies your return on invested capital because your appreciation is divided by fewer dollars invested.
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gooddecisions
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Post by gooddecisions on Feb 17, 2017 11:56:35 GMT -5
Can you break down the balances in each retirement account? 401(k)? Roth IRA? Traditional ira? Pension? If the bulk of your money is in a 401k and you are sitting pretty, I probably would reduce my contributions and take the tax hit. Then I would max a Roth and throw whatever is left in a vanguard account. This will give you more options. Great job!
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Deleted
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Post by Deleted on Feb 17, 2017 12:03:14 GMT -5
Actually, the number of years is supposed to be the number of years from now until the "end of the plan" (expected death), not the number of years in retirement. That's a very common error. If you're not yet retired, then you go to that tab and put in the year that is going to start and the amount you're going to contribute until then. Yes, that's correct. If you're not retired, there is another tab to enter year of retirement and expected years you'll need the cash. It's an interesting tool to see historically how you have fared if you had retired at different points. For me, I need to have a number in the high 90's percent success rate to feel comfortable with having enough for retirement. I don't have a pension but I have heard other people say to take the amount you receive for pension and multiply it by 25. That gives you the equivalent worth of your pension if you were taking out the Safe Withdrawal Rate of 4% per year. I love playing with firecalc. My favorite thing to do is put in what I have for savings now then keep adjusting down the amount desired in retirement until it hits 100% success rate with all cycles. Then I know what I am almost for sure to have if I quit saving entirely today and retired at 65. Right now it's 25K/year in today's dollars. Not exactly rolling in it, but add in 10K of SS and I'm about to my income right now and definitely not cat food level. That makes me happy. Of course, I probably still have 15 more years to save, so I'm hoping to get up to about 40K without SS.
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Apple
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Post by Apple on Feb 17, 2017 12:28:13 GMT -5
Apple, I noticed that you keep repeating that you can't access $$ in retirement accounts before 59 1/2 - not true. There's a Roth conversion ladder - basically you convert a sum that you want to withdraw in 5 years, while using either taxable money or Roth withdrawals of contributions for current expenses. Repeat each year. By year five, the first conversions have seasoned and can now be withdrawn tax and penalty free. As long as you have 5 years of expenses in taxable/Roth contributions to prime the system, you can convert your tIRA to Roth a bit at a time and siphon off for living expenses. There's SEPP, no ladder needed but more inflexible as you are locked in for 5 years or until age 59 1/2, whichever is later. You can also just withdraw from your tIRA, as needed, and pay the 10% penalty. The general idea is that if you retire early (by choice or need), your nonworking income/expenses are probably lower than while working (no commute, FICA, retirement savings, etc) so your taxes will be lower, too. You are contributing now to retirement accounts to save on your high tax bracket, but when you take that same money out you pay taxes in a lower tax bracket. Saving "too much" for retirement would mean you are in a higher tax bracket due to income beyond your control (pensions, SS, RMDs) later in life. It is preferable to saving too little, but if you hit your savings goal early you can choose to retire early. This gives you the time to control your investments and their taxation, shift the buckets they are stored in. Your pension is the dual edged sword - it's a great benefit, so you want to continue working to be eligible. But you don't want to put all your eggs in one basket and rely solely on the pension, because they do sometimes disappear. So you put backup funds in other retirement accounts while waiting on the pension. At some point you may have enough to retire early without the pension, but who wouldn't hang on to get the pension, too? Now you've got more than you need (bonus!), but higher taxes and less room/time to maneuver to optimize the tax hit. The pension income makes it harder to Roth convert at low tax rates. Options: Ride it out, waiting for pension, but stop contributing to retirement accounts. Con is no tax benefits of retirement contributions, or pension goes poof and accounts are underfunded. Keep contributing to retirement accounts. Retire early when accounts large enough, with or without pension. Keep contributing to retirement accounts and wait for pension. Deal with higher taxes. Of course, it isn't really an all or nothing decision. You can reevaluate each year as things unfold. Just do some projections for how each scenario could play out under average, best case and worst case details. You may find that a suboptimal option now (pay higher taxes now) might be best long-term (Roth over traditional). A mix of taxable, tax deferred, tax exempt is probably most flexible. What is your mix now? How does your state tax various retirement income sources? The Roth conversion is specifically not allowed, I've looked into it. If I want to withdraw the money, there is a penalty on top of the taxes, and you can't convert around that. So, in my case, I can access it if I retire after age 57 and 30 years in, or when I turn 59 1/2. If I'm going to have to take a hit to access it, I feel like I should diversify more so that I can avoid that. There is a very large possibility my tax rate is lower right now than it will be when I retire (when I started saving, we did not have a Roth option through work, only got that option recently. I was young and didn't know about Roths, then by the time it came around, compounding interest was so much in my traditional I thought it might be a waste, but, I did start contributing last year, just to spread it out some). In a couple years, I will go from being able to file head of household and claiming my son, to single with no dependents. When I move from current state to new state, I won't have state taxes to deduct. Also, when I retire, I will not have a mortgage. The way I'm saving now, if things grow as desired, I will make more in retirement than I will when I retire.
