Retirement planning

[oosik]

I retired - quit working hard - when I was 40 and worked weird jobs locally until I could draw early retirement. That was 32 years ago. I have always had sufficient funds because I own my land and house - free and clear.

The one thing I would tell a person who is planning his retirement - - have a very good idea of exactly what you want to do in retirement. Until you can commit to a specific retirement plan - you will have little idea of how much money will be required.

People who say "save all you can" do not have a plan and probably will never be satisfied in retirement.

 

[xtn]

Looks like gold WAS a good investment about 5 years ago, buying now not so much.

Gold Price Chart

Um... it's at almost exactly the same price now as it was five years ago. What are you basing your opinion on?

It appears at first glance that you're basing it only on an assumption that past pricing has some relevance, and a two year investment window. Is that right?

 

[dave1949]

1. Some (not all of course but some) people aan afford the higher rental price and just don't want to buy for a variety of reasons.

2. Depends on the area of course, but I'm going to buy a couple of rent houses in the next few years and will be looking for upper middle class neighborhoods. I figure the tenants will likely be more stable, generally older and more responsible, etc. I hope I'm right.

That's probably a good strategy. I suppose on an ROI basis, bottom-feeding landlords renting out well-used doublewides do okay if a person can take the headaches that go along with it. They do have an advantage in that they don't have a lot of capital or debt tied up in something that is not very liquid during economic downturns.

 

[300UGUY]

I am a landlord in a small way. As soon as I can, I plan to get out of it. We are somewhat similar to Maine, not growing much, if any, and a lot of property to build on keeps prices low. Most new building here, maybe 80 or 90 %, are condos or apartments.

 

[kco]

Looks like gold WAS a good investment about 5 years ago, buying now not so much.

Gold Price Chart

That's an interesting site. I will bookmark it.

Change the currency to rubles to see one reason some people like to hold a bit of gold.

 

[dmccarty]

This decision tree and associated advice is in the current TRowePrice monthly newsletter. It's called: Prioritizing Your Contributions to Retirement Accounts.


General rules of thumb:
Save 15% or more of your income annually, including any employer contributions.
If you have an employer match to a retirement savings account, use it up to the maximum matching amount.

1. Do Roth account contributions make sense for you?
YES if: You are under age 50 and expect your tax bracket to decrease significantly in retirement. Go To 2.
NO: First contribute the maximum to a Traditional 401(k), then contribute the maximum to a Traditional IRA account. The End.

...

The first decision point is does not make any sense to me. If the YES and NO was flipped it might make sense.

As others have suggested, look at calculators and compare the numbers. The problem with this is that some of the calculators I looked at were wrong. :shocked: They were using the same amount of money invested each year in a Roth 401K or traditional 401K which I don't think is an apple to apple comparison since that does not take into account the tax you pay up front on the Roth 401K. A fair comparison starts with the same amount of money with the full amount going into the 401k and the Roth 401K getting a lesser amount due to taxes.

Here is a calculator that takes into account the tax hit.

Compare a Roth 401(k) to a Traditional 401(k) | Calculators by CalcXML

The other big question is what will one's tax rate be at retirement. Bottom line is that it is a guess, though maybe an edicated guess. The linked calculator allows one to play with the various tax rates.

What is interesting with the calculator is that if the tax rate is the same before and after retirement, you end up with the same amount of money irregardless of the tax implication of the fund.

I think it is a good guestimate that my current tax rate will be higher than my retirement tax rate. If you use a lower tax rate for retirement in the calculator, the traditional 401K has more money in the account and you get more money per month in retirement. If one followed the TRowe decision point, one would have lost money.

If one thinks their tax rate will be higher in retirement then ROTH 401K makes sense.

One also needs to look into when one can get money out of the Roth 401K and 401K. The Roth 401K requires you to be invested for 5 years and be 59.5 to get the money out vs a 401K where you can get the money out at 55 if you are retired. I think the OP wanted to retire at 55 which would make the Roth 401K problematic.

