Retirement Planning - Lessons Learned

[Whidbey]

And $60,000 limit per year into the joint bank account of a child and their spouse, when we wanted to help them buy their first home and then as kids came along. (Suburban San Francisco convenient to their jobs, an ultra expensive region).

I was determined to not repeat what Dad had done back when estates over $500,000 were taxed 50%. (Y2K). Sis, I, and IRS inherited equal shares of the cash in his estate.

And I was frustrated that Sis wouldn't agree to make substantial charitable contributions in place of letting IRS get 50% of the excess over the exemption. I argued this was the only time in our lives we had this opportunity for paying half price for a charitable contribution, she argued that inheritance was her only retirement-savings plan and she couldn't afford it. (I had set up a more complex trust to make gifts from the estate as the follow-on to Dad's simple trust but then her surprise decision made that extra complexity pointless).

Dad never thought this little apple orchard was worth much but then in his last two years real estate here went crazy, comparables increased a much as 25% in a month (!) as rich San Franciscans bid up similar parcels for weekend vineyards. He suddenly switched from never gifting us cash to $10k Christmas presents to Sis and me. By that time the money would have been far more helpful years earlier.

Nobody knows if the lifetime exemption from gift tax will ever be rolled back to the level of 20 years ago but we've decided on gifts that will make that irrelevant.

YMMV...

Good post. The same situation occurred with me. I inherited from my mother in my mid forties. I had gone through some rough times but at that point in my life I had a job with a pension, owned a home and except for a reasonable mortgage was debt free. I finished college at 30 and my last two years was totally broke. I never would have thought of asking for help but if my son or daughter was in that situation I would help them in a New York second. It is a much better use of the money as opposed to leaving them money when I pass.

 

[RustyA]

Don't forget the reason you scrimped and saved your money all these years was to enjoy it in your retirement. Take your rmd and spend it on something fun. Someone else will do that after you are gone if you don't.

 

[amaxwell]

Did a search and didn't find any recent threads so here we go......

At 58 with the Good Lord willing my retirement window is 4 to 7 years out. Job is steady albeit stressful at times and hoping I can just ride it out and be happy until it's time to pull the trigger. Finances are in order and almost debt free! Wife and I have been truly blessed.

I hang out here on TBN hoping to buy that subcompact one day for a retirement toy. It will be the Massey GC when that day comes.

One marital debate is will we uproot and move to a retirement dream home we've always wanted or will we stay closer to home and family.

So for the experts:

- What have you learned in retirement?

- What would you have done/planned for differently?

- Did you move away or stay at home and are you happy?

Thanks for your time.

Andy in N.C.

Start to move your existing 401 funds to Roth and put all you are now contributing in Roth ,taxes will eat your money if you don’t. Your ss is taxed if you make above poverty level!

 

[Larry Caldwell]

Relative to the discussion about taxes, required minimum distributions, etc. there are a couple of ideas many are not aware of.

Since most of us make charitable contributions, you can use a charitable contribution fund to reduce your taxes on IRA/401K distributions and capital gains on other investments. You can also use it to reduce taxes if you have unusual income in a single year. Most financial firms will set up a personally directed charitable fund for no charge. You transfer assets into the fund and then, whenever you want, you disburse them to qualified charities. If you transfer conventional IRA/401K assets, you don't have to pay the income tax. On other investments, you don't have to pay the capital gains. However, you can take the full value as as a deduction on your income taxes. As a result, more goes to the charity and less to the government.

You take the deduction in the year you transfer the assets to your fund, not the year you disburse them. Therefore, if you have a windfall year, you can transfer a large amount, and then disburse it over a number of years.

I should have been doing this for years before I retired, but I didn't learn about it until a few years ago.

Another issue is inheritance (or estate) tax. Currently this seems like a minor issue since it only applies to estates over about $11 million ($22 million for married couples if handled correctly) but this item keeps coming up in tax discussions in congress. The problem is we have to plan for our estates over a lifetime and legislators can change it overnight. This is a favorite topic for our more liberal representatives and this year I have heard proposals to change the exemption to $3.5 M, to $1.0 M, and to do away with it completely. As a result each year I make a maximum non-taxable gift to my adult children as a minor effort to keep my total estate lower.

