retiring

[two_bit_score]

I did not bat an eye at the downturn in 2008. Downturn is good to weed out the poor performing stocks. I think mine dipped 10% or so and I was in a fairly aggressive position I had her in. I was the financial power of attorney at the time for my MIL and she lost 5% in a less aggressive position. I always like to see drops in the market so we see the floor.

Put more money in during the downturns, that is the time to buy.

 

[goeduck]

Two paragraphs out of a website I was reading. Has anyone done this?

Roll over your 401(k). Although you cannot invest directly in real estate in a 401(k) account, you can rollover your 401(k) into an IRA tax-free and then use the proceeds to invest in real estate.

Hire a real estate management company. If you purchase real estate through an IRA, you cannot actively manage the property. In order to enjoy the tax advantages of your IRA, you must hire an outside person or agency to perform maintenance on the property, collect rent and otherwise actively manage the investment.

 

[tjkubota93]

I thought 401k you paid taxes when you withdraw. IRA you pay taxes before you put in?

So if you rolled 401k into IRA, you would be avoiding taxes, which is great, but I didn't think it worked that way.

 

[RickB]

I thought 401k you paid taxes when you withdraw. IRA you pay taxes before you put in?

So if you rolled 401k into IRA, you would be avoiding taxes, which is great, but I didn't think it worked that way.

Traditional IRAs have the same tax status as 401Ks. You put pretax dollars in and pay tax on distributions.
Roth IRAs use after tax dollars for contributions and they and all the gains are tax free when distributed. So far.

 

[KennyG]

Traditional IRAs have the same tax status as 401Ks. You put pretax dollars in and pay tax on distributions.
Roth IRAs use after tax dollars for contributions and they and all the gains are tax free when distributed. So far.

Correct, and there are also Roth 401K accounts treated the same as the Roth IRAs. Roth accounts also have the advantage of not having required minimum distributions, which can be an advantage. If you are at least several years from retirement, you should seriously consider switching to Roth accounts for future investments. You can switch a conventional account to a Roth but that's more "iffy" since you pay regular income tax at the time of conversion. The kicker on conventional and IRA accounts is that you pay regular income tax on all the non-taxed contributions and gains, instead of capital gains on the gains. Still a really good investment though.

 

[KennyG]

A much earlier post had questioned about the right time to draw SS payments. I decided to take mine at age 62 and I'm mad because I missed the first payment because I didn't get the paperwork in in time. Oh well. But in deciding, I sat down and crunched numbers for a good afternoon and wound up taking it early because of this: (and correct me if I'm missing something even though its too late to change :laughing I think I used 30 to 35 years as an estimate of my demise.
I really didn't need to take early payments as I had funds to live off of til age 66 1/2. I took the lower value of payments until age 66 and totaled them up and put them in an imaginary account. (4 years worth) Then I totaled the value of the remaining years (+/- 30) at both the lower payments and the higher payments (if I had waited to start drawing at age 66). The difference between those two sums was xxxx dollars. But remember, I had that account of 4 years of payments from age 62 to 66 sitting there, about $75K) If that account's money was invested in the same next 30-35 years it only needed to earn barely more than passbook savings interest to make up the difference of having taken SS at age 62 vs 66. (I think it was between 2-3%) So I figured it was a no brainer for me to leave my money in the market that was easily averaging between 8-12% and use the SS payments to aid in the day to day expenses. Factoring in for inflation really made no appreciable difference as both figures went up the same percent. Plus, if things change, I will have had the use of 4 extra years of that money. With the good market return these last few years I haven't doubted my choice. But there's a lot of smarter people here than I am, for sure. Am I missing something in my thinking? Regards, David

I think your math is correct, but from my perspective, there is a weakness in your logic. I did the same calculations (for my situation, normal retirement age of 66, early retirement penalty 25%, late retirement bonus 32%). Per my spreadsheet, if you assume that the SS payments are invested and return 5% above inflation, Waiting until normal retirement 66 (becomes the best choice at age 84 and waiting until late date (age 70) become the best choice at age 92. However, if you ignore returns and only look at cash received, the waiting until age 66 becomes the best choice at age 77 and waiting until 70 becomes the best choice at age 81.

I think you should ignore potential returns after you retire. They are not a sure thing. Knowing you will have inflation protected income in retirement will allow you to invest more in higher risk things because you won't have the potential need to withdraw at the worst time. I have adequate income from SS and a pension annuity such that I don't NEED income from my investments, giving me freedom invest any way I want.

I think you make a valid point but it depends on people being able to invest for aggressive gains in retirement. For me it was somewhat academic because I worked until I was almost 68, so taking early payments was off the table.

