You and your H are in fabulous shape! Congratulations.
Regarding whether you should start contributing to an 457 Roth, make sure you do the tax rate comparisons that have taken up so much of our discussions here. But, with an anticipated $120K annual combined pension benefit, you should be able to do some projections of your post-retirement tax rate based on that for the “donut” years between drawing pensions and later SS benefits. You may find that pre-tax contributions may still be more beneficial during the accumulation years.
@anxiousmom, please (pick at least 1): get Mike Piper’s book (Social Security Made Simple), get L. Kotlikoff’s book (Get What’s Yours), or buy Kotlikoff’s software ($40) at www.maximizemysocialsecurity.com.
Waiting until 70 is usually right for one spouse, but there are often things that the other spouse can do to improve the family total.
The difference between an optimal filing strategy and a sub-optimal one can be thousands of dollars.
I didn’t think the book was targetted as much to those approaching retirement, so you may want to look elsewhere if that’s your objective. I was looking at what I should be telling the kids, and they have a rather scary 200% stock allocation strategy for those in their 20s by using 2x leverage. Their site had data that you could download that they said shows that this leveraged approach would have worked out in any period in the past. I think I’m too chicken to take their approach.
Echoing anxiousmom: “Honestly, this thread has been great for causing me to actually lay out where we are financially, where we want to be, and what we need to do to get there.” H thought he would continue to work until 65, but some recent events made him rethink that. We’d love to have many good years together in retirement. Scooping ice cream together sounds fun.
colorado_mom - Yes, my medical insurance will be covered until 65 (very nice!) and I will also have a generous health care ‘savings’ account for dental, prescriptions, glasses, etc. We would have to pay H’s health care premiums for about five years - we estimate $500 to $1000 per month.
busdriver11 - Our auto/home insurance is only about $300 each month and our property taxes are only about $350 each month. You should not feel embarrassed - you will need what you will need. I am thankful H has the ‘you have to save the money before you buy it’ philosophy. I didn’t always like it, but I like it now. =)
@Dadof3 , oh my goodness, leverage would have worked out in any period in the past? Gosh, all those math PhDs with supercomputers couldn’t figure that out, but this web site did? I (sort of) apologize for my sarcasm. The good news is that it can work for a while, and, failing that, they’re young and have time to recover.
“busdriver11 - Our auto/home insurance is only about $300 each month and our property taxes are only about $350 each month. You should not feel embarrassed - you will need what you will need. I am thankful H has the ‘you have to save the money before you buy it’ philosophy. I didn’t always like it, but I like it now”
That is a great philosophy…that we have never adhered to. It’s not that we buy a lot of stuff, but we are so rolling in real estate debt (home and rental condos), that it feels like an insurmountable obstacle to get over. However, we don’t want to sell any of it. Thank God interest rates are still incredibly low.
“AND encouraged me to pay off our house. (Done last week!)” - Maybe I should have kept up with the thread better. We keep considering a payoff, then deciding not since we now are paying so much principal in the last years.
I am not sure if it was worth it in financial terms to pay off the house- since we were paying almost no interest - but it was worth it in psychological terms. Whatever happens, I have a place to live and it cannot be taken from me except for nonpayment of taxes. The same for me with choosing a 457 ROTH over a pretax IRA. I looked at some of the calculators which compared the values of saving ira vs roth - but I am going to choose ROTH even though the calculators suggest that the IRA might be better. Why? Because I am risk averse and anxious!!! (Note my screenname ) Tax rates could go easily go up/ inflation could increase/ if my money makes lots of money, I don’t want to have to pay taxes on it / I can easily afford to pay the taxes now and I don’t know if I will be able to do so in the future.
Re: Social Security - yes, I will read the book nearer the time. I already looked at one of the calculators, and it looked like one of us should file at full retirement age of 66+, then suspends, while the other takes the spousal benefit until 70, then switches to own benefit. Just ANOTHER thing I learned from this great thread!!
I can’t knock doing what is worthwhile in psychological terms. My example - Although I know that it is better to NOT get a tax refund and get interest, I still like getting the refund. Luckily these days there is not much forfeited interest.
@anxiousmom, Congrats to you and your husband. Your family is in a great shape as far as the retirement is concerned.
I recently read more extensively on the topics related to retirement. It seems to me that it could be true that the Roth is better for someone in your situation. This is because of the required minimum withdraw of tIRA at 70.5 years old. I think if the income is above 73800 a year, the marginal tax rate will be above 15%. Withdrawing money from the Roth account will not be considered as income.
As a comparison, in our situation, it could not help if we save our retirement money in Roth because our income after retirement will be lower.
I took a look on Amazon at the title - I am guessing that 20-somethings are fine to believe what they want, so long as they are honest when hindsight in their 30s gives them a clearer view. And, from what I recall, your children are in finance, where attitude is infectious.
It’s a rhetorical question: I wonder which lender is providing them with the 2x leverage. The whole situation reminds me of some my early-career colleagues who spoke openly about being “sufficiently” or “properly” leveraged. Hey, it was the 80s and even the shoulder pads were extravagant.
On a more serious note: I do think that if one has the basics covered through a pension and SS, you could see the rest of the pot as containing some poker chips. But, that’s inconsistent with my less-is-more approach.
The mention of Lifecycle Investing has sent me on a search. Has anyone found (other than ESPlanner, the free version of which gave me a strange number) a calculator that accounts for:
(1) varying withdrawal rates during retirement (higher at the beginning, lower when more aged)
(2) subsequent declining portfolio value X annual rate of return
(3) followed by subsequent annual withdrawal amounts
(4) declining portfolio value x annual rate of return
(5) and so on
Sort of like an amortization schedule (for the lack of a better term).
Or do I have to get someone to do an Excel spreadsheet for me?
Easy for you to say. I typed in everything, all nicely. Then got a red number. SO, I got frustrated. It’s the first time I’ve ever gotten a red number on any calculator. I’ll look at it again.
As you are familiar with ESPlanner’s workings, what does it mean when:
Under “Your Lifetime Economic Security Plan,” the “Non-discretionary spending” number is in red?
The whole results page looks odd. I am guessing that it’s because it’s trying to tell me I’m doing OK, but it has a strange way of showing that. You see why I can’t make sense of it?
@AttorneyMother I don’t know if it covers every case you listed, but FIREcalc (www.firecalc.com) has more buttons and knobs to twiddle than any other calculator I’ve found.
) Tax rates could go easily go up/ inflation could increase/ if my money makes lots of money, I don’t want to have to pay taxes on it / I can easily afford to pay the taxes now and I don’t know if I will be able to do so in the future.