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Post by Deleted on Mar 7, 2021 22:03:47 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.
Yay! The expense ratios.... that’s good to know. My 90/10 allocation, I don’t remember what I did in the past, but my contributions and employer match have all gone into the C fund for several years now. The G Fund is now strictly past contributions and earnings, and honestly, might be less than 10% of the total balance by now. To be totally honest, I just look to make sure my balance is growing between mine and my employer’s contributions when the stock market is ok, without paying much attention to the details. If the market goes to hell, at least I’ll still have the little bit in the G Fund.... which is why I basically ignore that money and haven’t done something else with it. I DON’T sleep at night, but it has nothing to do with my retirement account allocations lol. I just keep sending money to the account and don’t even think about it. I have more pressing concerns that can cause sleepless nights. As far as my retirement crap, I’ve decided to just save as much as I can for it, and let it be whatever it’s going to be. My questions here are just trying to figure out when I can freaking retire and just be done with it all. If I had a number that I needed to have stashed away to make retirement possible, easier, or whatever, I can push to make that number reality. I’d do whatever I needed to do to make that happen, work OT, seriously WHATEVER, because I’m tired of working and just want to get my years of working a job behind me. If I need to work my ass off for a specific amount of time, so I can sit on my ass for forever after if I want, I’ll do it. That’s really what I was asking for, but I understand that it’s just not that simple. I’m not really good at saving just because, I’ve had to convince myself of specific needs and reasons to save in my regular savings accounts. I’m saving for retirement kind of blindly, and all I have to work with is the idea that I want to retire ASAP, but not a dollar figure. Trust me, if I had that dollar figure, I’d do everything I could to make it happen by “x” date, but I’m having trouble determining that figure, which is why I posted this and asked for help. If that’s an unrealistic pipe dream, tell me PLEASE. If I know there’s no way that what I want is gonna work, I’d rather know now, so I can try to figure something else out. Because I AM BEYOND TIRED OF WORKING “for the MAN”! There HAS to be more to life than this.
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Deleted
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Post by Deleted on Mar 7, 2021 22:11:34 GMT -5
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. Ok, I understand. What you’re saying makes sense to me. I just wanted to be clear in my prior post, that in my opinion, you do have something valuable to offer in regards to advice, even if you didn’t think so because you have “too much in cash”. Thank you!
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tallguy
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Post by tallguy on Mar 7, 2021 22:24:30 GMT -5
There really is not a specific number that everyone should strive for. EVERYTHING is individual here. A number that is sufficient for one person would be overkill for a second and woefully inadequate for a third. The best guess is to figure out what your expenses are going to be in retirement (net of any other income like SS or pension) and try to have 25x that number. That will almost guarantee that you will be fine. For example, if your expenses in retirement are expected to be $40,000/year and you expect $20,000/year in SS, you would need at least $500,000 to feel in any way comfortable if you claim SS when you retire. If you are going to try to retire early, you will need more, obviously. You will need to cover all of your spending for the years until SS benefits start. If you wanted to retire at 60 and claim SS at 67, as one example, you would need an additional $280,000 to cover those years.
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CCL
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Post by CCL on Mar 7, 2021 23:32:48 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.
Good for you!
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CCL
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Post by CCL on Mar 8, 2021 0:24:53 GMT -5
How does paying your house off save $8000 on property taxes? That's not much income if you can avoid paying any taxes on SS income. I am finally old enough to apply for the property tax exemption. By limiting my income enough to hit the tier of largest exemption (which I am able to do because my house is paid off), I should save that much on my property tax. It also means I will cut my necessary expenses that much more. I claimed survivor's benefits when I hit 60, and my SS covered all of my necessary spending from the moment I took it. I can take about $10,000 or more for now from my IRA and still be income tax free, and that is just extra money. It will cover travel and minor home expenses, and if I need more I can take it from my Roths with no tax consequences. Hmmm... this all seems to be state-specific. I haven't researched it because Indiana doesn't offer much discount to seniors. The over-65 property tax deduction is a maximum of $12,480. My rate is approx. 4.5% so the most I could save is about $560. That's a long way from $8000. I had no idea some states offered that much discount to seniors.
