[petsetc]

Originally Posted by M2inOR

I assume when you wrote TIRA, you mean Traditional IRA?

Yes

[Luggage]

My brother-in-law complained last year then he made too much money and he's going to have to pay a lot of taxes and he was crying. I on the other hand made very little in the stock market as I wasn't invested so I guess I was much happier. Same with all you guys what are you really complaining about that you made too much money over the last 50 years? Yes I know you want to keep as much as you can but you all know what the rules are and I hear a lot of crying over milk that has not been spilled. So what I'm saying is enjoy life spend your money and don't worry so much you got a lot more than 95% of the rest of the country

[retiredguy123]

Originally Posted by petsetc

Here is a retirement calculator that lets you do what if senarios - FIRECalc: A different kind of retirement calculator

Also, as I recall, the 4% withdrawal rate has the actual amount adjusted for inflation every year and was thought to offer a 97% chance of not running out of money for 30 years. I am currently using 5% of the Dec 31 balance each year (no inflation adjustment) because I can change it at will, and being in my 70s, don't expect to need it to last 30 years.

As for Roth, a question was asked about the 5 year waiting period. I believe that refers t the opening date, not the most recent contribution, and rules are different after 59-1/2.

Last thought, if you already have both TIRA & Roth, hold the bond-like investments in TIRA since their growth is minimal right now and equities in Roth.

It is always a good idea to separate your bond investments into the traditional IRA, and your stocks into non-tax deferred accounts. The reason is that bonds earn interest that is always taxed as ordinary income. Stocks earn capital gains that are taxed at a lower capital gains rate, but only if they are held in a non-tax deferred account. If you have capital gain income in your traditional IRA, that income will be taxed as ordinary income.

[Stu from NYC]

Originally Posted by BlueStarAirlines

You are not the only one! I continue to Roth conversions up to my next tax bracket. Since I am still working, my 401k contributions go into my Roth account.

Maybe I am missing something.

You pay income taxes on your 401 plan contributions now and put a lesser amount into your Roth for longer term growth?

If it works for you fine but would rather have that 30% or so that was taken out in taxes grow for me in the long term.

[retiredguy123]

Originally Posted by Stu from NYC

Maybe I am missing something.

You pay income taxes on your 401 plan contributions now and put a lesser amount into your Roth for longer term growth?

If it works for you fine but would rather have that 30% or so that was taken out in taxes grow for me in the long term.

The numbers never seemed to work for me either.

[dewilson58]

Originally Posted by Stu from NYC

Maybe I am missing something. You pay income taxes on your 401 plan contributions now and put a lesser amount into your Roth for longer term growth? If it works for you fine but would rather have that 30% or so that was taken out in taxes grow for me in the long term.

Got'a do a spreadsheet................works if you are paying higher income tax rates later.

It's a hedge for some IRA dollars.

Some convert (or will convert) 100% of their TIRA.........may The Force be with them.

[Stu from NYC]

Originally Posted by dewilson58

Got'a do a spreadsheet................works if you are paying higher income tax rates later.

It's a hedge for some IRA dollars.

Some convert (or will convert) 100% of their TIRA.........may The Force be with them.

The problem is how do you know if you will be in a higher tax bracket down the road? Not to mention tax brackets do change over time as they figure out new ways to spend our money.

[dewilson58]

Originally Posted by Stu from NYC

The problem is how do you know if you will be in a higher tax bracket down the road? Not to mention tax brackets do change over time as they figure out new ways to spend our money.

Yep, 100% correct.

That's why it's a hedge.
Your taxes will either (1) stay flat or go down, or (2) go up.
So hedge........prepare for both What If's, don't have all your eggs in one Tax Assumption Basket.

The National Debt, Who's in office, etc., impact the crystal ball.

[rustyp]

Originally Posted by dewilson58

Yep, 100% correct.

That's why it's a hedge.
Your taxes will either (1) stay flat or go down, or (2) go up.
So hedge........prepare for both What If's, don't have all your eggs in one Tax Assumption Basket.

The National Debt, Who's in office, etc., impact the crystal ball.

Game over - It's too late. "Now trumps latter every time".

:BigApplause

-----------------------------
Mr Hopeless

[M2inOR]

Originally Posted by Stu from NYC

Maybe I am missing something.

You pay income taxes on your 401 plan contributions now and put a lesser amount into your Roth for longer term growth?

If it works for you fine but would rather have that 30% or so that was taken out in taxes grow for me in the long term.

During our working years we could contribute to the 401K, the maximum allowed, but it was not a ROTH 401K.

We could not contribute to a ROTH IRA due to limits on contributions due to our joint income.

