Another retirement question

[BackofBeyond]

As I tried to say, was not debating or questioning your post - I was just trying to provide additional context for others who may want it.

And I hope my reply didn't come across like I thought you were debating/questioning, or that I was being a d-bag. Neither was my intent.

The point that I probably failed to express adequately was - you (as a function of what you do, actuarial (?correct?)) are much more financially complex and sophisticated than I am. The two most influential teachers of mine in the financial realm has been watching my parents screw it all up, and some hillbilly from Tennessee that's on the radio Monday through Friday.

I lack the training, education, and really the "want" to try and truly forecast out where we'll be at in 25 years, factoring in all the stuff that my head goes "blah blah blah" on. What you do almost by second nature and get correct, would take me months of reading and in depth studying to calculate and ultimately, probably screw up.

Also, kind of apples and oranges discussion really. You're method is a simple way to figure out what "the nut" needs to be, my method is a simple way to figure out if it's even possible to get there.

 

[VikingsGuy]

And I hope my reply didn't come across like I thought you were debating/questioning, or that I was being a d-bag. Neither was my intent.

No worries, I was concerned with the same.

 

[Irrelevant]

I've witnessed unplanned medical cost bankrupt more than a few retirees. Imagine having a severe stoke, one that doesn't kill you but you're now incapacitated, medical directives are initiated. Your family now assumes power of attorney, even if you live in a state that allow assisted suicide that decision can't be made through power of attorney, so you destined to live in a very expensive medical facility for many years.

Or some form of dementia... it could mean a decade or more of living in a memory ward at 20k a month.

 

[Deleted member 28227]

I've witnessed unplanned medical cost bankrupt more than a few retirees. Imagine having a severe stoke, one that doesn't kill you but you're now incapacitated, medical directives are initiated. Your family now assumes power of attorney, even if you live in a state that allow assisted suicide that decision can't be made through power of attorney, so you destined to live in a very expensive medical facility for many years.

Or some form of dementia... it could mean a decade or more of living in a memory ward at 20k a month.

Everyone needs to have the DNR/DNO conversation with their parents or if over 60 with their kids. Learn what it means, learn about the ramifications, learn about what they actually do and what your quality of life with be like afterwards.

Do it now when your healthy, it sucks it's uncomfortable, but it's really really shitty when the first time you talk about it is with the doctor in the hospital.

Did it with my grandmother and then 4 months later my dad, both times it was awful and I wishes we had talked about it years before.

 

[VikingsGuy]

Everyone needs to have the DNR/DNO conversation with their parents or if over 60 with their kids. Learn what it means, learn about the ramifications, learn about what they actually do and what your quality of life with be like afterwards.

I agree - Understanding your state's rules is also important. I have twice seen doctors completely misstate the law and use that misstatement to refuse to honor family directions because they disagreed with the decision from a personal moral perspective - in the end, it was corrected but what a painful mess. It is super stressful for families in the first place, but having to argue with the doctor and then wondering if you are right or not takes it to 11.

 

[SFC B]

My life journey and point of view are probably different from most but a good path/approach to contemplate. My life started out middle class and then at 8 my parents divorced. From that point on I lived on the edge of working class/poverty with my mom and the POS she married. She died when I was 15 and I had to move in with my dad and the POS HE had married. Although he had a decent job (skilled auto body guy at a Chrysler dealer) his decision making was horrific and from 8 until I was a college graduate I was never comfortable or safe. I went without meals and basic necessities on a regular basis. What drove me was the basis of what my mom was able to pass on to me......there was NOBODY to take care of me, pay for me, cook for me or give me "safety". Anything I wanted or needed was up to me and could only be done through effort and education. From the time I got my first PT job at 13 on I KNEW I wanted/needed a secure and steady income/job with a direct and definable retirement option including healthcare. That is why I have always (even after getting my JD) I have worked government/military jobs in order to secure those things. While this may be something to direct toward younger folks, it is a path to think about. I was able to retire fully by 50 and a month with income about 85% of what I was making working (with additional SS and civilian contributions coming in 8 and 10 years from now) and have very inclusive healthcare for a yearly cost far below what most folks pay monthly.

i had to sacrifice quite a bit to ensure this but I ALWAYS had a vision on the end game and worked hard at making sure the system worked for me. My income stream is inflation adjusted, tax free to a large extent and secure. I have been able to save a bit outside of this as well (nothing near what it would take to support myself outside of the other income) and am pretty happy. I can do what I want within reason now and by the time I am 62 I will be making more (adjusted for inflation) than I ever did working. While I know this approach may not be viable for a lot of folks I think it is something that a bunch of people don't even consider these days. Vision and sacrifice do pay off.