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CCL
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Post by CCL on Mar 8, 2021 1:05:30 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. That's pretty much it except we are 2 people. 12% bracket goes up to $80,250 for 2020. Standard deduction for married filing jointly is $24,800. Income runs around $50k + variable amounts of interest/dividends/capital gains (which mostly gets reinvested), 401k withdrawals (mostly for extras, some goes to taxes). So goal is to convert $30k-$40k per year. It's a challenge to keep my #s where I want them to be.
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buystoys
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Post by buystoys on Mar 8, 2021 7:50:28 GMT -5
As tallguy stated, the magic number is really personal. We had more than 25x our expenses when we had to give up work. That made it easier for us to get through those first years before we could take IRA money. If you play around with FIRECalc and i-Orp, they will help you find your personal number. It can take some time to set up scenarios and run them, but I found it interesting. I prefer the expense calculations versus the income calculations. Income always seemed more difficult to me because you had to try to remove all your current expenses that you wouldn't have in retirement. The expenses calculation was so much easier as I just looked at our expenses as they were and multiplied it by 25.
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teen persuasion
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Post by teen persuasion on Mar 8, 2021 8:48:54 GMT -5
My questions here are just trying to figure out when I can freaking retire and just be done with it all. If I had a number that I needed to have stashed away to make retirement possible, easier, or whatever, I can push to make that number reality. I’d do whatever I needed to do to make that happen, work OT, seriously WHATEVER, because I’m tired of working and just want to get my years of working a job behind me. If I need to work my ass off for a specific amount of time, so I can sit on my ass for forever after if I want, I’ll do it. That’s really what I was asking for, but I understand that it’s just not that simple. I’m not really good at saving just because, I’ve had to convince myself of specific needs and reasons to save in my regular savings accounts. I’m saving for retirement kind of blindly, and all I have to work with is the idea that I want to retire ASAP, but not a dollar figure. Trust me, if I had that dollar figure, I’d do everything I could to make it happen by “x” date, but I’m having trouble determining that figure, which is why I posted this and asked for help. If that’s an unrealistic pipe dream, tell me PLEASE. If I know there’s no way that what I want is gonna work, I’d rather know now, so I can try to figure something else out. Because I AM BEYOND TIRED OF WORKING “for the MAN”! There HAS to be more to life than this. That's where my DH was - first he never expected to get to retire ever, so why bother saving at all. When I realized that was his thinking (and I was a SAHM, so had zero income/savings of my own) I realized I had to take retirement planning into my own hands, and nudge him into saving more into his employer's 401k (he was doing just the 5% minimum to get the match). In the beginning I had no plan, no number other than "more". The picture has gotten clearer as we've paid down the mortgage and student loans, and slowly increased our contribution rate, and got closer to SS so we could get a more accurate idea of what that income could be. I focused on rapidly paying down our mortgage, because it was an ugly 9.75% rate - it was a better guaranteed "investment" than the stock market, so we knocked that out in less than 15 years. Once that was gone, I redirected that money to retirement accounts. If we'd had current mortgage rates, I wouldn't have been so aggressive on pay down, I'd have increased retirement earlier (but less) to do both simultaneously instead of sequentially. When DH got really burned out with work a few years ago, he suddenly asked me if this early retirement stuff I was always talking about was real. Yep, I figured we were just a few years away from him being able to quit - I had begun working part-time, and was slowly getting more hours/pay, so I could keep working and we could get by supplementing from savings until SS kicked in. Well, he couldn't stick it out there for a few more years, but we were comfortable enough that he could quit that job for something, anything else and coast to retirement. Next job actually paid worse (after health insurance contributions), but cleared his head, and a few years in he got a promotion, and then jumped back to teaching for a better yet income. So we've really been saving the last few years - more income, more space to save after crossing 50 and I got access to my own retirement account at work. Ok, Covid and teaching remote has pushed DH back to "ready to retire", so he's done after this academic year ends in June. Going back to my previous post, you can see that there's several different phases to our retirement to plan for. There's before and after SS. And before SS, there's also the FAFSA years for DS5 / me still earning period. And after SS, there's RMD years from 72 onward - RMDs can increase your taxable income, and thus your taxes, even if you don't need to withdraw that money. So we have changes at 55, 60, 70, 72. You will have a phase with pension + supplement + withdrawals, pension + withdrawals, pension + SS + withdrawals, pension + SS + RMDs + possible additional withdrawals. That second phase after the supplement ends is the challenge - you could just start SS to replace it, but taking SS that early really reduces your SS benefit permanently. If you wait, to get a larger SS payment permanently, you have to withdraw more from retirement savings during that phase. It's a balancing act. That's what I was trying to describe in my previous post - one chunk of our retirement savings are earmarked to replace SS benefits for those years we don't claim SS, so we can claim a much larger SS payment at age 70. We expect to run thru this chunk. The remaining part we expect to draw from more lightly, leaving it to continue providing annual withdrawals hopefully forever, and maybe something for our children afterwards. The biggest SS possible is important to us as an insurance policy - if everything goes wrong, we will still have SS income as a baseline.