Later,
Dan

 

[Parkanzky]

The first decision point is does not make any sense to me. If the YES and NO was flipped it might make sense.

As others have suggested, look at calculators and compare the numbers. The problem with this is that some of the calculators I looked at were wrong. :shocked: They were using the same amount of money invested each year in a Roth 401K or traditional 401K which I don't think is an apple to apple comparison since that does not take into account the tax you pay up front on the Roth 401K. A fair comparison starts with the same amount of money with the full amount going into the 401k and the Roth 401K getting a lesser amount due to taxes.

Here is a calculator that takes into account the tax hit.

Compare a Roth 401(k) to a Traditional 401(k) | Calculators by CalcXML

The other big question is what will one's tax rate be at retirement. Bottom line is that it is a guess, though maybe an edicated guess. The linked calculator allows one to play with the various tax rates.

What is interesting with the calculator is that if the tax rate is the same before and after retirement, you end up with the same amount of money irregardless of the tax implication of the fund.

I think it is a good guestimate that my current tax rate will be higher than my retirement tax rate. If you use a lower tax rate for retirement in the calculator, the traditional 401K has more money in the account and you get more money per month in retirement. If one followed the TRowe decision point, one would have lost money.

If one thinks their tax rate will be higher in retirement then ROTH 401K makes sense.

One also needs to look into when one can get money out of the Roth 401K and 401K. The Roth 401K requires you to be invested for 5 years and be 59.5 to get the money out vs a 401K where you can get the money out at 55 if you are retired. I think the OP wanted to retire at 55 which would make the Roth 401K problematic.

Later,
Dan

I see what you're saying when you say that you put more into a traditional 401k because of the deferment. That's true if you have decided that you can afford to put $500 post-tax away every month because you could put that $500 into a Roth 401k or ~$650/mo into a traditional 401k and pay the same amount out of pocket.

But for us, I'm going to put as close to the maximum as I can get into each of our accounts. That maximum is a dollar amount and doesn't take taxes into account. What that means is that I can effectively put 30% more away with the Roth 401k.

"Option 2" on the calculator you linked covers that scenario. What that does is says that you're going to put a certain number of dollars into a 401k (either traditional or Roth). If you do Roth, that's all you'll do. If you do traditional, then you can invest the tax savings (an additional ~$5k/yr if you're firmly in the 30% bracket) into a separate account. If you do that and your tax bracket doesn't change between now and retirement, the Roth is still a better deal by quite a bit.

 

[Parkanzky]

One also needs to look into when one can get money out of the Roth 401K and 401K. The Roth 401K requires you to be invested for 5 years and be 59.5 to get the money out vs a 401K where you can get the money out at 55 if you are retired. I think the OP wanted to retire at 55 which would make the Roth 401K problematic.

Later,
Dan

That's a great point. But when companies offer a Roth 401k, they still make any employer contributions to a traditional account. That means that even though all of my elections are going into a Roth 401k, the company match is accumulating in a traditional 401k that I can access at 55. Even with a modest match, that account is going to accumulate enough money to live on for four or five years until you can get to the full (tax-free) nest egg.

 

[MossRoad]

I'm 48. Our financial advisor told my wife and I that we should plan to have $2M in savings by the time we retire.

If you have $2M invested and get 7% return, you'll get $140,000 per year before taxes. I'm pretty sure my wife and I could get by on that much.... :laughing:

And that's not spending down the principle. You could do some pretty nice things for some folks with that much money.

 

[dave1949]

The first decision point is does not make any sense to me. If the YES and NO was flipped it might make sense.

As others have suggested, look at calculators and compare the numbers.

<snip>

Later,
Dan

I'm not promoting it Dan, just tossed it in as more data since there has been a lot of discussion around Roth, no Roth, etc. You all have to decide on your own how worthwhile it is. :laughing:

Since I'm retired with no earned income it doesn't matter to me personally. Since my next IRA event will be Required Minimum Distributions, I did think it interesting that Roth IRAs are not subject to that--apparently. If true, then that could make a difference in estate planning.