 

[mxracer317]

I guess I've just got a different take on the whole "magic number" conversation. But first the why - my wife's grandfather was never a rich guy, he worked his entire career as a geologist for different mining companies. Comfortable, but not excessively so. Most importantly he always saved money. He always lived below his means. When he passed away his will stipulated that the entirety of one of his investment accounts be liquidated and divided up between his grandchildren. My father-in-law told me that Grandpa had never taken a withdrawal from that account. He literally saved and invested money for 40+ years so he could pass it on to his grandkids, to the point of starting the account before he even HAD any grandkids.

That inheritance, which wasn't huge - roughly equivalent to a year's income for my wife and I - had such a huge impact on our life. We put a healthy principle only payment into our mortgage, gave a healthy start to my kids' 529 college saving plans, nice little bump into our retirement, and some new living room furniture that my wife really wanted and really deserved.

So that's OUR goal now - the creation of generational wealth. We both make good money, but not so much we can out earn our stupidity if it came to it. We live on ~ % of our income - the rest gets dumped into Roth 401(k), the 529s, our individual Roth IRAs, and a TD account called "Grandkids." We both started the retirement savings early. Hypothetically, using the "double every 7 years" rule of thumb, we could probably stop all retirement savings now, and still be comfortable in our retirements. Not going to do it, but could. We've got goals of sending our grandkids through college. We want to be able to give our kids a 6 figure check as their down payment for their first house. Most importantly, we want to teach our kids to carry on that Grandpa Norm legacy.

Norm started pushing that generational wealth fly-wheel. My wife's folks kept it going, adding to the momentum when they could. We keep pushing, and adding. That fly-wheel is spinning a whole lot faster than when Norm first started and the effects will just keep carrying on.

TL;DR - numbers are just numbers. You're the master of your own fate on that. If you can live off what you got, and want to do it, do it. I'll keep plugging along because I've got other goals.

The way you create generational TAX-FREE wealth is through a properly structured permanent life insurance.

 

[TN2shot07]

The way you create generational TAX-FREE wealth is through a properly structured permanent life insurance.

That may create tax free inheritance but if you consider the difference in the cost of permanent “whole” life insurance vs term (5-10x) and invest that you would have substantially more money than the policy is going to pay. I view life insurance as risk management for my spouse to be able to replace my income and clear the mortgage, not get rich. The goal is to get to the point of self insurance and not have to pay the crazy life insurance premiums that come with old age. Long term care insurance can go along ways in protecting that nest egg, too.

 

[WyoDoug]

There is no one size fits all plan for retirement. I will tell you though from my experience retirement is BORING. I went back to work sorta on my own terms so I can stay busy and save up money for hunting and fishing at the same time. Otherwise, wife and I have enough money for retirement, not a lot but enough.

 

[JLDemo]

I think the answer to your question @Lawnboy just really can't be a one size fits all. Tons of moving factors here for everyone. I live in a really low cost of living area and some people survive on 20k a year. I think I could retire and make it just fine on 50k and put money away. I feel I can probably live on much less than most people. The wife and I plan on doing most of the bucket list things before we retire and if we can still do them after retirement than that's great. If not I'm fine with that and happy. There will always be more than I can catch and deer than I can chase available around my house.

I know after this covid mess it really has me thinking of how I can go ahead and hang it up early. Just can't find a good route without kicking myself in the nads. I've got 8 more years to have my 20 in for the gov. I will be 55 and if things look good I plan to go then and delay my pension until age 60. I would like to find a good way around health insurance cost between 55-60. May end up working a partime gig for insurance. That seems to be the big hurdle now days for most people.

I thank God every day for a position that allows a good pension and continued health benefits after 60. I hated the fact of being solely dependant upon a 401k so joined the gov knuckle draggers to make a living. Probably my best decision ever at this point. Worst case scenario I leave at 60.

I've got a lot to learn about the FERS retirement. Had to look up the deferred retirement. Investing in the TSP but not sure when and why or how to retire. I started with the government at the age of 21. Now 34 and trying to figure out if I should stick with it until 60 or retire when I can and start something new until 60. I think I'm not allowed to collect any pension from the fed or reserves until 60. Any insight on the FERS system would be appreciated.

