Roth or traditional 401k with PENSION?!!

[Jumpingbean]

I’m  ~30 and my husband is ~40. I max out my 401(k) and we both max out Roth IRA and we max our family HSA.

MFJ with combined income 130k
100k in retirement accounts, 50k cash (I know, I’m trying to figure out where to put this too).
Mortgage will be paid off in 3 years

 My husband will receive a pension that when combined with Social Security should supplement 75% of his current salary when he retires. He makes about $60,000 and we can comfortably live on $36,000 a year including travel. My husband likes his job and says he doesn’t want to retire but we’ll see how that goes in another 20 years. But, he is able to fully retire in 15 years without any reduced benefits.

He only has $12,000 in a Roth 401(k). For his situation, what would be best?   Should he continue to use a Roth ira or change over to traditional?. I was under the impression he doesn’t need to save very much more in his 401(k) since his pension, Social Security and Roth ira will more than cover our expenses. Plus,  we will have whatever will be in my traditional 401(k) and Roth Ira as well, which in another 20 years should hopefully be around 1 million.

Does it matter if he uses traditional or Roth for future tax purposes?

[MDM]

If you both stop all traditional contributions now and go 100% Roth, what do you expect for a marginal tax rate on 4%/yr withdrawals from your traditional accounts at retirement (before starting SS)?

Same question as above, but
- "if only one of you stop...", and
- "if you both continue with all traditional..."?

See Investment Order, if needed, for one approach to answering those questions.

[Jumpingbean]

So, if he makes $80k or higher by the end of his career then SS + pension would be >$60k per year which I assume will be taxed. That only leaves $15-20k from my side of the retirement contributions before we move up in tax brackets. Based on all the retirement calculators that I play with using just my income alone, I can safely take out $40k per year. So, it seems we will be in the same tax bracket in retirement. His Roth IRA and 401k (or similar account) doesn’t even seem necessary. Is there something I am overlooking in my thought process? I know it is always better to have more, but I can’t see us ever spending over $60-70k a year.

[MDM]

So, if he makes $80k or higher by the end of his career then SS + pension would be >$60k per year which I assume will be taxed. That only leaves $15-20k from my side of the retirement contributions before we move up in tax brackets. Based on all the retirement calculators that I play with using just my income alone, I can safely take out $40k per year. So, it seems we will be in the same tax bracket in retirement. His Roth IRA and 401k (or similar account) doesn’t even seem necessary. Is there something I am overlooking in my thought process? I know it is always better to have more, but I can’t see us ever spending over $60-70k a year.

Not sure why SS and pension are being lumped together, unless the pension pays X/yr until you choose to start SS, at which time the pension pays (X - SS)/yr...?

Anyway, you are in the 22% bracket now.  Assuming $60K/yr pension in today's dollars as "unavoidable" retirement income, you need ~$1 million in traditional accounts for a 4%/yr withdrawal to get you to the start of the 22% bracket in retirement (again using today's dollars and tax law).

Given that rough estimate, you could each continue contributing the max to traditional accounts until
- you expect growth from that time until retirement will get you to $1 million, or
- the combination of whatever partial pension and retirement account withdrawals matches your $36K/yr need,
whichever comes first.

I'd suggest adding some contingency to your retirement spending need estimate, with an eye toward market behavior such as today's.

[Jumpingbean]

“Not sure why SS and pension are being lumped together, unless the pension pays X/yr until you choose to start SS, at which time the pension pays (X - SS)/yr...?”
-in all of his retirement handbooks and online it states that the pension and SS together equal 75-80% of the final 3 years of service’s annual salary. So, they are always putting the two together.

Thanks for the advice!

[MDM]

-in all of his retirement handbooks and online it states that the pension and SS together equal 75-80% of the final 3 years of service’s annual salary. So, they are always putting the two together.

As it's more than 20 years until you'll need to decide anything about SS, there's no rush.

One or two things may change during that time. ;)