Author Topic: Clueless Financial (Retirement) Advisors  (Read 11871 times)

oinkette

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Clueless Financial (Retirement) Advisors
« on: September 24, 2014, 10:51:46 AM »
I went to a networking event last night wih a wide mix of professionals. During the night I met with two "financial advisors" who dealt specifically with retirment accounts for people.  Each worked at different very well known financial institutions and I thought it would be great to pick their brains about early retirement.

Granted they both seemed young (late 20s, early 30s) and new-ish to their occupation (about 2 years for both of them) but neither of them had even heard of the 72(t)/SEPP!  Shouldn't that be included in retirement account training 101 (at least the definition of it).

Aside from this confirming what little faith I have in most "financial advisors" I'm already a bit iffy about going the whole 72(t) route to early retirement.   I asked on this forum (and ERE) if anyone had done it and got zero responses from anyone who had.  I don't make enough to max out all my retirement options and save enough taxable to get me to actual retirement where I can finally tap into them without penalty.

ash7962

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Re: Clueless Financial (Retirement) Advisors
« Reply #1 on: September 24, 2014, 11:38:33 AM »
I've been looking into tax advantaged retirement accounts and withdrawing from them early recently too.  My understanding is the SEPP/72(t) does not give you very much money yearly.  However, you should check out the Mad Fientist's posts about withdrawing from retirement accounts early, penalty free.  He has a few, and I think this post will link to them all: http://www.madfientist.com/retire-even-earlier/

zing12

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Re: Clueless Financial (Retirement) Advisors
« Reply #2 on: September 24, 2014, 11:48:02 AM »
I am nowhere near having to seriously consider this, but my casual blog-reading has led me to believe that the roth ira conversion is far superior than the rule 72t. 72t seems like a nightmare.

Luck12

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Re: Clueless Financial (Retirement) Advisors
« Reply #3 on: September 24, 2014, 01:07:43 PM »
Let me guess, they were both of the "frat boy bro" type.  Yeah, most "financial advisors" (esp those from large institutions) are nothing but glorified salespeople who couldn't care less about you or your money, only what you can do for their money. 

GizmoTX

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Re: Clueless Financial (Retirement) Advisors
« Reply #4 on: September 24, 2014, 01:21:18 PM »
We're not using any retirement advisors but have been to a number of seminars & meetings out of curiosity. The best ones are at or almost retirement age.

oinkette

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Re: Clueless Financial (Retirement) Advisors
« Reply #5 on: September 24, 2014, 01:41:07 PM »
Let me guess, they were both of the "frat boy bro" type.  Yeah, most "financial advisors" (esp those from large institutions) are nothing but glorified salespeople who couldn't care less about you or your money, only what you can do for their money.

ha, yes, pretty much. 

Quark

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Re: Clueless Financial (Retirement) Advisors
« Reply #6 on: September 24, 2014, 02:10:06 PM »
I am nowhere near having to seriously consider this, but my casual blog-reading has led me to believe that the roth ira conversion is far superior than the rule 72t. 72t seems like a nightmare.

Would a roth IRA conversion benefit me? I make over the limit for a tax deductible tIRA. Should I just go directly with a rIRA?
« Last Edit: September 24, 2014, 02:14:36 PM by Quark »

zing12

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Re: Clueless Financial (Retirement) Advisors
« Reply #7 on: September 24, 2014, 02:31:20 PM »
I am nowhere near having to seriously consider this, but my casual blog-reading has led me to believe that the roth ira conversion is far superior than the rule 72t. 72t seems like a nightmare.

Would a roth IRA conversion benefit me? I make over the limit for a tax deductible tIRA. Should I just go directly with a rIRA?

Do you have a 401(k)? I believe that what you do is convert your 401(k) into a tIRA right after you leave your job, which is a common thing to do. Then, you can convert amounts from that tIRA into a Roth. You pay the income tax on conversion, but no penalty... so don't do it all in one year or it'll put you in a high tax bracket, do it a little each year. After 5 years, the converted funds are yours to use. You'll need funds for five years to tide you over until you can use the Roth funds though, so that could come from a Roth you've already funded, or taxable accounts.

All you do is convert a little bit of the tIRA into the Roth each year before age 59 1/2, and each year you have new funds to use.

