Retirement planning

[newbury]

The main reason we are looking at retiring earlier than normal is we want a chance to enjoy life after work. My job is very high stress for portions of the year and every year it seems a couple people at work pass away much earlier in life than they should. We work hard, try to have fun now, save, and really live a fairly simple life.

If you have a job that stresses you it might be better to plan a career change instead of full retirement. As I wrote before I had a good job, decent pay, but I loved to travel and the job provided lots of travel. I'm pretty sure I hit about every state, Korea, Japan, Europe, Serbia. Stress would build at times but not for long.

$1000 a month wouldn't even cover my property taxes.

And that's another point. Of course Tom may have $200 million in property.

$1,000 a year covers my house and 70 acres in Mississippi, < $5,000 for my house and a 1/4 acre in Alexandria, Va.

 

[wmonroe]

For most people, paying into a ROTH 401K while working and at the expense of paying into a tax deferred 401K plan would be a mistake. Right now you are likely paying more in income taxes than you will in retirement. By putting money in a ROTH, you are paying taxes on your income prior to putting money into the ROTH. If you are in a 10% tax bracket, you could be putting 10% MORE into a tax deferred 401K. There is no way to know what the tax rates will be when one retires years in the future but it is a safe bet that a retiree's income tax, if any, will be much lower than what one was paying while working. Having ROTH's are a good idea but there is no way I would put money into a ROTH over a tax deferred 401K unless I was maxed out on my tax deferred plans. When you retire, your tax bracket should be much lower, and you can, or should be able to take money out of a tax deferred 401K and move it into a ROTH. You would have to pay taxes on the money movement since it would be considered income but if your tax bracket is low it might not be an issue. This might work real well, if you do retire in your late 50's, because the ROTH would have time to grow for later use. I had long planned to retire at 55-60 but life changed my plans. However, we have started thinking about selling everything and moving onto a boat. :shocked: One benefit for this is that we could live overseas very cheaply and retire around 60. While our families are long lived and rather healthy into their 70's retiring at 60 does not give one a lot of healthy years before things start to fall apart. Even then, a bolt out of the blue can take you or a family member out and one's plans are now out the window. The odds of this happening increase as you get older. I have known two friends who have died young because of various illness that popped up. Another friend's just about died with a freaky internal issue that put him in the hospital for TWO months. He sat down from dinner and then passed out. No hint of a problem but off he went to the ER and an extended hospital stay. Just prior his wife had issues and is now not able to walk. :shocked: The company managing your retirement funds likely has retirement information you can access. Last time I looked Vanguard had quite a bit of retirement information that was open to anyone to read irregardless if one was a member of one of their funds. One of my work benefits is to a financial adviser at no cost to me. Maybe your company does the same? Later, Dan

I need to go back and look at what 401k plans we are in.

If you have a job that stresses you it might be better to plan a career change instead of full retirement. As I wrote before I had a good job, decent pay, but I loved to travel and the job provided lots of travel. I'm pretty sure I hit about every state, Korea, Japan, Europe, Serbia. Stress would build at times but not for long. And that's another point. Of course Tom may have $200 million in property. $1,000 a year covers my house and 70 acres in Mississippi, < $5,000 for my house and a 1/4 acre in Alexandria, Va.

While the job is stressful at times it offers other benefits that make up for the stress, good salary with overtime, extra time off, decent benefits. It's all a trade off I guess.

 

[ultrarunner]

$1000 a month wouldn't even cover my property taxes.

I hear you... Mom's SF Bay Area home is worth about $350k and her property tax is $1,800.

Now I bought the property across the way for 598k and my property tax is $9,200 and in Washington State it is $12k just for taxes.

California Property Tax is based on the price paid... not on what someone thinks the property might be worth...

I really don't know how some of my friends in other states make it in retirement with property taxes...

Just helping Mom with her Christmas list... even living on just Social Security she wants to give each grandchild a $200 check...

 

[sam5570]

The following is just my opinion, so don't take it as gospel...

