@HImom, I would think at age 70 that your BIL let his insurance expire, but I don’t know his situation. It sounds like his assets are his real estate and that he needs to work out a plan for his kids to pay rent as he will likely need to either sell one of the houses or rent it out to pay for his retirement. Alternatively, can his kids support him later?
I think my kids feel very grateful at how we treated them financially and recognize that we made their lives easier (undergrad and professional schools completely paid) and I invested in ShawSon’s first startup (which is still running after 5 years but is unlikely to provide a return of capital). And, he understands that part of that was supporting him to get started into what looks like an impressive career trajectory. His second startup is worth quite a bit already and I think he would support us if we needed it, which I don’t think we will. But, about 20 years ago, ShawWife and I were talking about buying a house in the mountains but weren’t sure we could afford it. ShawSon was under 10 and was listening. He came up to me and said, “Don’t worry Dad. I’m going to buy you your mountain house when I get older.”
@somemom, Apple automangle working in full force. What came out as short should have been affluent. Who knows? Much funnier as short people.
In any event, I am lucky to have a lot more than $1 MM saved but a little under half is in pre-tax retirement assets (401k primarily). My assets in total match my target number in nominal terms, but not if I count the retirement assets at 60% on the dollar. Because I started my company, I intend to keep working as long as I enjoy it (I love it now but might get tired of the travel at some point) and am functional. It will take a some effort and luck to hit my target within the next few years.
Assuming a 40% tax rate on your pretax retirement money is extremely pessimistic. Assuming you are married, you would need to be making $350K or more before tapping your IRAs/401ks to even come close to that rate incrementally, let alone all your income.
You have to project your own income, but I suspect for most people their incremental state+ federal rate will be more like 20% or less.
I believe virtually all discussions on retirement income are talking about pretax numbers.
@notrichenough, because I don’t plan to stop working and then will have to take RMDs from the 401k on top of my wages and share of the profits from my company plus investment income , I could be at a pretty high rate. Unless I can convince ShawWife to move to Florida, I’ll also have state income tax as well.
@saillakeerie, I wonder if the rapid increase has to do with the increasing costs of health care but in particular the increasing costs of paying for co-pays/co-insurance/donut holes, prescription drugs, etc. It feels to me like health insurers have done a great job of raising rates somewhat but shifting costs to their insureds at a pretty fast rate.
So maybe in shawbridge’s case, it might be something to consider for him to convert the 1 million dollars he has in pre-tax retirement assets (or at least a portion of it) into a Roth, during a year that he can defer wages and income, in order to pay a lower tax rate earlier. It seems as if you could entirely avoid taking RMD’s while you are still working, that could drive you into a lower tax bracket than you might have been.
We are thinking hard about deferring our pension for a year after retirement (to increase the payout and convert retirement assets to Roth at a lower tax rate). But having zero income for that year isn’t something I’d enjoy, especially since we’d like to travel after retirement, while we still can.
@shawbridge I was thinking what @saillakeerie was saying about the increased amount might be because we expect less return theses days. I hear often 4% rule no longer applies and that we have to expect lower. Or it could also be that people are being sensational exaggerating how much we need and how little we have. That makes more drama
@Iglooo, that may be correct, but I worry about longer expected lifespans and substantially increasing medical costs.
@busdriver11, most people would find zero income tricky to deal with. By consulting Professor Google, I see that there used to be an income threshold below which once convert an IRA to a Roth IRA, but now there is no limit. One just needs to pay the taxes, which is why you suggested getting income to zero. It would generally be a pretty big tax hit.
Yes, zero income would be something you’d have to budget for in advance, to try to get a year’s income saved up. Our company stealthily started paying earned vacation on Dec 31st recently, instead of into the next year, as they had for decades (so they could avoid contributing to our retirement plan for that next year). We were unhappy about that, however, it makes a year without earned income possible. Our advisor suggested using all vacation pay and any retirement bonus as a base to get through the next year without income. Or maybe we’ll live off the veggies and fruits we’re growing in our garden…hard to pay property taxes with that, however. I’m just not interested in going into debt or spending down our assets so soon.
Her suggestion on converting to a Roth, is to only convert the amount that would keep us below the 22 or 24% tax rate, no more. That is, unless the tax code is revised, again.
Food for thought, though, for people who have ways to control when their income is paid out. Someone on this forum managed to do that, maybe it was @NJres?
^^To me Traditional IRA or 401K is like a drug, once you are on it you cannot get out of. I regret I did not convert it to Roth when it was first introduced. But at this late stage, I cannot afford to do the convertion, basically, I have to give up 50% of the value(mostly illiquid) or at the highest tax bracket. Fortunatly, the Congress just passed the 72 year old RMD rule, which will delay my RMD for another two years. I guess I just have to keep on taking RMD until my passing and let my estate to worry about the aftermath.
“And I think there is some danger in overstating what people need in that it scares many people away from even trying” - I agree! I think it can put newbie retirement planner couples into why-bother mood.
@busdriver11 The only way I managed that was by having almost no income, after my job ended in 2007. I had a decent severance package and collected unemployment for a while, but soon had no real income other than a modest amount of investment income. So we sold our house, moved south, lived frugally, hunkered down (2008/2009 was not fun!) and dipped into savings. I think the first time I thought about “creating” income was when we replaced our air conditioning units and were eligible for an energy tax credit that we couldn’t use because we owed no federal taxes. I figured out that I could do enough of an IRA conversion to create a tax liability that would be offset by the energy tax credit. In subsequent years I did smaller IRA conversions to at least use up the zero tax bracket. That was really the only way I managed my income. There was no other deferred compensation or other secret sources of income that I was able to control. Also I didn’t realize that qualified dividends received favorable tax treatment - ie subject to 0% federal tax if you are in the low tax bracket.
I am seriously considering living abroad sometime in future (just thinking about it at this time), not because I cannot afford to live in USA but because things are much cheaper and healthcare is better and cheaper. I can always use the money saved and travel to places, including USA. I think the Social Security money alone (if still available by then) should be sufficient to cover the living expenses at another country.
Just make sure your SS payments can be paid to you in your country of residence. I had no idea that my retirement vineyard in Moldova would mean no SS to me. Not good.
Also, Medicare does not cover care outside the US. I signed up for a Medicare supplement that does. I don’t know if that would work if you lived outside the US. Medical costs in many countries are very low so lack of insurance might not be a problem in those countries…