As for the other info on this thread, I'm in trouble if these numbers are correct in regard to the golden egg and 7 year rule's!

 

[SFC B]

I've got a lot to learn about the FERS retirement. Had to look up the deferred retirement. Investing in the TSP but not sure when and why or how to retire. I started with the government at the age of 21. Now 34 and trying to figure out if I should stick with it until 60 or retire when I can and start something new until 60. I think I'm not allowed to collect any pension from the fed or reserves until 60. Any insight on the FERS system would be appreciated.

As for the other info on this thread, I'm in trouble if these numbers are correct in regard to the golden egg and 7 year rule's!

There is a way to get a FERS retirement a little earlier but you take a BIG hit....wait until 60 (I now have about 8 years left to wait ) Also, the FERS pay out is NOT impressive. As for the reserves, did you do any mobilization time post 9/11? There is a "count back" from 60 for pension if you did.

 

[mxracer317]

That may create tax free inheritance but if you consider the difference in the cost of permanent “whole” life insurance vs term (5-10x) and invest that you would have substantially more money than the policy is going to pay. I view life insurance as risk management for my spouse to be able to replace my income and clear the mortgage, not get rich. The goal is to get to the point of self insurance and not have to pay the crazy life insurance premiums that come with old age. Long term care insurance can go along ways in protecting that nest egg, too.

Disagree. I’m not referring to whole life. I’m referring to over-funded index universal life PROPERLY structured.

Life insurance can be adjusted for the benefit of either the agent or the client best interest.

Term is a waste of money. No return of your premiums unless a person passes away. Less than 1% of term policies are paid out. This is the reason why insurance companies make money hand over fist.

Life insurance can double or triple your investment value in the form of death benefit, tax-free if done right. That my friend, is how you create generational wealth.

Also, many of the new permanent policies allow you to accelerate your death benefit tax free and penalty free for long-term care use, while you’re living. Purchasing a long term care policy Is also an absolute waste of money, especially if you never use it. One of the largest financial carriers, Genworth, is doing rate increases for the same amount of benefit because people are living longer these days. People are dropping their long-term care policies because of how stupid expensive they are. Using the death benefit in her life insurance policy at no extra cost should you require it makes a lot more sense.

Not to mention, the proceeds of the tax free death benefit can go to paying off the remaining taxes in any qualified retirement accounts. You may be aware, or not, the SECURE act did away in January 2020 with stretch IRAs for anyone non-spouse. What this means is that any family members that are not a spouse, will have to fully exhaust an qualified (IRA, 401k, etc) Account balance within a ten-year period of time or there is a 50% penalty plus taxes incurred.

Do you think the taxes are going to go up in the future? If you do then why would you leave your loved ones tax deferred money, so they’re taxed at a higher rate when taxes go up in the future, and when they’re in their highest earning potential year’s?

See how long it will take you To get “new” money into any Roth IRA. $7000 max per person per year is it gonna take a long time. Yes, there is the option to do back door Roth conversions, but you have to pay the tax.

For what it’s worth, I own a registered investment advisory firm. We have a national presence. Believe me when I share this info as being good advice. Not interested in twisting anyone’s arm, just calling it like it is.

 

[RobG]

Life insurance can double or triple your investment value in the form of death benefit, tax-free if done right. That my friend, is how you create generational wealth.

Someone once told me that an investment strategy dependent on your death is a poor one.

If lawnboy happens to know a good cpa he can probably find ways to beef up a Roth while reducing the trad IRA.

I would not plan for much returns over the next few years. Bond returns are less than expected inflation. That has me a little concerned about the 4% rule or I’d be ready to quit work.

 

[mxracer317]

Someone once told me that an investment strategy dependent on your death is a poor one.

If lawnboy happens to know a good cpa he can probably find ways to beef up a Roth while reducing the trad IRA.

I would not plan for much returns over the next few years. Bond returns are less than expected inflation. That has me a little concerned about the 4% rule or I’d be ready to quit work.

4% rule is outdated. More like 2.3% now. Especially with inflation.

My comment was directed at the OP on creating generational wealth. Not for making the insured wealthy.