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Deleted
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Post by Deleted on Feb 17, 2017 12:59:31 GMT -5
I'm at the point where retirement projections are significantly over the target number. DW is a fed and would be walking away from a ton of benefits if she walks away before 57 but I show we would actually hit our number when she is 52 so that could be a tough decision later in life.
When we got together back in 2010 we went into extreme saver frugal mode, in the last couple years we settled on spending one of our incomes after 401k match and saving the rest. I still hesitate taking the foot off the savings accelerator because I fear job loss or economy crash.
I created my own retirement income projector in excel with the goal of being able to live off dividends/interest or essentially a 2.5% withdrawal rate.
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Apple
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Post by Apple on Feb 17, 2017 13:02:43 GMT -5
You said: "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."
Definitely take another look at it. I like it a lot. On the first page there is a box in the lower left hand section where you input your spending, how much you have saved and number of years you think it should last. In my case I use 35 years.
After you click Submit it shows you a graph with a lot of lines. Basically it shows you how your portfolio would have worked over every 35 years period (there are 111 35-year cycles). The most important number is how many cycles failed. For me, it fails 8 out of 111 time periods (of 35 years each) for a success rate of 92.8%.
But, on the first page at the top there is a series of tabs. The first one is "Other Income/Spending" if you click on that tab, you can add in social security and pension payments or put in expected large expenses. If I add DH and my Social security to my numbers, there are no 35 year time periods where my portfolio would not cover my spending (which is also adjusted for inflation). Hope that's helpful.
Ah, that doesn't sound so hard to figure out then, thanks for the tips! (I just spent a minute messing with numbers...) If I have 1.5 million in my portfolio (not counting pension or Roth, first tab only, projecting a portfolio) and put my spending at $50k (which seems very high when I wouldn't have a mortgage, state income taxes, kids at home, etc, and is way more than I spend now), firecalc shows no failures over a 40 year spread (would would put me at age 97). I went through all the tabs, lowered my yearly contribution to 10% (5 % self +5% match), put in current portfolio, and added a number for pension that is lower than anything I've calculated so far, and I had to go to spending $80k a year before I hit one failure, at 39 years in (age 96). I'm still really comfortable at these numbers. If I stayed at 22% contribution, I had to raise the spending to $105k spending before I had a loss, and then there were two, at 38 years (age 95). I have no idea how I would spend $105k/year! ETA: I left social security at 0 for all calculations. If I put $1k in there, I still have two failures at the end, but they wait until year 39.
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Post by Deleted on Feb 17, 2017 13:09:08 GMT -5
You said: "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."
Definitely take another look at it. I like it a lot. On the first page there is a box in the lower left hand section where you input your spending, how much you have saved and number of years you think it should last. In my case I use 35 years.
After you click Submit it shows you a graph with a lot of lines. Basically it shows you how your portfolio would have worked over every 35 years period (there are 111 35-year cycles). The most important number is how many cycles failed. For me, it fails 8 out of 111 time periods (of 35 years each) for a success rate of 92.8%.
But, on the first page at the top there is a series of tabs. The first one is "Other Income/Spending" if you click on that tab, you can add in social security and pension payments or put in expected large expenses. If I add DH and my Social security to my numbers, there are no 35 year time periods where my portfolio would not cover my spending (which is also adjusted for inflation). Hope that's helpful.
