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Post by minnesotapaintlady on Mar 7, 2021 9:39:18 GMT -5
Pink you should take a closer look at your mutual funds in your retirement account to be sure they are still what you want and still working for you. I know it's kinda scary to think you might lose your hard-earned dollars, but investing too conservatively can hurt you, too. I've never been very interested in bond funds either, although I have bonds in my Fidelity Balanced Fund. I do like that it pays some dividends and capital gains, especially during the years when returns were down. At least I was reinvesting at the lower prices. I agree you have to figure out what works for you. For myself, I have no interest in paying my house off. I know that's a priority for many people by the time they retire. I don't see any reason to. The payment is manageable. That's nice, but it shows why personal finance is...personal. Paying off my house was the right thing to do for me for a couple reasons. In addition, having it paid off is a large part of my planning now. Because I don't have to cover a mortgage payment, I can limit my income. Doing that will save me a small fortune in taxes. Not only will I not have to make my SS payments taxable and pay income tax, but I will probably save around $8000 on property taxes as well. If I can save more in taxes than I currently withdraw from my IRA each year, I'm good with that! I have similar reasoning for paying off the mortgage. It's not quite as pressing now that the it's $400/month instead of $1300, but that's still nearly 5K/year I'd have to add to AGI that I wouldn't have to have (also part of the reason I'm considering solar before I retire). We have a Property Tax Refund as well, I qualify to get about half back now with two kids because they provide an 11K income reduction on the form. Just not having to draw 5K for the mortgage would make up half of that. Then if I go on MNSure medical before age 65 I would have lower premiums without the mortgage. If I had enough that I could just draw 80K+ year I wouldn't worry about it. But when I'm trying to get the most out of 40-50K, a $400/month mortgage payment does matter.
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giramomma
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Post by giramomma on Mar 7, 2021 9:45:56 GMT -5
Re: Everything is covered with your insurance... I would really take some time to figure out what that means. I'm sort of suspect of insurance that covers things like, say experiment cancer drugs, no questions asked...if that's a route you want to go on. I’m not sure what you mean. I didn’t say everything is covered by my insurance. If I implied that, it’s not what I meant. Sorry. I think you said everything after 6K was covered. But I would check out everything means.
What I've learned watching my parents is that long term illness can be expensive. You can't anticipate a lot right now, because you just don't know until you are there.
Watching both my parents and my inlaws, I would expect that you'll end up spending more at the beginning of retirement, because you can still get around and do things. Eventually, the activity will slow down and the spending could be less. And then, depending on your health, the expenses can start taking off again towards the end of one's life.
And it's not just the medical stuff. I could be getting a house cleaner, someone to do the lawn, paint the house, etc.
The caveat, of course, is that I never saw the example of folks being spry into their 90's and the just one day dying in their sleep. I know that's another possibility,. I think, if one is spry, then it changes the spending pattern. No lawn help, no house cleaners, and good health reduces the need for more spending in the last 10% or so of your life. Because I am risk adverse, this is what I'm hoping for but I don't feel comfortable planning on. ETA: Have you had serious thoughts/discussions about what you want to do in retirement, especially with the Mister? Things like travel..that's something I'd want to talk about. Because retirement for someone who wants to travel extensively is going to look a lot different than retirement for someone content volunteering 1 day a week, reading books from the library, and working through the stash in their basement. I've forgotten how old your grandbaby (forgive me, it might be babies) are and how old they will be when you retire. That might be an area you want to choose to spend more in...too..in early retirement...if it works for your family situation.
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buystoys
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Post by buystoys on Mar 7, 2021 9:57:51 GMT -5
We had a paid off house in NY, but we took out a mortgage for our current house. Every once in a while, DH will mumble about having a paid off house. I offer to withdraw the funds from investments to pay it off. Then he says he's OK with the mortgage. His pension check covers the mortgage, electric, water, and garbage bills. Our disability checks cover the rest of our spending if we don't do a major home project. We've been doing the remodeling and revamping now so it's all done in a few more years and we can just enjoy it.
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giramomma
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Post by giramomma on Mar 7, 2021 10:04:47 GMT -5
Just a weird side not: I'm actually feeling like I can think about retirement again, because of this thread. When Miss M came, I really kissed retirement dreaming/planning/supposing good-bye.
But, now that I think we're seeing the end of the light with the little kid years, I'm like...ohh, maybe we can get out that bucket list again.
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Lizard Queen
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Post by Lizard Queen on Mar 7, 2021 10:11:12 GMT -5
I think having a pension helps your risk profile where investments are concerned. It's still probably a good idea to go at least 80/20, but bonds just suck right now, so I don't know myself. Used to be things like dividend paying utilities would act sort of like bonds.
Anyway, you probably don't want to listen to me, as I still have way too much in cash.
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Rukh O'Rorke
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Post by Rukh O'Rorke on Mar 7, 2021 11:11:53 GMT -5
Yeah. I had a lot more in the 401k than in Roths. I'm doing conversions now to reverse that. I don't plan to do any huge one-time conversions. I'm spreading them out as much as I can while staying in the 12% tax bracket, before they raise it on me. Most of those years we were contributing, we were in the 25%-28% brackets, so I'm ahead, so far. It's not easy coming up with the $$$ to pay the taxes. I usually have to take it from the 401k, which means I owe even more taxes lol. how do you stay in 12%? are you living on 40k/less? or is that 60k with all the usual dedecutions? I just don't know how the income works in retirement and taxing, etc. and then if you are at 40k, then you have to pay taxes on that so really only get like 37/8k for living on? I have no clue on this!
