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

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

  • BunsenBurnerBunsenBurner Registered User Posts: 37,727 Senior Member
    Kid got burned with those Fidelity early redemption fees... no more mutual funds for her no matter what we say. She shifted her $$ into biotechs and other individual stocks and has no regrets so far.
  • bluebayoubluebayou Registered User Posts: 25,937 Senior Member
    John Bogle: 'forget the needle, buy the haystack'

    In other words, forget trying to find the next AAPL (or Genentech?) and buy the whole market to eliminate risk -- stock risk, style risk and manager risk.

  • ucbalumnusucbalumnus Registered User Posts: 74,458 Senior Member
    edited February 17
    However, is buying and holding index funds that advantageous (for tax purposes) to put in an IRA or similar account, versus in a regular account?
  • bluebayoubluebayou Registered User Posts: 25,937 Senior Member
    edited February 17
    Index funds in comparison to what? Individual stocks? Etf's?

    The advantage of low cost index funds is that one can buy and hold and essentially eliminate transaction fees and have nearly zero management/admin fees. Play the long game and not have to worry about buying and selling individual stocks or sectors (straws of hay?).

    That being said, most folks starting out -- particularly those who are non financial -- are probably better off with an age- or target-date fund offered by one of the big brokerage houses (Vanguard, Fidelity, Schwab). No fuss, no muss.

    as an aside, and speaking of Fidelity, they have a wonderful no-fee HSA offering now.

  • ucbalumnusucbalumnus Registered User Posts: 74,458 Senior Member
    bluebayou wrote:
    Index funds in comparison to what? Individual stocks? Etf's?

    Index fund in an IRA or similar account versus the same index fund in a regular account.
  • IgloooIglooo Registered User Posts: 8,056 Senior Member
    There was a long discussion about it on Boglehead. People have different theories about it. I hold index funds in a taxable account and bonds in a tax advantaged account. When you withdraw from IRA, it is taxed as ordinary income. That's higher than long term capital gains rate that you would pay if index fund was held in a taxable account.
  • bluebayoubluebayou Registered User Posts: 25,937 Senior Member
    ^agree with igloo, ucb. Hold the interest/dividend paying stuff in IRA and go for long-term cap gains in taxable. Of course, one needs to balance your investment plan. 100% equities, zero bonds? 80/20? 60/40?

    But too many peeps new to investing end up putting their company 401k into a MM since they don't know what else to do, so a target-date fund is much better.
  • bclintonkbclintonk Registered User Posts: 7,637 Senior Member
    Iglooo wrote:
    I hold index funds in a taxable account and bonds in a tax advantaged account. When you withdraw from IRA, it is taxed as ordinary income. That's higher than long term capital gains rate that you would pay if index fund was held in a taxable account.

    I don't think it's as simple as that. Let's say I invest $10K per year in a 401(k) for 10 years, so total investment is $100K. And suppose after 10 years that $100K has grown to $150K. Suppose further I'm in a 33% combined federal and state tax bracket. So when I withdraw the $150K, I'm left with $100K after taxes. But remember, that was pre-tax money I was investing.

    Now suppose I invest $10K per year for 10 years in a taxable account, again for a total investment of $100K. But that's $100K of after-tax money, or the equivalent of $150K of pre-tax money I'm investing--because I've already paid 33% tax on it. When I withdraw it I only pay 15% long-term capital gains tax, so I'm left with $127.5K. But remember, it cost me $150K in pre-tax dollars to come away with that $127.5K after taxes. So I'm actually worse off investing in the taxable account. If I had invested that same $150K of pre-tax dollars in the tax-advantaged account, it would have grown to $225K (same 50% growth in 10 years), leaving me with $150K after taxes when I withdraw it.

    This could vary somewhat depending on what tax brackets you're in, but much of the "advantage" of paying only capital gains tax on the taxable account is illusory, because you're forgetting you've already paid income tax on the money you're investing---whereas with the tax-advantaged account, you're investing pre-tax dollars.
  • bluebayoubluebayou Registered User Posts: 25,937 Senior Member
    edited February 18
    It's not either/or, bc, it's both.