Not sure if you can do from the 401(k) straight into the Roth. That would be better because then you could start the process before you even quit your job. Or, if you ever change jobs mid-career, you can turn that company's 401(k) into a tIRA and start with converting that before you go FIRE.

You'll have to double check what I say, because it's been awhile since I read up on this stuff.
« Last Edit: September 24, 2014, 02:36:18 PM by zing12 »

MooreBonds

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Re: Clueless Financial (Retirement) Advisors
« Reply #8 on: September 28, 2014, 11:04:56 AM »
Aside from this confirming what little faith I have in most "financial advisors" I'm already a bit iffy about going the whole 72(t) route to early retirement.   I asked on this forum (and ERE) if anyone had done it and got zero responses from anyone who had.  I don't make enough to max out all my retirement options and save enough taxable to get me to actual retirement where I can finally tap into them without penalty.

Although I haven't looked seriously into a SEPP either, when I did, I found the similar realization that another poster mentioned that it doesn't really give you access to much of a withdrawal (as the % you are allowed to withdraw is age-based, and doesn't start out with a particularly high %). So unless you have a mammoth IRA balance, you'll need some taxable funds to supplement your ER.

Also, from other poster's comments on the Early-retirement.org forum (where I mainly post and read), you'll find out that even many of the good investment houses (Fidelity, Vanguard, Schwab, TD Ameritrade) won't touch the SEPP equations for you like they would with RMDs for a traditional IRA - the reason being that the SEPP equations can be tediously complex and complicated, and the liability for being just $1 off can result in quite excessive penalties from the IRS. Penalties which Vanguard, et. al. don't want to be on the hook for.

So if you do the SEPP route, be prepared to know the formulae forwards and backwards in your sleep, because you'll likely be going it alone in your calculations.

Nords

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Re: Clueless Financial (Retirement) Advisors
« Reply #9 on: September 28, 2014, 02:49:55 PM »
I went to a networking event last night wih a wide mix of professionals. During the night I met with two "financial advisors" who dealt specifically with retirment accounts for people.  Each worked at different very well known financial institutions and I thought it would be great to pick their brains about early retirement.
Unless they have a CPA or a CFP, or possibly a CFA, I don't think there's any legal or academic reason that they would ever have encountered the term 72(t).

But I bet they've had a lot of sales training.

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #10 on: September 29, 2014, 12:31:36 PM »
http://www.bankrate.com/calculators/retirement/72-t-distribution-calculator.aspx

i used this one and the value of my accounts at retirment for tax deferred will be approx. 1.5MM using this number it allows me to withdraw 52k per year based on my retirement age of 38 and my wife 37 ... how is this not enough money and what is wrong with withdrawing that annually.

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #11 on: September 29, 2014, 12:34:29 PM »
this is exactly a 3.5% WR ... i dont know why more people dont do this vs hasseling with creating the bridge etc.

dandarc

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Re: Clueless Financial (Retirement) Advisors
« Reply #12 on: September 29, 2014, 12:40:02 PM »
this is exactly a 3.5% WR ... i dont know why more people dont do this vs hasseling with creating the bridge etc.
Because once you start, you have to take that distribution every single year - and some here will have 20 to 30 years to bridge.  Lots can change in that time.  You do have to weigh your options.

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #13 on: September 29, 2014, 12:56:10 PM »
ok so i start taking it at 52k ... and i'm 38 which gives me 21 years to bridge.  there are 2 scenarios

1.  its not enough - well if 3.5% SWR isnt enough then you should have worked longer and you would be in the same situation with the Roth IRA conversion ladder. - so you will need to supplement your income - in either scenario. 

2. its too much - in this case you just invest it back in a Trad IRA

Cheddar Stacker

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Re: Clueless Financial (Retirement) Advisors
« Reply #14 on: September 29, 2014, 01:24:12 PM »
@ boarder42, another problem is you MUST take that 52K/3.5%. Not a problem most of the time, but let's pretend it's January 2009 and your portfolio dropped from $1.5M at retirement to $850K. It hurts a lot more at that point. I don't know the rules well enough but one of two things would happen here:

1) You draw 3.5% of the 850K which is much less.
2) You draw 3.5% of the 1.5M which is 7-8% of your 850K portfolio.