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Post by minnesotapaintlady on Mar 7, 2021 11:26:18 GMT -5
Yeah. I had a lot more in the 401k than in Roths. I'm doing conversions now to reverse that. I don't plan to do any huge one-time conversions. I'm spreading them out as much as I can while staying in the 12% tax bracket, before they raise it on me. Most of those years we were contributing, we were in the 25%-28% brackets, so I'm ahead, so far. It's not easy coming up with the $$$ to pay the taxes. I usually have to take it from the 401k, which means I owe even more taxes lol. how do you stay in 12%? are you living on 40k/less? or is that 60k with all the usual dedecutions? I just don't know how the income works in retirement and taxing, etc. and then if you are at 40k, then you have to pay taxes on that so really only get like 37/8k for living on? I have no clue on this! The tax brackets are based on taxable income, not gross. So at minimum there would be the 12K standard deduction so someone making 52K would still be in the 12% bracket. Plus, not all SS is taxable if you're drawing that.
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Rukh O'Rorke
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Post by Rukh O'Rorke on Mar 7, 2021 12:39:54 GMT -5
That's nice, but it shows why personal finance is...personal. Paying off my house was the right thing to do for me for a couple reasons. In addition, having it paid off is a large part of my planning now. Because I don't have to cover a mortgage payment, I can limit my income. Doing that will save me a small fortune in taxes. Not only will I not have to make my SS payments taxable and pay income tax, but I will probably save around $8000 on property taxes as well. If I can save more in taxes than I currently withdraw from my IRA each year, I'm good with that! I have similar reasoning for paying off the mortgage. It's not quite as pressing now that the it's $400/month instead of $1300, but that's still nearly 5K/year I'd have to add to AGI that I wouldn't have to have (also part of the reason I'm considering solar before I retire). We have a Property Tax Refund as well, I qualify to get about half back now with two kids because they provide an 11K income reduction on the form. Just not having to draw 5K for the mortgage would make up half of that. Then if I go on MNSure medical before age 65 I would have lower premiums without the mortgage. If I had enough that I could just draw 80K+ year I wouldn't worry about it. But when I'm trying to get the most out of 40-50K, a $400/month mortgage payment does matter. this is a tough one for me, as I'd love to have a paid off house. when taking into account the forced income increase and taxation side of it, the extra hedge against market downturns, it does make it less clear cut on which is the winner math wise.
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tallguy
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Post by tallguy on Mar 7, 2021 13:20:44 GMT -5
I have similar reasoning for paying off the mortgage. It's not quite as pressing now that the it's $400/month instead of $1300, but that's still nearly 5K/year I'd have to add to AGI that I wouldn't have to have (also part of the reason I'm considering solar before I retire). We have a Property Tax Refund as well, I qualify to get about half back now with two kids because they provide an 11K income reduction on the form. Just not having to draw 5K for the mortgage would make up half of that. Then if I go on MNSure medical before age 65 I would have lower premiums without the mortgage. If I had enough that I could just draw 80K+ year I wouldn't worry about it. But when I'm trying to get the most out of 40-50K, a $400/month mortgage payment does matter. this is a tough one for me, as I'd love to have a paid off house. when taking into account the forced income increase and taxation side of it, the extra hedge against market downturns, it does make it less clear cut on which is the winner math wise. Yes it does. If I were still dealing with a mortgage payment I would be spending down my assets faster with no more money actually available to me because of taxes. As it is, once I get approved for the property tax exemption I could legitimately (if I wished) have several times my necessary spending amount each year every year for life, still be low or no-tax, and still leave a significant amount when I'm gone. That is the benefit of keeping necessary expenses low. As a definition of, "Winning the game" I think I can settle for that one.
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Rukh O'Rorke
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Post by Rukh O'Rorke on Mar 7, 2021 14:27:06 GMT -5
how do you stay in 12%? are you living on 40k/less? or is that 60k with all the usual dedecutions? I just don't know how the income works in retirement and taxing, etc. and then if you are at 40k, then you have to pay taxes on that so really only get like 37/8k for living on? I have no clue on this! The tax brackets are based on taxable income, not gross. So at minimum there would be the 12K standard deduction so someone making 52K would still be in the 12% bracket. Plus, not all SS is taxable if you're drawing that. so - ss says 85% would be taxable at that income...(Q1: does that include the ss income for taxing ss? or income outside of ss only? this example, makes no difference) and if you have 20k in SS, 17k is taxable (Q2: does medicare come out first? so say 2k/year for medicare and 14760 is taxable??). with the 12k standard, and 17k ss, then you can take 35k out of you 401k, and then you are at 52k gross, 40k taxable, and then pay 12% on the 40k? - and you get 47,200 to live off of? or is the 12% only applied to the $9,876 to $40,125 per the tax chart? and then the 12% tax only applies to 30125 so 3615 in taxes and 48,385 to live on? apologies! I am getting there.....