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gs11rmb
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Post by gs11rmb on Mar 8, 2021 10:48:16 GMT -5
Rather than increasing your contribution from 10-15% in your 401K, why don't you take that 5% and start your Roth? I have mine with Vanguard.
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CCL
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Post by CCL on Mar 8, 2021 11:49:23 GMT -5
Rather than increasing your contribution from 10-15% in your 401K, why don't you take that 5% and start your Roth? I have mine with Vanguard. Agree. Right now tax rates are low, so I think you'll come out far ahead in the long run.
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CCL
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Post by CCL on Mar 8, 2021 11:51:39 GMT -5
My questions here are just trying to figure out when I can freaking retire and just be done with it all. If I had a number that I needed to have stashed away to make retirement possible, easier, or whatever, I can push to make that number reality. I’d do whatever I needed to do to make that happen, work OT, seriously WHATEVER, because I’m tired of working and just want to get my years of working a job behind me. If I need to work my ass off for a specific amount of time, so I can sit on my ass for forever after if I want, I’ll do it. That’s really what I was asking for, but I understand that it’s just not that simple. I’m not really good at saving just because, I’ve had to convince myself of specific needs and reasons to save in my regular savings accounts. I’m saving for retirement kind of blindly, and all I have to work with is the idea that I want to retire ASAP, but not a dollar figure. Trust me, if I had that dollar figure, I’d do everything I could to make it happen by “x” date, but I’m having trouble determining that figure, which is why I posted this and asked for help. If that’s an unrealistic pipe dream, tell me PLEASE. If I know there’s no way that what I want is gonna work, I’d rather know now, so I can try to figure something else out. Because I AM BEYOND TIRED OF WORKING “for the MAN”! There HAS to be more to life than this. That's where my DH was - first he never expected to get to retire ever, so why bother saving at all. When I realized that was his thinking (and I was a SAHM, so had zero income/savings of my own) I realized I had to take retirement planning into my own hands, and nudge him into saving more into his employer's 401k (he was doing just the 5% minimum to get the match). In the beginning I had no plan, no number other than "more". The picture has gotten clearer as we've paid down the mortgage and student loans, and slowly increased our contribution rate, and got closer to SS so we could get a more accurate idea of what that income could be. I focused on rapidly paying down our mortgage, because it was an ugly 9.75% rate - it was a better guaranteed "investment" than the stock market, so we knocked that out in less than 15 years. Once that was gone, I redirected that money to retirement accounts. If we'd had current mortgage rates, I wouldn't have been so aggressive on pay down, I'd have increased retirement earlier (but less) to do both simultaneously instead of sequentially. When DH got really burned out with work a few years ago, he suddenly asked me if this early retirement stuff I was always talking about was real. Yep, I figured we were just a few years away from him being able to quit - I had begun working part-time, and was slowly getting more hours/pay, so I could keep working and we could get by supplementing from savings until SS kicked in. Well, he couldn't stick it out there for a few more years, but we were comfortable enough that he could quit that job for something, anything else and coast to retirement. Next job actually paid worse (after health insurance contributions), but cleared his head, and a few years in he got a promotion, and then jumped back to teaching for a better yet income. So we've really been saving the last few years - more income, more space to save after crossing 50 and I got access to my own retirement account at work. Ok, Covid and teaching remote has pushed DH back to "ready to retire", so he's done after this academic year ends in June. Going back to my previous post, you can see that there's several different phases to our retirement to plan for. There's before and after SS. And before SS, there's also the FAFSA years for DS5 / me still earning period. And after SS, there's RMD years from 72 onward - RMDs can increase your taxable income, and thus your taxes, even if you don't need to withdraw that money. So we have changes at 55, 60, 70, 72. You will have a phase with pension + supplement + withdrawals, pension + withdrawals, pension + SS + withdrawals, pension + SS + RMDs + possible additional withdrawals. That second phase after the supplement ends is the challenge - you could just start SS to replace it, but taking SS that early really reduces your SS benefit permanently. If you wait, to get a larger SS payment permanently, you have to withdraw more from retirement savings during that phase. It's a balancing act. That's what I was trying to describe in my previous post - one chunk of our retirement savings are earmarked to replace SS benefits for those years we don't claim SS, so we can claim a much larger SS payment at age 70. We expect to run thru this chunk. The remaining part we expect to draw from more lightly, leaving it to continue providing annual withdrawals hopefully forever, and maybe something for our children afterwards. The biggest SS possible is important to us as an insurance policy - if everything goes wrong, we will still have SS income as a baseline. Thanks for sharing your story. Some of it is similar to what we've done, except hubby took SS as soon as he was elegible. I plan to do the same.