IRA Contribution Limits

[Michael G.]

All this valuable investment information and they still don't teach students how to balance a check book in school.

Take those young check-out kids in retail, remove all those registers that do their math, and if they
need to give change, they'd to lost.

Another thing to be said on investment information here, remember you came into this world with nothing,
and you're going out with nothing.

[Stu from NYC]

Originally Posted by Michael G.

All this valuable investment information and they still don't teach students how to balance a check book in school.

Take those young check-out kids in retail, remove all those registers that do their math, and if they
need to give change, they'd to lost.

Another thing to be said on investment information here, remember you came into this world with nothing,
and you're going out with nothing.

It is sad they teach these kids so little in regard to personal finance. So many go heavily in debt to get a degree that will not allow them to pay back what they owe.

Than they think it is a good idea if the govt cancels the debt.' So many do not understand how it is foolish to think the govt will help you be a success in life while you sit back and do nothing.

[M2inOR]

Originally Posted by Michael G.

All this valuable investment information and they still don't teach students how to balance a check book in school.

...

So true!

True story: a life long friend who worked with me in high-tech left the industry and became an adjunct professor at a state university in Oregon.

He teaches marketing and advertising for undergrads, and has been successful, eventually rising to become an untenured department head.

He proposed and promoted the need to have a personal finance course for seniors or juniors as a graduation requirement for those wanting a BS degree in marketing or advertising.

He was not successful.

My son and daughter-in-law are both Army officers. Early in their early years as junior officers, they spent a lot of time helping young soldiers the basics of personal finance.

Pretty sad that neither high school nor colleges are interested in personal finance.

I see this today with some new retirees still lacking personal finance skills.

[DAVES]

Originally Posted by CoachKandSportsguy

Copied here from Barrons, I am a paying subscriber

Economist Wade Pfau has been thinking about retirement since he was in 20s. But not just his own retirement.

Pfau started studying Social Security for his dissertation while getting his Ph.D. at Princeton University in the early 2000s. At the time, Republicans wanted to divert part of the Social Security payroll tax into a 401(k)-style savings plan. Pfau concluded it might supply sufficient retirement income for retirees—but only if markets cooperated.

Today, Pfau is a professor of retirement income at the American College of Financial Services, a private college that trains financial professionals. His most recent book, “Retirement Planning Guidebook,” was published in September.

While many retirees are banking on a continuing rise in stocks to keep their portfolios growing, Pfau worries that markets will plunge and imperil this “overly optimistic” approach. He has embraced oft-criticized insurance products like variable annuities and whole-life insurance that will hold their value even if stocks crash, and he has done consulting work for insurers. He wrote another book, “Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement,” because these loans also can be used as “buffer assets” during market meltdowns.

Pfau, 44 years old, is already playing around with spreadsheets to analyze his own retirement plan. He recently built a model to determine when it is best to convert money from tax-deferred accounts to tax-free Roth accounts, partly because he wanted the answer for his own retirement accounts. We reached Pfau at his home north of Dallas. An edited version of our conversation follows:

Barron’s: The 4% rule says a retiree can safely withdraw that percentage annually from a portfolio, adjusted for inflation. Why don’t you think it will work?

Pfau: It’s not that I don’t think it will work. I think there is something like a 65% to 70% chance that the 4% rule works for today’s retirees rather than being a near certainty.

It’s a debate. Do you just stick with the historical data, or do you make the adjustment to say, ‘Wait a second. With low interest rates, you can’t have as high a bond return as we’ve had historically, and maybe you can’t predict as high a stock return as we’ve had historically either’?

What percent can people safely withdraw?

I think 3% would be a lot more realistic in terms of giving the same chance of success that we usually think about with the 4% rule.

Will people still have enough money to retire with a lower withdrawal rate?

One of the unrealistic assumptions of the 4% rule is that you don’t have any flexibility to adjust your spending over time. Someone could start retirement with a 4% withdrawal rate if they’re willing to cut back on spending somewhat if we do get into a bad market environment.

Anything else?

People need to be smart about their Social Security claiming decisions. It’s OK to spend down investment assets in the short term so you can delay Social Security benefits until age 70, at least for the high earner of a married couple. The boost you get from Social Security benefits by waiting will really reduce the need to take distributions from investments after age 70.

People also might look at ways to use home equity to support retirement spending, whether that’s downsizing the home or considering getting a line of credit through a reverse mortgage.

Isn’t tapping home equity to avoid selling stocks doubling down on a losing bet?

Using a buffer-based strategy such as home equity does buy into the idea that over long periods the stock market will perform at a reasonable level. If there’s no market recovery, it is going to be all the more harder to have any kind of sustainable retirement strategy.

