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obi_ant posted:I was let go from my previous job in July and finished rolling over my 401k into Vanguard. Vanguard created a new account called "Rollover IRA Brokerage Account". It's currently allocated into the Vanguard Target Retirement 2050 fund. There is a button to "Convert to Roth IRA". Is there any reason why I should or should not do this? The converted amount will be taxed as ordinary income. There are reasons to do it anyway (e.g. if you expect to ever make enough money to need to perform a backdoor Roth and the amount is small) but you have to be willing to pay that bill.
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Nov 17, 2023 05:31
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raminasi posted:The converted amount will be taxed as ordinary income. There are reasons to do it anyway (e.g. if you expect to ever make enough money to need to perform a backdoor Roth and the amount is small) but you have to be willing to pay that bill. The tax amount I would have to pay would be quite substantial because it is roll over from two previous jobs. I was thinking if over the course of 30 years of growth it will more than likely cover that, and everything else would be tax free, but it's weird way of thinking about it.
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Nov 17, 2023 05:41
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It is still cash that you have to have on hand to pay now.
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Nov 17, 2023 05:58
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Most people who do Roth conversions for non trivial amounts of money do them during retirement as their income (and thus their tax bracket) is generally lower than it was during their working years. This allows them to space the conversions out over the course of several years which makes it easier to take advantage of lower tax brackets by staying just below say, the 22% bracket each year.
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Nov 17, 2023 06:46
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Antillie posted:Most people who do Roth conversions for non trivial amounts of money do them during retirement as their income (and thus their tax bracket) is generally lower than it was during their working years. This allows them to space the conversions out over the course of several years which makes it easier to take advantage of lower tax brackets by staying just below say, the 22% bracket each year. I'll add that people also sometimes do it as part of a "roth conversion ladder" for purposes of early retirement, since the conversion amount in Roth IRAs can be withdrawn before 59.5 so long as it has been 5 years since conversion (notably, this is more strict than the 5 years since having a non-zero balance in any Roth IRA account to withdraw a principal amount contributed).
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Nov 17, 2023 15:20
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I’m eyeing my current total retirement savings and wondering if I’ve hit a comfortable enough sum yet. I’m in my early 30s (for now  ) and anything can change in 25~30 years, so I have no idea what I’ll need. Has anyone ever done a study of the average retirement savings for a given age group, and the minimum needed to be on-target? Though that will vary heavily depending on the individual, so maybe that’s just not a thing…
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Nov 17, 2023 16:00
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obi_ant posted:The tax amount I would have to pay would be quite substantial because it is roll over from two previous jobs. I was thinking if over the course of 30 years of growth it will more than likely cover that, and everything else would be tax free, but it's weird way of thinking about it. For example as a single in 2023: Your first $13,850 are taxed at zero federal (standard deduction) The next $11,000 are taxed at 10% The next ~$33k at 12% The next ~$50k at 22% next ~$100k at 24% and then up to 32-37% in the top ranges There's also potential for state taxes. But in particular converting smaller chunks in lower income years to fill up the pre-22% brackets can be very beneficial.
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Nov 17, 2023 16:11
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Pollyanna posted:I’m eyeing my current total retirement savings and wondering if I’ve hit a comfortable enough sum yet. I’m in my early 30s (for now Every time this comes up I point people to Fidelity's retirement roadmap, with the caveats that it varies a lot based on what you want your post-retirement lifestyle to be like, that Roth savings are obviously much more valuable, and that having a paid-off house (or nearly so!) will cut your expenses substantially. Basically, in your early 30s, if you could turn your retirement savings into between 1 and 2 years of "covering expenses", you're doing pretty well. Vanguard has a handy calculator as well, though it's less at-a-glance.
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Nov 17, 2023 16:21
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Pollyanna posted:I’m eyeing my current total retirement savings and wondering if I’ve hit a comfortable enough sum yet. I’m in my early 30s (for now I usually run some scenarios through FIRECalc
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Nov 17, 2023 16:28
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Is that a one-and-done deal, i.e. if I hit a target for 35 y/o that means I’ve fulfilled the targets for subsequent years, or is it a constant/moving target? I’ll play with these widgets and calcs, thanks!
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Nov 17, 2023 16:50
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Pollyanna posted:Is that a one-and-done deal, i.e. if I hit a target for 35 y/o that means I’ve fulfilled the targets for subsequent years, or is it a constant/moving target? Usually, You have to keep contributing to hit these marks. If you really want to simplify, just have you and your spouse both contribute 15% of your pay into your 401k into one of the investments in the OP and you should be good to go.
