Long Term Investing & Retirement: The second best time is now

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Motronic: Nov 6, 2009

runawayturtles posted:

I think(?) the argument is that dealing with the pro-rata rule is similarly as annoying as dealing with mixed pre-tax and post-tax contributions in a traditional IRA.

In any case, the recommendation to OP should simply be to either deal with the traditional IRA balance by converting it or rolling it (and doing the backdoor Roth), or to forget all that and just use taxable.

Yes. Both of these things.

The OP is missing some fundamental piece of information here to even be asking this question in the way it's being asked, because no matter how you apply any of this it's simply madness to attempt for so little possible benefit.

# ? Jun 5, 2022 20:42

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# ? Jun 9, 2024 07:48

pmchem: Jan 22, 2010

esquilax posted:

It has no advantages (AFAIK) compared to a Roth IRA. However to use a backdoor Roth easily you have to convert your pre-tax trad IRA balance which can result in an immediate tax impact. If you have a high pre-tax trad IRA balance, and want to take advantage of a backdoor roth, and have free income every year, and can't pay the taxes all at once: it might make sense to make post-tax IRA contributions for a few years as you gradually convert the pre-tax trad IRA dollars to Roth IRA over several years. So it can make sense, but only rarely, and likely only within the context of eventually converting to Roth.

I know someone in this situation right now. Recently went beyond Roth limits, but has a very sizable SIMPLE IRA account, so can�t do a backdoor Roth without facing the pro-rata rule. Unclear if tax bracket in the far future will be lower or higher than current. How would you (or others) handle that situation? After maxing out other space, money was just put in a Trad IRA for now.

# ? Jun 6, 2022 01:38

spwrozek: Sep 4, 2006; Sail when it's windy

pmchem posted:

I know someone in this situation right now. Recently went beyond Roth limits, but has a very sizable SIMPLE IRA account, so can�t do a backdoor Roth without facing the pro-rata rule. Unclear if tax bracket in the far future will be lower or higher than current. How would you (or others) handle that situation? After maxing out other space, money was just put in a Trad IRA for now.

Brokerage account. If they have a lot of money saved and are maxing things out they may need access to money if they retire early.

# ? Jun 6, 2022 01:53

Strong Sauce: Jul 2, 2003; You know I am not really your father.

reading all this was informative, but a little bit confusing since i have a hard time figuring out which applies to my situation and which parts are tangential..

i assumed those calculators would help me figure out if doing this vs just either not doing anything or keeping it in a posttax trad ira is better. but i guess that isn't doing what it's saying it'll do?

maybe restating what i want to do will maybe make it clearer what i am asking.

assuming i already have money in a trad ira that is all pretax... is it always beneficial to put in $6000 into a posttax trad ira, convert it into a backdoor roth ira and deal with the tax implications from that event. if its not always beneficial. what pieces of data do i need to know to figure out if doing this backdoor roth ira is worth it?

based off this post

esquilax posted:

Also, for your situation a backdoor roth would look better than if you consider your contributions for the next few decades rather than just for one single year. The cost for converting your current pre-tax trad IRA contributions is a one-time thing that won't reoccur if you move entirely to backdoor roth for the future.

should i just convert my entire trad IRA into a backdoor IRA now, deal with the tax implications from moving the pretax money this year and then just continue doing a backdoor roth ira every year onward which would not have any further tax implications? if i'm still in the 32% federal tax bracket and i deal with this taxable event, is that too much of a hit where it would take a long time to make up the hit? this is what i assumed those calculators were doing.

# ? Jun 6, 2022 02:54

esquilax: Jan 3, 2003

pmchem posted:

I know someone in this situation right now. Recently went beyond Roth limits, but has a very sizable SIMPLE IRA account, so can�t do a backdoor Roth without facing the pro-rata rule. Unclear if tax bracket in the far future will be lower or higher than current. How would you (or others) handle that situation? After maxing out other space, money was just put in a Trad IRA for now.

One option is to set aside a comfortable amount per year (like $5-10k per year, as desired) and use that amount to pay taxes on a partial conversion of like $20k-$40k per year from the trad IRA to Roth. Probably it would be at the same priority or just below priority of making your contributions to the IRA - so below things like 401k match, emergency fund, etc. It might feel like wasted money when doing the conversion, but since it reduces tax burden during retirement if you run the numbers it does have a benefit and results in actual after-tax returns on that cash used to pay the taxes. If they are making post-tax trad IRA contributions they would need to deal with the pro-rata rule for several years though.

