OT: Rule of 55 (Retirement)

[geordi]

Keep in mind that any social security funds you access can be reduced by other earned income you may make from other jobs. Look into that. Also, when you are eligible for Medicare, Medicare is not free. I pay about 10-15%, I think, from my Social Security income to pay for Medicare. You'll likely need supplemental medical insurance to. At my age (79) it runs another $7500 per year. Look at all the implications.

 

[DaveHuskiesFan]

Yes, where at all possible have money in high dividend and interest earning accounts: Most traditional banks pay 0.05% interest while online banks are in the 3, 4, 5% range.

Real estate is also powerful if you are handy and can improve a property it makes a lot of sense to have it in a 2-person LLC for best asset protection and benefits.

Roth > Traditional (IRA and 401k). As Roth means at 59 1/2 you can raid it like an ATM with no tax consequences when you do.

Unless your income now > than your expected withdrawal in retirement.

 

[Lafayette]

Keep in mind that any social security funds you access can be reduced by other earned income you may make from other jobs. Look into that. Also, when you are eligible for Medicare, Medicare is not free. I pay about 10-15%, I think, from my Social Security income to pay for Medicare. You'll likely need supplemental medical insurance to. At my age (79) it runs another $7500 per year. Look at all the implications.

Yes, true. SS includes Medicare A and B (hospital and health insurance). A few items to note:
1. Indeed as geordi (thanks!) pointed out other income affects SS payouts.
2. Some states do and some do not tax social security income. NJ where I live does not, which is odd since they tax the ever lovin's shit outta us.
3. Many of my tax clients on just social security pay no taxes

 

[Waquoit]

I'm a relatively new retiree. I love not getting up at 5:30am anymore. I planned and all, but I was still surprised how much less I spend now. Less on gas, less on coffee and lunch, less on clothes and dry cleaning. Even less on razor blades. It all adds up. Anyone find this to be true? Having a job costs a lot of money!

 

[upstater]

For any young ones here (early to mid 20s), find a City, County, Federal job that has a pension. Guaranteed money forever is so much less stressful than 401ks or savings in index funds, etc. And you can still put extra into those other things or deferred comp.

Seriously, find a place that provides a pension and go with that!

Those pension jobs are not around much anymore. I started with NY State over 2 decades ago and a pension was not an option then.

 

[upstater]

Is anyone like me, 56, 2 kids still in High School? My oldest is heading off to college next year, and my youngest will be a junior in HS this fall. So, she'll graduate in 2031, at which time I'll be 63. I imagine I'll be drawing on some equity accounts to pay off their tuition, and so I'll need another few years to pay that off.

In other words, people who had kids between the ages of 35-40 can only dream of retiring at 55 unless they are well, well, well above upper middle class.

 

[HuskyHawk]

I'm a relatively new retiree. I love not getting up at 5:30am anymore. I planned and all, but I was still surprised how much less I spend now. Less on gas, less on coffee and lunch, less on clothes and dry cleaning. Even less on razor blades. It all adds up. Anyone find this to be true? Having a job costs a lot of money!

Not quite the same, but I was working from home from roughly April 2019 to March 2025. I don't wear suits but still you save on gas, on wear on your car, on clothes and laundry, on food, coffee if you're someone who gets coffee shop coffee. Eating at home saves a lot.

Looking forward to full retirement. I really dislike having to be somewhere at somebody else's direction. Have hated that since Jr. High.

 

[HuskyHawk]

Is anyone like me, 56, 2 kids still in High School? My oldest is heading off to college next year, and my youngest will be a junior in HS this fall. So, she'll graduate in 2031, at which time I'll be 63. I imagine I'll be drawing on some equity accounts to pay off their tuition, and so I'll need another few years to pay that off.

In other words, people who had kids between the ages of 35-40 can only dream of retiring at 55 unless they are well, well, well above upper middle class.

I'm 58 and my daughter graduates college next year. I'll still retire on time. Just one semester left to pay for. With just one, and with a 529 we had and one my parents had (only grandkid for them) it was manageable, despite being an expensive school (Northeastern). Fortunately, she earned a bit too on two co-ops.

I have friends who had kids my daughter's age and now have kids who are in 5th & 6th grade while in their mid 50s, they aren't retiring much before 70 most likely. Dentist, so they do pretty well but still.

I guess you really need to hope they choose fairly affordable schools. If she had siblings we probably couldn't have paid for Northeastern, or if we did, I'd be retiring later.

