HDHP are good for very low medical cost families AND for high cost. My wife and I take biologic drugs that are crazy expensive. We pass our deductible in January/February, pay co-pays, and then everything is above the out-of-pocket Max by March or April. However, if we can afford to pay, we can let the money stay in the HSA.
Busdriver has a really good point - if you have a certain time frame where you donât need the profits, and are eligible to contribute, the Roth is a no-brainer. You can always get the principal out at any time without penalty.
There were a few years we put the max into 401k and didnât put into the Roth (at that time when Roths were first introduced). It just was one straw we couldnât seem to get on our camelâs back.
Kudos to those of you who have been able to take advantage of tax savings.
We have converted IRA into Roth IRA, and paying the tax on it this year and next.
Our retirement account is healthier than our current emergency fund.
We did get our wills done when our first child was born. My sister would be guardian, and my brother would help navigate the investments and use of funds. Thankfully both kids are now adults and H and I are both still walking the earth. We now need to get everything done with elder law attorney to have estate all in order. Probably can change the insurance policies to the kidsâ names as beneficiaries too instead of the Trust.
Thinking of converting some IRA to Roth to fill up the 15% bracket this year before the FAFSA base year for the youngest kid. (No one in undergrad right now).
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This is a good point. I guess it is âmusicâ to the ears for the rest of us who are not that âpreparedâ for the retirement. (Those who have accumulated 1.5+mil (like romami? LOL) or have owned a paid-off house worth 1+mil do not need to think in this way.)
Sometimes I even try to think of this in an even more simplified way:
If I have to live 30 years and I need to withdraw, say, 20k a year to supplement my income from SS and/or pension, my nest egg at the time of retirement needs to be at least 20K times 30 years, which is 600k. So I could forget about the 4% rule (is it the 3% rule now due to the lower expected ROI in the near future?) There is a inflation factor that is not considered here. But this is just a quick ârule of thumbâ but hopefully it is not too far off.
Now, the question is whether the 600 K includes or excludes the equity on your house. To give yourself some safe margin, I think it is better to exclude the accumulated equity of your house from this hypothetic 600K number. That is, the balance of your, say, 401K + tIRA, should be 600K.
The reason why I prefer this way is that since your investment on your nest egg only needs to beat the inflation, it will not be such a daunting job. (How about the equity in your house? If you keep the house, you could tap its equity (e.g., via reverse mortgage or the sale of the house) when you are very old and sick and need more money for your medical expenses in the last few years of life.)
Is this âun-savvy (in his financial vestment knowledge) manâs rule of thumbâ good enough?
If you are comfortable with it, then I would say it is good enough! Your rule assumes you make nothing on your investments, hopefully that wouldnât be true.
The 4% rule is designed for your money to last forever. In backtesting, you end up with at least as much as you started with 95% of the time, and never run out of money:
[The 4% rule isnât broken; it is just badly misunderstood](http://www.cnbc.com/id/102165628)
The 4% rule back tests well, but it all depends. I donât have the ability to run a Monte Carlo using data from Japanâs market, but I wouldnât be surprised if 4% left you penniless (yenless?) after a couple of decades.
I am a belt and suspenders kind of guy. I use 2%, and if Iâm feeling exuberant, 3% :). I expect that we will be able to spend more, but IMO better safe than sorry. Since DW will apparently work another 5 years or so, itâs probably all academic.
If you plan to remain living in your home and donât include any housing costs in your post retirement expenses, I donât think you should include home equity in your asset calculations unless you PLAN to move and buy something less expensive or rent (and include rental payments as post retirement expense).
Yes, people can and do get reverse mortgages and home equity loans, but there are a LOT of fees and conditions attached to reverse mortgage, so you will likely net significantly less than anticipated and would likely be better off selling and buying a single premium immediate annuity and renting with that stream of income.
I agree with HImom about avoiding a reverse mortgage. Renting, as a retiree, is a good idea IMO, but Iâm not sure that my wife will go along with it.
Iâm pretty sure that we could buy two nice homes in LCOL area for what we sell our current home for and probably bank some too. Weâd like a nice home on water, but they all seem much too large (7 bedrooms!!) and foufy. Well, Zillow will answer when the time comes 
I donât count home equity in net worth or anything else, since I canât be sure that when the time comes, my wife wonât have a nostalgia attack.
H already said when we purchased this home decades ago that GE plans to remain in this home forever. It is 3 bedrooms and 2 bathrooms and both large and small enough. There is room to build upwards or expand as needed but it is all one level and only one step from ground to front door (the step I missed to fracture my fibula).
If we moved, it would probably be to a senior community, but weâd probably prefer to hire people to help us age in place. We will just have to wait and see.
Wait. Just so I understand the 4% rule or the current 2% version. If I wanted to have say $100K after tax income, then I would need to withdraw $150K (maybe a little less) before tax. To be able to honor the 4% rule, Iâd need assets in my tax-deferred retirement account of $150K/.04 = $3.75 MM. Correct? If we follow the 2% rule, Iâd need assets of $7.5 MM.
Now, suppose that I want $200K after tax. That would mean $7.5 MM under the 4% rules or $15 MM under the 2% rule. That seems like quite a bit. What am I missing?
I wouldnât count home equity as you donât know how long you are going to live and need to fund basic living expenses. With a reverse mortgage, arenât you in essence betting with the lender on when you are going to die or be thrown out of your house?
We have a five bedroom house in an affluent town and a second buildable lot next to it. So, like @IxnayBob, we could sell and move to a LCOL area and have enough for a second house. My wife and I agreed that moving to a LCOL area was our Plan B if for some reason my business was not doing well.