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Rukh O'Rorke
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Post by Rukh O'Rorke on Mar 7, 2021 14:47:53 GMT -5
this is a tough one for me, as I'd love to have a paid off house. when taking into account the forced income increase and taxation side of it, the extra hedge against market downturns, it does make it less clear cut on which is the winner math wise. Yes it does. If I were still dealing with a mortgage payment I would be spending down my assets faster with no more money actually available to me because of taxes. As it is, once I get approved for the property tax exemption I could legitimately (if I wished) have several times my necessary spending amount each year every year for life, still be low or no-tax, and still leave a significant amount when I'm gone. That is the benefit of keeping necessary expenses low. As a definition of, "Winning the game" I think I can settle for that one. so help me understand the no tax situation. there's the 12k exemption, plus 9875 income at no tax so can withdraw 21,875 from 401k with no tax. then ss is tax free, so going with 20k in the above example, would be 41875 to live off of. Makes the the 3-4k taxes seem like a lot for only 6-7k more spending money per year. If I am understanding and figuring this accurately - which I don't know that I am! 41k with paid off home and no property taxes (!!?!!) that seems very doable. Just checked my area, nothing is available until age 65 for property tax releif. Any other favorable tax treatments? health insurance, etc. And apologies to Pink if this is a derail....hope this help you too!
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tallguy
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Post by tallguy on Mar 7, 2021 14:49:33 GMT -5
Taxation of SS benefits is determined by your "combined income." Half of your benefits are included to reach that figure, so $10,000 of your example's $20,000, not the entire amount. Once that is determined, then your entire net benefit amount is multiplied by either 0.5 or 0.85 if your benefits are taxable. If you are in the 12% bracket then you pay that rate only on the part above $9875. The lower amount is taxed at 10% first.
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Post by minnesotapaintlady on Mar 7, 2021 15:06:18 GMT -5
The tax brackets are based on taxable income, not gross. So at minimum there would be the 12K standard deduction so someone making 52K would still be in the 12% bracket. Plus, not all SS is taxable if you're drawing that. so - ss says 85% would be taxable at that income...(Q1: does that include the ss income for taxing ss? or income outside of ss only? this example, makes no difference) and if you have 20k in SS, 17k is taxable (Q2: does medicare come out first? so say 2k/year for medicare and 14760 is taxable??). with the 12k standard, and 17k ss, then you can take 35k out of you 401k, and then you are at 52k gross, 40k taxable, and then pay 12% on the 40k? - and you get 47,200 to live off of? or is the 12% only applied to the $9,876 to $40,125 per the tax chart? and then the 12% tax only applies to 30125 so 3615 in taxes and 48,385 to live on? apologies! I am getting there..... I don't know the details as I'm still focused on college tax rules right now, but I don't think medicare premiums are pre-tax.
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tallguy
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Post by tallguy on Mar 7, 2021 15:10:02 GMT -5
Yes it does. If I were still dealing with a mortgage payment I would be spending down my assets faster with no more money actually available to me because of taxes. As it is, once I get approved for the property tax exemption I could legitimately (if I wished) have several times my necessary spending amount each year every year for life, still be low or no-tax, and still leave a significant amount when I'm gone. That is the benefit of keeping necessary expenses low. As a definition of, "Winning the game" I think I can settle for that one. so help me understand the no tax situation. there's the 12k exemption, plus 9875 income at no tax so can withdraw 21,875 from 401k with no tax. then ss is tax free, so going with 20k in the above example, would be 41875 to live off of. Makes the the 3-4k taxes seem like a lot for only 6-7k more spending money per year. If I am understanding and figuring this accurately - which I don't know that I am! 41k with paid off home and no property taxes (!!?!!) that seems very doable. Just checked my area, nothing is available until age 65 for property tax releif. Any other favorable tax treatments? health insurance, etc. And apologies to Pink if this is a derail....hope this help you too! The limiting factor for me is the property tax exemption number, since that is so much more important. Those are state-specific, however, so not really part of the income tax question. Accordingly, and to simplify this, I will leave that part out. As far as income tax if you really wanted to just zero that out and not pay any, it depends on what your numbers are as to how you should proceed. With your $20,000 SS example, you include $10,000 to come up with your combined income. That limits your other income to $15,000 (if single) to ensure that none of your SS benefits are taxable. At that level qualified dividends and capital gains are not taxed, but they are still included to determine whether SS is taxed. The $9875 you refer to is not no-tax. That is the 10% bracket. You could still however have at the very least $32,400 ($20,000 SS + $12,400 standard deduction) in this situation with zero federal income tax. The actual number will vary for each person because their situation and their SS benefit level will be different. ETA: If you had up to $2600 in qualified dividends or capital gains you could increase that to $35,000 and still remain tax-free. Obviously, a certain level of planning is required to optimize your situation. For me, I can do a partial withdrawal of my planned IRA distribution whenever I want, but have to wait until late-December after I know what my total dividends and capital gain distributions are going to be before fine-tuning the exact amount of distribution for my situation.