When we got married, I had $50 in my pocket. We've been married for almost 30 years. Our kids have attended very good private schools K-12 and their college education is fully funded. We've paid off a couple houses, 20 acres of rural property and a slew of decent used cars. We have some toys and we've managed some nice vacations, too. We've been debt free for 15 years.... on average wages! :thumbsup: Its worked for us, it might not for you, so take it for what its worth.

We've always saved 15% per year to 401Ks and IRAs, (now both ROTH). That will get us to our magic number and beyond with enough to last us well past 100yrs old and leave a nice legacy to our heirs.

We've always planned our expenses on only one person working an average wage job and never lived beyond those means.

Anything you earn over your "living means" can be used to make double mortgage payments, double car payments, increased cash on hand, etc... For example, we were able to double our mortgage payments on our three 30 year mortgages and pay each of them off in 5 years!

Our biggest concern is not the amount of money we will have if we retire early, but how we will get affordable health insurance before medicare, etc... kicks in? There's a long time between 55 and 67. If you have a large net-worth at 55, you're probably not going to be finding any subsidized health insurance, so plan for that.

Generally, most financial planners will tell you that life insurance as an investment is NOT a good choice (unless you are an insurance salesperson). TERM life insurance is the way to go. You want enough insurance to make up for your lost income(or your spouse's lost income, since you both work) for your family to continue in the fashion they are accustomed to should you croak. Its not the lottery for them. Its just to cover your lost income. As your net-worth grows, you'll need less life insurance each year to maintain your path to your goal. Think about it... if you have a net worth of $2,000,000 dollars at retirement, why would you need another $1,000,000 after retirement age should you die? The money you spent on life insurance could have been put in your IRA, 401K or other investments like mutual funds, college savings plans, etc..., that will pay higher returns over the same amount of time than life insurance will. You'll get an argument that with life insurance investments, you'll get some back if you don't die... don't buy into it. Term is the way to go.

If you have kids, start a 529 college savings plan NOW! We have two kids, 5 years apart. We didn't start the 529s until the 2nd one was born, so 5 years difference. First child started college with half as much as the 2nd one will have. So, a 5 year delay cost 100% after 13 years. Example: $20K for one VS $40k for the other! Start the 529 as soon as they are born.

Sound like you have a good plan for a young person. Keep it up! :thumbsup:

MossRoad I laughed very hard when I read the beginning of your post. here I was thinking I was the only one who would do something that just looked impossible. when my wife and I got married we had left the preacher's house [no wedding] got in my pickup and we was ridding down the road and she ask where are we going on our honey moon and I said honey where ever $13 will take us that was every penny I had to my name, she said well I guess we better go home. this is off subject but just had to mention that was 38 years ago and still going strong.

 

[dmccarty]

This is not entirely true, while financial advice is not directly charged to an employee, all company R&S plans have a cost of running which the financial managing company deducts from the overall fund. Look on your yearly statement to find cost of running the plan, some of which are pretty high so they can afford to send in a rep to talk to you whenever you or any other employee needs to talk about retirement planning.

The financial adviser that is available to me via company benefits is not connected to my retirement funds.

Later,
Dan

 

[Parkanzky]

For most people, paying into a ROTH 401K while working and at the expense of paying into a tax deferred 401K plan would be a mistake. Right now you are likely paying more in income taxes than you will in retirement. By putting money in a ROTH, you are paying taxes on your income prior to putting money into the ROTH. If you are in a 10% tax bracket, you could be putting 10% MORE into a tax deferred 401K.

There is no way to know what the tax rates will be when one retires years in the future but it is a safe bet that a retiree's income tax, if any, will be much lower than what one was paying while working.

Having ROTH's are a good idea but there is no way I would put money into a ROTH over a tax deferred 401K unless I was maxed out on my tax deferred plans.

