Retirement planning

[NY_Yankees_Fan]

Wow, lots of really good stuff here. As far as college our plan is to pay for the majority but the kids will have some of the responsibility. We both had it that way in college and worked jobs while going, didn't hurt us a bit. My plan however will change based on the kids, some just have to work a lot harder to get the same grades, if one has to put in double the hours per week on school work then I would supplement more of the costs. Going to a Roth 401k was mentioned and I need to double check but I believe that is what I have. I contribute 17% of my check, auto deducts I never see it except for the pay stub, and my employer matches 3%. My wife is around 15% but with no company match. Social security is not figured into our plan but if by some miracle it is still available it will be extra.

The 529 plan can be shared among the kids, so if the 1st child does not use all of the funds the 2nd child can. Look for a plan that has the lowest expenses, we used Utah, NY was also cheaper. If your state has a fund it may have benefits to go with the state you live in. NJ did not so we did not use it. Utah was great to work with, they always answered the phone with a live person. It was painless, we got the bill from the college they cut the check and sent it to the college, 2 kids and no problems. When the child turned 18 they moved the funds into all bonds automatically so you did not loose your funds in the market. As you know the 529 plan grows tax free.

I do not know where you have your funds but check out Vanguard they have the lowest fees and offer many funds. Great place for your $$ outside of your 401k plan. https://investor.vanguard.com/home/

Interesting article about those fees you can pay for an advisor that works for free. Well not really, look at the fine print.....

http://www.fool.com/how-to-invest/b...irement.aspx?source=isesitlnk0000001&mrr=1.00

 

[NY_Yankees_Fan]

Remember too PA is a good state to retire in, Pennsylvania is Better - A Tax-Friendly State for Retirement - Traditions of America no taxs on pensions, social security, 401ks, We are around the same age as you and we are doing a lot of retirement planning now. With our daughter, we are also planning for college. Instead of a 529 we are doing a roth 403b which can be use for college, and no big tax hit if I am of a certain age when she is in college which I will be. Since she is in Kindergarten this year I took all the day care money and moved it to the roth, we are not missing anything and shes getting a good start.

Yep that is where we are going PA, much cheaper than NJ and besides that is where the kids live. We are headed to West Chester to live in the city and walk to everything. Down side the Kubota is staying in NJ.

 

[riptides]

Interesting topic.

I retired two years ago, way early. I cannot draw on anything until 62, hence my bridge money is slowly evaporating with carry costs for colleges, and quickly evaporating due to unforeseen health care costs.

I think a better plan would have paid off ALL debt, so the only thing to worry about would be taxes and insurance until your real magic number kicks in and your benefits become available.

 

[NY_Yankees_Fan]

Interesting topic. I retired two years ago, way early. I cannot draw on anything until 62, hence my bridge money is slowly evaporating with carry costs for colleges, and quickly evaporating due to unforeseen health care costs. I think a better plan would have paid off ALL debt, so the only thing to worry about would be taxes and insurance until your real magic number kicks in and your benefits become available.

Rip

Agree 100% no debt is the way to go.

Not sure why you can not withdraw before 62 but if you have an IRA or 401K you can withdraw at 59.5 with no penalty.

 

[Gary Fowler]

I retired at 61.5 just shy of SS age and no insurance till 65 which was a real gamble but insurance costs would have eroded my savings a lot. Luckily I am in pretty good health and actual healthcare costs always were much less than even my insurance cost when I was working. I used 10% of my gross salary as my 401K contributions from age 24 till last few years of working. I quit contributing to the 401K(it was not making any money anyway) at age 60 and instead used that money to buy all the things I needed for retirement (a couple tractors, land, storage building, new retirement home and pay off any debt) When I retired, I was 100% debt free, had a new house, new shop, 2 new tractors with equipment, 2 new ZTR, a new car for the wife and over 100K in the bank + almost $1million in my 401K. I think I am set for a modest lifestyle and don't have any money worries at present. I am now on Medicare so most medical bills will be paid which was the biggest fear of early retirement.

I too wanted to start getting my money back from SS as soon as possible which was my goal for retirement. Life was good for the last 10 years of work due to working overseas all of that time and grossing about $300K per year. This allowed me to put money aside for all the things I mentioned above and still live well.
The biggest thing to prepare for retirement is to decide how much you want to spend on "extras" after retirement. Everyone will have the standard costs of living, i.e. taxes, utilities, food, insurance and recreation expenses. Most of the first 4 items wont vary a lot between average Joe retirement folks but recreation expense could vary by $1000's or even $10's of thousands depending on what you want to do when you retire. I live a pretty simple life with not much desire to travel since I spent 10 years traveling and living abroad so my entertainment costs are pretty low. I just bought a Goldwing motorcycle which takes care of most of my entertainment items.

Don't forget that inflation needs to be considered in how much you need for retirement income. Just like in the past when a new car (model T) cost $500, in 30 or more years that $50K car today might cost over $150K. Retirement location is also something that should be considered if possible and if possible buy your land for retirement as early as possible as cost of land is not going to go down.

 

[TomSeller]

Mom spends about $1,000 per month, has a nice home in the Bay Area... some land, pays all her bills, taxes, medical supplements and tithes to her church...
.

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

 

[Citydude]

Put the max amount allowed in your 401k. With 23 years before you retire, you can be in aggressive funds that have opportunity to earn more however have risks. Monitor the funds and compare the performance to the S&P at least quarterly. And, your doing the right thing by asking for advice. Making choices on lifestyles when young determines how your lifestyle will be when you retire. Good Luck!

 

[randy41]

interesting how the stats for how much you need to put away for retirement are generated by the same folks who want you to send them your money to invest. just saying.

 

[dmccarty]

...

Going to a Roth 401k was mentioned and I need to double check but I believe that is what I have. I contribute 17% of my check, auto deducts I never see it except for the pay stub, and my employer matches 3%. My wife is around 15% but with no company match. Social security is not figured into our plan but if by some miracle it is still available it will be extra.

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

 

[Gary Fowler]

One of my work benefits is to a financial adviser at no cost to me. Maybe your company does the same?

Later,
Dan

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.

 

[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.