The point is, you MUST liquidate some of your holdings to take the distribution and you might have to sell at a loss. This is not required in the Roth pipeline. You can simply take a year or two off if you've planned properly and have enough in cash/bonds. You'd likely still convert some, but you can take your time and choose when and how much to convert that year.

dandarc

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Re: Clueless Financial (Retirement) Advisors
« Reply #15 on: September 29, 2014, 01:55:48 PM »
Here's the deal: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments#8 - that 52K comes from a fixed amortization method or fixed annuitization method.  Key word with either of those is 'fixed'.  So you don't get COLAs.  Unless you switch to the RMD method - in which case your withdrawal each year scales with the account balance, but that gives you much less income, at least at today's interest rates.  And it is a one-time switch - you cannot go back.

So if you actually need the full 52K today, going 100% into SEPP is a bad plan - inflation is going to eat you alive with this plan.  You're giving up the biggest advantage to post-retirement tax planning - your ability to control your taxable income to a large degree.

MgoSam

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Re: Clueless Financial (Retirement) Advisors
« Reply #16 on: September 29, 2014, 01:57:13 PM »
Can someone please explain this to me? I haven't heard of 72(t),and would be interested in hearing more.

dandarc

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Re: Clueless Financial (Retirement) Advisors
« Reply #17 on: September 29, 2014, 01:58:00 PM »
And to invest it back into a traditional IRA, you have to have earned income.  Maybe part of the plan, maybe not.  Taxable accounts are not horrible either.

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #18 on: September 29, 2014, 01:58:08 PM »
i see your concern with option 2 ... option 1 happens to be a problem in both cases.  i would probably have to go find some work in the event that occured.  but in option 2 why can i not just reinvest my distribution if its too large for my pool of money.  i'm in the 15% tax bracket at this point so all earnings will now be tax free anyways in my taxable account.  i just think the "flexibility" isnt as flexible in the conversion ladder either ... as some would lead you to believe.  yes i can take less out... but at the same time i can put money back into a taxable account if my distribution is more than i want it to be.  AND with the conversion ladder i have money that is locked for a 5 year time period that cannot be used at all.  i just wish someone would do a real analysis thats unbiased of the 2 ... i really dont think either is that much better than the other from a flexibility standpoint.  and we if consider that they are equal as relevant then the SEPP wins due to simplicity of setting up and long term use. 

the one instance where i see SEPP being a bad thing is if you end up starting some business after "retirement" that is profitable b/c you have now quite possibly pushed yourself into a different bracket. 

otherwise i struggle to see the down sides of it

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #19 on: September 29, 2014, 02:01:08 PM »
Here's the deal: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments#8 - that 52K comes from a fixed amortization method or fixed annuitization method.  Key word with either of those is 'fixed'.  So you don't get COLAs.  Unless you switch to the RMD method - in which case your withdrawal each year scales with the account balance, but that gives you much less income, at least at today's interest rates.  And it is a one-time switch - you cannot go back.

So if you actually need the full 52K today, going 100% into SEPP is a bad plan - inflation is going to eat you alive with this plan.  You're giving up the biggest advantage to post-retirement tax planning - your ability to control your taxable income to a large degree.

i have other accounts..  a roth and taxable accounts.  that 1.5MM at 38 is just in 2 401k's and an ESOP that will be rolled along with the 401k's into an IRA most likely.  so theoretically when i hit 59.5 based on normal market trends i should have more in my IRAs than when i started this journey and my IRA and taxable accounts can supplement the income increases needed til that time. 

dandarc

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Re: Clueless Financial (Retirement) Advisors
« Reply #20 on: September 29, 2014, 02:05:11 PM »
Can someone please explain this to me? I haven't heard of 72(t),and would be interested in hearing more.
It is the IRS's big loophole that lets you tap your retirement accounts early.  You start taking "Substantially Equal Periodic Payments" at any age, and then must continue to take them for 5 years or until you hit 59.5, whichever is later - so be darn sure you really want to do this before you start.  This allows you to avoid the 10% penalty you'd usually get for withdrawing from an IRA early.

dandarc

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Re: Clueless Financial (Retirement) Advisors
« Reply #21 on: September 29, 2014, 02:17:49 PM »
Here's the deal: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments#8 - that 52K comes from a fixed amortization method or fixed annuitization method.  Key word with either of those is 'fixed'.  So you don't get COLAs.  Unless you switch to the RMD method - in which case your withdrawal each year scales with the account balance, but that gives you much less income, at least at today's interest rates.  And it is a one-time switch - you cannot go back.