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Nov 17, 2023 17:04
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This is the first time I've seen a guideline like this reference "starting salary". As someone whose salary has more than doubled in the 10 years I've been working, I've always wondered what the right benchmark salary is. I know these are just rough guidelines, but still. I suppose the answer is "the salary that best matches the lifestyle you intend to support during retirement"?
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Nov 17, 2023 17:05
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daslog posted:Usually, You have to keep contributing to hit these marks. If you really want to simplify, just have you and your spouse both contribute 15% of your pay into your 401k into one of the investments in the OP and you should be good to go. Gotcha. I should be doing fine then, and I’ll keep watch over time!
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Nov 17, 2023 17:09
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Muir posted:This is the first time I've seen a guideline like this reference "starting salary". As someone whose salary has more than doubled in the 10 years I've been working, I've always wondered what the right benchmark salary is. I know these are just rough guidelines, but still. I suppose the answer is "the salary that best matches the lifestyle you intend to support during retirement"? I assume it’s whatever salary you’re making at the given age? If you’re making 50k at 35 you need 100k by then, if you’re making 150k at 40 you need 450k by then, if you’re still making 150k at 60 you need 1.2m by then, etc. Otherwise it wouldn’t keep up with inflation. Maybe they should call it “current salary”.
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Nov 17, 2023 17:20
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I'd imagine they would have just said 'salary' in that case, "starting salary" in that kind of presentation really only has the one interpretation. Like, imagine a presentation about anything long-term the words "starting X" definitely mean "where you are today" It's not controlling for inflation, so maybe they're tying wage growth to inflation and having them cancel each other out to make the math/conceptualization simpler.
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Nov 17, 2023 17:25
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Muir posted:This is the first time I've seen a guideline like this reference "starting salary". As someone whose salary has more than doubled in the 10 years I've been working, I've always wondered what the right benchmark salary is. I know these are just rough guidelines, but still. I suppose the answer is "the salary that best matches the lifestyle you intend to support during retirement"? Basically. It's always a moving target, plus inflation is typically constantly grinding away too. But also generally* speaking your expenses are lower in retirement anyway, so you can afford a somewhat lower income in inflation-adjusted terms, because you're ideally not commuting with the corresponding travel or vehicle wear and tear costs, paying much if any more children's college tuitions, needing to pay rent or a mortgage payment anymore, etc.
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Nov 17, 2023 17:26
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Yeah, it must be starting salary, because otherwise how is someone supposed to do this?Pollyanna posted:If you’re making 50k at 35 you need 100k by then, if you’re making 150k at 40 you need 450k by then They are supposed to grow their savings by $350k in 5 years, starting with $100k and only earning $50-150k pre-tax per year? That would imply a savings rate much, much higher than 15%.
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Nov 17, 2023 17:31
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I’m pretty convinced you need a retirement savings rate higher than 15% to retire comfortably.
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Nov 17, 2023 17:41
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Pollyanna posted:I’m eyeing my current total retirement savings and wondering if I’ve hit a comfortable enough sum yet. I’m in my early 30s (for now You might want to look at this Safe Withdrawal Rate series. Its mainly aimed at early retirees, but is a good read for anyone, since it will also look at "normal" retirement horizons as well. The author recommends starting with parts 26/50, but I disagree, and I think starting at part 1 and moving on is solid, and after the first few chapters, skip around to what interests you. But the tl;dr is that, from historical data, if you, upon hitting retirement, have a 75/25 stock/bond ratio have X dollars, then you can withdrawal a 3.25% of X each year, and increase the 3.25% to keep up with cost of living, and this will last you forever even if you are immortal, even if your retirement date was something like 1929, 1966, 2000, or any other horrible years to retire. To illustrate what this looks like, if you have 1 million dollars when you retire, and inflation is exactly 3% every year, then you can withdraw $32500 year 1, $33475 year 2, $34479.25 year 3, and so on. You can get the failsafe rate up to around 3.5% if you go for a fancier glidepath back into stock. You can choose risker withdrawal rates, but those are well, riskier. You are going to be assuming that you didn't retire in the future equivalent of 1929, or if you did, you won't live long enough to care. With a 4% withdrawal rate The "failure" rate over a 30 year time horizon is a little over 2%. This is unacceptable for me personally, but you can choose your own risk. Note that once you go over 4% withdrawal rate, 100% stocks is actually the optimal fixed distribution, since if you are are gambling anyways you are going to need the higher returns. A 5% withdrawal rate, for context, has about a 22% failure rate over a 30 year period, and a 30% failure rate over a 60 year one. So, I'd recommend first thinking about what risk in my above description sounds acceptable the amount of money you would want to have each year in retirement (in late 2023 dollars). Keep in mind that you won't be paying FICA taxes in retirement, and you'll also be collecting at least something in social security as well (though the amount of both benefits and FICA taxes is possibly subject to change in the next decade). Also if you are putting a significant amount in roth accounts, remember that because it is tax free, it will be better than its self. Basically, take in these tax considerations when making your desired retirement income. With that decided, we can take a look at average stock growth. From 1871 to today, the average S&P stock growth (removing inflation and accounting for the losses from variability) is 6.72%. Of course, this fluctuates depending on time interval, so it might be good to explore possible retirement dates at annual 2.92% (lowest ever annual rate at 30 year), 4% (ultra conservative annual return rate) 5% growth (conservative for a 30 year range), 6%, 6.72% (the average), 7%, 8%, 9%, and 10% (it very rarely goes above this). Use a calculator like this and put the different percentages under APR with different time periods and see at each percentage how many years it will it take to get to get the savings you want for the retirement amount you want.