 

[drssg]

I don't know the details of how SS works, but there will be some age (80something) where taking a smaller amount at age 62 will be equal to a larger amount at some later age. After 80something, the larger monthly payout becomes the best option, so if David used 30-35 years as his post-retirement planning lifespan, shouldn't taking the larger amount at a later age be the option with the best financial payout? If not, the whole deferring to get a larger payout incentive doesn't work, which I doubt.

Chris

Your understanding of SS is correct in terms of the trade-offs related to the total amount of money received when taking payments earlier or later.

David took it one step further by attempting to incorporate the time value of money. By taking less total money earlier in life he MIGHT earn more total money by having more money to invest.

It would depend on one's tolerance to risk. I plugged the values into my retirement spreadsheet, and I'm personally inclined to agree with him.

 

[buckeyefarmer]

Question

I’m on disability due to an illness. I get disability payments but they have not taken out for 401k. Can I put money in myself?

Never mind, called my 401k, they said no. Has to come out of paycheck from employer. So as soon as I’m back to work I have to jack up what they take out.

 

[dmccarty]

When to take SS is dependent on one's circumstances. What works for me might not work for someone else.

However, they way we look at it, every dollar I get from SS, is money my kids should inherit. Plus some. We hope.

We have never assumed we would get SS. We already took one hair cut, and given the US debt, there is a good chance we will take another SS haircut. Tis a guess, but a good one, that if one is already taking SS, one would be likely to take less of a hair cut or none at all. :confused3:

Since we planned on only having our money for retirement, we have been saving as much as we can. In the early years, I would just glance at the funds every year or so and maybe switch accounts or change saving percentages. Mostly I just let it go. Value went up. Value went down. Overall value went up, up and up. Eventually, the little bit of money became some money, and then wow money. :shocked::laughing:

Once we got to some money, I put together a spreadsheet to track the numbers. Then I started putting "financial models" into the spreads sheet. A "model" is just a fancy word for we have this much money, how much will we have if X happens? Not real rocket science, and if one can do addition, multiplication, etc, one can create a model. Of course a "model" is just a guess, but it is a guess based on variables that one picks, based on what one thinks will/might happen. The models started simple but over time, as I asked myself questions, the model would get more complicated. For example, I have models that tell me how much money will we have at retirement age(Z) of 55, 58, 60, 62, 65, and 67 if I start with X amount of money, and save Y amount each year until retirement age Z. There are multiple models based on Y, i.e., how much money do we save each year. Might sound complicated but it is simple at a high level...

The question, how much money will we have if we save Y amount each year, is based on the what if:

• What if I get laid off this year and can no longer save ANY money, i.e., Y amount is ZERO, how much money will we have at retirement year Z?
• What if I get laid of this year and we can save 6% of our income, how much money will we have at retirement year Z?
• What if I get laid off this year, or I don't get laid off, and we can save the same amount of our income as the current job, how much money will we have at retirement year Z?

Once you have one set of answers, a similar question is just a cut, pasted and slight change of numbers in the spreadsheet to create another "model."

Then one has to ask, we have X amount of retirement money, how much is that each month if we take out a given percentage from the funds? That gets added to the "model" in the spreadsheet. But then one can ask, is the income from the savings sustainable? There are rules of thumbs out there but if one takes out 2-3% and is somewhat/sort still in the stock market you should not run out of money. If one is taking 4-5% out of the savings running out of money is possible.

Thus FIRECalc: A different kind of retirement calculator is interesting. The website allows you to put in your numbers such as how much savings you have, age of death, amount of spending, etc., which will be compared to the market ups and downs over the last 130-150ish years and tell you how much money you will have left, on average, at time of death, and the chance you would have of running out of money.

That gets plugged into the "model" aka the spreadsheet.

Our retirement financials goals are:

• Have enough money to maintain our current life style.
• Be able to travel.
• Leave money to future generations.

Once the mortgage is gone, SS would pay for most of our expenses. Health care is the biggest expense and variable.

Looking at the model/spreadsheet, the earlier we take SS, the more of OUR money we will have because SS will pay for most of our expenses. That means we spend less of OUR money that we can save and/or give to other family generations. If we wait to take SS, we will have to either work longer, or if retired, use more of OUR money that cannot then be passed on. Waiting to take SS is almost certainly going to cost us money in the longer term.

We have a couple of retirement ideas that could reduce our spending, especially health care expense, which would mean using even less of our retirement money.

Later,
Dan

 

[buckeyefarmer]

I went to the fidelity site, input all my numbers, and I’m good to age 92, as long as I don’t eat.

Seriously, I will probably start SS at 62 or when I first retire if later than 62. Age 80 something is my payoff age to wait, and I don’t think I’ll live that long.

I also moved some of my money to an index fund from the safe fund paying 2%.