How do people without millions manage to retire? (students, IRA, employees)

[Perryinva]

I would not be in a 401k today if it was about tax deferral. My tax rate will never go down, and when I was younger, my tax rate was always predictably lower. I was in for the company match and the opportunities of fee free company stock, which has both historic great dividends and good appreciation. It also has actually a fairly consistent swing so buying and selling is not difficult. Since 2005 it was also a way to save after tax funds that now can be rolled in to a Roth, yearly.

I have found that I saved way too much tax deferred, when my taxes were actually lower than they will end up being in retirement. Not a smart move, but instead of analysis of my own situation, I just took the advice of all the "experts", which is to typically avoid current taxes now. Spend the time to do a realistic analysis of your own situation. I wish I had saved far more in low after tax options than pre tax deferral. And had never tapped any of my HSA funds, either. Until I seriously started analyzing my retirement income around 2004, I was not even aware of RMDs. All I was doing was saving as much as I could afford by living below my means. Accumulation is important and fine, but smart accumulation with knowledge of how to turn that savings into low tax income income is far more effective and important.

[mathjak107]

that is the age old problem . we only think in terms of tax brackets in our final year of working vs retirement .
the actual comparison should be your long term career average tax bracket . most "normal jobs " ramp up over decades , they start at very low pay and over decades reach the final higher bracket years .

most will find their long term average lower than their final years brackets which are the brackets they attempt to compare .

so much is linked to taxable income in retirement that traditional 401k's and ira's can really end up hurting you down the road even if tax brackets went up a bit ..

so much hinges on retirement taxable income levels . from getting your social security taxed , to what you pay for medicare , to getting an aca subsidy pre medicare , as well as being able to utilize zero capital gain brackets , obama plan tax surcharges and rmd's killing tax brackets .

had i been able to get a do over i would have done far more roths , planned better use of the zero capital gains brackets , over funded a life insurance policy and borrowed out tax free money gaining 4% with no fees or expenses taken out .

now it is like telling the guy who build the brooklyn bridge , it's nice but move it 2" to the left. just the fact my dividend flow kills off any chance of an aca subsidy has my insurance at insane prices with ridiculous deductibles and out of pockets while waiting for medicare age .

old myths about how and where to hold assets and in what kind of accounts just are all wrong ..

[TuborgP]

^^^^^^ That's the modern reality. Change and future uncertainty.

[Aqua Blue]

I have always wondered what in the world people with millions do with all their money. I say that tongue I cheek, but there is some truth to it. How much house does one older person need? How much clothes can one possibly shop for and really actually wear? How many restaurants can one go to, or how many trips can one go on and still enjoy traveling? I know I am the odd man out, but I really don't need all that stuff

What I have to spend is considered poverty by quite a few here, but I pretty much always save some every month. ANd it feel like I have a rich purpose filled life. It is sort of a mystery to me.

[runswithscissors]

Originally Posted by TuborgP

Pensions involve a employee match and and a assumption of a fixed benefit based on a assumed ROI. That is the flaw of the pension concept but the plus for the employee. It does have a lack of ownership and inheritance choices.

One is a defined benefit the other a defined contribution. The best solution is both.

Not true. That's not even the traditional definition.

You're talking about contributions under a Defined Benefit Plan mostly seen in government jobs. After tax dollars.

Can employees contribute to a pension plan? | Nyhart Actuary & Employee Benefits

Defined pension plans have NO matching. You're referring to a hybrid DB(k).

If you had employees contributing to the pension, it wouldn't be a pension and there would be tax implications not to mention a wonky formula that couldn't be calculated. Plus, each type of plan is defined by law.

IE one company offers this formula in their plan: 1.15 percent of the member’s average last earning x years of benefit service

You get either an annuity or lump sum. Nothing to do with what you contributed but what you EARNED and length of service/vesting.

Companies in the US that Still Offer Defined Benefit Pension Plans | Pension Retirement

[runswithscissors]

Originally Posted by Aqua Blue

I have always wondered what in the world people with millions do with all their money. I say that tongue I cheek, but there is some truth to it. How much house does one older person need? How much clothes can one possibly shop for and really actually wear? How many restaurants can one go to, or how many trips can one go on and still enjoy traveling? I know I am the odd man out, but I really don't need all that stuff

What I have to spend is considered poverty by quite a few here, but I pretty much always save some every month. ANd it feel like I have a rich purpose filled life. It is sort of a mystery to me.

Would it be a mystery to you if you had a stroke or a brain injury tomorrow and had to live the rest of your life in a Skilled Nursing Facility - which your insurance doesn't pay for? They run easily $5,000 per month. Cash. Unless you invested in a Long Term Care Insurance plan and even then, there are limits.

And what about different cost of living locations?

A small condo in Washington DC costs $1 Million.

"With millions" is not exactly the same as "making millions" either. Those people "with" millions made ALOT MORE but the government confiscated plenty of it.

Federal tax on a personal income of $1,000,000 would come to around $353,000 before all the deductions. 39.6% Not including State and Local tax where applicable. So you can end up paying nearly half in Tax not to mention your property taxes on top of that. And other hidden taxes like, if you're self employed you have to pay Social Security twice, once as the employee and once as the owner.

I pay almost 40% of my meager dog walking income off the top to the government and that's before a single expense like gas for my car. So if I'm charging you $20.00 for a dog walk, I'm starting out making actually $12.00. Then add up all my expenses of car, gas, travel time, insurances, website, advertising etc. Not to mention all the untold HOURS I'm spending on back office work.

