How much do YOU think YOU need to retire? ...and at what age will you (and spouse) retire? (Part 1)

Parents Forum Parent Cafe
17861

I’m more concerned with RMDs, We will have more income than we need if we leave the funds in IRA’s and will pay higher income tax rates and Medicare contributions. When my wife retires, and before she takes social security we will have a window to convert some of our IRAs to Roth IRAs without bumping up our tax bracket much.

The joint IRS life expectancy table is 25.6 years at 72 years of age. That’s 97(!) The RMD withdrawal rate starts at 4% and goes up every year. In early years our earnings will exceed withdrawals.

It seems very strange to think about tapping our retirement funds when we have been investing for most of our life. A lifetime of habits are going to be hard to change. Our recreational pursuits are now mostly inexpensive, especially after CV. It broke a lot of habits.

17862

We’re taking your approach to RMDs and trying to convert to Roths as much as possible before DH turns 70, and continuing to do as much as possible until 72 without putting us in a higher tax bracket.

17863

And don’t forget, when the first spouse passes, the surviving spouse still has RMD’s but the standard deduction is halved (Single instead of Married), so the effective marginal tax rates increase. (under today’s tax laws…)

Keep an eye out for IRMAA.

17864

I’m anxiously awaiting the results of the election on multiple levels, including tax planning. We’ve positioned ourselves for some fairly disparate 2020 taxable income outcomes. At one extreme we might pay almost zero taxes and eke out an ACA subsidy; the other extreme would entail electing out of a couple 1031 tax deferred exchanges we did this year, and/or doing some Roth conversions, and writing a big check to the IRS.

My personal belief is that capital gains rates should be raised to equal the tax on labor, but I’m inclined to take some big gains now at 15% and 20% rates.

First world problems.

17865

Please don’t crash, please don’t crash, please don’t crash…

I actually have enough in a plain old savings account to do OK for 4 years, but given I’m planning to retire within 6 months, I get really stressed watching the market go down substantially.

17866

I’m trying not to get overly wrapped up in worrying about things. I remember the last election, one persons plan was going to give us a massive tax increase, and the other person was going to give us the same amount as a tax cut. As it worked out, we got a tiny tax cut. Whoopee.?So not even close to what was promised.

I’m also thinking that as long as there isn’t a big tax increase for next year, it could be helpful to push a lot of income into 2021, and retire in 2022, to not pay those high rates.

17867

You can’t get a massive tax cut unless you are paying massive taxes. I got a substantial cut. Because of the Covid stimulus, past and future, I expect somewhere between a substantial and a massive increase.

17868

We got a tax increase with the current administration and I believe regardless of who wins our taxes will go up once again. We are fortunate to make decent money, but we always pay a lot of taxes.

17869

Us too. It’s all because of the SALT limited to 10k

17870

I feel like I was and still am paying massive amounts of taxes. The tax cut that was put into law was far less than advertised, in particular for those who had large deductions. Limited to 10K SALT and lost all our business expense deductions. My conclusion is, the final deal will never be as good or bad as advertised.

17871

Thank god for being in a category to pay massive taxes. Tis a consummation devoutly to be wished.

17872

Paying off our mortgage by selling some stocks hyped up by the ‘hooders now looks like a wise decision. We already drove on that highway - in 2000 and 2008…

17873

Of course, my idea of massive taxes may be different than someone else’s, but regardless, if the tax rate skyrockets, I’m retiring. I like my job, but not enough to pay the majority of my income in taxes.

17874

I’m curious if anyone else here has a self directed IRA, which allows one to broaden their investments beyond the financial products sold by brokerages.

We’ve had self directed IRA’s for years, and used them to invest in real estate and to make private mortgages, typically with a 12-14% yield.

17875

How risky is a mortgage that gets 12+%, when a regular mortgage can be had for < 3%?

17876

My self-directed IRA (s) are with Schwab, so I am limited to brokerage products, exchange traded stocks, bonds, ETFs, CDs, mutual funds and options. Did I miss anything?

17877

Can you explain further?

17878

Great question. Because I’ve been involved in real estate investment and development my entire adult life, I’m very comfortable with sizing up the value of properties and evaluating a borrowers “story” to see if it adds up. In short, I understand real estate, and enjoy underwriting loan opportunities.

For anyone considering real estate lending, you can mitigate your risk by following a few guidelines:

  1. Don't make a loan without a full understanding of exactly what you're getting into.
  2. Never make a loan without the borrower providing you a lender's title insurance policy.
  3. Assume the worst (that you're going to foreclose) and only make the loan if you'd be just as happy with the property as you would be getting your money back.
  4. Be patient when trying to find loan opportunities; for me, at least, I've had to say "no" more than I say "yes".

About 12 years ago I tallied up the number of loans I’d made and how many had resulted in foreclosure. I don’t recall the exact numbers, but it was something like 3 foreclosures out of 60 loans.

Most of the borrowers I’ve worked with are good credit risks, with good properties, but for one reason or another didn’t check all the boxes a banker has to have checked.

One typical profile is the person with a great financial statement but irregular income.

Another common scenario is someone who owns a building lot (or lots) free and clear and needs a “cash out” refinance, which doesn’t fit most lenders’ parameters.

One other thing: I don’t make loans on owner occupied houses. That’s what conventional lenders are for. If someone doesn’t qualify for a conventional mortgage on their own home, they’re probably a bad risk.

17879

Here’s a good description of self-directed IRA’s:

https://www.investopedia.com/terms/s/self-directed-ira.asp

Traditional brokerage firms don’t administer self-directed IRA’s; it’s only a relatively small number of specialized firms and some bank trust departments. Years ago we used a bank trust department; now we’re with a company that specializes in self-directed IRA’s (and self-directed 401 k’s).

17880

In the early days of self-directed IRA’s, all assets needed to be held in the name of the retirement account, which could be a little cumbersome.

Take the example of buying a group of building lots at a wholesale price from a developer with the intention of reselling them at retail prices; I’d need to give my account administrator a written instruction to sign the purchase agreement, another instruction to sign the purchase closing documents, a third instruction to send a wire transfer, and then title would be vested in “XYZ Bank as Custodian for the Sherpa IRA”.

Then when I wanted to sell an individual lot, I’d go through the whole rigmarole again, instructing them to sign the sale document and then to sign the closing documents.

Adding to the headache, my wife and I have a total of four self-directed IRA’s, each of us with a regular and a Roth. Sometimes one account didn’t have enough cash available to make a particular investment, so we’d use money from more than one account, resulting in deeds such as "XYZ Bank as Custodian for the Sherpa IRA as to a 31.4% interest, XYZ Bank as Custodian for the Sherpa Roth IRA as to a 26. 6% interest, and XYZ Bank as Custodian for the Mrs. Sherpa IRA as to a 43% interest.

A few years ago the IRS approved a new wrinkle, which has made things much easier. They now allow IRA accounts to hold membership interests is Limited Liability Companies, including LLC’s managed by the IRA account owner. So a few years ago we created an LLC, I’ll call it “Sherpaco”. The owners (members) of Sherpaco are our four IRA’s, and my wife and I are the managers.

Sherpaco has a brokerage account to trade stocks and bonds, and bank accounts to facilitate other investments. So now if we want to make a mortgage to someone, or purchase some land, all we need to do is prepare the documents in the name of the LLC and close the transaction; no need to involve the administrator at all.

One important caveat: you can’t self-deal with your retirement account, meaning you can’t sell it an asset you own or loan it money, or vice versa. These restrictions extend to family members too, so your IRA can’t loan your brother a down payment for a house.