OT: Rule of 55 (Retirement)

[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!

 

[AtlantaHusky]

Love this so much more than telling Danny how to manage the team etc posts.

Anyways I'm 52 and don't have a hard timeline and less responsibilities than most. I've starting watching this guy on youtube he has a lot of scenarios covered and offers services.

Drew Blackston, CRC®

TO, THROUGH, & PROTECTING Your Ability to STAY in Retirement! Hi, my name is Drew Blackston and I am the founder of Pearl Wealth Group and the Your Financial EKG™ financial planning systems. I started my career in 2009 when the stock market had just suffered the worst crash since the Great...

www.youtube.com

I'm also evaluating leaving US to go to Asia where I've never been to live there for a few years and see how it goes. Money can go a lot longer if you are in the right position. A lot aren't, totally, but I may be.

 

[husky429]

Love this so much more than telling Danny how to manage the team etc posts.

Anyways I'm 52 and don't have a hard timeline and less responsibilities than most. I've starting watching this guy on youtube he has a lot of scenarios covered and offers services.

Drew Blackston, CRC®

TO, THROUGH, & PROTECTING Your Ability to STAY in Retirement! Hi, my name is Drew Blackston and I am the founder of Pearl Wealth Group and the Your Financial EKG™ financial planning systems. I started my career in 2009 when the stock market had just suffered the worst crash since the Great...

www.youtube.com

I'm also evaluating leaving US to go to Asia where I've never been to live there for a few years and see how it goes. Money can go a lot longer if you are in the right position. A lot aren't, totally, but I may be.

I don't know what "CRC" is, but can we all agree the acronym nonsense in the financial world is ridiculous? Save that nonsense for an actual degrees and for nerds in email signatures.

Ironically, my highest degree you've probably never heard of.

Signed,

Husky429, SYC

 

[Waquoit]

yes. Once you hit full retirement age you can make infinite amount of money and your SS payment will never lower.

One more question coop if I may. I know the basic rules, start early and pay 1 for 2 after a given amount. But just to make sure, if you start early then reach your FRA, that penalty goes away? Starting early doesn't hang that burden on you for life? I don't have that part nailed down yet.

 

[Minicoop69]

One more question coop if I may. I know the basic rules, start early and pay 1 for 2 after a given amount. But just to make sure, if you start early then reach your FRA, that penalty goes away? Starting early doesn't hang that burden on you for life? I don't have that part nailed down yet.

If you claim SS early like at 62 or 64 or before your Full Retirement Age (FRA) you are locked in at that amount for life. When you reach your FRA then the penalty does go away and your earned income earning potential is unlimited.

You can into SSA.gov and find out what your approximate SS payment would be at each age and that can help you decide whether to retire early or not. If you decide to retire before 65 and start claiming SS, you cannot get Medicare until age 65, so that is a big hiccup of people claiming SS early.

 

[Waquoit]

If you claim SS early like at 62 or 64 or before your Full Retirement Age (FRA) you are locked in at that amount for life. When you reach your FRA then the penalty does go away and your earned income earning potential is unlimited.

Thanks again. I already started and I'm good with the reduced payouts. If I waited until my FRA, my break-even point at current rates would be when I'm in my 80's. Bump that.

 

[Edward Sargent]

Sometimes it pays to take on some debt as in our case when we bought a second home to be close to our children and grandchildren and out of Florida during hurricane season we had enough to pay cash but got a 3% mortgage and banked the money where we made out better than 3% in the market. Credit card debt is another beast altogether

 

[Minicoop69]

Thanks again. I already started and I'm good with the reduced payouts. If I waited until my FRA, my break-even point at current rates would be when I'm in my 80's. Bump that.

Exactly. My wife works for SSA and she basically says that you should start ASAP because the break even point is so far in the future. If you don't need it then invest it and let it grow.

 

[Waquoit]

Exactly. My wife works for SSA and she basically says that you should start ASAP because the break even point is so far in the future. If you don't need it then invest it and let it grow.

Yes, now I can leave the money I would need to cover my nut in the TSP.

 

[Lafayette]

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.