Ah, that doesn't sound so hard to figure out then, thanks for the tips! (I just spent a minute messing with numbers...) If I have 1.5 million in my portfolio (not counting pension or Roth, first tab only, projecting a portfolio) and put my spending at $50k (which seems very high when I wouldn't have a mortgage, state income taxes, kids at home, etc, and is way more than I spend now), firecalc shows no failures over a 40 year spread (would would put me at age 97). I went through all the tabs, lowered my yearly contribution to 10% (5 % self +5% match), put in current portfolio, and added a number for pension that is lower than anything I've calculated so far, and I had to go to spending $80k a year I hit one failure, at 39 years in (age 96). before I'm still really comfortable at these numbers. If I stayed at 22% contribution, I had to raise the spending to $105k spending before I had a loss, and then there were two, at 38 years (age 95). I have no idea how I would spend $105k/year! Do you have 1.5 million now? You're supposed to put what you have now, not what you think you'll have.
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Apple
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Post by Apple on Feb 17, 2017 13:12:55 GMT -5
Apple, I think you've got it pretty well dialed in. Your thoughts about easily accessed savings in taxable are a great idea. Although real estate is a popular retirement investment, I think it has some significant limitations. First, home appreciation averages about 3% - 4% a year. Well below the return of other investments. Second, real estate is not a very liquid investment. At a minimum, it would take a month or more to convert a house to cash. Other investments can be converted in a matter of hours. Third, the carrying cost of real estate is high compared to other investments. Property taxes, 1% to 2% a year for maintenance, insurance, other miscellaneous costs. Where I think real estate makes sense is if you follow Phil's approach to keep property highly leveraged. Minimizing how much of your resources are tied up in real estate magnifies your return on invested capital because your appreciation is divided by fewer dollars invested. Yeah, I'm not renting anything out, so I don't go into buying something with the idea that it is an investment. However, if I found myself in a desperate situation, and still had both the property and the current house, I would one to at least get rid of the monthly obligation, if nothing else. The market would have to be very dire before I would have to take a loss. ETA: I am not mortgage adverse. If the numbers make sense to have a mortgage, invest the cash, and the mortgage payments are comfortable, I'm not in a big rush to pay it off. However, I would not want to go into retirement with a mortgage, since I'd want much less risky investments by that time.
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Apple
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Post by Apple on Feb 17, 2017 13:17:56 GMT -5
Ah, that doesn't sound so hard to figure out then, thanks for the tips! (I just spent a minute messing with numbers...) If I have 1.5 million in my portfolio (not counting pension or Roth, first tab only, projecting a portfolio) and put my spending at $50k (which seems very high when I wouldn't have a mortgage, state income taxes, kids at home, etc, and is way more than I spend now), firecalc shows no failures over a 40 year spread (would would put me at age 97). I went through all the tabs, lowered my yearly contribution to 10% (5 % self +5% match), put in current portfolio, and added a number for pension that is lower than anything I've calculated so far, and I had to go to spending $80k a year I hit one failure, at 39 years in (age 96). before I'm still really comfortable at these numbers. If I stayed at 22% contribution, I had to raise the spending to $105k spending before I had a loss, and then there were two, at 38 years (age 95). I have no idea how I would spend $105k/year! Do you have 1.5 million now? You're supposed to put what you have now, not what you think you'll have. That was a projected amount, for just the first page, before I went through all the tabs. I changed it to what I have now in later calculations, when I went through all the tabs. I was still trying to figure the website out.
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teen persuasion
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Post by teen persuasion on Feb 17, 2017 13:19:48 GMT -5
So what kind of retirement account is it? Guess I was just assuming a 401k in addition to your pension. After leaving an employer you can usually roll a 401k over to a traditional IRA. Then you convert that to Roth.
You are right - you need to create some diversity in your types of accounts. If you are at a low rate (vs later) it makes sense to shift to roth 401k and/or IRA and/or taxable.
I'm trying to wrap my head around whether our tax rate is going higher or lower as the nest empties. We are definitely losing child tax exemptions and credits, but those same credits create an artificially high marginal rate that we are trying to avoid now. Refundable credits turn things upside down. But those credits disappear for us soon, whether we use them or not, so I figure it's better to capture them.
