Another retirement question

[TN2shot07]

I agree 100%. My Wife and I will not inherit much of anything, and we knew that and because of it we pushed harder to build our own 401K. I know others that know they are going to get money when gramps or pops dies and any money they have burns a hole in their wallet. Hey, I admit I wish i was in their situation but I surely do not hold nothing against my relatives for not paying for my future. I just came off a local lake I was fishing on known for high end homes. My buddy asked "where do these people get this kind of money?" I responded it is generational money many times. The average home cost on the lake is 5.5mil

On the other side of that one I know a couple of people that have been banking on that inheritance and a prolonged nursing home stay took it all. Then those people have nothing, haven’t developed any financial discipline, and still find a way to blame everyone else

 

[mxracer317]

My best advice would be; save all you can, get all of your debt cleaned up, then do a detailed budget to try and figure out what your spending will be.

I walked away from work about 3.5 years ago at 57. We are debt free and lived debt free for probably the final 10-15 years of my career. Maxed the 401k for many years and also bought real estate (farms) that generate annual income, as well as invested pretty heavily in a small local business where I now sit on the board and get some income from without having to go to work daily. Was self employed, so get a pretty good chunk selling the business also.

Insurance is a big deal if you are under Medicare age. We (spouse and myself) pay approx. $18,000 annually for ACA health insurance coverage that is so-so insurance with a high deductible and no dental or vision.

Toughest thing for me was trying to figure out my "burn rate" or how much money we spent annually as we were relatively high income and just spent what we needed to do what we want. I built a big Excel spreadsheet and did my best to calculate our annual spending and actually got pretty close first attempt. Shared some of this with my CPA and he said I was the only one he ever saw with line items in their budget for hunting and fishing. Several years in, we now no how much $$ we actually have to work with, what annual income will be coming in and approx. how much we spend, so we've gained a level of comfort.

The stock market and has been pretty wonderful last few years. Rolled the 401k into mutual fund type investments, have been drawing $48k annually and the principal is 20% higher now than when we started using it 3.5 years ago. I'm sure we'll see a downturn at some point. Holding off on drawing social security for a while to get the higher returns.

You may consider doing some back door Roth conversions right now while taxes are on sale. That will also help with not having more of your Social Security income taxable when you pull it. When you do the Roth conversions, it’s not a bad thing, to wait till the market dips and convert on a lower portfolio value.

 

[VikingsGuy]

You may consider doing some back or Roth conversions right now while taxes are on sale. That will also help with not having more of your Social Security income taxable when you pull it. When you do the Roth conversions, it’s not a bad thing, to wait till the market dips and convert on a lower portfolio value.

I am wishing I had moved some last April when the market had covid.

 

[mxracer317]

Pat- under the conversion scenario, do the funds need to be in the Roth for a 5-year minimum before withdrawal to avoid penalty?

I believe normal cash contributions into a Roth do (not positive on that), but not sure on conversions.

Any money that you put into the Roth IRA that is principal, can come out anytime without penalty or tax. Assuming you’re over 59 1/2. You have to have a Roth IRA open for at least five years before any interest can come out of the account without issue. If you’ve had a Roth for over five years, you’re golden.

 

[Wildabeest]

On the other side of that one I know a couple of people that have been banking on that inheritance and a prolonged nursing home stay took it all. Then those people have nothing, haven’t developed any financial discipline, and still find a way to blame everyone else

This is one dilemma I had with setting up a trust. With an irrevocable third party managed trust that essentially takes away a lot of your control over your assets and only gives you access to the income derived from those assets vs. the assets themselves, then you can essentially get assets out of your name and set yourself up to qualify for Medicaid if you need long term care. Otherwise, you have to exhaust nearly all of your assets before Medicaid will kick in, leaving nothing for your heirs. I elected not to do this. I’m hoping for a more sudden/rapid demise…

 

[westbranch]

Pat- under the conversion scenario, do the funds need to be in the Roth for a 5-year minimum before withdrawal to avoid penalty?

I believe normal cash contributions into a Roth do (not positive on that), but not sure on conversions.

Any money that you put into the Roth IRA that is principal, can come out anytime without penalty or tax. Assuming you’re over 59 1/2. You have to have a Roth IRA open for at least five years before any interest can come out of the account without issue. If you’ve had a Roth for over five years, you’re golden.

Not the case with conversions. Each conversion has its own 5 yr period in a Roth and has to be tracked separately. A lot of early retirement blogs talking about Roth conversion ladders as part of planning.

 

[elkantlers]

I turn 48 in July.
My wife and I went and saw a financial planner the other day. He said we had plenty of savings to live comfortably the rest of our lives. We just had to be dead by August 1st.

 

[mxracer317]

Not the case with conversions. Each conversion has its own 5 yr period in a Roth and has to be tracked separately. A lot of early retirement blogs talking about Roth conversion ladders as part of planning.

Correct. I should preface my post with “always consult with your cpa before doing tax work”. Many CPA’s even forget about this rule. Unfortunately, it still confuses many tax professionals with tax laws constantly changing. Also, each conversion, no matter when in the year was made, is counted like it was done Jan 1st of the year. So if you made a conversion in August 2021, the IRS looks at it as if she made the conversion on January 1, 2021, so that five-year rule on the interest applies from January 1, 2021 to five years later.

 

[ILbowhntr]

I turn 48 in July.
My wife and I went and saw a financial planner the other day. He said we had plenty of savings to live comfortably the rest of our lives. We just had to be dead by August 1st.

