Sounds like you are doing well already. I personally would try to figure out what your retirement spending might look like to get an idea of where you stand.
A great place to get insight and advice regarding finances and retirement is the bogleheads forum. I’ve learned a lot of information there.
I’d try to put more money into a Roth type account so you have more flexibility in minimizing tax liability as you begin to make withdrawals.
Look at your 401k and IRA portfolio’s. With a 10 year plus horizon, is it correctly balanced in terms of having enough growth potential. Many portfolios are too conservative.
Consider if you live in a high cost/high tax part of the country if there is somewhere you might want to move to. Start taking some vacations/short trips there to see if you would like living in those areas.
As you do your calculations, it’s important to take into account whether the withdrawals will be taxed. For example, if you withdraw $100 from a traditional IRA, after taxes it will yields only $75 (amount will vary by situation). But $100 from a Roth (or a savings account or other non-taxable asset) gives $100 to spend. Other investments might have tax on the capital gains.
I wish that in my last decade of working I had switched to doing Roth. It would have given more flexibility for us to have that in the mix. (We are doing some Roth rollovers each year).
My favorite calculator is Firecalc:
You put in your data about assets and income, and it computes the %age of time you would run out of money if you retired every year starting in 1871, based on historical results. There are dozens of settings to tweak to customize it to your situation and portfolio if you desire.
Agree with the idea that the amount of money you need is highly dependent on your spending. If you spend $5k/month … that’s different than if you spend $20k/month or plan huge vacations. What are you spending now? What will change? Will the mortgage be gone by the time you retire? Sounds like college expenses will be done. Spend some time thinking about your outflow in the later years.
Agree that getting some money in a Roth would be great for down the road. If you’ve been following this thread for a while, you’ll know about RMDs and why some already-taxed money is good. However, if dh is retiring about 60, then presumably your income could drop and you’d be in a lower tax bracket so that would be a window to start doing some Roth conversions as well.
A very interesting tool. In firecalc, is there a way to have some assets be tax deferred and some taxable? If a significant of a person’s savings is tax-deferred, how would one handle that?
I don’t want to live to 100, esp. if my health was poor or my memory was gone. I do not want to be my family’s burden.
There are people who want to live to a 100. A thought of financing my retirement for 35 years can be quite sobering.
I suggest you start tracking your spending, at a high level It will be important to know how much after-tax money you’ll need monthly in retirement, to supplement pension (if applicable) and SS (when you start it). What really helped us was to do a quick monthly logging of “outflow” subtotals (cash + checks + withdrawals/autopays + VISA). Then annual review of VISA category reports. We buy cars in cash, so we also had to factor that into our retirement planning.
Take advantage of local retirement planning classes. We did the ones on community college campus, about $60 including a private meeting with the instructor (ie a marketing opportunity for him/her… but free, no commitment). It forces you to gather your paperwork and planning info.
IDEA: Have different credit cards for “needs” (groceries, gas etc) and “wants” (restaurants, vacations etc). We didn’t do this since we liked piling on the United miles, to combine with those from husband’s business travels. But it would be a good way to help gather required spending info.
I don’t see a way to do that. Taxes are so complicated and vary so much from person to person I think it’s impossible to model.
I typically assume a certain %age will be taxes, and adjust the amount I say I will need to account for that. I use 25% but I have very little in Roth assets.
You might also enjoy https://cfiresim.com too.
Clarifying here though, as the key aspect of what people call “the 4% rule” often gets lost in translation.
The research this was based on (for 30 year periods) is not that someone withdraws 4% of the value of their portfolio each year (a value that would then fluctuate upwards and downwards constantly) but 4% of the initial portfolio value, and then that amount is adjusted upwards by inflation each year.
So if Sam retired with $1M, they would then have a $40k annual withdrawal, adjusted annually for the cost of inflation each subsequent year.
If Sam took 4% of whatever value the portfolio happened to be on December 31st every year, that’s a very different number.
As others have said, and I’ve posted here multiple times, how much you spend is key. As you get closer to retirement, or even now, track EVERYTHING you spend. It should be pretty easy to do.
There will be some expenses you won’t have after retirement, such as costs to get to and from work, saving for retirement, and work clothes. You may want to add extra money for travel, if you plan to do a fair amount. Same for hobbies.
Remember, even if you pay off your mortgage you still have taxes and insurance, plus maintenance stuff.
Once you figure your spending out, you’ll have a better sense of what you’ll need.