So if you actually need the full 52K today, going 100% into SEPP is a bad plan - inflation is going to eat you alive with this plan.  You're giving up the biggest advantage to post-retirement tax planning - your ability to control your taxable income to a large degree.
i have other accounts..  a roth and taxable accounts.  that 1.5MM at 38 is just in 2 401k's and an ESOP that will be rolled along with the 401k's into an IRA most likely.  so theoretically when i hit 59.5 based on normal market trends i should have more in my IRAs than when i started this journey and my IRA and taxable accounts can supplement the income increases needed til that time.
So it is not a terrible plan for you.  However, it may not be the most efficient way to liquidate your 401Ks - you've got all the pieces to work a plan to really limit your tax liability.  Might not be worth it to you.  http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/ is a good starting point.

If you go the SEPP route, you're guaranteeing a taxable income of 52K + whatever your taxable accounts spit out.  Subtract standard deductions and you're paying taxes on ~30K (if married filing jointly) - not a lot of tax necessarily, but you could be paying no taxes at all, or at least very little with a Roth Ladder / careful use of that taxable account.

Cheddar Stacker

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Re: Clueless Financial (Retirement) Advisors
« Reply #22 on: September 29, 2014, 02:21:42 PM »
i see your concern with option 2 ... option 1 happens to be a problem in both cases.  i would probably have to go find some work in the event that occured.  but in option 2 why can i not just reinvest my distribution if its too large for my pool of money.  i'm in the 15% tax bracket at this point so all earnings will now be tax free anyways in my taxable account.  i just think the "flexibility" isnt as flexible in the conversion ladder either ... as some would lead you to believe.  yes i can take less out... but at the same time i can put money back into a taxable account if my distribution is more than i want it to be.  AND with the conversion ladder i have money that is locked for a 5 year time period that cannot be used at all.  i just wish someone would do a real analysis thats unbiased of the 2 ... i really dont think either is that much better than the other from a flexibility standpoint.  and we if consider that they are equal as relevant then the SEPP wins due to simplicity of setting up and long term use. 

the one instance where i see SEPP being a bad thing is if you end up starting some business after "retirement" that is profitable b/c you have now quite possibly pushed yourself into a different bracket. 

otherwise i struggle to see the down sides of it

Bolded for emphasis. Here's a link that analyses both a bit in case you haven't seen it yet.
http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

Maybe it's not what you're looking for boarder, but it's a good read anyway.

I disagree that my #1 is a problem with the conversion ladder. You don't have to take out (or convert) 3.5% or a set amount, or anything at all. If you have sufficient cash/bonds/real estate income you don't have to sell securities in a down market. It would hurt to skip a year in the conversion ladder, but it's very possible to do.

On my #1, you can just re-invest any excess money into a taxable account. And, you might be in the 15% bracket. But if you must take out 3.5% each year, you might not stay in the 15% bracket since you've lost control of manipulating your taxable income. I'm going to post again below to further emphasize this point.

And I have to +1 this comment from dandarc:
You're giving up the biggest advantage to post-retirement tax planning - your ability to control your taxable income to a large degree.

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #23 on: September 29, 2014, 02:25:14 PM »
i have read alot of that stuff but dont see how i can limit it unless i have a large taxable account.  i mean i would need to roll 55k a year over in today's dollars to make it last til i'm 59.5 b/c my taxable accounts are smaller.  so i'm now paying taxes on that 55k being rolled just like i would be in SEPP right?

Cheddar Stacker

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Re: Clueless Financial (Retirement) Advisors
« Reply #24 on: September 29, 2014, 02:29:15 PM »
I love that Dandarc and I just posted the same damn link 4 minutes apart.

Ok, on the taxable income front here's where I think the conversion ladder wins out in my case, and likely most cases:

When I FIRE (according to current plan at least) I will be 45, wife is 44, kid #1 is 13, kid #2 is 9. At that point they are both eligible for the child tax credit. They're both dependents. That's about it.