In some numbers I ran assuming you have spare cash each year equal to twice the yearly IRA limit (e.g. you have $12k in 2022 to split between IRA contributions, brokerage, taxes on conversions, etc), $100k currently in pre-tax IRA, a 25 year horizon, 25% marginal now and in retirement, 15% cap gains tax, 10% annual nominal return including 2% dividend taxed @ 15% and reinvested, and 3% growth in contribution limits. It went from best to worst as:
1. The strategy laid out above, where you continue to contribute post-tax to a trad IRA and spend the remainder of your cash on taxes to convert to Roth IRA. When that's finished, do backdoor Roth and put the remainder in a taxable brokerage account. This requires about 5 years of dealing with the pro-rata rule as the balance dwindles.
2. Instead of continuing to contribute to the Post-Tax IRA, you spend all your money on taxes to convert to Roth as soon as you can (1% worse). When that's finished do backdoor Roth and put the remainder in a taxable brokerage account.
3. Don't do anything with your IRA, and just put all your money into a taxable brokerage account (7% worse than scenario 1)
4. Contribute post-tax to a traditional IRA but don't do any Roth conversions. Put the remainder in a taxable brokerage account. (9% worse than scenario 1)

(Side note for any lurkers who got this far: 7% might not feel like a major amount if nominal returns are 10% per year, but your balance is directly proportional to the amount of income you can safely withdraw each year in retirement. If you got a 7% raise at your job it might not be life-changing but it would certainly make budgeting a little less tight!)

If that were me and those were the numbers I personally would just do option 2 (i.e. not contributing to any IRA until the balance is entirely converted to Roth) since it avoids the pro-rata rule headache altogether and while it is a little bit lower it isn't much worse. These are pretty sensitive to assumptions though so it's probably possible to concoct a scenario where the lead is bigger, or one where any of these options are at the top.

By far the biggest assumption there is that they would have enough income from other sources during retirement to get into a comparable marginal income rate. No sense in converting $1M in pre-tax Trad IRA to a Roth IRA if you're paying 25% tax now to only save 12% tax in retirement. If that's the case than ignoring the backdoor Roth altogether and using a taxable brokerage account really could be the best option.

# ? Jun 6, 2022 04:29

esquilax: Jan 3, 2003

Strong Sauce posted:

reading all this was informative, but a little bit confusing since i have a hard time figuring out which applies to my situation and which parts are tangential..

i assumed those calculators would help me figure out if doing this vs just either not doing anything or keeping it in a posttax trad ira is better. but i guess that isn't doing what it's saying it'll do?

maybe restating what i want to do will maybe make it clearer what i am asking.

assuming i already have money in a trad ira that is all pretax... is it always beneficial to put in $6000 into a posttax trad ira, convert it into a backdoor roth ira and deal with the tax implications from that event. if its not always beneficial. what pieces of data do i need to know to figure out if doing this backdoor roth ira is worth it?

based off this post

should i just convert my entire trad IRA into a backdoor IRA now, deal with the tax implications from moving the pretax money this year and then just continue doing a backdoor roth ira every year onward which would not have any further tax implications? if i'm still in the 32% federal tax bracket and i deal with this taxable event, is that too much of a hit where it would take a long time to make up the hit? this is what i assumed those calculators were doing.

If you have the cash available to do so, the benefits of the backdoor roth IRA and the ability to avoid the decades of headache from the pro-rata rule is going to be worth way more than the $1,920 or whatever you'd spend on taxes now to convert to Roth.

At it's core the the backdoor roth is a tax law loophole. There are way too many moving pieces for a simple form calculator to take into account.

# ? Jun 6, 2022 04:44

adnam: Aug 28, 2006; Christmas Whale fully subsidized by ThatsMyBoye

esquilax posted:

One option is to set aside a comfortable amount per year (like $5-10k per year, as desired) and use that amount to pay taxes on a partial conversion of like $20k-$40k per year from the trad IRA to Roth. Probably it would be at the same priority or just below priority of making your contributions to the IRA - so below things like 401k match, emergency fund, etc. It might feel like wasted money when doing the conversion, but since it reduces tax burden during retirement if you run the numbers it does have a benefit and results in actual after-tax returns on that cash used to pay the taxes. If they are making post-tax trad IRA contributions they would need to deal with the pro-rata rule for several years though.

