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By the time I started being really serious about understanding tax ramifications and the Roth came out, it was too late. I've never been in a lower tax bracket, only climb in one I'm in. Regardless, I still started a Roth as I felt that it sounded too good to be true, and would likely disappear later. Once theynallowed rollovers and conversions, I was glad I did. As you say, about the time I retire, I will likely break in to the next tax bracket. But by delaying my SS, from retirement to 70, will be my lowest tax rate years, so that is when I propose to convert the most pre tax to Roth. After 70, I'm stuck with whatever rate exists.
I have a tiny Roth for the concern that it might be good to have one if they were changed and had some grandfathering provision for people that already had one. My FA agreed that it makes little sense for me. What I take while delaying will get taxed at a really low rate. And as I mentioned, my account has me in good shape, not outstanding so RMDs over SS will put me nowhere near my highest income. If I have to switch jobs before retirement, I might revisit this as I will undoubtedly take a significant cut (about half my pay is for being at the job so long and understanding all the legacy stuff). If I will be able to save moe at all, it might make sense for it to be post tax.
As MJ and a few others have said the role of after tax investment dollars in retirement is often not understood until to late. Count us in the boat of understanding late but fortunately not to late. Not as advanteous as we could be but better than most. It is a very difficult discussion to have in a forum like this because if you throw out numbers some would agree, others would get upset because you are talking about more than they have tax deferred and others would say not enough.
It is something that folks with pensions really need to be aware of because they have the opportunity to build up after tax dollars in retirement by saving more than they bring in. Also when they hit their late 60's or RMD age they can convert after tax to taxable accounts. You need a significant sum of money to be able to meet a sudden financial crisis or opportunity without taking a major tax hit. How much is enough? I know this will go over like a lead balloon but at this stage of retirement I would say 100K up. For some of the goals expressed by folks in the forum closer to 500K is more realistic.
When I read about folks talking about CCRC's for instance I now wonder how they are planning to structure paying the entry fee. Home equity? What is the sequence of selling one home to have the entry fee and will you need to live somewhere in between? A bridge loan if such a thing exist. What about using money from your Tax Shelter? Wow what a tax hit and how much will you need to cash in to end up with the amount you need? Obviously the easiest answer is after tax money that is liquid. That takes planning and needs to be thought of and planned for years in advance.
Once you get in a CCRC the tax advantages increase but you need to get there. Also a major medical expense of say 80K, stuff happens as is often pointed out in the forum. How much in pre-tax dollars to come up with it. Yes I know you will have a major tax deduction but you need the money first.
I could go on but I will suggest that much of this are things that we can really become aware of as we get farther in retirement. Not the age we necessarily but the amount of time actually managing. Of course combine age an time served and you really can have the moment.
This is probably something that if you never really planned for retirement and just let it happened, you might never consider. However if retirement has been a planned for financial event if you haven't considered already as others have noted you probably will. Hopefully sooner than later.
If you are waiting for a COLA to enhance or sustain your retirement you may have some issues moving forward.
MJ talks about the puke factor in investing which is how much risk still enables you to sleep at night comfortably. Well how much after tax dollars available enable you to sleep at night and how easy is it.
We calculated the difference in SS income between 62 and 66 and 70 and found that waiting until 70 made no sense. We would not be able to make up the actual difference in SS income until we turned 85. So taking it at 62 makes more sense. Something to consider.
82 to 84 is about normal for break even . however every year after that things escalate very quickly . with the odds of one of a couple seeing 90 at just under 50% age 90 can result in a real return , meaning after inflation return of 5% . that is on par with taking the risk of investing in equity's today .
by age 95 if one of you make it you beat equity's with a whopping 6% after inflation return but i would not count on it . we figured late 80's for us and the real return was about on par with a balanced portfolio but this had zero risk and no sequence risk like our own investing . .
82 to 84 is about normal for break even . however every year after that things escalate very quickly . with the odds of one of a couple seeing 90 at just under 50% age 90 can result in a real return , meaning after inflation return of 5% . that is on par with taking the risk of investing in equity's today .
by age 95 if one of you make it you beat equity's with a whopping 6% after inflation return but i would not count on it . we figured late 80's for us and the real return was about on par with a balanced portfolio but this had zero risk and no sequence risk like our own investing . .
LOL..so everyone on here is living to 85 or older. Makes no sense to wait if you are retired at 62..enjoy the money while you can because at 88-90 you'll be mostly sitting in a chair anyway if you are still here.
where does it say everyone ? actually odds of one a couple seeing 85 is 79%
you can spend more earlier by delaying ss since you will have zero sequence risk down the road and can refill with a 70% bigger check as natural spending falls off .
by taking ss earlier withdrawals have to be smaller to allow for sequence risk .
We calculated the difference in SS income between 62 and 66 and 70 and found that waiting until 70 made no sense. We would not be able to make up the actual difference in SS income until we turned 85. So taking it at 62 makes more sense. Something to consider.
As often repeated, the break even point means absolutely nothing. It is a figment of number manipulation UNLESS you are concerned about always having the maximum saved for your heirs in case you die, OR you know you have a very low or zero chance of making it to 80. And knowing that you have zero or very little chance living past 80, you actually SPEND your money sonit is mostly all gone by then. Because if you are actually spending as if you were to inconveniently live past 80, then you have a lower income for life, starting at 62. Of course, if you can't really afford to live the way you want off your savings and other income while delaying, then you cant delay either, in which case it is a moot point. If you can't then why even have an opinion on it?
There is a reason that more of the wealthiest and most educated delay taking SS to 70. If you can, the smart financial move is to do it. If you can't, you can't. Or if emotionally, mentally...whatever, just can't not file earlier, well it is always YOUR choice. But besides the reasons above, the "break even" argument is not one of them.
My wife filed at 62. All the charts, graphs,nand calculators out there would not sway her. "I can get it, and I want it now". But the reality is her amount is a small piece of our retirement pie, AND she is 5 years older than me, so what the heck. The extra $10k a year of her SS we would have had when she is 80 will be small potatoes compared to the extra $30k a year take home we will have because I delayed to 70. And if she predeceases me, hers just goes away. If I predecease her, then she gains my much higher SS in place of her smaller one. Its an easy decision.
Last edited by Perryinva; 06-11-2016 at 08:26 AM..
LOL..so everyone on here is living to 85 or older. Makes no sense to wait if you are retired at 62..enjoy the money while you can because at 88-90 you'll be mostly sitting in a chair anyway if you are still here.
Do you want that chair to be in a nice private assisted living place or is the chair the institutional chair in your nursing home room because that's the only place that will take Medicaid?
Following your line of reasoning, you should just blow it all now on hookers and blow. Somebody will magically step in when you are broke and need someone to take care of you.
LOL..so everyone on here is living to 85 or older. Makes no sense to wait if you are retired at 62..enjoy the money while you can because at 88-90 you'll be mostly sitting in a chair anyway if you are still here.
And where and with what quality of service and amenities are you wanting to be sitting in?
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