<p>There was talk of rolling into a Roth and higher income people can do that.</p>
<p>As far as the 4% rule - I use it as a guide but I try to save as much as possible. A lot of people here seem to think they don’t need much to retire. In the calculators, there is a spot for what percentage of your current income you want to generate in retirement. I’ve looked at my current expenses for the past few years which I’m sure a lot of folks do and based on this assume they don’t need much because its way lower than their current income. It depends on how you want to retire - sit on a rocker on the porch and do nothing? That doesn’t involve much money but what’s the point of retiring like that? Or do things that you were unable to do while working and cost money? That’s a whole different story.</p>
<p>Doct, yes. I don’t expect my expenses to go down. I have downsized though.</p>
<p>The 4 percent rule expects a 4 percent after inflation, after tax, return. This rule was developed in the
90’s. You spend
4 percent of your assets the first year. After 30 years, your assets are zero. That would be problematic for me .</p>
<br>
<br>
<p>The law was written a very, very long time ago and I don’t think that it was indexed for inflation. I don’t think that there’s a strong constituency to increase the limits - those making more probably have a 401K or 403B plan available and there’s always the Roth which has higher limits (though nowhere near 401Ks).</p>
<p>Those that don’t make that much and that don’t have 401Ks may feel that they don’t make enough to be able to put away anything substantial.</p>
<p>Another problem is in getting decent returns and I think that most with IRAs with money in money market funds are either losing money or making very, very little.</p>
<p>
</p>
<p>I think the assumption here is that the house is paid off. Yet, I don’t think it is true for many retirees.</p>
<p>Another problem with the 4% rule is that medical out-of-pocket/premium expenses have been increasing faster than inflation. My worry isn’t that I want money for travel in retirement – it’s how to make sure we can pay for medical expenses.</p>
<p>If I am around long enough to travel in retirement, that will be icing on the cake. 
We want to do some of that stuff now, esp. since neither set of our parents got to really enjoy retirement due to an ill spouse. Since I seem to be the ill one, I say carpe diem, but keep on saving, too!</p>
<p>
</p>
<p>You would think so, but not necessarily true. My husband started a new job last year with the employer that did not have 401K, making enough not to qualify for IRA contributions. I know the founder of the company (we went to school together long time ago), so I mentioned to him that I find it strange that the company does not offer 401K or dental plan (it offers health insurance plan). </p>
<p>The lack of dental plan does not affect us. But I found the lack of 401K unfortunate. I don’t know what changed their minds, but this year they started 401K plan (with no matching contributions of course). </p>
<p>By the way, my husband works in the industry where it is customary to offer full benefits.</p>
<p>Some that I know seem to think that either they will never be sick or the state will take care of them - either way a very dangerous assumption.</p>
<p>
</p>
<p>My state will take care of you, but then will take everything you own when you die (or while you are alive, but sick).</p>
<br>
<br>
<p>I agree that it was strange because the company 401K plan is a good way for executives to shelter some of their income. Maybe they figured this out after someone brought it up.</p>
<p>He had that company for several years prior to that. I would be shocked if no-one brought this up before I did. But may be I should not be. My husband certainly did not question it until I insisted that he find for sure that there is no 401K.</p>
<p>I don’t even understand the 4% rule. </p>
<p>Which is it? Assuming for simplicity you have ONE MILLION dollars.</p>
<p>Originally, I suspect they ASSuMEd a 4% return, so you could withraw $40,000 every year forever and leave the full $1mm to your heirs.</p>
<p>But now I have to conservatively use a 0% annual return, just to be safe, so does the 4% rule tell me:</p>
<ol>
<li><p>Withdraw $40,000 every year until you run out of money in 25 years, or</p></li>
<li><p>Withdraw $40,000 the first year, then 4% of the remaining balance - whatever that is - for the rest of your life, so your money lasts forever, but every year you are withdrawing less and less. This doesn’t seem to work too well either. </p></li>
</ol>
<p>Now that our income is very low, we have been converting some traditional IRA funds into Roth IRA every year. Just enough to get us to the point of owing federal income taxes. That part is a no-brainer (doing it, not calculating how much is needed). Beyond that requires a little more head scratching, is it worth paying some income taxes on the conversion now vs having tax free income later.</p>
<p>I don’t think it makes sense to convert IRAs to Roths if people expect the tax rate will be much lower when they retire. One advantage of Roth is that they are not subject to required minimal withdrawl. If you have other sources of income, it is a good place to park the money while spending other income.</p>
<p>
</p>
<p>My accountant says yes to this question, because conventional wisdom is that future tax rates will be higher than they are today. However, I think it will only be true at the high income levels (when you withdraw). So, YMMV. Not very helpful, I know :).</p>
<p>The income limit on the Roth conversion expired in 2010, so you should be able to convert your traditional IRA, no matter your income. Of course, if your income is high enough, you might not be able to contribute, but that’s obviously a different situation.</p>
<p>^You contribute to non-deductible IRA with your after-tax money. You can’t contribute directly to Roth if your income is too high but you can convert your non-deductible IRA to Roth. It is so convoluted that whenever I try to think about IRAs, I feel I have Alzeimer’s.</p>
<p>Iglooo,</p>
<p>can you please clarify for me if I understand you correctly.</p>
<p>I can contribute to non-deductible IRA at any income level. Then I can turn around and convert that IRA into Roth IRA. Now my question is: Will this conversion be a taxable event or not?</p>
<p>It’s a little more complicated when you’re talking about converting a non-deductible IRA. This describes doing it when you have a higher income level: [Backdoor</a> Roth IRA - Bogleheads](<a href=“http://www.bogleheads.org/wiki/Backdoor_Roth_IRA]Backdoor”>Backdoor Roth - Bogleheads)</p>
<p>But you can convert a deductible IRA to a Roth at any income level, without much effort. Of course, you have to pay taxes at your tax rate on the entire amount. Yuck.</p>
<p>Busdriver11,</p>
<p>thank your for the link. I didn’t like what I’ve read :(.</p>
<p>lerkin, If there was any income in the IRA, the income will be taxed. The simplest thing to do is to convert as soon as you can and earn the income in the roth. Then you don’t pay any tax.</p>