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Nov 17, 2023 17:42
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One thing to keep in mind with failure rate is that it assumes no change in withdrawal rate. Most people plan for a comfortable retirement. If you look like you’re going to run out of money, I suspect you would cut down on various expenses to the extent possible and thus lower your withdrawal rate. That’s why I don’t get too worried about a low single digit failure rate.
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Nov 17, 2023 17:46
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KYOON GRIFFEY JR posted:I’m pretty convinced you need a retirement savings rate higher than 15% to retire comfortably. Me too, but if you can actually do it every single year from 22 to 67, and invest it aggressively, and social security continues to pay out at current levels, it could work. Personally, I wasnt able to start saving for retirement until I was 30, and I assume social security benefits will likely be cut by the time I retire (or pushed out, or both). I also dont anticipate being able to work until 67 at my current income level. So, I save more than 15%.
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Nov 17, 2023 17:53
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My starting salary back in my early 20's was 27k. If I only had 270k saved by the time I was 67 I would probably be screwed. I use "current salary" on that chart. Maybe they mean you the salary you have when you first enter each age bracket?
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Nov 17, 2023 18:00
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I think the implication is that if you've saved $270k by the time you were 67, you would be able to afford the lifestyle you had in your early 20s. Also, the idea of "saving" an amount of money probably doesn't factor in the investment returns so you'd have saved $270k of principal.
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Nov 17, 2023 18:02
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KYOON GRIFFEY JR posted:I’m pretty convinced you need a retirement savings rate higher than 15% to retire comfortably. If you do some projections on the various calculators out you can make assumptions on how a below average or above average market will impact, but the numbers work out pretty good, as long as you don't do dumb things like take out $40,000 car loans. Staying out of debt is really important too.
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Nov 17, 2023 18:02
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You can also, if you're an Excel person, make a pretty good model for your own finances that you can factor in your own various expenses and things into. Doing things like buying a new car every 10 years, etc. is really hard in those calculators. Factoring in having kids, too.
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Nov 17, 2023 18:03
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KYOON GRIFFEY JR posted:One thing to keep in mind with failure rate is that it assumes no change in withdrawal rate. Most people plan for a comfortable retirement. If you look like you’re going to run out of money, I suspect you would cut down on various expenses to the extent possible and thus lower your withdrawal rate. That’s why I don’t get too worried about a low single digit failure rate. The problem then is: 1) You have to have the anxiety of actively managing your withdrawal rate, and every market crash is incredibly stressful. This is basically the opposite of the passive investing philosophy, and I'd consider it a form of market timing. 2) You can have anxiety even if your money doesn't runout. When your savings continue to drop, it is very stressful, since you have no idea when you are going to die 3) Your withdrawal rate going down over time is problematic when you consider possible long term care expenses will have the opposite effect. You can get long term care insurance, but most LTC insurance only covers a few years. And if you do a lifetime purchase for around $120k, that is going to exacerbate volatility. 4) There are also uneven expenses that you might take out more money for. Sudden medical expenses, needing to get a new car, family emergencies, funeral for loved ones, and so on. Having wiggle room with a lower withdrawal rate makes this more safe. 5) Having uneven income sucks. To "save" a 4% withdrawal rate at bad times, you might have to nearly cut your income in half for certain years. Living on 50% income you expected for some number of years (perhaps indefinitely) will really suck 6) You can mess up and not cut enough and thus runout 7) If you live just 10 years more than the 30 year timeline, the "low single digit" failure becomes "high single digit," and again, even in the "success" stories, there are more stressful close calls MegaZeroX fucked around with this message at 18:19 on Nov 17, 2023 |
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Nov 17, 2023 18:15
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drk posted:Yeah, it must be starting salary, because otherwise how is someone supposed to do this? I don't even know how you'd define a "starting salary" in a case like mine, where until last year I was doing gig economy work with multiple part-time jobs totaling up right around bare subsistence. Last year was basically the first time I had anything resembling full-time, indefinite-length employment. If "current annual income" is the benchmark, I had savings like somebody 20 years older for most of my working career, then suddenly dropped below the 30yo target last year 
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Nov 17, 2023 18:18