Excellent point. If we ever hit it big in the lottery, my wife and I plan to give most of it to charity. We can do that part tax free, so the charity gets the whole wad.

The big change in estate taxes I have heard about is the elimination of the step-up basis.

 

[California]

Don't forget the reason you scrimped and saved your money all these years was to enjoy it in your retirement. Take your rmd and spend it on something fun. Someone else will do that after you are gone if you don't.

We've had the unusual luck to see modest retirement savings jump up unexpectedly. Around 1996, investments in a Fidelity S&P fund plus some gambles in dot-com stocks that I had planned to let grow until my age 65, suddenly increased by 250k then 350k the following year. WTH?? Time to re-examine some major decisions.

I figured if the S&P stayed above 950 (now 4,400) we would be ok by replacing salary with IRA withdrawals, early-retirement pensions, and eventually SS. Possibly eventually inheriting a half-interest in this orchard but we didn't need that financially. (I eventually bought out sister's half interest, later).

After Easter 1998 I put in for a week vacation in July and was told there was no vacation allowed before at least fall, maybe later, because the office was understaffed. Monday I told my supervisor I would start my vacation July 1 but remain on salary through Thanksgiving to use up all the comp time I hadn't been allowed to take. I used my remaining sick leave during the vacation for dentist work etc, to exhaust that, too, as paid time. Being still on payroll for four+ months earned me a few more days paid vacation. . Bye-by! They couldn't recruit to fill my position while I was still on the books. Sorry about that.

Retired at 54. Best decision I ever made. After that we paid off our home, put two kids through UC-Berkeley, bought the other half interest in the inherited orchard, and savings today exceed the day I retired.

Moral of the story: Do some serious retirement planning then save and invest what that plan requires. Luck will make the outcome different than the expectation but sticking with your plan, adjusting as needed, will put you far ahead of people you read about whose retirement plan is buy lottery tickets. Or no plan at all.

 

[California]

The big change in estate taxes I have heard about is the elimination of the step-up basis.

Its possible that could pass, but I expect the first 5 or 10 $million would be exempt because starting from zero would wipe out family farms, nationwide. Most would have to be sold to strangers to pay the tax. I can't imagine that is politically feasible. We'll see.

 

[Fuddy1952]

High schools should teach retirement planning , the critical importance of choosing the right mate, living below your means, ways to invest, etc.
Everyone and I mean everyone should start saving for their retirement while in their 20's.
I did. Time is on your side.
I know, and I'm sure everyone knows people in their early 60's start saving for retirement.
It's almost like saving $100s in your 20s, $1000s in your 30s, $10Ks in 40s, $100Ks in 50s, $Mils in 60s (flippant...but a point).

 

[Jstpssng]

High schools should teach retirement planning , the critical importance of choosing the right mate, living below your means, ways to invest, etc.
Everyone and I mean everyone should start saving for their retirement while in their 20's.
I did. Time is on your side.
I know, and I'm sure everyone knows people in their early 60's start saving for retirement.
It's almost like saving $100s in your 20s, $1000s in your 30s, $10Ks in 40s, $100Ks in 50s, $Mils in 60s (flippant...but a point).

That's the parent's job. Teachers have enough to do.

 

[California]

That's the parent's job. Teachers have enough to do.

Disagree. Education should include the elements of being a responsible citizen, rudimentary retirement planning in this case, as a part of the civics that explains how government works. There are obviously too many parents with no clue about this.

 

[KennyG]

That's the parent's job. Teachers have enough to do.

There is a valid position that high school spends way too much time teaching the wrong things. Basically, a lot of the effort is spent getting kids to memorize things to pass tests and not enough time spent teaching them how to think, analyze and evaluate - in other words solve real problems in the real world.

Steven Levitt, the economist who wrote Freakanomics, is on a mission to reform high school math for non-science majors to emphasize things like data evaluation, basic financial literacy, etc.