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Lizard Queen
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Post by Lizard Queen on Mar 8, 2021 11:52:58 GMT -5
For the first time in my life, I'm saving massive amounts for retirement. It's all going into a roth 457, with the exception of 2% that is part of my works 401a. It's weird to go all in Roth for me, but this is the first opportunity I've had to go that way.
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minnesotapaintlady
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Post by minnesotapaintlady on Mar 8, 2021 12:07:50 GMT -5
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. My situation is very similar. It's weird to be doing all pre-tax at my income level, but when you figure in EITC, MN's Working Family Credit (their version of EITC) and financial aid, it is actually super costly to go the Roth route. Like crazy costly. I all credits in my Roth IRA because as you stated, a traditional IRA is no help (although last year I did put $1000 in to offset unemployment).
However, I'm only at 18% Roth to 88% Traditional. I'd really like to balance that a little more, but if I'm not retiring before 59 1/2 I don't know that it will matter much.
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teen persuasion
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Post by teen persuasion on Mar 8, 2021 13:35:58 GMT -5
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. My situation is very similar. It's weird to be doing all pre-tax at my income level, but when you figure in EITC, MN's Working Family Credit (their version of EITC) and financial aid, it is actually super costly to go the Roth route. Like crazy costly. I all credits in my Roth IRA because as you stated, a traditional IRA is no help (although last year I did put $1000 in to offset unemployment).
However, I'm only at 18% Roth to 88% Traditional. I'd really like to balance that a little more, but if I'm not retiring before 59 1/2 I don't know that it will matter much.
Going traditional at a low tax bracket seems counterintuitive, but the phaseout rate on the credits, as income increases, act as an additional tax. So the marginal rate for contributing to pre-tax is nearly 50% for us, between federal, state, federal EITC and state EITC. That federal EITC phaseout of 21% is massive just by itself. Our Roth proportion is higher because we are doing 2 Roth IRAs to mostly 1 401k/etc. Those refundable credits are a big part of my leaning towards continuing to work a few more years; even part time is enough to keep us eligible for EITC while we have a dependent. But I'm also trying to get my SS benefits higher after so many zero years, and trying to get "my" retirement balances closer to his. Yeah, we are common potters, but I'm still competitive.
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teen persuasion
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Post by teen persuasion on Mar 8, 2021 13:40:40 GMT -5
Rather than increasing your contribution from 10-15% in your 401K, why don't you take that 5% and start your Roth? I have mine with Vanguard. Also a good idea to get the 5 year clock ticking for qualified Roth withdrawals.
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Tiny
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Post by Tiny on Mar 8, 2021 15:42:41 GMT -5
Going back to my previous post, you can see that there's several different phases to our retirement to plan for. There's before and after SS. And before SS, there's also the FAFSA years for DS5 / me still earning period. And after SS, there's RMD years from 72 onward - RMDs can increase your taxable income, and thus your taxes, even if you don't need to withdraw that money. So we have changes at 55, 60, 70, 72. You will have a phase with pension + supplement + withdrawals, pension + withdrawals, pension + SS + withdrawals, pension + SS + RMDs + possible additional withdrawals. That second phase after the supplement ends is the challenge - you could just start SS to replace it, but taking SS that early really reduces your SS benefit permanently. If you wait, to get a larger SS payment permanently, you have to withdraw more from retirement savings during that phase. It's a balancing act. That's what I was trying to describe in my previous post - one chunk of our retirement savings are earmarked to replace SS benefits for those years we don't claim SS, so we can claim a much larger SS payment at age 70. We expect to run thru this chunk. The remaining part we expect to draw from more lightly, leaving it to continue providing annual withdrawals hopefully forever, and maybe something for our children afterwards. The biggest SS possible is important to us as an insurance policy - if everything goes wrong, we will still have SS income as a baseline. thanks for this. Most advice/things I read seem to be a "vacuum" of sorts - only SS or only tax advantaged accounts or only pension. If you have 2 or all 3 of those you can't really treat them "individually". I've got a pension (at 65 - even if I quit before then), SS, and my 'retirement savings". It's looking like I will be using my "retirement savings" from 59.5 to 65, then my pension + a much smaller amount of saved money, and then Pension+SS and even less of my saved money. I don't always see advice for singles who will have the "3 legged stool" other than "you retire at 65 with these 3 income streams.
