[MDixon]

The best piece of advice I was ever given when I was a student was to max out my 401(k) as soon as I graduated, and forget it's there. This way you never even factor it in when building a budget, and you get the longest window for growth. 59.5 is getting close enough to see, but I'm in a similar place where I could probably afford to retire even earlier if the market outstrips inflation by a large enough amount over the next 10 years. I plan on working as long as I can as long as my job is still fulfilling, but hitting that mark where I can say "screw this, I'm retiring" at any time will make it a lot easier to keep going.

Be careful with maxing out unless some of it is going in as Roth. With compounding interest you may have potential to be in new/unfamiliar tax brackets when you reach the age of RMD. I always thought I would be in a situation of less taxation when I retired, but with my wife's pension and SS benefits it's not going to be possible. Also you can convert to Roth, BUT you must have the cash for taxes in hand. Any Roth conversion is on the sidelines for 5 years.

[Saccharomyces]

Totally agree with this.  We are not forcing people back to the office (for software/internet work), and we still have people leaving.  Tech is hiring remotely and the market is extremely competitive right now, and everyone in management learned what we already knew: counting butts in the seat is a piss poor way to manage.

We are in the same market.  Things are going to get worse before they get better.

[Saccharomyces]

Be careful with maxing out unless some of it is going in as Roth. With compounding interest you may have potential to be in new/unfamiliar tax brackets when you reach the age of RMD. I always thought I would be in a situation of less taxation when I retired, but with my wife's pension and SS benefits it's not going to be possible. Also you can convert to Roth, BUT you must have the cash for taxes in hand. Any Roth conversion is on the sidelines for 5 years.

I live in a high tax state and I will actually bring home more while making less because my state does not SS and only partially taxes pension income.  That is when I realized that I could retire early and eat the penalty on my pension.  I worked in the private sector before taking my current gig, so I have always put money away in 401K, even if it was just a small amount.  I am surprised by how many of my colleagues do not put anything away in 401K, even though my organization has a 401K plan in addition to our modest pension plan.  That is foolish.

[MDixon]

Not to jack the thread, but it's compounding interest which can a problem, a good problem, but nonetheless a problem. So if you're making 15% the money will double in 4.8 years. If you're making 6% the money will double in 12 years.

So someone who decides to retire at 59 1/2 has 12.5 years until they hit the age of RMD at 72. So the portfolio will more than double for most people before they hit the age of RMD. Of course funds are likely to be withdrawn so the portfolio will decrease.

To be in the 12% tax bracket, a married couple will need to stay below $80k. Let's say they both are drawing SS at 20k each. That leaves 40k they can withdraw or convert and stay in a low federal tax bracket. If one or both get a pension, let's say 20k, then only 20k can be withdrawn per year to stay in the 12% tax bracket. (I'm of course ignoring any deductions for this oversimplified example.)

Let's run another example. A husband and wife have been heavily contributing to 401k and are in their 50s eyeballing retirement. Most of their money is in traditional 401k, not Roth. Let's make them the same age, 50 with a million combined in retirement. That's 22 years until RMD. If they are averaging 10% per year, then in 22 years 1 million will become 8 million. (It will double 3X in 22 years at 10%)  The RMD at 72 is roughly 401kfunds/27. That means if they haven't done anything at age 72 they will be required to withdraw $300k which is the 24% tax bracket and not the 12% they anticipated.

Here's a real world example of compounding interest. I know someone who left $2,500 with an employer's 401k in 1998 because the amount was small and their new employer didn't have a 401k at the time. They never put another dime in it, but they did/do monitor the investments and made changes over time. Today, 23 years later, that account has $85k in it.

[Wilbur]

If your company matches it's hard to justify not putting something in your 401k.

Sad to hear all the "buts on seats", just a sign of poor management.

[hopfenundmalz]

Not to jack the thread, but it's compounding interest which can a problem, a good problem, but nonetheless a problem. So if you're making 15% the money will double in 4.8 years. If you're making 6% the money will double in 12 years.

So someone who decides to retire at 59 1/2 has 12.5 years until they hit the age of RMD at 72. So the portfolio will more than double for most people before they hit the age of RMD. Of course funds are likely to be withdrawn so the portfolio will decrease.

To be in the 12% tax bracket, a married couple will need to stay below $80k. Let's say they both are drawing SS at 20k each. That leaves 40k they can withdraw or convert and stay in a low federal tax bracket. If one or both get a pension, let's say 20k, then only 20k can be withdrawn per year to stay in the 12% tax bracket. (I'm of course ignoring any deductions for this oversimplified example.)

Let's run another example. A husband and wife have been heavily contributing to 401k and are in their 50s eyeballing retirement. Most of their money is in traditional 401k, not Roth. Let's make them the same age, 50 with a million combined in retirement. That's 22 years until RMD. If they are averaging 10% per year, then in 22 years 1 million will become 8 million. (It will double 3X in 22 years at 10%)  The RMD at 72 is roughly 401kfunds/27. That means if they haven't done anything at age 72 they will be required to withdraw $300k which is the 24% tax bracket and not the 12% they anticipated.

Here's a real world example of compounding interest. I know someone who left $2,500 with an employer's 401k in 1998 because the amount was small and their new employer didn't have a 401k at the time. They never put another dime in it, but they did/do monitor the investments and made changes over time. Today, 23 years later, that account has $85k in it.

The taxes were deferred, and will be paid on withdrawl. I knew that all along.

Going into a higher tax bracket isn't as bad as it sounds, as you only pay that rate on what exceeds the thresold for that bracket.

I had a wake up call recently, and am now pulling from all of my accounts. I said a couple of those were for later. Well, now it is later.

[erockrph]

The taxes were deferred, and will be paid on withdrawl. I knew that all along.