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Muir posted:This is the first time I've seen a guideline like this reference "starting salary". As someone whose salary has more than doubled in the 10 years I've been working, I've always wondered what the right benchmark salary is. I know these are just rough guidelines, but still. I suppose the answer is "the salary that best matches the lifestyle you intend to support during retirement"? Pretty much. The actual article says: Fidelity posted:Based on those assumptions, we estimate that saving 10x (times) your preretirement income by age 67, together with other steps, should help ensure that you have enough income to maintain your current lifestyle in retirement. Fidelity posted:The salary multiplier suggested is based solely on your current age. In developing the series of salary multipliers corresponding to age, Fidelity assumed age-based asset allocations consistent with the equity glide path of a typical target date retirement fund, a 15% savings rate, a 1.5% constant real wage growth, a retirement age of 67 and a planning age through 93. I think they mean "starting" as in, "before taxes, deductions, retirement savings, etc".
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Nov 17, 2023 18:30
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"How much should I save?" is a question many are interested in but for which there is no simple accurate answer. Too many variables.
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Nov 17, 2023 18:32
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Yeah, thats why rules of thumb like "save 15%" are definitely not appropriate for everyone. For most Americans, the answer is probably "you should be saving more than you currently are" because Americans are really bad at saving money: edit: for those curious how personal savings rate is defined, it says "Personal saving as a percentage of disposable personal income (DPI), frequently referred to as "the personal saving rate," is calculated as the ratio of personal saving to DPI. Personal saving is equal to personal income less personal outlays and personal taxes; it may generally be viewed as the portion of personal income that is used either to provide funds to capital markets or to invest in real assets such as residences." drk fucked around with this message at 18:46 on Nov 17, 2023 |
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Nov 17, 2023 18:37
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Cassius Belli posted:I think they mean "starting" as in, "before taxes, deductions, retirement savings, etc". They should use the words "base" or "gross" for that value, if that's what they actually mean. I think the use of vague words without clarity like this is an indication that the article is not of good quality. I get that the authors are intending to inform a layperson audience and may be avoiding technical terms, but they've ended up with functionally useless advice because nobody knows what number they're supposed to be plugging in. Anyway just to point out how this is all napkin math anyway: my mother in law has been living independently and is 75 now. She has been hoarding - not garbage, just no space for what she had when she moved in and she's filled it even more with compulsive shopping habits - and we just cleaned out her place and we're getting it repaired because there was a water leak behind all her poo poo that has destroyed her kitchen. After repairs she likely has about $100k of equity if she wanted to sell it, it's a 1/1 575 square foot condo so it's very tiny and she's 18 years into a 30 year mortgage so she's had a more or less fixed housing cost since she retired. She has 90k in cash and an unknown amount in a 401k that we are trying to find out the value of, plus she retired late so her social security is decent. She is asking about retirement home options which is very good. A little research shows that many places want a very large up front deposit or payment and then have a fixed rent that can go up, plus add-ons as you need more services so those costs can go up as well. She may well need to withdraw a chunk of money from her investment account (above the RMDs she's already been taking) to pay for a good spot, and then we cannot accurately predict her future monthly costs. Assisted living is expensive! A nursing home is even more expensive although she's hopefully many years away from needing that. She definitely didn't have enough money saved to "comfortably" live out the rest of her days, but she is also trying to live out her days at a higher level of comfort than she's enjoyed the last ten years, in a tiny cramped condo stuffed full of boxes of fabric and shoes and things she bought on QVC. How much ought she to have saved when she was working? She could not have predicted the particulars of where she's at now, her current health, her future health, the spike in real estate values, covid, or that she'd become a compulsive shopper. She also didn't predict her messy divorce or that her father's third wife would take the entire inheritance that she thought she'd be getting as one of her father's four natural children. It's hard to predict what your old age will be like. But she worked a decent union job for 40 years, she has health care through that union retirement, she has a 401k, she has some cash, she has some equity, and she has kids who will take care of her, so she's going to be OK. But man it'd be great if she'd saved even just another $200k, somehow. I think we all have to math things out a bit and try to make sure we're saving "enough" and weigh that against doing things we can only do when we're younger and healthier and helping our kids if we have them and all these competing needs and there's no actual true perfect right answer unless you're quite rich and/or very high income and can just save a few million and be certain. tl;dr, Subvisual Haze posted:"How much should I save?" is a question many are interested in but for which there is no simple accurate answer. Too many variables. This. Your actual life probably won't go exactly how your actuarial tables and glide paths and career plans etc. predicted. Save what you can, be prudent, invest, and then try not to worry about it too much.
