Retirement Planning - Lessons Learned

[Jstpssng]

Don’t you take a tax hit if you pull a large amount of money from your retirement fund?

 

[RickB]

Don’t you take a tax hit if you pull a large amount of money from your retirement fund?

Depends on your age and what type of an account it is in. For all accounts other than a Roth, you will pay tax on some or all of the proceeds at a minimum. If you are younger than 59.5 years penalties may apply.

 

[kenmac]

also depends on how much money taken out, and how much it adds to your total end of the yr income. If it puts you in another tax bracket, you could pay xtra taxes. I have been there

 

[California]

Depends on your age and what type of an account it is in. For all accounts other than a Roth, you will pay tax on some or all of the proceeds at a minimum. If you are younger than 59.5 years penalties may apply.

I started drawing Deferred Comp before 59.5. No penalty but rules then in effect required declaring a lifelong monthly minimum payment in order to do this. More recently the rules changed and you can change the monthly payout.

This is literally deferred wages, so taxable as ordinary income.

 

[Frankenkubota]

This is true. In border cities along the Washington side of the WA/OR line they ask if you if you are an Oregon resident. If you are you do not pay sales tax. The businesses on the WA side lobbied for it to attract sales.

just before i left portland Oregon some gal across the river in vancouver wash got popped for selling and delivering mattresses to oregon customers from her stores in wash to avoid the sales tax

I think i got that backasswards but you get the idea.

 

[goeduck]

just before i left portland Oregon some gal across the river in vancouver wash got popped for selling and delivering mattresses to oregon customers from her stores in wash to avoid the sales tax

I think i got that backasswards but you get the idea.

She probably got in trouble because she delivered to OR.

 

[Torvy]

At the time, preceding the 2008 crash, banks were making crazy irresponsible loans just for the transaction fees with no concern for the credit worthiness of the borrower. As soon as they wrote the loan, they sold them into pools that were bought by investors (we know how that turned out).

I was working for one of the most responsible US banks at that time. We got out of the mortgage business before the bubble and got back in after. What is missing from your narrative here is that Congress bullied banks into making loans to people who could not afford them. The banks have a fiduciary responsibility to their stockholders (most of whom are regular folks with 401k holdings). They package don't those loans with a balance of good loans to be responsible. Unless they did what we did, they did not get to choose 'pass' on bad loans....fyi, banks don't like to make loans that don't get paid. The banks would have made considerably more money making better loans, except Congress. Money for lending is a finite resource. Most people assume, incorrectly, that banks just look at a FICO score and loan to anyone. The sweet spot in lending is someone who has ok credit, but has been improving over time. They don't get the lowest rates, but are very likely to repay. FYI, after the bust, Congress required us to take their money even though we were one of the banks that past the 'stress' test.

 

[Torvy]

She probably got in trouble because she delivered to OR.

Pretty sure it was the other way around. Delivering to Washington customers from Oregon stores. Oregon customers don't pay sales tax either way. One sister of mine lives in Salem (husband worked for the state for many years as an Economist). The other lives just north of Seattle. I don't think it matters where in Washington they buy. Oregon sister often shopped in Seattle with no tax. WA sister always hosted Thanksgiving so they could shop sales together.

 

[LFP79]

If you have the means...get the mortgage paid off. It takes a huge load off your mind. Even if your IRA tanks, you have your home.

If you have any credit card debt, you should not retire. You have established a lifestyle that is above your means. If you cannot control it you are going to be in trouble quickly.

Have all or most of your "toys" paid for.

If you have a spouse or partner that wants to retire "in style" and you cannot afford it...get rid of her/him if you can. If married to her/him prepare for "issues".

Cost of divorce should be evaluated. Many seniors realize they will not enjoy retirement with the person they have only had to endure 24 hours a day for two days a week. Spending 7 days a week them, with no work to escape can trigger it. If you have friends and your partner does not...that is a another "red flag".

You will need/want about 65% of your pre-retirement income until you learn to live on less.

If you do not have a company pension or government job pension, do not depend on SS. Which means you need about $500k to $1 million in investments.

About 15% of people over 65 live in poverty and only 58% live at double (or more) than the poverty level. The good news about living in poverty is that life expectancy goes down so you may not suffer for long.

Lots of folks do not have "Golden Years".

Issues with the spouse, very good point, dealing with that now. The one thing I don't have when I was younger is time, much more difficult to recover from.

 

[ericm979]

Don’t you take a tax hit if you pull a large amount of money from your retirement fund?

Yes, if you pull it out before the age limit (if there is one on that kind of retirement account, not all have them).

We keep looking at paying off the mortgage early but with only a few years left it doesn't make sense. Most mortgages are structured so you pay mostly interest first and mostly principal later on. In the last years you're paying almost entirely principal. So in effect you have an extremely low interest loan. Like nearly 0%. If you invest that money instead you'll end up ahead in the end, assuming your investment does better than nearly 0%.