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teen persuasion
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Post by teen persuasion on Mar 7, 2021 15:49:06 GMT -5
Taxation of SS benefits is determined by your "combined income." Half of your benefits are included to reach that figure, so $10,000 of your example's $20,000, not the entire amount. Once that is determined, then your entire net benefit amount is multiplied by either 0.5 or 0.85 if your benefits are taxable. If you are in the 12% bracket then you pay that rate only on the part above $9875. The lower amount is taxed at 10% first. SS taxation is even trickier than that. You are mostly right. Take half your SS benefit, add it to all other taxable type income (IRA withdrawals or conversions, dividends, interest, pensions, capital gains, etc). This is provisional income. The lowest part, under $25k if single or under $32k if married, is tax free. The next part, up to $34k if single or $44k if married is taxed at 50%. Anything over those levels is tax at 85%. Each of those parts is added together, and compared to 85% of your whole SS #. If that total exceeds 85% of SS, then you are capped at that 85% (you can't go higher than 85% of SS due to LOTS of other income making the total enormous). Example: If we expect $34k SS and want to Roth convert $30k, our provisional income is 34k/2 + 30k = 47k. We are married, so 0% on chunk under $32k, 50% on chunk between $32 and $44k ( 50% of $12k, or $6k), 85% of rest over $44k (85% of $3k, or $2550). Add them up: 0 + $6k + $2550 = $8550 taxable SS. So we'd report income of $8550 SS + $30k conversion = $38,550. MFJ standard deduction is $24.8k; taxable income is the difference: $38,550 - $24,800 = $13,750. That's all within the 10% bracket, so tax is $1,375. I'm Roth converting here, instead of withdrawing from tIRA, because we are under 59.5. I can also withdraw that same $30k amount from our Roth IRAs (from earlier contributions) for no extra tax or penalty. It's a way to get around the penalty for withdrawals before age 59.5 that's essentially equivalent to just withdrawing from tIRA space. I can also withdraw a smaller amount (to shift our balance from trad to Roth over time while spending, or withdraw a larger amount if I want to control taxes on conversions (spending some from each side, essentially).
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tallguy
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Post by tallguy on Mar 7, 2021 15:57:28 GMT -5
Taxation of SS benefits is determined by your "combined income." Half of your benefits are included to reach that figure, so $10,000 of your example's $20,000, not the entire amount. Once that is determined, then your entire net benefit amount is multiplied by either 0.5 or 0.85 if your benefits are taxable. If you are in the 12% bracket then you pay that rate only on the part above $9875. The lower amount is taxed at 10% first. SS taxation is even trickier than that. You are mostly right.
Take half your SS benefit, add it to all other taxable type income (IRA withdrawals or conversions, dividends, interest, pensions, capital gains, etc). This is provisional income. The lowest part, under $25k if single or under $32k if married, is tax free. The next part, up to $34k if single or $44k if married is taxed at 50%. Anything over those levels is tax at 85%. Each of those parts is added together, and compared to 85% of your whole SS #. If that total exceeds 85% of SS, then you are capped at that 85% (you can't go higher than 85% of SS due to LOTS of other income making the total enormous). Example: If we expect $34k SS and want to Roth convert $30k, our provisional income is 34k/2 + 30k = 47k. We are married, so 0% on chunk under $32k, 50% on chunk between $32 and $44k ( 50% of $12k, or $6k), 85% of rest over $44k (85% of $3k, or $2550). Add them up: 0 + $6k + $2550 = $8550 taxable SS. So we'd report income of $8550 SS + $30k conversion = $38,550. MFJ standard deduction is $24.8k; taxable income is the difference: $38,550 - $24,800 = $13,750. That's all within the 10% bracket, so tax is $1,375. I'm Roth converting here, instead of withdrawing from tIRA, because we are under 59.5. I can also withdraw that same $30k amount from our Roth IRAs (from earlier contributions) for no extra tax or penalty. It's a way to get around the penalty for withdrawals before age 59.5 that's essentially equivalent to just withdrawing from tIRA space. I can also withdraw a smaller amount (to shift our balance from trad to Roth over time while spending, or withdraw a larger amount if I want to control taxes on conversions (spending some from each side, essentially). Of course, but that was a simplified response based on a simplified question. The poster mostly wanted to know about zero-tax. The other information is not applicable to remaining zero-tax.