 

[Minicoop69]

Yes, true. SS includes Medicare A and B (hospital and health insurance). A few items to note:
1. Indeed as geordi (thanks!) pointed out other income affects SS payouts.
2. Some states do and some do not tax social security income. NJ where I live does not, which is odd since they tax the ever lovin's outta us.
3. Many of my tax clients on just social security pay no taxes

1. Other income does affect SS payouts until you reach Full Retirement age. then at that time you can make as much as you want and it will not lower your SS payout. IF you collect SS before full retirement age then after 23,400 in a given year, your SS will reduced $1 for every $2 you earn above that limit.

 

[Waquoit]

IF you collect SS before full retirement age then after 23,400 in a given year, your SS will reduced $1 for every $2 you earn above that limit.

Does that hit go away once you hit full retirement age?

 

[Waquoit]

100%. I am 39 and wife is 38. I have a pension because of teaching and she has a pension because of her federal job. Between hers and my pension we would be at $72k per year. I feel like that amount with investments and if we get SSA, we will be doing alright in retirement.

The TSP is great.

 

[Edward Sargent]

I'd like to retire around 55 (I'm 48 now). Or at least stop working significantly. Maybe have some kind of part time job... a bartender or whatever. I have recently heard of the rule of 55 where you can retire and withdraw on your retirement saving account without penalty. Has anyone utilized this rule? Pros/Cons... things I should consider?

I have not heard of rule of 55 but did retire under a rule of 85. That rule was you could retire with your full pension if your years of service and age added to 85. So if you wanted to retire at age 55 you needed 30 years of service. In my case I took a package that gave me an additional 5 years because I was 55 with 25 years service.

 

[Minicoop69]

Does that hit go away once you hit full retirement age?

yes. Once you hit full retirement age you can make infinite amount of money and your SS payment will never lower. Unless the time comes in 2035 or so when SS hits a point where they have to lower payouts to roughly 83% or so of what you were making.

 

[HuskyHawk]

yes. Once you hit full retirement age you can make infinite amount of money and your SS payment will never lower. Unless the time comes in 2035 or so when SS hits a point where they have to lower payouts to roughly 83% or so of what you were making.

Just in case anyone is unsure, it's earned income that reduces SS payments. Most commonly from a job. Dividends, interest, capital gains do not reduce SS payouts.

 

[Lafayette]

Just in case anyone is unsure, it's earned income that reduces SS payments. Most commonly from a job. Dividends, interest, capital gains do not reduce SS payouts.

But adding to this earned income is the requirement for a Roth IRA contribution - limited by age, but also if you have $4k earned income - you can only put in $4k. If none, you cannot contribute to a Roth IRA (directly, there is always backdoor IRAs).

 

[HuskyHawk]

But adding to this earned income is the requirement for a Roth IRA contribution - limited by age, but also if you have $4k earned income - you can only put in $4k. If none, you cannot contribute to a Roth IRA (directly, there is always backdoor IRAs).

Anybody who is already retired an drawing SS is not likely to be putting money into a Roth.

 

[Excalibur]

Does that hit go away once you hit full retirement age?

No, but it's 1$ out of every $3 and the limit is about 2.5x higher.

 

[Edward Sargent]

Those pension jobs are not around much anymore. I started with NY State over 2 decades ago and a pension was not an option then.

True they have all converted to 401K models. Interesting fact that a family member of mine who worked at Fidelity told me that 30 % of employees in 401 Ks have not done a thing to move money out of cash into funds!

 

[Edward Sargent]

Just in case anyone is unsure, it's earned income that reduces SS payments. Most commonly from a job. Dividends, interest, capital gains do not reduce SS payouts.

I am living off my RMDs and while they don't reduce SS payouts they do increase Medicare IRMAAs

 

[Minicoop69]

No, but it's 1$ out of every $3 and the limit is about 2.5x higher.

This is False.

There is no earnings limit on earned income after a person reaches full retirement age.

If they retire early there is a limit and then once they reach full retirement age that limit then goes away.

 

[Lafayette]

Anybody who is already retired an drawing SS is not likely to be putting money into a Roth.

Several of my retired tax clients contribute while pulling. Just because they earn gig work still can and do.

But my post was not exclusively for retired individuals - just a general post about Roth's being based on earned income.

 

[ecasadoSBU]

People typically focus on savings and income. Both very important with the emphasis on savings. As for me, it was all about reducing spending and eliminating all debt before retirement.

No mortgage, car payments, loans etc.. is this best financial space to be in, especially in retirement.

Modest lifestyle with no debt will allow you to do practically anything in retirement with a pension and/or ss income. This doesn't really work if one likes expensive things (e.g. cars, clothes, jewelry, etc.).

Just saying since I eliminated all of my debt years ago, I have so much peace of mind, freedom and mobility in retirement. Debt elimination is a sacrifice but pays later in ways unimaginable.

