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.

 

[ultrarunner]

I like hearing others philosophies on retirement finance... helps to put things in perspective.

One of my soon to be retired friends bought 2 single family homes through his IRA... it's been a couple of years and he is very pleased... said it got him over the hump having the rental income and the 30% appreciation has not been bad either.

One thing I have come to realize is some people can and do spend a lot of money... not on a single once in lifetime purchase... but, as part of everyday living.

One of my retired high school friends retired as captain of the local police department with a 180k pension and lifetime medical... every year he was spending money on new vehicles, boats and trips... got bored and went to work for the Sheriff Department earning 130k plus building a separate retirement....

He confided that he quickly got bored spending money... having the new car/trucks got old and didn't mean as much...

 

[Parkanzky]

I like hearing others philosophies on retirement finance... helps to put things in perspective.

One of my soon to be retired friends bought 2 single family homes through his IRA... it's been a couple of years and he is very pleased... said it got him over the hump having the rental income and the 30% appreciation has not been bad either.

One thing I have come to realize is some people can and do spend a lot of money... not on a single once in lifetime purchase... but, as part of everyday living.

One of my retired high school friends retired as captain of the local police department with a 180k pension and lifetime medical... every year he was spending money on new vehicles, boats and trips... got bored and went to work for the Sheriff Department earning 130k plus building a separate retirement....

He confided that he quickly got bored spending money... having the new car/trucks got old and didn't mean as much...

Different people have a much different idea of what "normal spending" is. That's why I like to talk in terms of percentage of income. It helps to normalize the conversation. I am sure that my wife and I could easily subsist on a quarter of our current income in retirement, but I don't think we'd enjoy it as much as we would if we had access to more.

 

[TomSeller]

Different people have a much different idea of what "normal spending" is. .

Exactly. My wife and I have that discussion all the time.

 

[TnAndy]

I'd counter that by asking what exactly makes gold or silver valuable nowadays?

I'll offer you two pictures in lieu of several thousand words.

 

[ultrarunner]

Most of my income has been plowed back into investments... actually live on very little...

Within the next 3 years all of my investment mortgages will be retired leaving just one on my home...

Thought about whittling that one down... but, at 2.75% fixed with 12 years to go... most likely leave well enough alone...

A typical example is I have a rent property where the rent covers all the cost including a $2007 monthly mortgage... I basically work for free when I say the income covers expenses... in 3 years that $2007 mortgage is paid off.

In my 20's... I was thinking ahead in that my 30 year mortgage at age 25 would be retired when I'm 55... so far the plan has been working.

No one in my family has ever had a pension and most never company healthcare... pretty typical for small business and family farming...

Two things really shaped my outlook... one was having grandparents and a father that made the Depression very real to my impressionable younger self and on my first job... I met a lot of guys spending money on their hobbies.... almost to the last one... all had some type of Investment Real Estate.... some were retired general contractors that sold their business and received rent from the business property... warehouse or yard... another was an insurance broker that ended up buying the city block where his business was located...

A third thing was meeting Leigh Robinson... the author of the book Land lording when I was about 20... bought the book and followed it to the letter...

Having a parent and Grandparent that could point out all the homes lost by neighbors and friends when the stock market crashed made it very real... also made me biased against the market and a couple of small purchases went belly up... my Grandmother said those that can't learn from history have to experience it themselves... she was also the type of person where the weekly shopping day ended and started at the bank... no buying on time for her.

 

[KiotiKowboy]

My take on precious metals - gold, silver, etc.

As some have mentioned, gold is not a vehicle for gaining wealth - it is, instead, a hedge against loss. I guess you could argue the fine points of whether that should be considered a financial gain.

If you believe as I do, inflation - major inflation, is a certainty. The country can only accumulate so much debt and print so much baseless paper before it becomes too farcical to sustain. The "admitted" debt is now over $18tril. The actual debt many times that amount. It will N E V E R be repaid and, in fact, just servicing the interest payments will soon become its own challenge. If/When the dollar loses reserve status, the current interest rates will skyrocket - making these payments even more impossible.

If I am correct - holding precious metals makes all the sense in the world. My preference is silver because it's easier to buy in smaller value increments and thereby easier to use for personal transactions if that becomes a necessity.

I don't personally consider precious metals as part of my "retirement" planning. Instead, I see them as worst-case protection.

 

[JamesHW]

I am 61 and considering retirement in the next couple of years, although my wife wants to push that forward into the future. Basically I got a very late start on serious saving, having bummed around in a lot of low wage jobs in my youth, no college degree, and later some middle management stuff. All kind of jobs and changes of fields and only in my late 30's after getting married did I stay in a field long enough to rise to a level where I am making a good salary, even a bit more than my wife who has a Masters degree.