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Lizard Queen
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Post by Lizard Queen on Mar 8, 2021 17:58:31 GMT -5
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Rukh O'Rorke
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Post by Rukh O'Rorke on Mar 8, 2021 21:58:42 GMT -5
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. My situation is very similar. It's weird to be doing all pre-tax at my income level, but when you figure in EITC, MN's Working Family Credit (their version of EITC) and financial aid, it is actually super costly to go the Roth route. Like crazy costly. I all credits in my Roth IRA because as you stated, a traditional IRA is no help (although last year I did put $1000 in to offset unemployment).
However, I'm only at 18% Roth to 88% Traditional. I'd really like to balance that a little more, but if I'm not retiring before 59 1/2 I don't know that it will matter much.
I'm 14% to 86%.
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Lizard Queen
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Post by Lizard Queen on Mar 9, 2021 7:53:23 GMT -5
Um, yeah, the focus of the article was 457 plans, not to examine the others.
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minnesotapaintlady
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Post by minnesotapaintlady on Mar 9, 2021 8:26:00 GMT -5
My situation is very similar. It's weird to be doing all pre-tax at my income level, but when you figure in EITC, MN's Working Family Credit (their version of EITC) and financial aid, it is actually super costly to go the Roth route. Like crazy costly. I all credits in my Roth IRA because as you stated, a traditional IRA is no help (although last year I did put $1000 in to offset unemployment).
However, I'm only at 18% Roth to 88% Traditional. I'd really like to balance that a little more, but if I'm not retiring before 59 1/2 I don't know that it will matter much.
I'm 14% to 86%. I don't see it changing much for me without conversions. I'm thinking I'm going to set my retirement goal number based only on the traditional funds with the standard 4% withdrawal and have the Roth be just "bonus" money that I can take out randomly in large chunks without worrying about it screwing up my tax situation for the year. New car, vacation, etc. Of course that means I'm not as close as I thought anymore.
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Lizard Queen
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Post by Lizard Queen on Mar 9, 2021 8:56:36 GMT -5
Um, yeah, the focus of the article was 457 plans, not to examine the others. Um, yeah, I understand that, but the article has an entire section comparing 457 to 403b/401k, where she states: "Let’s say you decide to leave your job. This is called “separation from service.” At the time of separation, you might find yourself without an income while you’re looking for another job. If you have a 457(b), you can withdraw funds from the account without facing an early withdrawal penalty. But if you’ve been saving in a 403(b), you’ll take a 10% penalty surtax on any distributions you take before you hit age 59.5." That's not true. I just wanted to point it out because it might be useful for other people here to be aware of.
There is also SEPP. My point was that 457's don't have the 10% penalty for early withdrawal. I didn't know that before--not sure how many people did.
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minnesotapaintlady
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Post by minnesotapaintlady on Mar 10, 2021 15:53:41 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 need to figure out a way to save this post. Although, I think it's safe to say that 85% of SS will be taxable and leave it at that.
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teen persuasion
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Post by teen persuasion on Mar 10, 2021 16:34:25 GMT -5
Yeah, eventually we'll all hit 85% SS taxation,because those cutoffs between rates are NOT indexed for inflation.
Though, if SS is your only income, you can't ever get to even 50% of SS taxable, because you always start with half your SS benefits. It's the other income that forces SS to be taxable.
Taxable investment income is the worst- it might not even be taxable at all, but it's still counted in AGI. Best reason ever to favor Roth over taxable accounts.