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teen persuasion
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Post by teen persuasion on Mar 7, 2021 17:37:12 GMT -5
Having responded to most of the replies now, let me say that until I figure it all out, I’ll just keep saving money. I can’t go wrong with that, right? I’ve been saving 10% of my salary in my retirement account, my employer contributes 5%. I’m going to up my contribution to 15%. We have a Roth option that we can contribute to, but so far I haven’t. I don’t know how much I should be putting in there. I guess I need to figure that out too, since the bulk of my savings earmarked for retirement is pre-tax. I have regular savings accounts, but the balances are nowhere near the balance of my retirement account, and it’s my understanding that I should have a mix of taxed and non taxed money going into retirement. Please correct me if I’m wrong. Anyhoo, I sincerely appreciate everyone that has shared their thoughts and opinions so far! Have you made any Roth IRA contributions? So far, we've done all pre-tax to employer's plans (401k, 403b, SIMPLE IRA) and all Roth to IRAs. For us this makes sense, because traditional 401k etc contributions decrease both w2 wages and AGI, which increases EITC for us (refundable credit). Contributing to traditional IRAs does not increase our credit, so Roth IRAs are better for us. We are currently about 35% Roth to 65% traditional, mostly because work plans have higher limits. Our plan is to use a Roth conversion ladder to access the retirement accounts w/o penalty before age 59.5. We can convert some from traditional (taxable) to Roth, and take out an equivalent amount from past Roth IRA contributions (tax free). We will have no pension or other income until SS, so it will all come from retirement accounts. This is the way I think about retirement planning - successive refinement. First pass: When I have at least 25x expenses in retirement accounts, I can retire and withdraw 4% inflation adjusted every year. If I have $800k, I can cover $32k annually. Second pass: At age 70, we'd be eligible for $33k in SS. But we are already withdrawing $32k, so now we have $65k annually. Can we even it out better? Third pass: Mentally divide our retirement balance into 2 parts - one part is to provide DIY SS payments, 15 years at $33k is roughly $500k. Other part is left to provide 4% annually, so 4% of remaining $300k is another $12k annually. So $33k + $12k = $45k annually. Fourth pass: The first 4 years will be FAFSA years for DS5, so we want to limit our AGI those years for better financial aid. DH is quitting, but I'd like to keep working a few more years at my part-time job - it's still fun, and as long as DS5 is a dependent we are still eligible for EITC only if we have some earned income. So we don't need that DIY SS for the first 4 years, just the 4% income. Changing the mental pots to $360k/$440k increases the 4% income to something like $17k per year. So after the college years are over, we could cover $33k + $17k = $50k annually.
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Post by Deleted on Mar 7, 2021 18:39:34 GMT -5
Pink you should take a closer look at your mutual funds in your retirement account to be sure they are still what you want and still working for you. I know it's kinda scary to think you might lose your hard-earned dollars, but investing too conservatively can hurt you, too. I've never been very interested in bond funds either, although I have bonds in my Fidelity Balanced Fund. I do like that it pays some dividends and capital gains, especially during the years when returns were down. At least I was reinvesting at the lower prices. I agree you have to figure out what works for you. For myself, I have no interest in paying my house off. I know that's a priority for many people by the time they retire. I don't see any reason to. The payment is manageable. I had to look up the different funds we can choose from, so here goes.... G Fund- government securities. This is the one I referred to earlier as the “safe” one that doesn’t make much money. F Fund- Fixed Income Index Fund (I don’t even know what that means) C Fund- The Common Stock Index Investment S Fund- The Small Capitalization Stock Index (don’t know what that means either) I Fund - International Stock Index Investment (I do know what “international” means ) And we have “Lifecycle” Funds if you want to choose how long you plan to work, and set it on automatic with an appropriate amount of risk for your stage in life. When I started working there, it was just the C, F and G funds. The C fund had been a great money-maker with above average returns, so that’s where I put most of my money. I have about 10% in the G fund. After the others were added, I stuck with the C-fund.... it seems to have been a decent choice because on average, over time, it has still performed better than the others. The total expense ratios for the C Fund is .051%, and for the G Fund, .049%. I’m not even really sure that “expense ratios” are what I think they are. I only mentioned them because I think someone asked something like how much it costs to have and maintain the accounts. I thought it was you, but when I just responded-read your post, it wasn’t. If the expense ratios are the costs, Idk if those are good or bad. All I know is at some point in the past, I read somewhere that we don’t have ridiculous costs associated with the plans we have available. I hope you or someone else will correct me if I’m wrong. I won’t necessarily pay my house off early. The term of the mortgage just happens to end around the same time that I hope to retire. I bought the house with a 30 year mortgage 3 years after I started this job and I have to work at least 31 years to meet the minimum age requirement and be eligible to retire. It’s a minimum of 30 years of service and 57 years of age for me. If I work another 10 years, I’ll have 33 years of service. So that’s just how it works out even without me doing anything extra. But I do admit I’d rather not have that mortgage payment after I retire, so it really does work for me.
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Rukh O'Rorke
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Post by Rukh O'Rorke on Mar 7, 2021 18:42:21 GMT -5
Taxation of SS benefits is determined by your "combined income." Half of your benefits are included to reach that figure, so $10,000 of your example's $20,000, not the entire amount. Once that is determined, then your entire net benefit amount is multiplied by either 0.5 or 0.85 if your benefits are taxable. If you are in the 12% bracket then you pay that rate only on the part above $9875. The lower amount is taxed at 10% first. SS taxation is even trickier than that. You are mostly right. Take half your SS benefit, add it to all other taxable type income (IRA withdrawals or conversions, dividends, interest, pensions, capital gains, etc). This is provisional income. The lowest part, under $25k if single or under $32k if married, is tax free. The next part, up to $34k if single or $44k if married is taxed at 50%. Anything over those levels is tax at 85%. Each of those parts is added together, and compared to 85% of your whole SS #. If that total exceeds 85% of SS, then you are capped at that 85% (you can't go higher than 85% of SS due to LOTS of other income making the total enormous). Example: If we expect $34k SS and want to Roth convert $30k, our provisional income is 34k/2 + 30k = 47k. We are married, so 0% on chunk under $32k, 50% on chunk between $32 and $44k ( 50% of $12k, or $6k), 85% of rest over $44k (85% of $3k, or $2550). Add them up: 0 + $6k + $2550 = $8550 taxable SS. So we'd report income of $8550 SS + $30k conversion = $38,550. MFJ standard deduction is $24.8k; taxable income is the difference: $38,550 - $24,800 = $13,750. That's all within the 10% bracket, so tax is $1,375. I'm Roth converting here, instead of withdrawing from tIRA, because we are under 59.5. I can also withdraw that same $30k amount from our Roth IRAs (from earlier contributions) for no extra tax or penalty. It's a way to get around the penalty for withdrawals before age 59.5 that's essentially equivalent to just withdrawing from tIRA space. I can also withdraw a smaller amount (to shift our balance from trad to Roth over time while spending, or withdraw a larger amount if I want to control taxes on conversions (spending some from each side, essentially). thanks - I will read this through a few times and see if I can get good on it all.