In some numbers I ran assuming you have spare cash each year equal to twice the yearly IRA limit (e.g. you have $12k in 2022 to split between IRA contributions, brokerage, taxes on conversions, etc), $100k currently in pre-tax IRA, a 25 year horizon, 25% marginal now and in retirement, 15% cap gains tax, 10% annual nominal return including 2% dividend taxed @ 15% and reinvested, and 3% growth in contribution limits. It went from best to worst as:
1. The strategy laid out above, where you continue to contribute post-tax to a trad IRA and spend the remainder of your cash on taxes to convert to Roth IRA. When that's finished, do backdoor Roth and put the remainder in a taxable brokerage account. This requires about 5 years of dealing with the pro-rata rule as the balance dwindles.
2. Instead of continuing to contribute to the Post-Tax IRA, you spend all your money on taxes to convert to Roth as soon as you can (1% worse). When that's finished do backdoor Roth and put the remainder in a taxable brokerage account.
3. Don't do anything with your IRA, and just put all your money into a taxable brokerage account (7% worse than scenario 1)
4. Contribute post-tax to a traditional IRA but don't do any Roth conversions. Put the remainder in a taxable brokerage account. (9% worse than scenario 1)

(Side note for any lurkers who got this far: 7% might not feel like a major amount if nominal returns are 10% per year, but your balance is directly proportional to the amount of income you can safely withdraw each year in retirement. If you got a 7% raise at your job it might not be life-changing but it would certainly make budgeting a little less tight!)

If that were me and those were the numbers I personally would just do option 2 (i.e. not contributing to any IRA until the balance is entirely converted to Roth) since it avoids the pro-rata rule headache altogether and while it is a little bit lower it isn't much worse. These are pretty sensitive to assumptions though so it's probably possible to concoct a scenario where the lead is bigger, or one where any of these options are at the top.

By far the biggest assumption there is that they would have enough income from other sources during retirement to get into a comparable marginal income rate. No sense in converting $1M in pre-tax Trad IRA to a Roth IRA if you're paying 25% tax now to only save 12% tax in retirement. If that's the case than ignoring the backdoor Roth altogether and using a taxable brokerage account really could be the best option.

Thank you for this explanation. I and my wife have traditional IRAs that are currently invested in bonds/stocks. I thought that a back door Roth IRA would be too complicated w/r/t bond/stocks, but from your explanation I think the optimal strategy would be to pay the taxes up front on converting my existing traditional IRAs to a Roth and then contribute an additional maximum 2022 traditional IRA to Roth conversion from here on out. I'll be talking to my accountant, but I'm assuming I'm going to have to pay taxes on the gain (lol, losses) on the investment delta for the currently invested traditional IRA funds?

# ? Jun 6, 2022 06:40

esquilax: Jan 3, 2003

adnam posted:

Thank you for this explanation. I and my wife have traditional IRAs that are currently invested in bonds/stocks. I thought that a back door Roth IRA would be too complicated w/r/t bond/stocks, but from your explanation I think the optimal strategy would be to pay the taxes up front on converting my existing traditional IRAs to a Roth and then contribute an additional maximum 2022 traditional IRA to Roth conversion from here on out. I'll be talking to my accountant, but I'm assuming I'm going to have to pay taxes on the gain (lol, losses) on the investment delta for the currently invested traditional IRA funds?

So you sound like you're being responsible but I just need to caveat to please do not make major life decisions solely based on a post I made while half-watching game of thrones reruns. Most of that post was about carving out additional tax-advantaged space to take advantage of, for people who have more money than good places to put it. There's absolutely nothing wrong with keeping pre-tax dollars in a traditional IRA long term, other than it slightly limiting options for other spare cash. I have a significant traditional 401k balance myself and have no plans to partially convert it to Roth, even though it may be possible and would have many of the same benefits that I laid out for doing it with a trad IRA.

For traditional IRA conversions (on normal pre-tax money) you pay taxes on every dollar, not just the gains. And you pay at your income tax rate, and not the capital gains rate. This is the trade-off that it offers, no taxes going in, but you pay taxes on every dollar as it comes out rather than just the gains.