Since I have no desire to just lay around somewhere or play golf every day, we are thinking of some sort of business doing something we enjoy. I was thinking a small boutique farm distillery would be interesting. Also, we are both artists and want to be able to paint & draw more than we can now working full time. Maybe nice campsites which we could rent. One thing is sure we have more plans than time.

My Dad & Stepmom sold their house, brought an RV and motored off to see America, spending my inheritance one RV park at a time. They died broke in Florida, but were happy living near the beach in their final years and in the end only owed $40.00 to JC Penny. My Mom was ok and happy on her fixed income for her last years, mainly because she let us take over her finances and get her out of a cycle of debt. She was so much happier in her last years and mercifully never spent any time in the hospital or hospice at the end, but went suddenly one evening.

In that process of taking over Mom's finances we took over the taxes on the old family "farm" she inherited from my Uncle in the 60's (not a working farm since the late 1800's, early 1900's) which on advice of our lawyer had us put on the deed so it passed to us smoothly upon her death. Carrying the taxes & upkeep of an 80 acre property with an old 1800's brick house has not been cheap, but since we enjoy being in the country, it is both our project and out vacation home and is fortunately unencumbered by any mortgage. We intend to retire there and build a barn home farther back from the road (away from that neighbors annoyingly bright light that shines in our windows at night lol). I am considering what this will do to our taxes. The plan is to rent the historic house out during the racing season and close it during the winter. one thing is we love the old house and would not mind living in it year round, only it has no heating system, no insulation, leaky 1840's windows (beautiful, but they don't keep the wind out that good) and it is right on the road. All of those can be remediated or fixed, but the attraction of building a really tight barn house is still attractive. We consider ourselves lucky to have choices as many do not. Our house in the city is not paid off but the bank only owns less than a third of the assessed value. Still have not decided on renting or selling. That we will be eight hours away leans the decision towards selling. Plus there is the consideration of years residing in the house and tax exemptions that stem from that.

One cautionary tale we heard from a friend recently was a couple nearby built a large beautiful dream house for their retirement. It was described as very fancy with a giant marble and chrome kitchen with expensive cabinets. Only problem was when all was said and done they found they couldn't afford the taxes and ended up having to sell it and move into something more reasonable.

What did Robert Burn's say, the best laid plans;

But, Mousie, thou art no thy lane
In proving foresight may be vain:
The best laid schemes o' mice an' men
Gang aft a-gley,
An' lea'e us nought but grief an' pain,
For promised joy.

In the end I guess the most important thing is what makes you happy. I see people who had so many wonderful plans and ended up wrecked on the shoals of divorce or ill health. It does not matter how many toys you have if you are laying there wasting away in a nursing home. My goal is to be one of the 100 year old guys no one can keep up with, but I always bear in mind the adage "Announcing your plans is a good way to hear God laugh".

 

[riptides]

In the end I guess the most important thing is what makes you happy.

Yep! I live hard, I spend too much, I stress too much, I blow money and assets like crazy. It's awesome. If I bite the big one tonight, the only one crying hopefully will be the insurance people. I hope everyone else says "..man he had a nice ride, he was a good friend and a crazy person, I hope he can get some rest now."

That being said, I guess I need to find another job. Really.

 

[wmonroe]

I want to comment on the idea that, "I don't really want to be the rich guy in the grave yard." I've heard people say they plan to run out of money on the day they die. My immediate thought is always, "Gosh, I hope you don't live any longer than you thought, or you're going to be a broke, miserable son-of-a-gun!" xtn

By that I just meant I don't want to plan to able to live to 120. There are a few in my family that lived to about 90, the wife and I are planning to have retirement money till 95. If we make it to 90 and are in great health and think we will make it past 95 we will cut back and spend less or tell the kids they have a few more years till we move in. Lol

 

[dmccarty]

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.

I was shocked that a major investment company would make the "statement" that they did. The first calculator and an article about Roths vs tax deferred 401Ks I saw was wrong in that both assumed that one would invest the same amount per year in the funds. That completely negates the advantage of the tax deferred 401ks.

I am not against Roths and I have been wondering if we should start throwing some money into them because we are bit closer to retirement. My guess is that we would not make that much extra money on the tax deferred money and it might be worthwhile to have a hedge against higher retirement taxes.

My assumption is that worst case, the money we have in 401Ks is the money we will have in retirement. Anything we invest from this point on is gravy. So to speak. Switching over to a Roth 401K might make money sense. I am going to have to think about it and see how my company match works.

Later,
Dan