Here is a little exercise to help with the “need for a new truck“. Assume you will lose 50% of the price/value of the truck while you own it. Assume financing costs you 4-6% per year (yes, even with 0% financing deals I’m afraid). Now, take that money and put it in a retirement investment of your choice for 15yrs @ 6% and co pare the difference at 15 yrs. that money in the retirement fund is what that new truck is REALLY costing you. If you are on track with your goals and have some cushion, buy the truck. If not, I would argue you can’t afford it and should wait. Even I this era of chip shortages and empty dealer lots, they are making new trucks with new features every day. There Will be a nice shiny one on the lot whenever you are ready to drop the cash....but those Marketing people make this difficult sometimes...since this is all they have to do every single day!...and they are pretty good at what they do.

 

[RobG]

Not the case with conversions. Each conversion has its own 5 yr period in a Roth and has to be tracked separately. A lot of early retirement blogs talking about Roth conversion ladders as part of planning.

Thanks. I’ve been doing conversions when I have a low income year and that’s what my CPA told me. Is there anything preventing you from doing these conversations after you retire?

 

[Wildabeest]

Here is a little exercise to help with the “need for a new truck“. Assume you will lose 50% of the price/value of the truck while you own it. Assume financing costs you 4-6% per year (yes, even with 0% financing deals I’m afraid). Now, take that money and put it in a retirement investment of your choice for 15yrs @ 6% and co pare the difference at 15 yrs. that money in the retirement fund is what that new truck is REALLY costing you. If you are on track with your goals and have some cushion, buy the truck. If not, I would argue you can’t afford it and should wait. Even I this era of chip shortages and empty dealer lots, they are making new trucks with new features every day. There Will be a nice shiny one on the lot whenever you are ready to drop the cash....but those Marketing people make this difficult sometimes...since this is all they have to do every single day!...and they are pretty good at what they do.

That’s too depressing. If I took the money I paid for my Tesla in 2015 and instead bought TSLA stock, it would be worth almost $1.5M today.

 

[rwc101]

My grandfather opened a Roth for all the grandkids. He chipped in money the first few years so show how it would grow. Matched what we put in when we got part time jobs in high school. Overall, what he put in will be a miniscule amount of the end total, but it was a great teaching aid and motivator for my sister and I.

 

[mxracer317]

Thanks. I’ve been doing conversions when I have a low income year and that’s what my CPA told me. Is there anything preventing you from doing these conversations after you retire?

Nope. And it’s probably more ideal. Be aware that Roth conversions can alter your Medicare premiums, 2 years after the fact.

 

[RobG]

Social Security benefits could be an important consideration. I'm self employed and have an S-corp. This allows me to avoid SS tax on much of my income so SS payment will be less than most people. Bart might have the same issue since he is self employed.

I created an account at https://www.ssa.gov/myaccount/?gcli...3a-Qinzyekzouoq91ezxr-XSQmYZb2UEaAjB-EALw_wcB and was able to get my future income based on $0 future salary. FWIW, if at all possible you want to delay withdrawing from SS until 70 to maximize benefit.

 

[RobG]

You can get some very good ideas from the folks at Bogleheads. They are smarter than the average bear. There are a couple active threads on retirement now. https://bogleheads.org/forum/viewforum.php?f=1

 

[schmalts]

Nope. And it’s probably more ideal. Be aware that Roth conversions can alter your Medicare premiums, 2 years after the fact.

Please elaborate. Like dummy it down as best as you can.

 

[schmalts]

Social Security benefits could be an important consideration. I'm self employed and have an S-corp. This allows me to avoid SS tax on much of my income so SS payment will be less than most people. Bart might have the same issue since he is self employed.

I created an account at https://www.ssa.gov/myaccount/?gcli...3a-Qinzyekzouoq91ezxr-XSQmYZb2UEaAjB-EALw_wcB and was able to get my future income based on $0 future salary. FWIW, if at all possible you want to delay withdrawing from SS until 70 to maximize benefit.

Yep, and like my buddy who is getting the exchange ins for 150.00 learned, he will delay taking SS a couple years because he said it will bump up his rates because SS counts as $$$ on the exchange

 

[Irrelevant]

Am I the only one not interested in creating Generational wealth? I will give my kid the resources she needs to pursue a career, such as fully funded secondary and post-secondary education and a little left over for various expenses. When I die, she will get more, but I don’t want her rooting for that day. I am not creating a quasi-Kardashian without a show. (Kato Kaelin comes to mind.) I have seen and heard of lot of very wealthy families with trust-fund kids that have zero skills. Seems that money isn’t always a positive.

Most insurance products/annuities create generational wealth for the financial advisor. Do your homework before buying.

In our family the rule is to do better for your kids than your parents did for you. There is no reason why that rule should ever stop. While generational wealth may be a product of that rule it is not the intent.

 

[westbranch]

Please elaborate. Like dummy it down as best as you can.

Medicare premiums are based on AGI (line 11 of 2020 tax return) from two years prior. 2019 AGI is used to determine 2021 Medicare Part B premium. Over $176k AGI for a married couple increases Medicare premiums by $60/month. Converting $1 too much to Roth in a year could cost an extra $720/yr in Medicare premiums.

Costs

What you pay for Medicare will vary based on what coverage and services you get, and what providers you visit.

www.medicare.gov

 

[RobG]

Medicare premiums are based on AGI (line 11 of 2020 tax return) from two years prior. 2019 AGI is used to determine 2021 Medicare Part B premium. Over $176k AGI for a married couple increases Medicare premiums by $60/month. Converting $1 too much to Roth in a year could cost an extra $720/yr in Medicare premiums.

Costs

What you pay for Medicare will vary based on what coverage and services you get, and what providers you visit.

www.medicare.gov

This reminds me of my other retirement question... if you do find yourself in that situation in a year where you are not working can you make an IRA contribution to reduce your AGI?