# ? Jun 6, 2022 15:02

Valicious: Aug 16, 2010

Hello goons, it�s been a while since my last post in this thread. I�m increasing my contributions to my 401k and taxable accounts, but I could use some assistance in optimizing my portfolio as a whole to be as tax-efficient as can be.
HOLDINGS
-Roth IRA
AVLV - 27.33%
AVUV - 31.77%
AVIV - 15.81%
AVDV - 12.98%
AVES - 12.08%

-Taxable (I know I know, I�m not putting any more into stocks.)
VTI - 35.81%
VXUS - 22.33%
VDE - 11.83%
AVUV - 6.33%
AVLV - 5.79%
VHT - 3.72%
ASPS - 7.05%
F - 4.35%
SHMP - 2.82%

My goal is to have my entire portfolio mimic what the target allocation for my Roth IRA is. Would this be? (Is there an advantage to deviating from market cap?)
Taxable- 30% AVLV, 30% AVUV
Roth IRA- 14% AVIV, 14% AVDV, 12% AVES

My BIG question regards tax-loss harvesting. I understand it in concept (mostly), but I�m still confused how to put it into practice. Can I get a step-by-step guide using the funds I have? When/how often should I do this? Should I just sell the stocks now at a loss and reinvest into AVLV/AVUV, or just keep them becoming an ever smaller % as I keep investing in the indexes?

# ? Jun 6, 2022 19:39

pmchem: Jan 22, 2010

esquilax, thanks for the effort posts, will FW that along as one more point of info for them

# ? Jun 7, 2022 00:29

adnam: Aug 28, 2006; Christmas Whale fully subsidized by ThatsMyBoye

esquilax posted:

So you sound like you're being responsible but I just need to caveat to please do not make major life decisions solely based on a post I made while half-watching game of thrones reruns. Most of that post was about carving out additional tax-advantaged space to take advantage of, for people who have more money than good places to put it. There's absolutely nothing wrong with keeping pre-tax dollars in a traditional IRA long term, other than it slightly limiting options for other spare cash. I have a significant traditional 401k balance myself and have no plans to partially convert it to Roth, even though it may be possible and would have many of the same benefits that I laid out for doing it with a trad IRA.

For traditional IRA conversions (on normal pre-tax money) you pay taxes on every dollar, not just the gains. And you pay at your income tax rate, and not the capital gains rate. This is the trade-off that it offers, no taxes going in, but you pay taxes on every dollar as it comes out rather than just the gains.

No, absolutely talking it over with my accountant and take all responsibility for my own financial actions, haha. I've been reading intermittently about converting my Roth IRA for the last year and for some reason your explanation clicked more than all the other things I'd read about the pros and cons. If that's your half-assed post while watching game of thrones reruns, lemme know if you have a newsletter or something to subscribe to because that was really good.

# ? Jun 7, 2022 06:12

EmmaDilemma: Jul 22, 2019

Duckman2008 posted:

Ally just emailed saying they�re going to 0.8.

Now 0.9%

# ? Jun 10, 2022 01:53

fourwood: Sep 9, 2001; Damn I'll bring them to their knees.

They skipped me on 0.8%. :mad:

# ? Jun 10, 2022 04:14

spwrozek: Sep 4, 2006; Sail when it's windy

fourwood posted:

They skipped me on 0.8%.

That was for their investment accounts so you didn't miss anything:

"we've increased the interest rate on the cash held in our Ally Invest Robo Portfolios from 0.65% to 0.80%."

# ? Jun 10, 2022 05:32

SpelledBackwards: Jan 7, 2001; I found this image on the Internet, perhaps you've heard of it? It's been around for a while I hear.

Citi sent me something last week saying they were taking Accelerate Savings to 1.01%, up from 0.60% in March

# ? Jun 10, 2022 06:14

Elephanthead: Sep 11, 2008; Toilet Rascal

SpelledBackwards posted:

Citi sent me something last week saying they were taking Accelerate Savings to 1.01%, up from 0.60% in March

Nice only 10% below inflation.

# ? Jun 10, 2022 15:59

Gucci Loafers: May 20, 2006; Ask yourself, do you really want to talk to pair of really nice gaudy shoes?

Hey all,

Can someone check my retirement math or give me a reality check? To start my goal is to retire basically rich. I basically want to be like this dude in the picture below in a few decades.