    If you only have $10k to invest, then you pop it into a tax-advantaged account (if you assume that your retirement tax bracket will be lower than your 33% today).

    But once you have more income to invest, say, another $10k, and further assume that your tax-advantaged is maxed out, then you have to invest it in an after tax account. (Going with your example numbers, regardless of the fact 401k cap is higher than 10k.)

    So the question become, what is more beneficial for each investment bucket of $10k: a) the tax-advantaged 10k and, b) the taxable 10k.

    a) grows tax deferred until age 70 (or whenever you pull it out).

    b) grows incurring taxes every year (unless you purchase a non-dividend stock like BRK).

    And the RoT answer is to put your income-producing investments into a and your cap gain investments into b. Otherwise, you are paying tax annually on the dividends from your income producing investments.

    If you put bonds into a and stocks into b, you'd have a 50/50 portfolio allocation.


    btw: If you hold BRK in b or other non-dividend paying stock, you could even get by with no tax at all if stepped up basis when you die.


  • NJresNJres Registered User Posts: 6,087 Senior Member
    To me it's as simple as this: If I have a diversified portfolio and I own some bonds and I own some stocks, I will have a bias to own the capital gain producing stocks in my investment account (non-retirement) and my interest earning bonds in the IRA/retirement accounts. As it turns out, I own some heavily appreciated stocks in my IRA account, and it will break my heart to pay ordinary income tax on those gains when I finally sell the stocks and withdraw those funds. Even worse (for me, emotionally) are the US Treasury bonds in my IRA account, that generate interest that is exempt from state income tax. I will pay state tax on that money when I withdraw it form my IRA... (sadface).

  • 1214mom1214mom Registered User Posts: 4,389 Senior Member
    I’m curious - who is thinking about moving when they retire? If you’re thinking of moving, are you anticipating just one move, or multiple? We are thinking of moving. I was trying to figure out where we would like to be long term. Now I’m adjusting, and thinking maybe we should move someplace “fun” for maybe 5 years, and then move again for the “slow go” and “no go” years. First place wouldn’t be as focused on health care, for example, but access to outdoor activities, food scene, etc. longer term we would likely move closer to kids, look for great health care, and things like that.
  • HImomHImom Registered User Posts: 33,535 Senior Member
    Moving is a pretty big deal for me. Since I got married in mid 1980s, have only moved once from a 1 bedroom apartment to a 2 bedroom place in the same building and then to the house we've lived in for several decades when our apartment was too squishy for the 4 of us. H has no interest in moving, but we would likely be interested in a long term rental if our kids end up starting a family far from us. I'm not too keen on uprooting and moving, but who knows what the future holds?
  • sryrstresssryrstress Registered User Posts: 2,467 Senior Member
    @1214mom I've moved twice in the last year. No way would I consider moving twice in retirement. I can definitely see the upsides to your recommendation, though. Fairly confident my area isn't seen as "fun", nor as good for health care...definitely the kids and grandkids that keep me here.
  • shawbridgeshawbridge Registered User Posts: 5,622 Senior Member
    We are planning to move from our 5 BR house in the exurbs on the east coast. We have complicated moves possibly in store. Both kids will be in the Bay area next year, which increases my wife's desire to spend time in the Bay area. (I would prefer to live there but my wife prefers the east coast, all other things equal).We have spent time in Sausalito over the last few years and could decide to spend 4 or 5 months a year there. We are inheriting, with my wife's sister, a vacation cottage in Quebec, which we are now renovating and would probably house us for 1-2 months in the summer. We might spend some time in Florida. We might swsp our exurban house for a condo in the city.

    There would be tax advantages to spending time in Florida. But we would have to figure out which location would have rooms for kids and grandkids. Otherwise they likely won't come for extended stays. Very confusing, which is why we haven't done anything yet.

    The city condo and Florida probably work great for the no-go years but we would probably have to replace the houseboat we rent in Sausalito for a condo.

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