There's too many factors to say yes or no to you. First would be if IRA contributions over the years netted tax deductions or if they did not. Any year that it does not is a year to put money into a Roth thru a backdoor approach.

Then I question why you are looking at tax brackets, and not what amount of money you need in retirement each year. Some want to travel and go nuts, others are content to stay small, save, and live on less. There's also medical costs which are hard to predict and medicare a and b from social security will certainly help so that is why some take SS earlier than others.

Also some states don't tax IRAs but most do; most states don't tax social security but some do.

And maybe you have some brokerage to take tax losses in if you take in too much from IRAs and 401ks, but if you took money from a Roth you wouldn't need to shelter it.

So lot's of scenarios to consider.

 

[Kolumbo]

You can withdraw at any age without penalty, any age

As long as your withdrawals are calculated based on your remaining life expectancy

------------------------------------------

5. Substantially Equal Periodic Payments​

If you’re considering early retirement or need a steady income stream before reaching 59 1/2, you should learn about the Substantially Equal Periodic Payments (SEPP) exception.

It allows you to withdraw IRA funds at no penalty by setting up a series of substantially equal payments based on your life expectancy or the joint expectancies of yourself and your designated beneficiary.

To qualify, you must continue these payments for at least 5 years or until you reach age 59 1/2, whichever comes later.

The amounts you withdraw are calculated using one of three IRS-approved methods.

As you’d expect, this option is complex and requires careful planning to avoid potential pitfalls.

Be careful because this is absolutely not accurate. There may be exceptions but many people get hit with penalties they weren't expecting. One should always consult an expert in financial planning.

 

[Kolumbo]

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 a tad older with younger kids. My retirement package includes a small wooden studio with no windows.

 

[willie99]

Be careful because this is absolutely not accurate. There may be exceptions but many people get hit with penalties they weren't expecting. One should always consult an expert in financial planning.

OMG, please

I described what one had to do and why, and it's 100% accurate. Yes, follow the rules and yes it may not be the wisest thing to do.

But it absolutely can be done

 

[Kolumbo]

OMG, please

I described what one had to do and why, and it's 100% accurate. Yes, follow the rules and yes it may not be the wisest thing to do.

But it absolutely can be done

I'm just saying, that statement was flat out false. One cannot simply withdraw at any age without penalty. Sure you can go through some complex process but by and large, people pay penalties when they withdraw early. That's what she said.

 

[willie99]

I described what one had to do and why. You must have missed that. I described it accurately in post 3, then I elaborated in post 7

Substantially Equal Periodic Payments​

If you’re considering early retirement or need a steady income stream before reaching 59 1/2, you should learn about the Substantially Equal Periodic Payments (SEPP) exception.

It allows you to withdraw IRA funds at no penalty by setting up a series of substantially equal payments based on your life expectancy or the joint expectancies of yourself and your designated beneficiary.

To qualify, you must continue these payments for at least 5 years or until you reach age 59 1/2, whichever comes later.

The amounts you withdraw are calculated using one of three IRS-approved methods.

As you’d expect, this option is complex and requires careful planning to avoid potential pitfalls.

 

[Kolumbo]

I described what one had to do and why. You must have missed that. I described it accurately in post 3, then I elaborated in post 7

Substantially Equal Periodic Payments​

If you’re considering early retirement or need a steady income stream before reaching 59 1/2, you should learn about the Substantially Equal Periodic Payments (SEPP) exception.

It allows you to withdraw IRA funds at no penalty by setting up a series of substantially equal payments based on your life expectancy or the joint expectancies of yourself and your designated beneficiary.

To qualify, you must continue these payments for at least 5 years or until you reach age 59 1/2, whichever comes later.

The amounts you withdraw are calculated using one of three IRS-approved methods.

As you’d expect, this option is complex and requires careful planning to avoid potential pitfalls.

I saw that. But your first statement made it sound like the rule rather than the exception. I'd say most people who take an early withdrawal do so because they need the cash for something specific and they pay the penalties. If they are wealthy enough to retire that early and spread the payments over that long a period of time, then they probably have quite a few other financial resources making the early withdrawals unnecessary in the first place.