5 years later kid #1 will likely head off to college so I will have a big new tax deduction/credit. 4 years after that he will no longer be a dependent while #2 heads off to college. 4 years later neither is a dependent. This happens to be 13 years into a retirement that started at 45, so I'm 58.

I have a lot of capacity during the first 13 years to convert a ton from T.IRA to R.IRA filling up a big chunk of the 15% bracket and paying very low taxes. That opportunity ebbs and flows during those 13 years, it does not stay constant at 3.5% of my stache.

Beyond that 13 years I'm left with another 13 years to clear out my T.IRA to avoid RMD's. I plan to get very creative with all of this, and the SEPP does not allow me the flexibility I will desire to get this done in the most tax efficient manner.

I hope that further explains what I meant by rigid. If not, fire away with questions.

Cheddar Stacker

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Re: Clueless Financial (Retirement) Advisors
« Reply #25 on: September 29, 2014, 02:33:56 PM »
i have read alot of that stuff but dont see how i can limit it unless i have a large taxable account.  i mean i would need to roll 55k a year over in today's dollars to make it last til i'm 59.5 b/c my taxable accounts are smaller.  so i'm now paying taxes on that 55k being rolled just like i would be in SEPP right?

Yes, it's taxed the same.

But you can go a little slower than that. And you can plan based on changing variables.

I think I'll have $900K at 45 in the IRA's. So you have an additional 7 years than me to convert it, but you have a lot more to convert. Don't look at this at age 59.5, look at this at age 70.5 which is when RMD's begin. I believe there are two important ages when considering the Roth Pipeline from a tax planning standpoint. 70.5 when RMD's kick in, and whenever you begin drawing Social Security (between 62 and 70 for now). If others have a pension or some other taxable income that kicks in that date/age should be considered as well.

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #26 on: September 29, 2014, 02:34:07 PM »
i guess my issue is just that the risk on the Roth conversion ladder is a 5 year prediction in expenses... i understand that by living truly mustachian i could be in a very low tax bracket but i'm not i'm looking at 55k a year income i have to come up with ... and i guess that after all this talking i'll do an analysis of my position and post it here.  b/c my position involves all money being invested in stocks and bonds with no rentals etc.

I will have

1.5MM in IRA
230k in Roth IRA - 88k principal
150k in taxable

by current projections... i'll do a cost analysis on this and see if using the IRA conversion ladder comes out ahead or behind.

Cheddar Stacker

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Re: Clueless Financial (Retirement) Advisors
« Reply #27 on: September 29, 2014, 02:43:01 PM »
So you would have $238K in funds available already (88K principal + 150 taxable) which you would use for the first 5 years. Beyond that yeah, you would have to predict what your expenses would be since you need to convert enough principal to fund those expenses until you reach 59.5. If you had a little more in the taxable or Roth before FIRE predicting your exact expenses is less of an issue, and the more important piece is converting the proper amount to keep taxable income exactly where you want it to be.

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #28 on: September 29, 2014, 02:55:16 PM »
correct i have to find a balance between current spending and future spending to stay in the 15% bracket so my earnings on my taxable arent taxed.  so if i need 56k in 5 years that gives me only 18k i can take from my taxable the other needs to be made up by the Roth account principal.  so you can see where i feel the other system makes more sense.  b/c i dont have to fund my current life and my life in 5 years at the same time. 

Fuzzy Buttons

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Re: Clueless Financial (Retirement) Advisors
« Reply #29 on: September 29, 2014, 02:58:04 PM »
5 years later kid #1 will likely head off to college so I will have a big new tax deduction/credit. 4 years after that he will no longer be a dependent while #2 heads off to college. 4 years later neither is a dependent. This happens to be 13 years into a retirement that started at 45, so I'm 58.

Big props to Cheddar for planning out that perfect 4 year interval.  Talk about thinking ahead!  :)

Cheddar Stacker

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Re: Clueless Financial (Retirement) Advisors
« Reply #30 on: September 29, 2014, 03:01:13 PM »
I'd plan a little more safety margin into the non-IRA funds. Maybe a part-time job post FIRE or some other earnings. Maybe your last working year you don't max the 401K's and god forbid pay a bit more tax. It would certainly put my mind at ease to have more than exactly 5 years of expenses available.