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buystoys
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Post by buystoys on Mar 7, 2021 18:49:15 GMT -5
Those are good expense ratios. It looks like your AA (Asset Allocation) is 90/10. Ninety percent in C fund and 10% in G fund. I was completely into equities, or your C Fund. I figured I had a lot of time left before I retired so I swung for the big win. I stuck it out in 2008/2009 and I had really good recoveries due to that. I originally didn't plan to retire early, but life intervened. That's when I took our investments down to 65/30/5. We've pretty much won the game at this point and don't need to do a 4% withdrawal every year to meet expenses.
I would say to stick with your 90/10 allocation if it lets you sleep at night. If it bothers you, then maybe take a look at why. Since you're saving at least 15% of your income, your savings rate should put you in really good shape when you hit 57. I'd still look at putting money into a Roth, whether you do it through work or on your own. You never know what life will hit you with and Roth funds being available could help you through a bind.
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Deleted
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Post by Deleted on Mar 7, 2021 18:50:07 GMT -5
What kind of funds am I invested in..... Idk. We have several to choose from, but I don’t know how to tell you exactly what they are. I have a little money in one that’s “safe”, you won’t lose it, but you don’t make much either. The rest of it is in a fund that has historically been a money-maker. I know the wisdom is that as you get closer to retirement, focus should shift toward “safer” investments. That’s something else to figure out, and I don’t know how many years beforehand I should start moving toward preservation instead of higher returns and risks. Yes, I know my health insurance benefit can change. If it does, that would change everything for me. Just remember that "rules" are not really rules. Do what is right for you and your situation, but learn enough to know what that is. I, for example, am not capable of investing in or holding bonds or bond funds. I tried to force myself once and could never actually pull the trigger on the purchase. I've been retired for a few years now and am still 99+ % equities. I also don't see that changing. It's just not right for me. Figure out what is right for you. If that involves bonds or fixed income, great. If it doesn't, that can work too. I know myself well enough to know that I am absolutely risk adverse. I prefer to play things “safe”. If I didn’t know that I need my money to make more money, it would all be somewhere I could be fairly certain I at least wouldn’t lose any even if I wasn’t making any either. When the shit hit the fan in what, 2008? It took everything in me to not move all my money to the “safe” G Fund. But I was reading you all saying to sit tight and to look at it as “stocks were on sale”, so I closed my eyes and stayed the course. I literally stopped looking at my account for a long time, because my nerves couldn’t take it. It turned out that you all were right, my rebound was great, and that was one of the things I’ve learned here that made me so fond of you all. If I’d been closer to retirement, I probably would’ve caved and tried to preserve what I did have at the time. I’m scary like that.
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swamp
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Post by swamp on Mar 7, 2021 18:57:01 GMT -5
There sure seems to be a lot of us on this board around age 52 looking to retire in 10 years judging by the recent posts. I'm also feeling a bit discombobulated lately. I feel like I should be doing more to get my ducks in a row...or changing my asset allocation or something. Me!!
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Deleted
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Post by Deleted on Mar 7, 2021 18:59:11 GMT -5
With admitting I've only invested in them in the last 6 months or so I would look into CEF. They're not for growth in the share price (though currently mine have been over 10%) but the biggest part is their goal in dividends - I clued into them after seeing an article about how 100k will get you around 1000 a month without touching principal. In the last 6 months it's been just over 10% but I'm also reinvesting dividends. It's not a huge part of my plan as I'm far away from retiring, but it's definitely been made a part of it now. I’ll have to look into that. I’ve never heard of it and am pretty much clueless about most of this crap. Thank you for mentioning it.
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Post by Deleted on Mar 7, 2021 19:58:55 GMT -5
Haha. Based on my own experience, once you hit 50 you start to get tired of going to work every day. I hit that at 40. No actually 30's. You know, I think I felt that way in my 20's, too, working through college. My husband is at that point now, at 47. I told him let's see how my job goes for a few years, and maybe he can retire earlier. It's the least I can do for the 6-7 year break he gave me. I think I really started getting tired in my early 40’s. And it’s only gotten worse every year since then. If I could retire tomorrow and be able to be halfway comfortable for the rest of my life, tomorrow would be one of the happiest days of my life. For at least the last year, I’ve had a strong desire to rebel against the “American way”. I don’t really care about being wealthy, I mean I wouldn’t turn it down if it happened, but I’m ok with just being comfortable, having what I need and some of what I want. I’ve wracked my brain, trying to figure out how I can get away from the daily grind of punching a clock, but I still don’t have any answers. I just don’t feel like this is what life is supposed to be, and that thought tumbles around in the back of my mind all day, every day now. But until I figure something else out, I’m stuck working a stupid JOB. And I don’t like it, AT ALL.