My retirement

Or rich enough to live at my current lifestyle or a bit below it. And if I'm lucky a little early. I'm off the strong belief that buying home to offset the cost of renting doesn't add up and I'm investing the difference but I'm a bit unclear how much I am really going to need. If anything, I want at least $80k/y but looking at the math... Even if I have $200k in my 401k and I'm just putting in $22k the current maximum... that's not enough even with social security?

Is this goal even possible or realistic? Or is my math wrong here? Is it seems like it's extremely difficult and if I want this I'm basically stuck maxing out my 401k, Roth IRA and HSA working my rear end off with no break until I'm 55. Or even longer. And I am super healthy and probably going to live until 90. :smith:

# ? Jun 11, 2022 19:51

KillHour: Oct 28, 2007

Surprise - retiring early and living a life of ease and comfortable wealth is a lie for the majority of people.

KillHour fucked around with this message at 20:04 on Jun 11, 2022

# ? Jun 11, 2022 20:02

Duckman2008: Jan 6, 2010; TFW you see Flyers goaltending.; Grimey Drawer

Crosby B. Alfred posted:

Hey all,

Can someone check my retirement math or give me a reality check? To start my goal is to retire basically rich. I basically want to be like this dude in the picture below in a few decades.

My retirement

Or rich enough to live at my current lifestyle or a bit below it. And if I'm lucky a little early. I'm off the strong belief that buying home to offset the cost of renting doesn't add up and I'm investing the difference but I'm a bit unclear how much I am really going to need. If anything, I want at least $80k/y but looking at the math... Even if I have $200k in my 401k and I'm just putting in $22k the current maximum... that's not enough even with social security?

Is this goal even possible or realistic? Or is my math wrong here? Is it seems like it's extremely difficult and if I want this I'm basically stuck maxing out my 401k, Roth IRA and HSA working my rear end off with no break until I'm 55. Or even longer. And I am super healthy and probably going to live until 90.

I think you�re grossly over estimating what you will spend in retirement versus currently. Even if you say, travel more or something.

If it helps , you�re way ahead of a lot of people , including me.

Probably the hardest thing is trying to retire at 55. Having watched my mom just go through retirement , they really set social security incentives and such to force you to get close to 65. It�s really hard to retire retire early unless you make a super high income, get a big windfall, etc.

If it helps, it may not be retirement at 55, but maybe a reduced workload ? You factor in 10 years between 55-65 , if you even work a job that just pays expenses, 1. That�s 10 more years of market growth , 2. That�s 10 years before you start talking your retirement funds and 3. 10 years before you start tapping social security.

I think it�s the 55 thing and I do still think $80k a year in expenses is way high.

Edit: also this:

KillHour posted:

Surprise - retiring early and living a life of ease and the same standard of living that you enjoyed when working is a lie for the majority of people.

# ? Jun 11, 2022 20:04

withak: Jan 15, 2003; Fun Shoe

KillHour posted:

Surprise - retiring early and living a life of ease and comfortable wealth is a lie for the majority of people.

Maybe look up one of those articles about Zoomers retiring early and follow their advice? Do you have a rich relative who can pay for your housing and other expenses?

# ? Jun 11, 2022 20:09

GhostofJohnMuir: Aug 14, 2014; anime is not good

Crosby B. Alfred posted:

Hey all,

Can someone check my retirement math or give me a reality check? To start my goal is to retire basically rich. I basically want to be like this dude in the picture below in a few decades.

My retirement

Or rich enough to live at my current lifestyle or a bit below it. And if I'm lucky a little early. I'm off the strong belief that buying home to offset the cost of renting doesn't add up and I'm investing the difference but I'm a bit unclear how much I am really going to need. If anything, I want at least $80k/y but looking at the math... Even if I have $200k in my 401k and I'm just putting in $22k the current maximum... that's not enough even with social security?

Is this goal even possible or realistic? Or is my math wrong here? Is it seems like it's extremely difficult and if I want this I'm basically stuck maxing out my 401k, Roth IRA and HSA working my rear end off with no break until I'm 55. Or even longer. And I am super healthy and probably going to live until 90.

one thing to note, you currently are basing your calculations on 2.5% real annual return. depending on your asset allocation this may be significantly lower than historical averages. of course, historical averages are no guarantee of future averages, and you may want to stick to a conservative return for your predictions. or perhaps you're holding a very bond heavy portfolio, in which case your predicted real return is more in line with historical averages. in any case, it will be very hard to retire early in a long term period of low real returns if your annual savings rate is not higher than 50% of your gross income. even then it may not be as "safe" as some would like

i would suggest using a tool like portfolio vizualizer's monte carlo simulation to simulate what types of returns you might expect based on your current asset allocation, and what type of withdrawals you might be able to support in retirement

# ? Jun 11, 2022 20:15

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

1% wage growth, 3.5% inflation, 6% returns all seem off.