By the way, some IUL's have crediting methods using the S&P500 with 100% participation between 2.5% - 10.25% per year. Show me where you can have a tax-free account that earns between that each and every year with no risk of losing when the S&P500 is down. 40 year average of the S&P500 is around 6-7%. With good policies, the cash value can be taken out at a 0% loan provision, which makes it interest-free, and tax-free.

Again, the policy needs to be properly structured, or it will be a lousy decision to put one's money in.

For a part of your plan, you bet it makes sense. Especially if you're concerned about future taxes going up.

Side note, pick up a copy of Tony Robbin's book "Money Master the Game" and flip to page 439 (or whatever the page is around that chapter. Yep, it's that big of a book!). Tony opens the chapter on over-funded IUL by saying "I was introduced to this concept by some of my wealthiest friends." Most of my clients are very wealthy.

They are more interested in:

1) Protection of principal
2) Growing at a reasonable rate of return
3) Guaranteed income in their retirement years to fund their lifestyle
4) Paying as little in taxes as possible

Again, not trying to twist anyone's arm on the concept, but here's the point. If you follow the sheep, you get the same results.

Our wealthy clients don't follow the masses, and as a result, pay less in taxes and pass a tax-free legacy income to their loved ones. AKA generational wealth.

 

[VikingsGuy]

That may create tax free inheritance but if you consider the difference in the cost of permanent “whole” life insurance vs term (5-10x) and invest that you would have substantially more money than the policy is going to pay. I view life insurance as risk management for my spouse to be able to replace my income and clear the mortgage, not get rich. The goal is to get to the point of self insurance and not have to pay the crazy life insurance premiums that come with old age. Long term care insurance can go along ways in protecting that nest egg, too.

There are frameworks where you can use carefully structured life insurance products to provide tax-free income during your life and as an inheritance vehicle, but they can carry major sales loads and administrative loads and should be entered into very carefully and somewhat skeptically. This is usually only a useful technique if you make too much to use a Roth and you expect to have so much in your 401k the at 72 the required minimum distribution (RMD) will kill your effective tax rate. This is not a great technique for the average retiree.

 

[mxracer317]

There are frameworks where you can use carefully structured life insurance products to provide tax-free income during your life and as an inheritance vehicle, but they can carry major sales loads and administrative loads and should be entered into very carefully and somewhat skeptically. This is usually only a useful technique if you make too much to use a Roth and you expect to have so much in your 401k the at 72 the required minimum distribution (RMD) will kill your effective tax rate. This is not a great technique for the average retiree.

Define “average” retiree?

Again, the policy has to be properly structured. You CAN reduce internal costs. Life insurance policies are NOT black and white on how their issued. They can be customized.

Lastly, and again, my comment is intended for the OP post on creating generational wealth. NOT on how to invest your full retirement assets.

 

[VikingsGuy]

Define “average” retiree?

The median retiree in the united states has a net worth less than $250,000 and most of that is home equity (and the statistic often only includes those with 401ks so the median of the total population is well less than that).

In this thread, lots of folks are talking about retiring on $40-$60k per year.

I am not an investment advisor but don't think complex and cost-laden (not always) insurance-derived products are great for that type of investor. YMMV.

 

[mxracer317]

The median retiree in the united states has a net worth less than $250,000 and most of that is home equity (and the statistic often only includes those with 401ks so the median of the total population is well less than that).

In this thread, lots of folks are talking about retiring on $40-$60k per year.

I am not an investment advisor but don't think complex and cost-laden (not always) insurance-derived products are great for that type of investor. YMMV.

I am a seasoned investment advisor, and agree with you.

Most people in that range will be dependent on social security, possibly a pension and making their retirement account stretch as far as possible. Most importantly, protect the principal and grow it at a reasonable ROR.

Tax-free and safe is the name of the game for those retirees.

One might look into a no annual cost, fixed indexed annuity for supplemental guaranteed income for life.

For those who are wanting to leave a legacy, INDEXED life insurance (properly structured) is darn near difficult to beat.

 

[grizzly_]

Great read. Thx guys.

A few tidbits my dad and grandpa passed onto me...

1) Collect assets.

Don't suffer from analysis paralysis. Just start collecting assets.

2) Get multiple income streams.

This could be rentals, SS, pension, retirement accounts, hobby work, etc... Spread out your plan.

And one from a friend that retired at 50...

1) It's hard to fill that many Saturdays.

 

[VikingsGuy]

2) Get multiple income streams.

hobby

Sadly my hobbies are all cost centers not income streams