I’m thinking of shifting some from equities to longer-term bonds – I’m pretty equity-heavy. It feels like we’ve hit the high side of interest rates for a while and locking in current returns. Is anyone else doing that or thinking of it?
These would go up in value if interest rates decrease. I would do this inside a tax-deferred vehicle (in this case, a 401k).
Not doing Roth conversions yearly/along the way is a regret, but our Roth is managed by our Financial Advisor, while we continue to manage 401k. We have had better returns on our 401k over FA except for the year 2022 with the incredible downturn in January and then beyond - FA had more protection on downturn and was actively managing. So some of our great returns are getting eaten up by taxes, but in the long run, we are still ahead.
As they say, there are two things that are certain, death and taxes.
Several people who have had unexpected complications to retiring with the next egg intended, mentioned they have had to limit their travel wishes as a result.
Some people do plan ‘bucket list’ travel - be it US National Parks, or certain specific international sites. Time, money, and health are the three things with travel. Also, keeping the home front safe/running while away. Since DH had enough travel with work, both nationally and internationally - and not bad spots internationally either - I am the one to be more away from home in retirement for pleasure travel. DH loves being at home, has a hobby that has involvement with other and also a trip for students that he mentors going to a national event (last year one of the teams placed third at the national event, and this year one team has already made the qualification to go to nationals again) - and he would go to the national event even if a team didn’t qualify because he is that into this activity and hobby. While working FT, he spent at least 20 hours/week on the hobby or in his home office doing technical things in support of the hobby. He designed a system that was a lead article in the national publication last year. Now, his days are around this hobby as his first priority, other than his lawn care - he likes having a good looking lawn. I encouraged him to help me with some of the planting with having more ‘curb appeal’. As soon as I return home April 6th, I will look to getting our planters ‘done’ - threat of frost in our area until April 1, although I would have worked on this over the last few weeks had I not been away helping with grandkids.
Yes, on average, over time. One way to implement this would be to have 10-12% in “cash” (cash, short-term bonds) and the remainder (88-90%) in long-term investments (stocks, long-term bonds, etc.). Withdraw 4% of the total from the “cash” bucket. This way, your long-term investments have about 3+ years to recover should there be a market collapse without forcing you to withdraw from a reduced balance. Of course, you should rebalance yearly to maintain this 90/10 mix.
We’re using target funds and laddering them within the fed TSP plan. H is thinking about retiring in December 2028 (age 67.5). We have funds laddered in the 2030, 2035 and 2040 funds – they are all differing mixes of the funds available in the plan (seeking to match S&P, Total Stock Market, International, Bloomberg Aggregate Bond Index, etc.). The fund mix changes as it gets closer to the target dates, and when it hits the target date, it sets to 100% G fund (US Treasury securities). We could also move some of the 100% G Fund back into the 2035 target if we want. The laddering reduces the risk that if the market takes a dive, we’re not hit as hard.
We actually just added the 2045 target fund to the mix and are putting current contributions there. They’ll have a nice 20 years to percolate with more growth opportunities.
H just doesn’t buy into Roth and feels it won’t really save us on taxes. He wants to take SS when he retires and not wait til 70 because he’s not convinced he’ll be around for a 30-year retirement and would rather get it into our accounts ASAP.
I think that’s a good way to still get some good stock exposure but minimize risk. I like the idea of laddering. I’ll probably move towards that approach in the next few years.
I’ve personally looked at the numbers and tend to agree. I like the idea of having some Roth funds available to manipulate certain circumstances but in the end I think the general taxes will be about a wash, unless someone’s income reduces by a good amount in retirement or taxes increase greatly. The idea of moving to a state with lower or no taxes also favors traditional funding.
Keep in mind that you will need to purchase your own health care insurance until you are eligible for Medicare at age 65 and that can be a significant expense (possibly $2500/month).
We paid off our mortgage in order to make room for health care costs without increasing our spending overall.
Our financial advisor also uses the 4% rule, but because we are untrusting nervous types, we are hoping/aiming to spend only 2-3% of our nest egg in early retirement. Once Social Security kicks in, we will feel a lot better about covering health care costs, taxes, inflation, and unexpected expenses — assuming Congress does not significantly alter our benefits before then.
Two things to consider- some financial pros say if you have a pension you can be less conservative with retirement investments. Obviously a personal choice.
I know you’ve been going to seminars so you probably already know this, but where Roths really “help” is after one person dies. If you have a ton in tax deferred savings, and are single, when you have to take out a fair amount in RMDs there will be a big tax hit. That said, we have hardly anything in Roths.