Maybe some more aggressive investing in the taxable account now to build it up. Or maybe, you know, sell that boat you're always talking about to gain more capital. ; ) Just giving you shit on that last one, as long as you take me wake boarding in 10 years.

Cheddar Stacker

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Re: Clueless Financial (Retirement) Advisors
« Reply #31 on: September 29, 2014, 03:02:53 PM »
5 years later kid #1 will likely head off to college so I will have a big new tax deduction/credit. 4 years after that he will no longer be a dependent while #2 heads off to college. 4 years later neither is a dependent. This happens to be 13 years into a retirement that started at 45, so I'm 58.

Big props to Cheddar for planning out that perfect 4 year interval.  Talk about thinking ahead!  :)

That was more my wife's planning than me, but it's working out nicely so far. She's the planner with everything but finances. That's the only place she wants nothing to do with, and it just happens to be where I thrive so it's a good balance.

EscapeVelocity2020

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Re: Clueless Financial (Retirement) Advisors
« Reply #32 on: September 29, 2014, 03:04:32 PM »
Boarder, Cheddar -  another option seems to be a partial rollover of the 401k to tIRA.  This involves a lot of guesswork, and faith in www.i-orp.com, and that tax law remains substantially unchanged...  but perhaps there is a tax optimization strategy for those of us with big pre-tax accounts that utilizes both 72(t) - for what was left in the 401k - and Roth pipeline (converting from tIRA).  Like was stated early on in this thread, this topic spans retirement planning and CPA, and it's really hard to find experts in both of these areas...  maybe a new niche for you Cheddar....

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #33 on: September 29, 2014, 03:18:15 PM »
yeah thats part of why i'm thinking about this now.  b/c i want to develop the best plan and i truly think the best plan may be to start moving money to taxable earlier rather than later.  trying to develop an equation to figure this out has been tough. 

Cheddar Stacker

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Re: Clueless Financial (Retirement) Advisors
« Reply #34 on: September 29, 2014, 03:21:28 PM »
If you're anywhere near the 15% bracket just stop deferrals once you reach it. I don't know enough details about your situation to comment. If you want to provide details here or in a PM I can help.

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #35 on: September 29, 2014, 03:27:39 PM »
i'm no where near it.  our MAGI is probably north of 100k after 401k deferrals.

Cheddar Stacker

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Re: Clueless Financial (Retirement) Advisors
« Reply #36 on: September 29, 2014, 03:39:45 PM »
Well then, you should have no problem saving > $150K in taxable investments. If you change anything, maybe stop the Roth contributions so you create more access to funds quicker. How many years until 38/FIRE? I know your tax bill is high then, and you have the boating hobby, but what else are you guys spending money on? Do you have kids? It seems like there is a lot of room to save more than the $230K in principal unless you're already mid 30's. I can't remember how old you are. Keep the tax deferral, you're in a shitty spot in the tax code.

BTW - OP, sorry this thread went so crazy with 72T/Roth Pipeline talk. Hopefully you're getting something out of it though.

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #37 on: September 29, 2014, 04:02:28 PM »
i'm 28... i just found this site this year... we only spend ~50-55k of our income.  not counting mortgage principal.  boating isnt too expensive for me i estimate it costs 3k a year if you factor out the 20k tied up in a depreciating asset.  we travel alot probably 5-8k per year.  we dont have kids.  our personal property taxes are 6k probably.  house 4k and i dropped a lot of cars/boats this year so that should drop to around 5k in property.  food is low ... 400 a month on the high end.  we dont go out to eat.  but for the sake of this lets say 110k MAGI - take out 28.5% effective tax rate - leaves us around 80k.  so i save 11k in roth IRAs and then put 10k into taxable and 6k into HSA ... that gets me down to around 50-55k

havent gotten the wife onboard fully. 