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TheOtherMe
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Post by TheOtherMe on Mar 10, 2021 17:16:59 GMT -5
Since I was a federal employee under CSRS, I never have to "worry" about collecting social security.
There was some discussion before the election of doing away with WEP. If that happens, I would receive something like $400 per month in SS. I'm just a few $$ short of receiving it after the WEP is deducted.
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minnesotapaintlady
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Post by minnesotapaintlady on Mar 10, 2021 18:18:15 GMT -5
Yeah, eventually we'll all hit 85% SS taxation,because those cutoffs between rates are NOT indexed for inflation. Though, if SS is your only income, you can't ever get to even 50% of SS taxable, because you always start with half your SS benefits. It's the other income that forces SS to be taxable. Taxable investment income is the worst- it might not even be taxable at all, but it's still counted in AGI. Best reason ever to favor Roth over taxable accounts. Good to know. I go back and forth over taxable account vs. paying down the house.
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Deleted
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Post by Deleted on Mar 10, 2021 20:58:35 GMT -5
I didn’t mean to bail on my thread, I’ve just been very busy these last few days. Trying to make sense of these posts is pretty much pointless at this moment, because I am fried. But I do understand what teen persuasion said about needing to plan for different stages of retirement. I’ve already been thinking about that because I will have different things going on at different times as far as income after retirement. I honestly don’t know much about Roth’s, not even the ones offered in my retirement account. I’m admittedly a big procrastinator, so I figured sticking the extra money in my traditional retirement account now, while it was on my mind, was better than waiting to do anything until I learned what I needed to know about Roth’s. I’m glad you all kept posting even though I was away. Thanks!
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tallguy
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Post by tallguy on Mar 10, 2021 21:21:40 GMT -5
The big thing to remember is that as long as you keep saving and investing, you will have options. Yes, some options are better than others, both now and in the future. but at least you will have some. That alone puts you far ahead of many if not most of the people in this country. Learn about Roths. See where they fit into your plan. You will not get a tax break up front on the contributions, but it should probably be much more beneficial later on. Try to forecast as much as you can what your income and expenses are going to be in retirement, and at what age you want to leave the work world. Once you are able to do that you can ask more detailed questions and make more specific plans.
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bookkeeper
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Post by bookkeeper on Mar 10, 2021 21:26:26 GMT -5
Yeah, eventually we'll all hit 85% SS taxation,because those cutoffs between rates are NOT indexed for inflation. Though, if SS is your only income, you can't ever get to even 50% of SS taxable, because you always start with half your SS benefits. It's the other income that forces SS to be taxable. Taxable investment income is the worst- it might not even be taxable at all, but it's still counted in AGI. Best reason ever to favor Roth over taxable accounts. Good to know. I go back and forth over taxable account vs. paying down the house. DH and I plowed all the retirement money into the tax deferred accounts. We avoided federal and state income tax on the deposits and had good gains on the accounts. The money grows until you actually need it. I figure the account has earned the portion to pay the IRS, probably several times over. DH began his 401k at age 25 and is now 62 so that is a lot of years of earning potential. No one wants to pay more in taxes than they have to. Everyone with an income owes the taxes due. At some point you have to face the music.
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teen persuasion
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Post by teen persuasion on Mar 11, 2021 8:37:24 GMT -5
Good to know. I go back and forth over taxable account vs. paying down the house. DH and I plowed all the retirement money into the tax deferred accounts. We avoided federal and state income tax on the deposits and had good gains on the accounts. The money grows until you actually need it. I figure the account has earned the portion to pay the IRS, probably several times over. DH began his 401k at age 25 and is now 62 so that is a lot of years of earning potential. No one wants to pay more in taxes than they have to. Everyone with an income owes the taxes due. At some point you have to face the music. Right. But MPL and I are in a particular niche, with both kids and the right AGI range where we REALLY benefit from plowing money into employer traditional plans. That makes us eligible for lots of refundable credits. When we look to funding IRAs, there's no credit advantage, and almost no tax left, so Roth IRAs are a no-brainer for both of us. No tax going in or out. So for our situation, you need to know to do trad 401k and Roth IRA. Roth 401k kills your tax credit, and tIRA does nothing to increase your tax credit. It's counter to common recommendations to go all Roth at low tax brackets. A quirk of the tax code that makes for a high marginal rate even while receiving refundable credits. The important message is to look at your own circumstances closely to chart the best course while saving for retirement. The common recommendations might not be right for you.