Why are the first years of retirement most dangerous?

It’s the idea of sequence-of-return risk. I’ve estimated that if somebody is planning for a 30-year retirement, the market returns they experience in the first 10 years can explain 80% of the retirement outcome. If you get a market downturn early on, and markets recover later on, that doesn’t help all that much when you’re spending from that portfolio because you have less remaining to benefit from the subsequent market recovery.

What’s the solution?

There are four ways to manage the sequence-of-return risk. One, spend conservatively. Two, spend flexibly. If you can reduce your spending after a market downturn, that can manage sequence-of-return risk because you don’t have to sell as many shares to meet the spending need. A third option is to be strategic about volatility in your portfolio, even using the idea of a rising equity glide path. The fourth option is using buffer assets like cash, a reverse mortgage or whole life policy with cash value.

What is a rising equity glide path?

Start with a lower stock allocation at the beginning of retirement, and then work your way up. Later in retirement, market volatility doesn’t have as much impact on the sustainability of your spending path, and you can adjust by having a higher stock allocation later on.

Why do annuities make sense when interest rates and annuity payouts are low?

Well, because the fact that interest rates are low impacts every strategy. But the impact of low rates on annuities is less than the impact on a bond portfolio.

Most income annuities aren’t inflation-adjusted.

An income annuity is not going to be the source of inflation protection in the retirement strategy. That is going to have to come from the investment side. But the annuity will allow a lower rate of withdrawal from your investment portfolio early on to mitigate sequence risk. Most retirees naturally spend less as they age, and they may not need inflation protection

Medical costs go up as you age.

Right, that’s the one offsetting factor. The medical expenses increase but everything else tends to decrease at a fast enough pace so that overall spending still goes down until very late in life when people may need to pay for more care in home or a nursing home or other type of long-term care needs.

Is long-term care insurance a good idea?

When I look at traditional long-term care insurance, I struggle a bit because usually you use insurance for low-probability, high-cost events. And the problem with long-term care is that it’s a high probability, high-cost event.

There are other hybrid approaches where you can combine long-term care insurance with life insurance or an annuity, and that’s where most of the new business is going, and that has some potential.

How is your own money invested?

At my age level, I’m still primarily in equities.

Do you own annuities?

I’m interested in variable annuities with living benefits, but I’m still too young. Usually, we don’t talk about getting annuities until you’re in your mid-to-late 50s.

Variable annuities have a bad rep. You think it’s undeserved?

For a large part undeserved. They get a bad rep because they have a high fee drag, and I think about retirement not so much about the fee drag but about how much assets do you need to feel comfortable about retiring. Variable annuities mean you believe that markets will outperform but you also don’t want to stake your entire retirement on the market so you want some sort of backstop.

You’ve been a proponent of products sold by insurers such as annuities, and you’ve done consulting work for insurers. How can we be sure your research isn’t conflicted?

Whenever I do some sort of research paper, I outline the methodology completely to give people a full understanding. Nothing is in a black box. The assumptions are all listed, and if people want to try it with different assumptions, they can do so.

If I’m concluding that annuities may be helpful, I try to give the benefit of the doubt in my assumptions to not using the annuities and still find a strong case can be made for the annuities.

Social Security is more generous than annuities. Shouldn’t people max it out before buying an annuity?

Yes. Insurance companies have to live in the real world so when interest rates are low that impacts annuities. Indeed if you are thinking about annuities, step one is at least the high earner in a couple should defer Social Security until 70. And then if you want more annuity protection beyond that, fine. It wouldn’t generally make sense to claim Social Security early and then buy a commercial annuity at the same time.

Does it ever feel odd to be focused on an event that won’t occur for you for a couple of decades?

For the most part, no. It only comes up at times when somebody is saying why is this young person telling me how to do retirement.

For me it’s not so much retirement, as tracking the ability to be financially independent. It’s still relevant for me to think about when I may be able to retire, even if I’m not necessarily ready. I have a personal interest in it.

A personal interest in what?

In playing around with spreadsheets and analyzing my own retirement plan. That’s what primarily drove me to do this tax planning research so that I could specifically build in Roth conversion strategies into my own planning.

Thank you, Wade.

All of these things are sadly AMUSING. All you need to know is when you will die, what will kill you, the rate of inflation till you die and the return on your investments till you die, the tax rate till you pass and what will social security and any pensions do. We don't know any of that information. Oh, if we think we do AND HAVE AN ANSWER TO THAT NUMBER. You need to get the same impossible to get information on your spouse. That 4% proposal was a simple guide to deal with what is unknown.

I am OK but who would have ever planed for a 7% CPI cost of living increase?