"Buy what you can afford now, so you can afford to buy what you want later."

Yeah, they say the best saving is paying off debt... and it makes sense. the more you pay off, the less you have worry about. the less income you need and the less taxes you end up paying

 

[Kitaman]

I'm a relatively new retiree. I love not getting up at 5:30am anymore. I planned and all, but I was still surprised how much less I spend now. Less on gas, less on coffee and lunch, less on clothes and dry cleaning. Even less on razor blades. It all adds up. Anyone find this to be true? Having a job costs a lot of money!

Personally it feels not working I just want less, if that makes sense. Also less needs combined with fewer wants.

Its like going to the barber every 6-7 weeks instead of 4.

 

[ecasadoSBU]

Yes, where at all possible have money in high dividend and interest earning accounts: Most traditional banks pay 0.05% interest while online banks are in the 3, 4, 5% range.

Real estate is also powerful if you are handy and can improve a property it makes a lot of sense to have it in a 2-person LLC for best asset protection and benefits.

Roth > Traditional (IRA and 401k). As Roth means at 59 1/2 you can raid it like an ATM with no tax consequences when you do.

I get that. But I always have a preference to save taxes TODAY than to save taxes in the future. It maximizes your contribution and the money that grows tax free.

I say get your tax savings today, and as you get older you can buy assets that may help you offset some of the distributions from your traditional IRA/401k income.

With that said. I currently take a two fold approach: max out the pre-tax 403b and also do the max $7.5k Roth IRA contributions as a smaller side stash. But if I only had the option for one I would definitely fund the pre-tax first

 

[Lafayette]

I get that. But I always have a preference to save taxes TODAY than to save taxes in the future. It maximizes your contribution and the money that grows tax free.

I say get your tax savings today, and as you get older you can buy assets that may help you offset some of the distributions from your traditional IRA/401k income.

With that said. I currently take a two fold approach: max out the pre-tax 403b and also do the max $7.5k Roth IRA contributions as a smaller side stash. But if I only had the option for one I would definitely fund the pre-tax first

yes, if the tax savings are equivelant than the time value of money says today > future.

Many, many caveats to this though:
1. You may earn too much to get a tax break on an IRA contribution - best to do a backdoor IRA.
2. SEP-IRA is favored for small business because it maxes close to $57k
3. There are only 13 states that don't tax IRA distributions (while the IRS does): Alaska, Florida, Tenn, Nevada, S. Dakota, Texas, Washington, Wyoming, New Hampshire, Illinois, Iowa, Mississippi, Pennsylvania.
4. Most states don't tax Social Security - good to double dip on #3 so you don't get taxed on IRA nor SS at the state level.
5. IRA RMDs are taxed as ordinary income by the IRS. Can only be offset with deductions and credits with a lot riding on current tax legislation on SALT limits.

 

[Excalibur]

This is False.

There is no earnings limit on earned income after a person reaches full retirement age.

If they retire early there is a limit and then once they reach full retirement age that limit then goes away.

I should proofread before I post. I forgot the big qualifier that the limit is in the year you reach full retirement . . .

 

[Lafayette]

I should proofread before I post. I forgot the big qualifier that the limit is in the year you reach full retirement . . .

Technically it would be illegal for the US to limit earned income by age; what this is though is for Social Security payments and FRA. Earnings above lose SS payment money, but it's your choice - there is no "if they retire early" limit - just penalty on social security income.

 

[Stew Crew]

Yes, where at all possible have money in high dividend and interest earning accounts: Most traditional banks pay 0.05% interest while online banks are in the 3, 4, 5% range.

Real estate is also powerful if you are handy and can improve a property it makes a lot of sense to have it in a 2-person LLC for best asset protection and benefits.

Roth > Traditional (IRA and 401k). As Roth means at 59 1/2 you can raid it like an ATM with no tax consequences when you do.

Wouldn't it make sense to have at least enough income from traditional IRAs and 401Ks to at least get you through the 12% tax bracket? The 12% bracket goes up to around $94,000 for a married couple. Add on the $30,000 standard deduction, and you are paying minimal taxes on $124,000. Effective rate should be around 9%. That is much lower than the marginal rate you are likely paying upfront with a Roth.

 

[Bongo Fury]

I believe it is the year you turn 55. Already surpassed it but not ready to retire.

 

[Waquoit]

Anybody who is already retired an drawing SS is not likely to be putting money into a Roth.

Why not? I'd put money in a Roth IRA in a heartbeat if they let you use gambling winnings. But they insist on earned income. Like I didn't earn that win!