However, the only areas that have caught my wifeâs fancy are Boulder, CO which is almost as expensive as where we are, and the Bay area, where our son is in grad school and is unlikely to leave given his interest in running bid data startups. New Mexico (other than Santa Fe would work for me). My wife likes water though and Canada (from whence she hails). Moving to Canada would no doubt reduce our health care expenditures, but living in the Northeast (especially this winter), Iâve been hoping for more warmth, not less warmth.
Back on a former postâŠI have a high deductible health care plan, self funded, but have not yet found an HSA account that accepts individuals. Neither Schwab or Fidelity has one. Vanguard does?
Well, as I stated in previous posts, you need to figure out the NET amount you need, after whatever income from all sources you will be getting in retirementâpart time job, rental, SS, pensions, etc. and then figure out how to get that stream of income. It can be partly from a SPIA (single premium immediate annuity), withdrawals from retirement accounts or investments, dividends or whatever. Once you reach 70.5, you are required to take required minimum distributions as well, those funds will slowly be moving from tax deferred to taxable (if you donât immediately need to spend).
The net spending can and often does change over the years. Early on, it might be higher, with travel, hobbies, dining out and other activities. After a while, it might get lower, when travel eases off and perhaps less dining out. As we start having more medical issues, it may get more expensive again, as we pay for assistance and medical care.
The thing is that we can plan as well as possible, but no one really KNOWS how things will work out, so we all try to save and plan what we can so that we can be comfortable as we age instead of fretting about running out and how to make ends meet.
@shawbridgeâ
According to 2015 tax rates: to receive $150,000 net income, youâd have to gross $208,300 (using the 28% marginal rate as the effective rate).
If I use a âcompromiseâ 3% withdrawal rate during retirement for simplicityâs sake, I get $208,300 divided by 3% = $7MM
$150,000 cash flow + SS + pension (if you have one) is pretty darn good and may push you into the 33% tax bracket.
$150,000 cash flow + SS without pension is still pretty darn good if the house is completely paid off.
$7MM is a pretty high target number. If you compare it to the rough Fidelity 7-X-income guideline, that takes care of people with annual incomes up to $1MM. That makes the number somewhat incredible.
Also, if the 4% withdrawal rate leaves a pretty big residual estate, Iâm not sure that is my goal - to enrich my heirs. Iâd prefer to give gifts during my lifetime so that all can share in their enjoyment.
It does seem like if you arenât going to get income streams from ANYWHERE else and 100% relying on your investments, yes, you do need to save quite a lot of $$$ if you plan to spend a lot in retirement. Most folks will have at leaslt some SS and perhaps other income streams in retirement, so they amount they wll need form investments is accordingly lower.
You didnât factor in SS. If you are replacing a current $200K after-tax income you are well above the FICA max, and will receive the max benefit. This will be between $30-40K depending on when you start collecting. Your spouse is eligible for half of that on your record, and maybe more on her own. So your total SS could be anywhere from $45K-$80K/year, which means you might need as little as $3mil.
$200K after tax means $300K before tax, and if you are trying to replace 75% with your $200K, it means your current income is $350K-$400K. At that income level saving $3-4mil is feasible, although it might not all be in tax-advantaged accounts (thereâs no requirement that all your money in retirement come from tax-deferred accounts). Although with a business you can pump $50K or more into a tax-advantaged account every year.
âAlthough with a business you can pump $50K or more into a tax-advantaged account every year.â
Yes, but only if the plan provides benefits to all employees equally. That is what usually prevents most owner-employees from maxing out their (âKeoghâ-type) plans. 2015 base compensation of $265,000 x 20% = $53,000 annual contribution but youâd have to do 20% for all other employees to meet non-discrimination plan requirements.
Here are the 2015 limits for retirement plan and IRA contributions:
Thanks @HImom. I hadnât factored in SS (I just assumed it wonât be worth much if anything by the time I retire). My only pension is the Defined Benefit Plan and other retirement savings plans I have set up. @notrichenough, assuming a late start to taking SS plus a wife who hasnât earned a ton (sheâs a regionally well-known painter who is cash-flow positive but itâs a tough career path), so maybe $60K per year total from SS? That would make life simpler.
Rentals? Hmm. We own two rental properties. We currently have mortgages on both, not because we needed the money but because I like the idea of having 3.25% 30 year mortgages for the eventual day on which inflation kicks in and higher interest rates devalues my mortgages.
On part-time employment, I do not plan to retire, although my financial plan of a couple of years ago assumes at age 66 my income will drop by a little more than half and then that the income from work will stop altogether at age 80. I really donât see any reason to stop although I may see a reason to slow down but 66 seems awfully soon for that. Maybe 70, but weâll see how I feel.
@notrichenough, you are right. I have a business in which I am the only employee and have been able to create a defined benefit plan that lets me save lots more than $50K per year. Itâs a pain in the ass to administer, but it is good to have that opportunity. But, there is a preliminary maximum Lump Sum distribution from the plan of $2,399,000 as of 12-1-2014, however since mandated discount rates needed for the calculation have not yet been released the value is only approximate. There may be a 50% tax on excess assets upon plan termination. If interest rates go up, the maximum Lump Sum value will go down. I suspect that before one hits the limit, one probably has to terminate the plan, roll its assets over into an IRA or 401(k) and then take a year break and start a new DB plan. On top of this, one can have a 401(k). Iâm currently investigating the backdoor MegaRoth IRA thanks to you guys.
@kjofkw, with high copays, donât you really want an HSA so that you can pay a slug of your OOP expenses from pre-tax dollars? If you are truly self-employed (without other employees), you can do something similar without an HSA and without a cap.
Sounds about right. You can check your projected benefits on-line.
Sounds awesome. This is way beyond my knowledge, though if you are really worried about exceeding a $2.4mil payout, Iâd say you are in pretty good shape.
If you donât do a lump sum but take the yearly payout, what happens to the money if there is any left?