I remember looking at Bogleheads for direction on this years ago and the spreadsheet I made was along a similar basis, but my numbers were a bit different, eg. I had put my marginal tax rate at retirement at 25% - perhaps I should have estimated based on the overall tax rate for everything rather than marginal. I also used the actual annual taxes I had paid on my Vanguard index funds/ETFs and they were a bit lower than yours. I also factored in a 15% capital gain tax for the second figure, but it still came out ahead, so I stopped doing IRAs. Maybe I should revisit with todayâs numbers and see if the Bogleheads have anything to addâŠ
Thanks for your help</p>
<p>Index ETFs are pretty tax-efficient, right? So 12% per year in taxes is probably high, as long as you never trade them.</p>
<p>Itâs a lot easier to resist spending it when itâs in an IRA, though, I would think. For some people that might be more important than making a little higher return.</p>
<p>You might be in the 25% bracket for all of your IRAs. Iâm hoping I am. :D</p>
<p>Although Fidelity days that 35% of 401Ks are cashed out rather than rolled over when purple leave a company. So maybe avoiding temptation is a moot point.</p>
<p>For those in private industry that had a pension and your company ended it. Do you think your company would have kept the pension if they could have reduced their cost by 60-65% or do you think they would have still ended the pension plan and moved to a 401K?</p>
<p>tom - I think my big company wanted out of the pension business, so they didnât need so much money in pension funds. Now each employee gets to sweat the unpredictability of life expectancy, interest rates etc. </p>
<p>With some of the miserable 401k plans out there, I wonder if the HR departments are not getting compensated (directly or indirectly) for their choice of plan admin. It is a bad sign when the most charitable conclusion is that a choice was based on stupidity. To me, the only other reason for front loaded funds and index funds, index funds!, with expense ratios of 1% or more is outright malfeasance. </p>
<p>@dstark, I donât know what taxes we would pay for Vanguard S&P 500, but it looks like the annualized return pre-tax is roughly 0.4% - 0.5% higher than the return net of taxes on distributions. I donât use spy, and mostly prefer Total Stock Market for itâs wider diversification in equities. </p>
<p>Getting back to generalities and the original question, can we net things out to a single forumula? Iâll need help refining it so that others understand it too. </p>
<p>A = Annual income need (maybe current income, probably less since no longer doing 401K, college spending, etc) </p>
<pre><code> Savings needed = (A - SS - pension) / .04
</code></pre>
<p>Note - 4% is a rule of thumb often used . Perhaps a better figure would be (.03 + inflation rate) </p>
<p>@dstark, It is really just a philosophical view that I want to âown the market,â rather than an expectation of higher return. But, since owning more than the 500 largest publicly traded companies will naturally add in companies with a smaller capitalization, and since low cap stocks have done well, Total Stock has done nicely. I also own proportional amounts of Total International Stock, Total Bond, and Total International Bond funds. </p>
<p>Basis will change if you reinvest dividends; since I use Quicken itâs not a problem, and even without Quicken I think all brokerages track basis. Fwiw, since I donât like to sell shares to rebalance in taxable accounts, I donât reinvest dividends automatically, but let them accumulate in a MM account until itâs time to rebalance. In tax-deferred or tax-free accounts, it doesnât make any difference.</p>
<p>At the end of the year, the fund will send you a tax form indicating a few things: capital gains/losses (very low in an indexed fund since they donât churn very much) that are being distributed, dividends or interest, and some other stuff that you (or your accountant) inputs into your tax software. Most of it is minimal in stock funds, I find, and pales in comparison to the taxes caused by selling funds, or the interest earned in bond funds. TaxCut or whatever software you use makes it childâs play unless youâre selling specific lots of assets (rather than FIFO or average cost), in which case Quicken comes in handy. </p>
<p>@colorado_momâ , computing A in your formula is the heart of the matter. I compute 3 versions of A â subsistence A, comfortable A, and first-class A. </p>
<p>For all of the spreadsheets I do, when I try to talk my wife into retiring, she always asks me, âdo we have enough?â And I always look at her, shrug, and say âto do what, for how long, and with what level of guarantee that we wonât be asking the kids for help?â The old joke is that âI have enough saved up to retire as long as I donât live past noon on Thursday.â More realistically, I try to tell my wife that as long as we donât start flying private or buy a yacht, we are fine, but since she gets a lot of identity and satisfaction from working, I (secretly) find it reassuring that she will work a few more years. </p>
<p>My husband has been trying out semi-retirement, he said he potentially could get bored. He is only at work 3 days. I think I have to seriously think about this retirement business.
I worry about the euphoria the first year and then boredom afterwards.</p>
<p>mcat - For simplicity, I do it before tax, based on an income need A based on recent tracked expenditures⊠less than todayâs gross income. For DH and me, most retirement income will be taxed (much from traditional 401Ks), so that makes sense It could differ in other situations- just hoping to get the discussion back to factors for picking a family formula, less on specific investment choices. </p>