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Old 05-25-2014, 05:09 PM
 
Location: Wisconsin
21,543 posts, read 44,077,984 times
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Heh, mj - Looking back, given who were were, our jobs or lack thereof, the investment climate of the time, I would not and could not have a done a thing differently then - even had Roths existed. Although, certainly others might have been able to.

I didn't have a high-enough paying job throughout the critical early and middle years for a Roth to have ever worked for me.

The tax-deferral in the last eighteen years was the golden goose.

Times were so different back then (60s/70s) - at least for me - that a Roth wouldn't have worked. In the 60's, I lived paycheck to paycheck on a $3/hr wage, and was constantly borrowing from my father until I got married in 1965 and had someone to share housing expenses.

In the late 60s/early 70s, hubby/I bought real estate with little down and the leverage created huge profits which I would refinance and buy other real estate. We lived pretty darn good, for quite a while - then separation, then illness couldn't work for a year 1977-1978, then recession of early 80s. 80's were another story. Real estate investments kept me going - even through the recession of the early 80's when I had NO income for two years.

When I (now a single parent) was finally was able to find a paying job in 1983 as the recession waned, my starting salary was SO LOW (like 40% of what I had been earning selling real estate - health prevented my return to that business) there was no way I could have saved a dime in any retirement vehicle, much less one that wasn't tax-deferred. It was only the last 18 years of my working life (worked to age 67-1/2) that I was able to get very aggressive on the saving.

In a perfect world, where one is steadily employed, with enough discretionary income to save a modest amount early enough and consistently - perhaps. That was not my life, for sure.
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Old 05-25-2014, 05:17 PM
 
71,798 posts, read 71,896,917 times
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That was my comment above about the study. While what they found is very true about starting young at low pay but in the real world few youngins have the dough at such low pay to contribute.
but if they could a roth would be a slam dunk in most cases just as a traditional for most of us older folk will work out better if we have no pensions.
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Old 05-25-2014, 07:45 PM
 
Location: Central Massachusetts
4,800 posts, read 4,856,396 times
Reputation: 6379
Quote:
Originally Posted by mathjak107 View Post
That was my comment above about the study. While what they found is very true about starting young at low pay but in the real world few youngins have the dough at such low pay to contribute.
but if they could a roth would be a slam dunk in most cases just as a traditional for most of us older folk will work out better if we have no pensions.

You are right mathjak it will work out better for those who are living with the Roths. Us older who didn't have much income and could not even max out 401k's had to do with what we have. I plan on starting something for the daughter so that she can have something later and in that way it is going to be a Roth. Eventually it will be hers and it should be enough to supplement what she has.

It all really is about time. The more time the better.
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Old 05-26-2014, 02:20 AM
 
71,798 posts, read 71,896,917 times
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the glide path as it is called was a factor never looked at before this study. we all just assumed it would work out about the same regardless if it was a roth or traditional.

if you think about it if 20 years of our working lives was spent in the 10-15% bracket and ten years in the 25% bracket taking those deductions for a traditional may have been at quite a low average effective tax rate.

good chance your retirement lives may be at a higher efffective tax rate then the average of all those decades working with most of those years at a low pay rate.


on the other hand a roth would utilize that fact and work out better. with the numbers used in the study the difference came to a 17% difference in spendable cash through retirement.

Last edited by mathjak107; 05-26-2014 at 02:40 AM..
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Old 05-26-2014, 04:06 AM
 
71,798 posts, read 71,896,917 times
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to further explain :

the problem is people look at their high earning years and go i will be in a lower tax bracket at retirement. but what they are not looking at is the average tax rate of as much as 40 years of earnings with much of those years at far less pay then the ending years. your average tax rate can be much lower when all your working years are figured in.

if enough low earning years are calculated your retirement tax rate could be higher than that average tax rate of all those years working.

taking deductions all along for traditional ira's and 401k's may really have not given as much bang for the buck on that average lower tax rate as a roth contribution would count later on. none of us old timers had those options early on so this study would not apply to us.

most of us most likely started way later in our earning careers with incomes already off the lows.

what is interesting that in studies by t.rowe they show workers under 34 now have 8x the money going into roths than traditional ira's.

Last edited by mathjak107; 05-26-2014 at 04:36 AM..
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Old 05-26-2014, 05:07 AM
 
Location: Central Massachusetts
4,800 posts, read 4,856,396 times
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Quote:
Originally Posted by mathjak107 View Post
to further explain...

what is interesting that in studies by t.rowe they show workers under 34 now have 8x the money going into roths than traditional ira's.

I had to take this. Interesting figures that you bring out. It would at face value seem to be that younger people have gotten the message that the Roth should be the better option in the long run. 8 to 1 is a large ratio and should bode well for our younger generation. But inside the numbers I bet we will see that percentage of the population wise that are putting money away is no different today then it was in the past. So basically my point is that those 7 extra dollars are coming from that same small pool.
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Old 05-26-2014, 11:28 AM
 
134 posts, read 207,709 times
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Quote:
Originally Posted by jlawrence01 View Post
Funding a ROTH IRA does NOT reduce your adjusted gross income; funding a TRADITIONAL IRA does.

IRA Basics



We all knew that, right?
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Old 05-26-2014, 12:28 PM
 
14,266 posts, read 24,021,014 times
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Quote:
Originally Posted by Trocadero View Post
We all knew that, right?

OBVIOUSLY, the person who that message was in response to did NOT.
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Old 05-26-2014, 12:54 PM
 
Location: Great State of Texas
86,093 posts, read 72,575,594 times
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Quote:
Originally Posted by jlawrence01 View Post
OBVIOUSLY, the person who that message was in response to did NOT.
I think you missed post #8.
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Old 05-26-2014, 01:35 PM
 
Location: Los Angeles area
14,018 posts, read 17,759,876 times
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My hat's off to all you folks who have mastered the material which is the topic of this thread. When I read this stuff just out of curiosity my eyes start to glaze over after a while. I, too, could master it if I were motivated to. But in my case my retirement savings were forced on me from day one of my career employment way back in 1971, when 8% was withheld from my checks as my contribution to the pension. I have now been drawing that pension for close to nine years and I must say that the 8% deduction was the best money I ever "spent" even though I had no choice about spending it.

I often have cause to doubt whether I would have given any serious thought to retirement savings back in 1971 if I had had employment with no mandatory savings feature. At the time I was 27 and did not think I would ever live to be 70 years old. Hell, when I was 60 I did not think I would ever live to be 70 - it just seemed impossible, outrageous, unthinkable. Well, now I am 70. Life is strange.

Another thing about planning, especially as far as future tax brackets go: I had no idea upon retiring at age 61.5 and starting to draw my pension that I would soon take on part-time employment which would bring me a fair amount of earned income for the next seven or eight years. I had no plans for, and was not seeking, those various part-time jobs; I was offered them and enjoyed the work a lot. Now I've given most of them up. I simply could not have foreseen my financial future after age 61.5.
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