Yet NON millionaires are the FIRST ones who try and get ME to give THEM a discount for THEIR vacation! Uh, nope. They are NOT my market.

Why are you assuming people with that kind of money spend it all? And what about if you have KIDS?

Those are the people who aren't going on taxpayer funded Medicaid when they are older or have a medical problem because they saved their money.

I work for a 94 year old man in a CCRC who's wife is in Memory Care going on her 4th year and still going strong. He lives in Independent Living at the same place and pays minimum $4000 per month for his living expenses and an additional $12,000 per month because he refused to move over to Skilled because he has a dog. So he has to pay for round the clock Home Health Aides to transfer him and do other activities of daily living. Those fees would not be applicable in Skilled but he won't give up the dog. Then on top of that he pays ME $2000 per month to take care of his dog.

That's $18,000 per month/ $216,000 per year.

Yes he has choices and yes he's an ex corporate CEO type of guy. He COULD live in Skilled for maybe $5000 I guess. LUCKILY he bought into a CCRC and his wife's care in the Memory Unit is covered by his monthly $4000 which he contracted for a decade ago before either one needed it.

But if he didn't, he'd be paying her care separate from his own. And it would have been possible for them to have gone into this particular CCRC at age 62, in which case he'd be on his 32nd year of living expenses.

He's not the only one. I've worked for four different people in that age category under the same circumstances more or less, in the past few years. I always have at least one of them if not two or three at the same time on my booking calendar.

If you drop by the Caregiving Forum you can read about all the people who never made any plans at all, then their families are running around in a panic because the people have nothing or refuse to cooperate.

[TuborgP]

Originally Posted by runswithscissors

Not true. That's not even the traditional definition.

You're talking about contributions under a Defined Benefit Plan mostly seen in government jobs. After tax dollars.

Can employees contribute to a pension plan? | Nyhart Actuary & Employee Benefits

Defined pension plans have NO matching. You're referring to a hybrid DB(k).

If you had employees contributing to the pension, it wouldn't be a pension and there would be tax implications not to mention a wonky formula that couldn't be calculated. Plus, each type of plan is defined by law.

IE one company offers this formula in their plan: 1.15 percent of the member’s average last earning x years of benefit service

You get either an annuity or lump sum. Nothing to do with what you contributed but what you EARNED and length of service/vesting.

Companies in the US that Still Offer Defined Benefit Pension Plans | Pension Retirement

Ummmm. Ummmmm. Have you noticed the uproar over public govt pensions and the burden of taxpayers. Via their government contributing to them ? The ratio of the employer contribution to the employees varies from plan to plan but certainly is at the core of Most public sector pensions

[TuborgP]

Originally Posted by TuborgP

Ummmm. Ummmmm. Have you noticed the uproar over public govt pensions and the burden of taxpayers. Via their government contributing to them ? The ratio of the employer contribution to the employees varies from plan to plan but certainly is at the core of Most public sector pensions

Yup talking about defined benefit plans guess I didn't make that clear enough to everyone

[Aqua Blue]

Your right, I don't live in a high cost of living and have no desire to. As for nursing home care..because I live in a lower cost of living area currently my social security would pay about 2/3 of the cost(recently had friend in only nursing home within 50 miles and that's what it is costing her). You get the same room, same care in that facility whether you are wealthy ornot. I could pay the difference pretty easily for a long time. I have an underlying condition that makes it unlikely I would last years and years.

For me one of the gifts of not having millions is Ihave decided not to agonize over the what ifs..I did the best I could and what is is. I have wealthier friends and they all seem overly worried about such things. In the end it will be the end no matter how much money we have or even how well we planned, I prefer to enjoy today.

[runswithscissors]

Originally Posted by TuborgP

Ummmm. Ummmmm. Have you noticed the uproar over public govt pensions and the burden of taxpayers. Via their government contributing to them ? The ratio of the employer contribution to the employees varies from plan to plan but certainly is at the core of Most public sector pensions

Originally Posted by TuborgP View Post
Ummmm. Ummmmm. Have you noticed the uproar over public govt pensions and the burden of taxpayers. Via their government contributing to them ? The ratio of the employer contribution to the employees varies from plan to plan but certainly is at the core of Most public sector pensions

Yup talking about defined benefit plans guess I didn't make that clear enough to everyone

Ummmm. Ummmmm. Correct, you didn't mention government employees at all. You generically defined the word PENSION as employee match.

Pensions involve a employee match and and a assumption of a fixed benefit based on a assumed ROI. That is the flaw of the pension concept but the plus for the employee. It does have a lack of ownership and inheritance choices. One is a defined benefit the other a defined contribution. The best solution is both.

Probably the reason I never put "government employees" in the same train of thought as ROI is because it's kind of an oxymoron.

That being said, I think something like 85% of the private sector has dumped defined benefit plans in favor of 401(k) type which is fine with me. The problem in the public sector is they're BILLIONS underfunded so the ponzi scheme will go away if they switch to 401 now. I think Alaska did that. Imagine. ALASKA after "spreading the wealth around" from oil all these years now billions underfunded in pensions.

There should be ONLY employee contribution type "pensions", IMO. They're a PITA and the corruption is far too out of control. And apparently this generation values no company loyalty vis a vis higher paychecks to planning for retirement anyway.

And it's not new that even plenty of employees who contribute to their company 401s still think that somehow the employer is responsible for managing their retirement strategies and never even contact the plan administrator, an independent financial adviser etc.

Same reason universal healthcare is so popular. Just live life on autopilot. /rant LOL