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Nov 17, 2023 18:47
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MegaZeroX posted:You might want to look at this Safe Withdrawal Rate series. Its mainly aimed at early retirees, but is a good read for anyone, since it will also look at "normal" retirement horizons as well. The author recommends starting with parts 26/50, but I disagree, and I think starting at part 1 and moving on is solid, and after the first few chapters, skip around to what interests you. I've recently been told the safe withdraw rate is 8%. It's actually probably ~4.5% unless you are retiring early, please don't plan on withdrawing 8% annually
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Nov 17, 2023 18:56
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MegaZeroX posted:The problem then is: The idea that you never draw down on principal and have an infinite time horizon is an incredibly conservative retirement strategy that is not really achievable for most people.
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Nov 17, 2023 19:48
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KYOON GRIFFEY JR posted:The idea that you never draw down on principal and have an infinite time horizon is an incredibly conservative retirement strategy that is not really achievable for most people. I never said it had to be. In my original post referenced 4% and 5% failure rates in my post, and certainly the decision isn't uniform and should vary from person to person. I was just saying that going above 3.25% isn't a trivial decision and you shouldn't just handwave it away by saying you can tighten your belt. Indeed, that may be the right decision for your financial situation, but if you are trying to figure out when you should retire, you should take this situation into account. You'll need to consider a retirement horizon, acceptable risk tolerance, and how much you trust yourself to do active management (or follow some dynamic withdrawal rate rule, which each come with their own pitfalls).
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Nov 17, 2023 20:30
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drk posted:Yeah, it must be starting salary, because otherwise how is someone supposed to do this? Ramit Sethi's one weird trick to double your salary: negotiate or simply get a high-paying job.
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Nov 17, 2023 20:33
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KYOON GRIFFEY JR posted:The idea that you never draw down on principal and have an infinite time horizon is an incredibly conservative retirement strategy that is not really achievable for most people. And even the pursuit of it can lead to bizarre, counterproductive behavior. Here's an old apocryphal Wall Street joke from a hundred years ago that I'm probably botching but I can't remember where I originally read it. quote:Margaret Vanderbilt had the misfortune of walking down Canal Street one afternoon when she encountered a widowed high society friend of hers by the name of Elizabeth. This elderly friend was very colorfully attired, with her dress hiked up and garter showing. Vanderbilt stopped to chat with the widow and it eventually dawned on her that her friend had turned to prostitution at an advanced age to make ends meet. Well, maybe you had to be there. And the original joke telling was dirtier. But anyway I've actually seen close to this in real life--an uncle with a quarter million dollar IRA drove an utter jalopy and only heated his house to the point where the pipes wouldn't freeze because he refused to spend down anything more than the RMDs. My cousins pleaded with him to live more comfortably in retirement but that number on a spreadsheet was more important to him.
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Nov 17, 2023 20:36
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Cassius Belli posted:Every time this comes up I point people to Fidelity's retirement roadmap, with the caveats that it varies a lot based on what you want your post-retirement lifestyle to be like, that Roth savings are obviously much more valuable, and that having a paid-off house (or nearly so!) will cut your expenses substantially. Basically, in your early 30s, if you could turn your retirement savings into between 1 and 2 years of "covering expenses", you're doing pretty well. This is the worst fuckin' thing. Expenses and income are very different. Track your actual expenses. Do some adjustments for major things like kids or houses or whatever. Use that number.
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Nov 17, 2023 23:06
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its perfectly fine as a stick to get Americans to save more for retirement
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Nov 17, 2023 23:18
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CubicalSucrose posted:This is the worst fuckin' thing. Are you implying that when I retire I won't be maxing out my 401k every year? It is good for people to over estimate their expenses in retirement as a way to make sure they have enough to retire on.
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Nov 17, 2023 23:28
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KYOON GRIFFEY JR posted:its perfectly fine as a stick to get Americans to save more for retirement If everyone is broke at retirement, that's a lot of political pressure to make sure Social Security is funded!
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Nov 17, 2023 23:32
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