3.5%, 2%, 8% (unclear if real or nominal) are more like how I would model it.

Also, $80k annual expenses seems really high. If you're at 100k today -22k 401 - call it 20k taxes you're more like 55-60k annual expenses right now?

# ? Jun 11, 2022 20:17

doingitwrong: Jul 27, 2013

Crosby B. Alfred posted:

Is this goal even possible or realistic? Or is my math wrong here? Is it seems like it's extremely difficult and if I want this I'm basically stuck maxing out my 401k, Roth IRA and HSA working my rear end off with no break until I'm 55. Or even longer. And I am super healthy and probably going to live until 90.

Your plan involves a real return of (6%--3.5%) ~2.5% which is kind of conservative. And it involves your raises not keeping up with inflation (you are doing 1%). It's weird that you are planning to spend 80% of your final income when you were living on less than 80% pre-retirement. But whatever, that's all single numbers which are crude approximations for what should be a band of possibilities.

The biggest thing you can do to improve your chances is to raise your savings rates now, or ramp them up as your wages go up. Every dollar you save has a double benefit because it's more resources for the future AND it establishes a lifestyle that is cheaper now, which means those dollars stretch further.

As you get close to retirement, there's a lot of literature on variable spending strategies that improve the likelihood of savings lasting. Also there are things like annuities that can guarantee a minimum income at the cost of signing over a good chunk of your capital to a company.

# ? Jun 11, 2022 20:35

Gucci Loafers: May 20, 2006; Ask yourself, do you really want to talk to pair of really nice gaudy shoes?

Thanks for all of the replies,

What numbers should I be using that are more realistic? Going through my calculations once more, this looks quite a bit better and coincides with this general advice How much do I need for retirement.

CubicalSucrose posted:

Also, $80k annual expenses seems really high. If you're at 100k today -22k 401 - call it 20k taxes you're more like 55-60k annual expenses right now?

My take home pay after taxes including 401k are about ~$60k/y. Add in my Roth IRA - $6k/y and HSA $3k/y that's down to ~$50k/y. And to be clear, I'm not spending $50k/y and still trying to save a portion for just savings but if I want live in some fancy "Active Adult" community it seems like I'm going to need that much or pretty damned close?

It feels like my options are as follows but the worst part about all of this is I am literally freaking stuck just goddamn working? Part of me really wants to take a year off of work to travel while I'm still young but the logical part of brain is telling me this isn't such a good idea because right now is the best time for me to invest as I am still relatively young! And it boggles my mind seeing so many people not investing at all. :psyduck:

Work my rear end off until I'm 55 maxing out my 401k, Roth IRA and HSA.
Work my rear end off but start my own business instead making more money or leaving me with a source of income in retire aside from traditional retirement options.
Work my rear end off until I'm 55 but slide into retirement with some part-time position.

Gucci Loafers fucked around with this message at 01:04 on Jun 12, 2022

# ? Jun 12, 2022 00:57

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

If you're actually saving 30k then say 30% not 22%.

# ? Jun 12, 2022 01:56

Duckman2008: Jan 6, 2010; TFW you see Flyers goaltending.; Grimey Drawer

Crosby B. Alfred posted:

Thanks for all of the replies,

What numbers should I be using that are more realistic? Going through my calculations once more, this looks quite a bit better and coincides with this general advice How much do I need for retirement.

My take home pay after taxes including 401k are about ~$60k/y. Add in my Roth IRA - $6k/y and HSA $3k/y that's down to ~$50k/y. And to be clear, I'm not spending $50k/y and still trying to save a portion for just savings but if I want live in some fancy "Active Adult" community it seems like I'm going to need that much or pretty damned close?

It feels like my options are as follows but the worst part about all of this is I am literally freaking stuck just goddamn working? Part of me really wants to take a year off of work to travel while I'm still young but the logical part of brain is telling me this isn't such a good idea because right now is the best time for me to invest as I am still relatively young! And it boggles my mind seeing so many people not investing at all.