Going into a higher tax bracket isn't as bad as it sounds, as you only pay that rate on what exceeds the thresold for that bracket.

Right, plus you are reducing your taxable income now when investing in tax-deferred retirement accounts. There are cases to be made for Roth vs tax deferred, but you generally have a lot of living between the saving and the withdrawing. Who knows what your tax and income situation will be in between. The key is just to save as much as you can whenever you can.

[fredthecat]

your perspectives on life planning are very interesting to me. my life path was p different from most peoples, i dont know how ill plan retirement anymore than i have.

[Saccharomyces]

MDixon, I do not see any of what you have written as a problem. Taxes are a part of life.  If you do not want to be in a high tax bracket, do not save as much, invest more conservatively, or invest after tax money in long-term securities.  Plus, a 10% return on investment year after year is unrealistic.  Sure, 10% year after year is easily possible during a Bull market, but I have experienced years where even earning 3% on my portfolio took careful management.   If I have so much money invested that I have to pull out $300K and pay 24% above a threshold, I consider that a blessing, not a curse.

[MDixon]

MDixon, I do not see any of what you have written as a problem. Taxes are a part of life.  If you do not want to be in a high tax bracket, do not save as much, invest more conservatively, or invest after tax money in long-term securities.  Plus, a 10% return on investment year after year is unrealistic.  Sure, 10% year after year is easily possible during a Bull market, but I have experienced years where even earning 3% on my portfolio took careful management.   If I have so much money invested that I have to pull out $300K and pay 24% above a threshold, I consider that a blessing, not a curse.

Agree, it's not a bad problem to have. It also was a quick example. Everyone should spend a few minutes and understand where they might be at the time of RMDs. The takeaway should be to convert to Roth as possible in a lower tax bracket to avoid potentially pushing into a higher tax bracket later in life. Even better to invest in Roth at that lower tax bracket.

As far as not averaging 10%, the historic average for the market is 10%. The 30 year average is almost 11%. If your investments aren't aligned with a goal to beat the market every year before you retire then you have a very conservative investment strategy. I had been running a 12% 10 year average return for many many years and was dragging along some turkey funds for many years. Currently my 10 year average is over 14% due to the market growth the past few years.

[dmtaylor]

The taxes were deferred, and will be paid on withdrawl. I knew that all along.

Going into a higher tax bracket isn't as bad as it sounds, as you only pay that rate on what exceeds the thresold for that bracket.

This is what I've been thinking since the beginning.  When I was young and single in the 1990s (currently I'm 47), I began contributing the maximum to my 401(k) which at the time was 16%, with company matching another 5% or whatever it was.  One of the smartest things I ever did.

So now if I need to withdraw $300K or more upon hitting age 72?  Hell, in today's dollars that's like my current salary, or in the right ballpark anyway.

I might not be perfect but somehow I think I'll be okay without Rothing anything.  I know Roth advocates really get deep into this stuff, but I don't see it making a huge difference.  I'll be plenty comfortable either way.

[reverseapachemaster]

Not seeing a lot of early retirement in my field; however, I worked in finance 2007-2010 when all of the financial markets were hitting their peak and subsequent collapse so I've seen this before. A lot of companies have and will continue to offer early retirement incentives to move out older, higher compensated employees which will cause attrition. People approaching retirement are also going to drop out as their hit retirement savings goals or real estate properties are generating the capital gains or rental income to hit their retirement income needs. A not insignificant number of people in 2008-2009 failed to account for investment risk and when the economy went the other direction they found themselves overleveraged and depleted.

I don't pretend to have a crystal ball or assume that the past repeats itself perfectly but if you work off of a model of assuming the same kind of bull and bust cycles can be predicted by the degree of irresponsibility and fraud openly present in the market this feels a lot more like 2005 than 2008 right before the big slide. It's hard to say what happened in the past is repeating itself because the Dow right now is more than twice its peak in 2008.

 

[reverseapachemaster]

I'm out in 5. Sooner if I could access 401K. Current plan is to work until the end of December 2026.

I'm considering invoking the 72(t) Rule.  It lets you take out 401(k) or IRA money at any age that you want, without any penalty tax, as long as you promise to keep withdrawing substantially equal periodic payments (SEPPs) for at least 5 years or until you hit age 59.5, whichever is later.  I am currently 47 and looking to retire at about age 55.

There is also a special Rule of 55, with a few extra restrictions, which is why I might prefer 72(t) rule.  They call 72(t) a "last resort", but for me, in my personal situation, I think it will be the first resort.

I figure I've got 8 years left to go, either way, to have enough to retire most comfortably.  IF we get a bull market in the next 8 years (a BIG IF), I could afford to retire even earlier by age 53-54.  I would just love that.

Some super basic info, Google these rules deeper to learn more:

https://wiserinvestor.com/what-is-the-rule-of-72t-and-55/

72t is a complicated, highly technical rule with exhaustively specific rules for every exception to the penalty except turning 59.5 (which is specific to 59 years and 183 days to the day) and it interplays with other regulations and statutes. For example, the rule of 55 only applies to certain employer-sponsored retirement plans and only to the plan associated with the job you left at age 55 or older. If you roll those funds into any other account it loses the benefit of that particular rule. Additionally, for SEPPs you need to see if, due to your age, the SEPP calculations will even allow you to pull out the funds you need yearly for your needs. You also need to see if your employer's plan will permit you to disburse funds in that manner (most don't) and you may need to roll the funds into an IRA to establish that payment plan.

[majorvices]

Huh??? I thought the way to strike it rich and pad your retirement was to invest in a brewery???

[denny]

Huh??? I thought the way to strike it rich and pad your retirement was to invest in a brewery???