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Deleted
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Post by Deleted on Mar 7, 2021 20:32:55 GMT -5
I’m not sure what you mean. I didn’t say everything is covered by my insurance. If I implied that, it’s not what I meant. Sorry. I think you said everything after 6K was covered. But I would check out everything means.
What I've learned watching my parents is that long term illness can be expensive. You can't anticipate a lot right now, because you just don't know until you are there.
Watching both my parents and my inlaws, I would expect that you'll end up spending more at the beginning of retirement, because you can still get around and do things. Eventually, the activity will slow down and the spending could be less. And then, depending on your health, the expenses can start taking off again towards the end of one's life.
And it's not just the medical stuff. I could be getting a house cleaner, someone to do the lawn, paint the house, etc.
The caveat, of course, is that I never saw the example of folks being spry into their 90's and the just one day dying in their sleep. I know that's another possibility,. I think, if one is spry, then it changes the spending pattern. No lawn help, no house cleaners, and good health reduces the need for more spending in the last 10% or so of your life. Because I am risk adverse, this is what I'm hoping for but I don't feel comfortable planning on. ETA: Have you had serious thoughts/discussions about what you want to do in retirement, especially with the Mister? Things like travel..that's something I'd want to talk about. Because retirement for someone who wants to travel extensively is going to look a lot different than retirement for someone content volunteering 1 day a week, reading books from the library, and working through the stash in their basement. I've forgotten how old your grandbaby (forgive me, it might be babies) are and how old they will be when you retire. That might be an area you want to choose to spend more in...too..in early retirement...if it works for your family situation.
I guess I should have said that everything that my insurance covers, is covered at 100% after my OOP costs in any given year exceed $6k. Does that make more sense? I know insurance doesn’t cover every random thing I might want, or even need. I’m in my late 40’s now and already, I’d rather not deal with some things myself, like yard work. I can cut grass, trim hedges and do all the details that make a yard look nice and neat, I did it all myself for years and was mighty proud of my work. But now, I’m worn out and just don’t want to. So that’s been a line item in my budget for a few years now. I totally get what you’re saying about how as we age, we end up paying someone else to do the things we can’t or just don’t want to do anymore, and how that should be factored into our planning. Retirement and Mister.... I love to travel now, and hope to do more of it after I retire, but not constantly. Honestly, I don’t see Mister retiring until he absolutely has to. He’s the kind of person that doesn’t know what to do with himself if he doesn’t go to work every day. Just taking a weeks vacation is a struggle for him, he gets discombobulated after the 2nd or 3rd day, so he doesn’t even use all of his vacation time. Which I totally do not understand lol. Every day that I don’t have to go to work is automatically a good day for me! I use all of my vacation time, every year. We can carry over 11 weeks of vacation time into the next year, but I don’t have the discipline to carry over even 1 week. If I retire in 10 years, my grandbabies will be 10, 16, and 18yo. I’ll take all the time with them that I can get, at any point in my life, but by then, they might not want to spend as much time with me as I’d like, especially the oldest. That kind of makes me sad, because the elders in my family and their Dad’s parents were very active in my own kids lives from the time they were babies, but reality is that that was possible because they were either retired or close to retiring (or had their own business in my former in-laws’ case) when I had my children. So very different from my situation. It still sucks though, because I can’t be the kind of Grandma I had, my children had, and I would like to be.
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Deleted
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Post by Deleted on Mar 7, 2021 20:34:11 GMT -5
Just a weird side not: I'm actually feeling like I can think about retirement again, because of this thread. When Miss M came, I really kissed retirement dreaming/planning/supposing good-bye.
But, now that I think we're seeing the end of the light with the little kid years, I'm like...ohh, maybe we can get out that bucket list again.
I’m happy that something positive came from this this thread for you!
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Deleted
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Post by Deleted on Mar 7, 2021 20:45:28 GMT -5
I think having a pension helps your risk profile where investments are concerned. It's still probably a good idea to go at least 80/20, but bonds just suck right now, so I don't know myself. Used to be things like dividend paying utilities would act sort of like bonds. Anyway, you probably don't want to listen to me, as I still have way too much in cash.I’m gathering information to sift through, research, think about, and come to my own conclusions about what I think will work best for me. Everyone has different priorities, needs and comfort levels. Please don’t think that just because you’ve done things a certain way, it means that your thoughts and opinions don’t mean anything. If you have “too much in cash”, that means you’ve been doing something right to have any money for retirement period, considering a lot of Americans don’t have much at all, so I’m listening to you too.