Work my rear end off until I'm 55 maxing out my 401k, Roth IRA and HSA.

Work my rear end off but start my own business instead making more money or leaving me with a source of income in retire aside from traditional retirement options.

Work my rear end off until I'm 55 but slide into retirement with some part-time position.

Option D: work moderately hard, but take yearly allotted vacation time to travel. Retire at 60-67.

# ? Jun 12, 2022 02:00

WithoutTheFezOn: Aug 28, 2005; Oh no

I�m not saying it�s the case here, but the last few pages have reminded me of something: when I read people talking about early retirement, occasionally they mention needing extra income early because of no Social Security income, but they seem to almost never mention their plan for health insurance in the gap before Medicare kicks in, which is a pretty significant expense.

Anyway, Crosby, I�m not sure it�s wise to assume your investment return rate will be as high after retirement as it is before. People get skittish as retirement approaches.

And personally I�d use 2.5-2.8% for inflation, but I can�t back that up mathematically. And I like padding.

# ? Jun 12, 2022 02:24

nelson: Apr 12, 2009; College Slice

WithoutTheFezOn posted:

but they seem to almost never mention their plan for health insurance in the gap before Medicare kicks in, which is a pretty significant expense.

If I retired early, I would live in a different country.

# ? Jun 12, 2022 03:23

PRADA SLUT: Mar 14, 2006; Inexperienced,
heartless,
but even so

doingitwrong posted:

Your plan involves a real return of (6%--3.5%) ~2.5% which is kind of conservative. And it involves your raises not keeping up with inflation (you are doing 1%). It's weird that you are planning to spend 80% of your final income when you were living on less than 80% pre-retirement. But whatever, that's all single numbers which are crude approximations for what should be a band of possibilities.

The biggest thing you can do to improve your chances is to raise your savings rates now, or ramp them up as your wages go up. Every dollar you save has a double benefit because it's more resources for the future AND it establishes a lifestyle that is cheaper now, which means those dollars stretch further.

As you get close to retirement, there's a lot of literature on variable spending strategies that improve the likelihood of savings lasting. Also there are things like annuities that can guarantee a minimum income at the cost of signing over a good chunk of your capital to a company.

Annuities got a bad rap with in the 90s with Susie Orman on TV and the market pulling huge returns, but I�ve seen them come around a bit more nowadays. Mainly as �insurance� against outliving your money.

# ? Jun 12, 2022 05:25

Gucci Loafers: May 20, 2006; Ask yourself, do you really want to talk to pair of really nice gaudy shoes?

Duckman2008 posted:

Option D: work moderately hard, but take yearly allotted vacation time to travel. Retire at 60-67.

This is fair point. Delaying retirement by a decade is enormously helpful, something I didn't think of earlier and it makes me easily reach my goals without having hit my maximum contributions every year. That said, for some reason I can't imagine what the hell I'll be doing at sixty years old. Health insurance is an issue too.

nelson posted:

If I retired early, I would live in a different country.

If I made a list of my top ten mistakes I'd put not getting a college degree on the top. If I had one, I would have left the states by now. :smith:

# ? Jun 12, 2022 06:45

Leperflesh: May 17, 2007

Your social security should be accounted for. Even if congress does nothing, in the worst year projected, it'll have 75% of what it owes, so at the most conservative, you would start collecting SS as late as possible (age 71.5?) and collect 75% of what you're owed, before tax. That's still a big number considering your income.

You should assume you'll get raises at least as fast as inflation. If you're currently not a senior-level position in your career, you should assume more than that, probably. It does depend on your career, but most professionals experience slow wage growth at the same job for a while and then jump to a new job or get a promotion and have a few big jumps in their income. It's hard to account for that uneveness, but I think if you're trying to retire at age 55, you should be aggressive in your career as well as in your savings: pursue promotions and raises.

You also don't seem to be accounting for a life partner/spouse, or children. Do you intend to retire alone? That's a personal question, so don't answer if you would rather not! But total living expenses for a couple are lower than 2x living expenses for two single folks, and conversely, you may be unable to save at your current rate if/when you're paying for children and all their costs.

If you buy a house, your cost of living could plummet once the house is paid off. Of course, buying a house might cut into your savings rate substantially. You said "I'm off the strong belief that buying home to offset the cost of renting doesn't add up" and that can be true for some folks, but it's not necessarily true, and the comparison of buying vs. renting may change in future years depending on a bunch of factors (external ones like the housing/rental markets, and personal ones like your family and living circumstances, career changes, etc.).