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Apple
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Post by Apple on Feb 17, 2017 13:25:37 GMT -5
Can you break down the balances in each retirement account? 401(k)? Roth IRA? Traditional ira? Pension? If the bulk of your money is in a 401k and you are sitting pretty, I probably would reduce my contributions and take the tax hit. Then I would max a Roth and throw whatever is left in a vanguard account. This will give you more options. Great job! Without exact numbers (sorry, I'm putting a lot out here, but not quite ready to put the actual figures). I currently have 3.98 times my base yearly income in a pre-tax, traditional IRA (my 401k that isn't exactly a 401k). I currently have less than 2% of my base income in a Roth (I just started it last year, and did not max it). When I retire, at age 57, my pension will be 36% of my base income (based on my high-three average). I do feel like the balance is too heavily loaded to the tIRA, but until this point, I used the compound interest as the biggest reason for just throwing more money there, because that's where it would see the most growth, due to having a nice, plump base. Now I think I should spread it out a little and also spend some (by building the house).
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Apple
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Post by Apple on Feb 17, 2017 13:29:48 GMT -5
Can you break down the balances in each retirement account? 401(k)? Roth IRA? Traditional ira? Pension? If the bulk of your money is in a 401k and you are sitting pretty, I probably would reduce my contributions and take the tax hit. Then I would max a Roth and throw whatever is left in a vanguard account. This will give you more options. Great job! Without exact numbers (sorry, I'm putting a lot out here, but not quite ready to put the actual figures). I currently have 3.98 times my base yearly income in a pre-tax, traditional IRA (my 401k that isn't exactly a 401k). I currently have less than 2% of my base income in a Roth (I just started it last year, and did not max it). When I retire, at age 57, my pension will be 36% of my base income (based on my high-three average). I do feel like the balance is too heavily loaded to the tIRA, but until this point, I used the compound interest as the biggest reason for just throwing more money there, because that's where it would see the most growth, due to having a nice, plump base. Now I think I should spread it out a little and also spend some (by building the house). Oops, I put $1k annual SS. Spending changes to $116k before I have a loss (at 39 years, age 96) before I take a loss if I put SS at $10k annual.
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teen persuasion
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Post by teen persuasion on Feb 17, 2017 13:33:34 GMT -5
Can you break down the balances in each retirement account? 401(k)? Roth IRA? Traditional ira? Pension? If the bulk of your money is in a 401k and you are sitting pretty, I probably would reduce my contributions and take the tax hit. Then I would max a Roth and throw whatever is left in a vanguard account. This will give you more options. Great job! Without exact numbers (sorry, I'm putting a lot out here, but not quite ready to put the actual figures). I currently have 3.98 times my base yearly income in a pre-tax, traditional IRA (my 401k that isn't exactly a 401k). I currently have less than 2% of my base income in a Roth (I just started it last year, and did not max it). When I retire, at age 57, my pension will be 36% of my base income (based on my high-three average). I do feel like the balance is too heavily loaded to the tIRA, but until this point, I used the compound interest as the biggest reason for just throwing more money there, because that's where it would see the most growth, due to having a nice, plump base. Now I think I should spread it out a little and also spend some (by building the house). Multiples of income are not important. The figure you want is 25x expenses, for a SWR of 4%. So what percent of expenses would your pension be? Then the 4% of the other accounts. Roth IRAs have no RMDs, unlike tIRAs. Another reason to contribute/convert to Roth if possible.
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Post by Deleted on Feb 17, 2017 13:39:47 GMT -5
If you're putting your spending at what half (?) your current income now, I can see where you're not having any trouble hitting 100% especially with a pension, but I'm not sure why you think your tax rate will be higher on 50K? I think ideally people should have a mix of pre-tax, Roth and taxable, so opening a taxable account is a good idea if all the other bases are covered. It's the TAXES now part that would make me ill, especially at your income level. It's what got me saving for retirement in the first place! I did my taxes back when I was first out of school and saw that I was going to owe $600. I was happier locking 2K in an IRA for 45 years than paying that $600 Have you tried running your paycheck info on paycheckcity.com to see what the net effect would actually be?