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Deleted
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Post by Deleted on Mar 7, 2021 20:49:32 GMT -5
Yes it does. If I were still dealing with a mortgage payment I would be spending down my assets faster with no more money actually available to me because of taxes. As it is, once I get approved for the property tax exemption I could legitimately (if I wished) have several times my necessary spending amount each year every year for life, still be low or no-tax, and still leave a significant amount when I'm gone. That is the benefit of keeping necessary expenses low. As a definition of, "Winning the game" I think I can settle for that one. so help me understand the no tax situation. there's the 12k exemption, plus 9875 income at no tax so can withdraw 21,875 from 401k with no tax. then ss is tax free, so going with 20k in the above example, would be 41875 to live off of. Makes the the 3-4k taxes seem like a lot for only 6-7k more spending money per year. If I am understanding and figuring this accurately - which I don't know that I am! 41k with paid off home and no property taxes (!!?!!) that seems very doable. Just checked my area, nothing is available until age 65 for property tax releif. Any other favorable tax treatments? health insurance, etc. And apologies to Pink if this is a derail....hope this help you too! No apologies necessary! If someone else learns something useful from this thread too, I’m all for it! Ask all the questions you like.
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Deleted
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Post by Deleted on Mar 7, 2021 21:01:21 GMT -5
Having responded to most of the replies now, let me say that until I figure it all out, I’ll just keep saving money. I can’t go wrong with that, right? I’ve been saving 10% of my salary in my retirement account, my employer contributes 5%. I’m going to up my contribution to 15%. We have a Roth option that we can contribute to, but so far I haven’t. I don’t know how much I should be putting in there. I guess I need to figure that out too, since the bulk of my savings earmarked for retirement is pre-tax. I have regular savings accounts, but the balances are nowhere near the balance of my retirement account, and it’s my understanding that I should have a mix of taxed and non taxed money going into retirement. Please correct me if I’m wrong. Anyhoo, I sincerely appreciate everyone that has shared their thoughts and opinions so far! Have you made any Roth IRA contributions? So far, we've done all pre-tax to employer's plans (401k, 403b, SIMPLE IRA) and all Roth to IRAs. For us this makes sense, because traditional 401k etc contributions decrease both w2 wages and AGI, which increases EITC for us (refundable credit). Contributing to traditional IRAs does not increase our credit, so Roth IRAs are better for us. We are currently about 35% Roth to 65% traditional, mostly because work plans have higher limits. Our plan is to use a Roth conversion ladder to access the retirement accounts w/o penalty before age 59.5. We can convert some from traditional (taxable) to Roth, and take out an equivalent amount from past Roth IRA contributions (tax free). We will have no pension or other income until SS, so it will all come from retirement accounts. This is the way I think about retirement planning - successive refinement. First pass: When I have at least 25x expenses in retirement accounts, I can retire and withdraw 4% inflation adjusted every year. If I have $800k, I can cover $32k annually. Second pass: At age 70, we'd be eligible for $33k in SS. But we are already withdrawing $32k, so now we have $65k annually. Can we even it out better? Third pass: Mentally divide our retirement balance into 2 parts - one part is to provide DIY SS payments, 15 years at $33k is roughly $500k. Other part is left to provide 4% annually, so 4% of remaining $300k is another $12k annually. So $33k + $12k = $45k annually. Fourth pass: The first 4 years will be FAFSA years for DS5, so we want to limit our AGI those years for better financial aid. DH is quitting, but I'd like to keep working a few more years at my part-time job - it's still fun, and as long as DS5 is a dependent we are still eligible for EITC only if we have some earned income. So we don't need that DIY SS for the first 4 years, just the 4% income. Changing the mental pots to $360k/$440k increases the 4% income to something like $17k per year. So after the college years are over, we could cover $33k + $17k = $50k annually. No, I’ve not contributed to a Roth IRA. I guess my brain knows it’s my bedtime, and last my “thinking” hours because I can’t seem to give your post the attention it deserves. I will have to revisit it tomorrow when my brain is more likely to cooperate. I do appreciate you posting your approach, and I promise I will try to understand it when I’m not so tired.
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Lizard Queen
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Post by Lizard Queen on Mar 7, 2021 21:40:27 GMT -5
I think having a pension helps your risk profile where investments are concerned. It's still probably a good idea to go at least 80/20, but bonds just suck right now, so I don't know myself. Used to be things like dividend paying utilities would act sort of like bonds. Anyway, you probably don't want to listen to me, as I still have way too much in cash.I’m gathering information to sift through, research, think about, and come to my own conclusions about what I think will work best for me. Everyone has different priorities, needs and comfort levels. Please don’t think that just because you’ve done things a certain way, it means that your thoughts and opinions don’t mean anything. If you have “too much in cash”, that means you’ve been doing something right to have any money for retirement period, considering a lot of Americans don’t have much at all, so I’m listening to you too. I just mean that I know what I should do (invest my money), but have procrastinated for years. Its a bit of do as I say, not as I do. But anyway. Diversifying between stocks and bonds is supposed to lower your overall risk. (Bonds should be lower risk, and do better when stocks do worse.) Since you have a (dependable) pension to rely on, your overall risk is lower than it would be if it were all up to your own savings/investments. I did read somewhere that an 80/20 portfolio tends to get higher average returns than 100% stock portfolio, though. That seems to be the sweet spot, unless you're worried about risk--in which case you'd increase the % of bonds. The fed with what its been doing with interest rates, coupled with lower taxes on businesses, makes the whole bond aspect wonky. They are simply not as good of investments as they used to be.
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