All that said: people who want to retire early and aren't already very high earners, tend to focus on living very spartan, simple lives now, in order to pour a huge percentage of their income into savings. You'll ultimately have to find a balance. Each additional year you work could be $100k less that you have to save plus another year's worth of living saved from the extra year of income, presumably at your maximum lifetime earning rate... play with the calculator and see just how much things change just by moving from retirement at age 55 to retirement at age 56.

# ? Jun 12, 2022 08:14

Gucci Loafers: May 20, 2006; Ask yourself, do you really want to talk to pair of really nice gaudy shoes?

Agreed.

Good replies all. Life is a series of tradeoffs unfortunately and retirement is well... basically difficult.

# ? Jun 12, 2022 20:08

KillHour: Oct 28, 2007

Can't wait for science to solve aging and then all this time we spent planning for retirement on the expectation that we would die in our 80s becomes worthless

# ? Jun 12, 2022 20:38

GoGoGadgetChris: Mar 18, 2010; i powder a
granite monument
in a soundless flash

showering the grass
with molten drops of
its gold inlay

sending smoking
chips of stone
skipping into the fog

It's fine, the anti aging treatments will cost $15 million dollars and loans will be available with 90 year amortization for the newly combined lower and middle class of indentured servants

# ? Jun 12, 2022 20:44

grenada: Apr 20, 2013; Relax.

PRADA SLUT posted:

Annuities got a bad rap with in the 90s with Susie Orman on TV and the market pulling huge returns, but I�ve seen them come around a bit more nowadays. Mainly as �insurance� against outliving your money.

SPIAs are relatively popular on bogleheads for folks with a certain size retirement. Like if you retire with $1.5 million you can annuitize maybe half of that at between 70 and 80 years old to protect against mental decline and running out of funds.

There�s a bunch of different kinds of annuities but like life insurance they are needlessly complicated and mostly serve to give you a bad deal. So single premium immediate annuities are (SPIAs) are usually the best option.

# ? Jun 12, 2022 20:47

Super Dan: Jan 26, 2006

GoGoGadgetChris posted:

It's fine, the anti aging treatments will cost $15 million dollars and loans will be available with 90 year amortization for the newly combined lower and middle class of indentured servants

Jesus Christ. This is depressingly possible.

# ? Jun 12, 2022 22:00

PRADA SLUT: Mar 14, 2006; Inexperienced,
heartless,
but even so

Super Dan posted:

Jesus Christ. This is depressingly possible.

And if you don�t pay up, it�s the repoman

https://youtu.be/bj1-ZcKqH34

# ? Jun 12, 2022 22:11

SpelledBackwards: Jan 7, 2001; I found this image on the Internet, perhaps you've heard of it? It's been around for a while I hear.

PRADA SLUT posted:

And if you don’t pay up, it’s the repoman

https://youtu.be/bj1-ZcKqH34

I promise y'all, you're far better off watching the similarly themed movie from 2010 Repo Men with Jude Law and Forrest Whitaker.

Edit: oddly enough I was just telling a friend at dinner about Repo: The Genetic Opera and how no matter how drunk I got I couldn't bring myself to finish it ~10 years ago. Then I come home and see this post...

SpelledBackwards fucked around with this message at 02:45 on Jun 13, 2022

# ? Jun 13, 2022 02:41

adnam: Aug 28, 2006; Christmas Whale fully subsidized by ThatsMyBoye

Stupid question, how long did it take you guys to get a Treasury Direct account number? I�m now 12 hours out from the weekend and no email or even �further review needed�. That website is a Charlie Foxtrot bar none.

# ? Jun 13, 2022 16:50

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# ? Jun 9, 2024 07:48

Mons Hubris: Aug 29, 2004; fanci flup

adnam posted:

Stupid question, how long did it take you guys to get a Treasury Direct account number? I�m now 12 hours out from the weekend and no email or even �further review needed�. That website is a Charlie Foxtrot bar none.

I'm pretty sure I got mine the same day, but you are totally right about the website. Don't forget your password or you'll be on hold for two hours waiting to get someone to reset it.

# ? Jun 13, 2022 17:22

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > Long Term Investing & Retirement: The second best time is now

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