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Preparing for what happens AFTER you finish building your nest egg and actually retire may be trickier and more important than all the saving and investing you did to get there.
The reality is unless we are drawing so little vs the assets saved , you are always building your balance so you can survive the worst outcomes if you are the lucky one to get caught up in it without taking a pay cut .
In fact without at least a 2% real return average the first 15 years , of a 30 year retirement 4% inflation adjusted draws will fail. So investing and gains are always important for our income to stay put
That article was a pretty good. Most of the points were right on target. A solid income plan is #1. Figuring out the smart thing to do on SS is critical first step. And probably most of the time, taking SS at 62 "because ....what if I die" is probably wrong.
#1 - Income. Absolutely. The key to this whole deal is earning enough investment income (actual income) that your overall income with pensions and/or SS is greater then your expenses every single month. And reinvesting that overage so that every month, your income increases.
I think his setting $100K of his money as emergency fund, is kind of excessive. That money should be earning income in some manner.
He basically says create enough income to met your needs, and then invest in growth to meet future needs. I would say create enough income to MORE then meet your needs, and then invest for growth.
His #3 - Efficient tax plan. To me that's part of #1. $10,000 coming out of a 401K or IRA is only $8,500 of actual income if your in the 15% tax bracket. But coming out of a Roth it's $10,000.
but to really even it up , assuming the 25% bracket but you can make it whatever you want , to take 10k from that roth cost you 13.332 in pretax dollars , so you have to remember the traditional balance would be that much higher after taking out that 10k.
once you even up the pretax dollars it offsets any tax difference .
to be apples to apples you can't take outside funds and prepay the roth taxes up front , then when you compare want to take the taxes from the traditional on draw . that is not a fair comparison .
that is because to get 5k in a roth 401k as an example you need 6666.00 pretax dollars in the 25% bracket . to equal that , you would be putting 6666.00 pretax dollars in a traditional 401k . that would be the same pretax dollars in the 25% bracket .
even if the investmnts doubled over time the roth 401k would have 10k and the traditional would have 13,332 .
after taxes they both would have the same 10k. there really is no tax savings .
there may be other perks to the roth but tax free growth up to rmd age is not one of them once you equal up the dollars if tax brackets are the same .
the other perks can make the roth a better deal . so much is linked to taxable income that having the lower taxable income at retirement may help but only if :
you are over the limit to get ss taxed and the roth would lower you .
you are on the edge of getting a medicare surcharge
you are getting an aca subsidy
you will be reinvesting the rmd money . the money still grows tax free in the roth after rmd age . any future gains reinvesting outside the traditional will be taxed .
so be careful with the " tax free growth part " it may not amount to anything different .
roths are best done very very early on when first starting to work . most jobs not at the highest brackets day 1 take decades to ramp up to the higher brackets . your 30 or 40 year average tax bracket will likely be lower than your final years .
people tend to compare wrong because they look at their highest final years brackets and compare that to retiring . but it is really the career average bracket that really means anything .
this is why conversions can be so so . they are not comparing your long term average tax bracket to your retirement one . they are only comparing the final years .
Last edited by mathjak107; 12-26-2018 at 02:45 AM..
His #3 - Efficient tax plan. To me that's part of #1. $10,000 coming out of a 401K or IRA is only $8,500 of actual income if your in the 15% tax bracket. But coming out of a Roth it's $10,000.
Maybe sit down and learn the 2018 tax lax changes? You can make $50k as an individual and stay in the 12% bracket. With the tax advantage of Social Security income, you need a pretty substantial 401(k) or IRA distribution for a Roth to ever be tax efficient.
a roths other perks can potentially be helpful just because so much is linked to taxable income . like aca subsidies , no rmd's at single rates for a widow , etc .. whether from just a tax bracket perspective a roth will be better , meh ......
That article has a couple of OK points, but to me sounds like an opening introduction to a high cost investment "plan". no doubt will include variable annuities. Putting such a big focus on "a solid income plan" is the first huge red flag the reader should be dubious of.
Someone retiring at 65 today most likely will have 20+ years ahead of them so they very well might want/need growth and that most likely will require substantial stock exposure. As we have entered a bear marklet that might sound "crazy" , but inflation and withdrawals can really hurt your balance so focusing on "income products" can compound that problem!
Maybe sit down and learn the 2018 tax lax changes? You can make $50k as an individual and stay in the 12% bracket. With the tax advantage of Social Security income, you need a pretty substantial 401(k) or IRA distribution for a Roth to ever be tax efficient.
Good to know. Thank you. Maybe my RMDs that I just started this year won't push me into a higher taxable amount after all.
It's a good article.
Suddenly I feel very, very lucky. We live on about 80% of our cash flow and have no plans to change. The 20% has been used for extras like travel, so after 8 years of retirement we have a little more money than we did the day we retired.
we retired 3-1/2 years ago and drew 6 figures a year from our portfolio . up until the drop we not only drew 6 figures a year but were 300k higher then the day we retired . as of yesterday we are still 100k higher than the day we retired . that is after supporting 3-1/2 years of retirement so not to bad so far .
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