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teen persuasion
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Post by teen persuasion on Mar 11, 2021 9:33:58 GMT -5
I didn’t mean to bail on my thread, I’ve just been very busy these last few days. Trying to make sense of these posts is pretty much pointless at this moment, because I am fried. But I do understand what teen persuasion said about needing to plan for different stages of retirement. I’ve already been thinking about that because I will have different things going on at different times as far as income after retirement. I honestly don’t know much about Roth’s, not even the ones offered in my retirement account. I’m admittedly a big procrastinator, so I figured sticking the extra money in my traditional retirement account now, while it was on my mind, was better than waiting to do anything until I learned what I needed to know about Roth’s. I’m glad you all kept posting even though I was away. Thanks! The advantage to Roth accounts is that, once they are qualified, withdrawals from Roth are tax free. So having some of your retirement savings in Roth gives you some control over your tax bite in retirement years. If you need a bigger lump sum for a new roof, for example, you could draw it from Roth and it wouldn't bump your taxes up like a similar draw from a traditional account would. The obvious drawback to Roth accounts is that there's no tax break up front, so they "cost" more to fund. You have to guess whether it's better to prepay the tax (Roth) or delay the tax (traditional). It comes down to tax rates - are they higher now, or in retirement? You know your rate now, but in retirement is a guess, unless you can see some distinct reason it might be higher or lower in retirement. For most people, your retirement tax rate is probably going to be lower because income is probably lower - you aren't saving for retirement, maybe your mortgage is paid off, kids launched, and certain retirement income like SS is only partially taxed. But some people have higher taxes in retirement, perhaps because they have more income (pension + SS + RMDs) or because they could defer lots of income while working (so lower taxed income when working, but huge RMDs in retirement). You could even create a problem by leaning too heavily to one side - expect high retirement taxes, so go all Roth, now you owe zero tax in retirement (you overpaid tax) - or, expect low taxes, go all traditional, now huge RMDs and high tax (you deferred too much). If it's a crapshoot, you might want to hedge your bets by using some of each: some traditional for tax deferral now, some Roth for future tax free income. Look at the types of income you will have in retirement, and how they are taxed. Pensions and traditional account withdrawals will be taxed as ordinary income (like wages). SS is only partially taxable, but how much is taxable depends on that other income (more other income pushes more SS to become taxable). Roth withdrawals are tax free when qualified. So if you add up any pension + whatever you expect to withdraw from traditional accounts + up to 85% of SS, how does that compare to your current AGI? Higher might mean more taxes, lower might mean lower. Then extrapolate out - current traditional balances will grow, you will contribute more, etc. If you are already looking at higher taxes, you might want to get more Roth savings. You'd essentially be locking in today's lower tax cost. If you always will have lower retirement taxes, keep deferring to traditional accounts. If it's hard to predict, split the difference, do some of each. You may have noticed I used the word qualified several times about Roth IRA withdrawals. You can always withdraw contributions from Roth IRA accounts tax and penalty free at any time. But Roth earnings are not tax and penalty free until they are qualified. Essentially, that means you have had a Roth account for at least 5 tax years, and you are 59.5 or older. That 5 year clock is important, it's not just being over age 59.5 for tax free withdrawals. So you should open a Roth IRA to get that 5 year clock started. Oddly, it doesn't really need 5 years - you could open and fund an IRA on December 31 and have it count for that entire year - so it could be just a bit over 4 years to count thru 5 tax years. Roth IRA and Roth employer plans are not quite the same, either. I think you said you have TSP; Roth IRAs have no RMDs, ever. But Roth TSP or 401k, etc, do have RMDs. That means you have to withdraw from the account each year from 72 onward, whether you want to or not. You can get around this by rolling the whole account over to a Roth IRA (before RMDs start!). But it means you can't keep your investments in those great TSP funds. Tradeoffs. Another advantage of Roth IRAs over Roth employer plans is that ability to tap contributions at any time. Usually you can't withdraw from employer plans while you are still employed. A Roth IRA can be a backup emergency fund, not tied to your employer. So it could be good to continue contributing to your TSP for the match and tax deferral, and open a separate Roth IRA to start the 5 year clock ticking (so it's fully qualified when you hit 59.5) for any additional retirement savings. Then you have an additional tax free bucket for retirement.
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