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Apple
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Post by Apple on Feb 17, 2017 13:46:04 GMT -5
you can work with a construction loan company. not every bank has them, but many banks and credit unions have "construction loans" where you bring some equity (usually 20-30%) and they'll finance the rest. this would let you build this NOW, have it done in a year, move, sell your current place and just get on with the life you want. do you know what it would cost you to build (roughly, including permits, driveway, septic, well, electrical service, etc)? How much do you have accessible? How much equity in the land? There is already a well (it has always tested for good water, tested it again less than 5 years ago). There is a septic tank and drain field already in place, would have it inspected though. There is electrical service to the property, a transformer and a breaker panel (would likely need a couple updates before a contractor would want to use the breaker panel to run power). Equity in the land would depend on what a bank valued it at, but if I just go off what I have as principle to what I owe, (I need to run exact numbers), but at least 30% equity. Accessible-- in "cash" (money earmarked for a build, in different accounts/CDs to try to max very small interest rates), $25k. More if I use some college funds now (with or without the plan to replace it once a house is done), and more if I'm willing to tapped my un-earmarked savings. House would be small, 30' x 30' if a builder was able to build the exact floorplan I want (my own floor plans, so I'd either have to use one of his, or pay to get mine engineered, made into "real" plans, I really like the layout I came up with though--I even made sure to include wall space, since walls aren't 0"). I'll look through the site you posted later. My hope is that a simple, square house could be built for less than $150, my fear is that I'm way off and it would be much, much more. Although, I've done the mortgage calculators, and I'd still come out even to what I'm paying for the property alone, or just slightly higher. Sell my house, and I'd have no problems at all, but out-of-state tuition might affect some decisions. I ran some numbers through a "how much to build a house" website a few months ago, and seemed to come out ok, but so much will depend on my contractor and actual location.
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gooddecisions
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Post by gooddecisions on Feb 17, 2017 13:47:54 GMT -5
Can you break down the balances in each retirement account? 401(k)? Roth IRA? Traditional ira? Pension? If the bulk of your money is in a 401k and you are sitting pretty, I probably would reduce my contributions and take the tax hit. Then I would max a Roth and throw whatever is left in a vanguard account. This will give you more options. Great job! Without exact numbers (sorry, I'm putting a lot out here, but not quite ready to put the actual figures). I currently have 3.98 times my base yearly income in a pre-tax, traditional IRA (my 401k that isn't exactly a 401k). I currently have less than 2% of my base income in a Roth (I just started it last year, and did not max it). When I retire, at age 57, my pension will be 36% of my base income (based on my high-three average). I do feel like the balance is too heavily loaded to the tIRA, but until this point, I used the compound interest as the biggest reason for just throwing more money there, because that's where it would see the most growth, due to having a nice, plump base. Now I think I should spread it out a little and also spend some (by building the house). Fair enough. I stand by my original advice. Back off the 401k a bit, max the Roth and throw anything leftover in a vanguard. The vanguard can be your housing slush fund and emergency fund. I am also a big fan of fully funding an investment hsa if you are eligible and are planning to retire early. Though it sounds like you might get retiree health care benefits from your company.
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Apple
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Post by Apple on Feb 17, 2017 13:56:29 GMT -5
I'm at the point where retirement projections are significantly over the target number. DW is a fed and would be walking away from a ton of benefits if she walks away before 57 but I show we would actually hit our number when she is 52 so that could be a tough decision later in life.When we got together back in 2010 we went into extreme saver frugal mode, in the last couple years we settled on spending one of our incomes after 401k match and saving the rest. I still hesitate taking the foot off the savings accelerator because I fear job loss or economy crash. I created my own retirement income projector in excel with the goal of being able to live off dividends/interest or essentially a 2.5% withdrawal rate. Nailed it. Imagine she started maxing this at age 21, and as max percent changed to a max dollar amount, she stayed pretty close to maxing it. For 16 years already. If she has, awesome! But it does create that weird dilemma. I'm so content with my job now that if things stay the way they are, I have no "I hate work" problem working to age 57, but I am on track to meet my financial goals so long before then. And "early outs" in my field don't happen, because we can't really afford to lose a position, we already run on the minimum to cover 24/7 without overtime (but overtime is created because of vacation/sick leave/training). The second bolded part... I'm thankful to have no debt outside of mortgage and property, and my job is about as secure as a government job can get due to the type and the number of years I have in. Still, "what if"...!