I strongly disagree. My wife and I contribute exclusively to Roth 401k's and I think it's the best solution for us. Here's my reasoning:

Society is slowly gravitating toward more and more large national programs and expansion of generous benefits. It's much easier to add funding than it is to take it away. In the meantime, the national debt is getting larger and larger. Interest rates are at historic lows, and basically can't get any lower, so the cost to service the debt will only increase as the debt grows. Since it is growing faster than inflation, it seems highly probable that taxes will have to go up to fund all of that additional spending and service the ever-growing debt.

I don't plan to spend less in retirement than I do now. With nothing but free time, I want to be able to travel the world and spend money on hobbies and toys to occupy my time. So since I expect taxes to increase (or the earnings levels for each tax bracket to grow at a rate more slowly than inflation) and my expenses to remain high, I anticipate a higher tax burden for a given income in retirement than we currently have.

Any company match (and our company offers a very generous match, with 6% guaranteed and a 3% target for profit-sharing it have averaged about 10% over the years) is placed into a traditional 401k. That gives us freedom to withdraw traditional 401k money anytime we can offset the taxes and to use as much Roth savings as we want with no tax burden whatsoever.

Assuming the money grows in your retirement account, you pay taxes on less money if you do the Roth. With a traditional 401k, you don't pay the taxes on the money you put in, but you pay taxes when the money comes out. With a Roth 401k, you pay the taxes up-front, but pay no taxes when you withdraw the money later. For instance, suppose you invest $15k today and it grows to $50k in 20 years, then you retire. With a traditional 401k, you'll pay no taxes when you put the money in, but you'll pay taxes on $50k when you take it out. With a Roth 401k, you'll pay taxes on the $15k when you put it in but you can use all of that $50k tax-free down the road.

Finally, we contribute the maximum to our 401ks. The maximum is the same regardless of whether you contribute to a traditional or Roth account. The Roth money is worth more in retirement because we've already paid the taxes on it, so we can effectively contribute more to the Roth account.

When you retire, your tax bracket should be much lower, and you can, or should be able to take money out of a tax deferred 401K and move it into a ROTH. You would have to pay taxes on the money movement since it would be considered income but if your tax bracket is low it might not be an issue. This might work real well, if you do retire in your late 50's, because the ROTH would have time to grow for later use.

You can certainly convert money from a traditional 401k into a Roth, but as you rightly say you would pay income tax on that money. Your income determines your tax bracket, so moving money over would put you in a higher tax bracket. If you're going to have a Roth retirement account, you want the money to be in that account as early as possible so that you get more tax-free growth (That's the point of a Roth investment, more so than assuming you'll be in a higher tax bracket later).

 

[Parkanzky]

There are a lot of Traditional vs. Roth calculators online. I highly recommend that anybody trying to make that decision run a few scenarios to figure out which makes sense for them.

 

[Citydude]

There are a lot of Traditional vs. Roth calculators online. I highly recommend that anybody trying to make that decision run a few scenarios to figure out which makes sense for them.

What is the gross income limit on the Roths?

 

[Parkanzky]

What is the gross income limit on the Roths?

I'm talking about a Roth 401k. There are no income limits on 401k contributions of either variety. Anybody that has income (and an employer that sponsors a plan) can contribute up to $18k in 2015.

If you're asking about a Roth IRA, the AGI phase-out range is $183,000 to $193,000 for married couples filing jointly, and $116,000 to $131,000 for singles and heads of household. What that means is that you can contribute the full amount to a Roth IRA until you get to the lower of those numbers and then you can contribute less the more you make (there's a simple formula to figure out how much) until you get to the upper number and cannot contribute anything.

 

[Citydude]

I'm talking about a Roth 401k. There are no income limits on 401k contributions of either variety. Anybody that has income (and an employer that sponsors a plan) can contribute up to $18k in 2015.

If you're asking about a Roth IRA, the AGI phase-out range is $183,000 to $193,000 for married couples filing jointly, and $116,000 to $131,000 for singles and heads of household. What that means is that you can contribute the full amount to a Roth IRA until you get to the lower of those numbers and then you can contribute less the more you make (there's a simple formula to figure out how much) until you get to the upper number and cannot contribute anything.

Thanks. I didn't know there was a 401k Roth.