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Apple
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Post by Apple on Feb 17, 2017 14:02:22 GMT -5
So what kind of retirement account is it? Guess I was just assuming a 401k in addition to your pension. After leaving an employer you can usually roll a 401k over to a traditional IRA. Then you convert that to Roth. You are right - you need to create some diversity in your types of accounts. If you are at a low rate (vs later) it makes sense to shift to roth 401k and/or IRA and/or taxable. I'm trying to wrap my head around whether our tax rate is going higher or lower as the nest empties. We are definitely losing child tax exemptions and credits, but those same credits create an artificially high marginal rate that we are trying to avoid now. Refundable credits turn things upside down. But those credits disappear for us soon, whether we use them or not, so I figure it's better to capture them. It's... special...? It's "a defined contribution plan", "to give you the ability to participate in a long-term retirement savings and investment plan". TSP, if you are familiar with that system. It's pre-tax contributions, but they put their own rules on it. I'm in that same spot of trying to wrap my head around the taxes. I don't get any credits for my son, but I do get tax advantages-- head of household filing and having him as a deduction. I lose those soon. I've only projected my income to go up, I don't intend to take any more paycuts to move to a new position, unless some amazing opportunity presents itself (working overseas with a housing allowance but half the pay? I'd be in in a heartbeat!)
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Apple
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Post by Apple on Feb 17, 2017 14:12:33 GMT -5
Without exact numbers (sorry, I'm putting a lot out here, but not quite ready to put the actual figures). I currently have 3.98 times my base yearly income in a pre-tax, traditional IRA (my 401k that isn't exactly a 401k). I currently have less than 2% of my base income in a Roth (I just started it last year, and did not max it). When I retire, at age 57, my pension will be 36% of my base income (based on my high-three average). I do feel like the balance is too heavily loaded to the tIRA, but until this point, I used the compound interest as the biggest reason for just throwing more money there, because that's where it would see the most growth, due to having a nice, plump base. Now I think I should spread it out a little and also spend some (by building the house). Multiples of income are not important. The figure you want is 25x expenses, for a SWR of 4%. So what percent of expenses would your pension be? Then the 4% of the other accounts. Roth IRAs have no RMDs, unlike tIRAs. Another reason to contribute/convert to Roth if possible. If I remove my mortgage, I'm already at 14x expenses for anything I budget from my net paycheck. If I only double my investments in 19 years, I'd be at 28x. And not sure what all to put for expenses, so I just put everything I get net income minus my mortgage. My bare bones expenses are much, much less. My pension would cover almost 100% of my current expenses, if I left the mortgage. If I remove it, pension covers over 100% of my expenses.
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Apple
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Post by Apple on Feb 17, 2017 14:27:49 GMT -5
If you're putting your spending at what half (?) your current income now, I can see where you're not having any trouble hitting 100% especially with a pension, but I'm not sure why you think your tax rate will be higher on 50K? I think ideally people should have a mix of pre-tax, Roth and taxable, so opening a taxable account is a good idea if all the other bases are covered. It's the TAXES now part that would make me ill, especially at your income level. It's what got me saving for retirement in the first place! I did my taxes back when I was first out of school and saw that I was going to owe $600. I was happier locking 2K in an IRA for 45 years than paying that $600 Have you tried running your paycheck info on paycheckcity.com to see what the net effect would actually be? I'm confused, but maybe I'm just tired. If I include my pension, I can put my spending at over my current gross income, and the firecalc calculator still does not fail until 39 years. Then there is only one (two? can't remember and I closed the tab) failures. My spending is very, very different than my gross income. "I'm not sure why you think your tax rate will be higher on 50k?"-- I don't? I think my tax rate could be higher if my gross income when I retire is higher than my gross income while working, and losing my current tax deductions (head of household filing, dependent, and mortgage). My taxes are going to go up soon, because of no longer being able to claim the kid. I won't have less income in retirement, I'll have more. I will literally be working for "less money" during my 50s in order to keep my benefits at age 57. I can check the link and see what it says. But, pointing out again, my numbers are so whacked because I started saving so much at such a young age. Generic chart off the internet: I have the guy on the left by 4 years (started at 21), a lot of money (my contributions, including match, have been more double "his" $5k), and I haven't stopped my contributions. I will have the total on the right beat by age 40, barring big losses. Starting young is huge. Get those kids contributing to a Roth as soon as they have earned income! Basically, take the age you started, subtract 21, and add the difference to your years of growth to see the difference. I am very thankful I had the opportunity and took it when I did, I know that is much more than the average experience.
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