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #38 on: September 29, 2014, 04:03:45 PM »
also house principal is 900 a month so take that off the total ... another 11k give or take b/c its growing ... so that puts our spending in the mid to low 40s ... the 50-55k in retirement is an increase in travel buffer.  and we may have kids at some point

boarder42

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Re: Clueless Financial (Retirement) Advisors
« Reply #39 on: September 29, 2014, 04:06:48 PM »
really just waiting til i do taxes this year to see how much we actually spent vs saved.  i am not a budget maker so i'll look at big picture at year end and see where i could have cut back.

dandarc

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Re: Clueless Financial (Retirement) Advisors
« Reply #40 on: September 29, 2014, 04:40:59 PM »
The plan can involve both the Roth IRA pipeline and SEPP payments - you don't have to do one or the other.

What if, for the first 5 years or so after retirement you manage the income to pay no taxes at all, and set up that Roth pipeline?  Defer the decision on the SEPP payments, and set up your pipeline.  Then depending on where you're at, maybe you use a portion of your IRA to buy a SEPP to help finish bridging the gap between what your pipeline can provide and what you need - barring some truly unfortunate timing, you should have yet more in your IRA, and would not need all of it to fund the required SEPP at that point.

Or maybe one of you can get access through a government job at some point along the way to a 457 plan - this is the king of retirement accounts.  Tax deferred with no early-withdrawal penalties if you've left that employer.  You can defer in it in addition to a 401k/403B if the employer offers both.  May or may not be a viable option for your career fields, but it is a very valuable tool if you can get into one.

Cheddar Stacker

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Re: Clueless Financial (Retirement) Advisors
« Reply #41 on: September 29, 2014, 05:22:14 PM »
i'm 28... i just found this site this year... we only spend ~50-55k of our income.  not counting mortgage principal.  boating isnt too expensive for me i estimate it costs 3k a year if you factor out the 20k tied up in a depreciating asset.  we travel alot probably 5-8k per year.  we dont have kids.  our personal property taxes are 6k probably.  house 4k and i dropped a lot of cars/boats this year so that should drop to around 5k in property.  food is low ... 400 a month on the high end.  we dont go out to eat.  but for the sake of this lets say 110k MAGI - take out 28.5% effective tax rate - leaves us around 80k.  so i save 11k in roth IRAs and then put 10k into taxable and 6k into HSA ... that gets me down to around 50-55k

havent gotten the wife onboard fully.

Everything except the property taxes sounds reasonable. You're doing fine. A couple small tweaks could help:

1) consider less roth and more taxable investments. Getting access to the growth sounds like an important hurdle for you.
2) in a few years consider a mortgage refi back to a 30 year term. This could free up $500+/month to add into the taxable investment account.

I'm in the same boat with higher than mustachian expenses but we make it work for us.

EscapeVelocity2020

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Re: Clueless Financial (Retirement) Advisors
« Reply #42 on: September 29, 2014, 07:38:37 PM »
The plan can involve both the Roth IRA pipeline and SEPP payments - you don't have to do one or the other.

What if, for the first 5 years or so after retirement you manage the income to pay no taxes at all, and set up that Roth pipeline?  Defer the decision on the SEPP payments, and set up your pipeline.  Then depending on where you're at, maybe you use a portion of your IRA to buy a SEPP to help finish bridging the gap between what your pipeline can provide and what you need - barring some truly unfortunate timing, you should have yet more in your IRA, and would not need all of it to fund the required SEPP at that point.

Or maybe one of you can get access through a government job at some point along the way to a 457 plan - this is the king of retirement accounts.  Tax deferred with no early-withdrawal penalties if you've left that employer.  You can defer in it in addition to a 401k/403B if the employer offers both.  May or may not be a viable option for your career fields, but it is a very valuable tool if you can get into one.
That's one thing i-orp seems to have surprised me with, that SEPP right off the bat is better, and you really have to look at lifetime taxes, also thinking of RMDs if you can't get everything out of the tIRA.  There's also social security, which makes this high-level, hard core number crunching better left to a computer.  But it seems that converting to Roth and leaving that as long as possible is better than just pipelining (and spending), while you make up spending shortfall after SEPP, dividends, etc. with long term capital gains. 

Another thing is, if it's all done correctly, unless I spend over 100k/yr (which we won't) and start paying taxes (which is even more anethema, to pay taxes out of my savings to live lavishly), I'm gonna be leaving lots to my children...  I have been spending a lot more time thinking about doing none of the above and going with C.) charitable giving. 

My wife is still very suspect, but she's only recently (these last few years) come around to the idea we could retire early.  The idea we might need to give away money to offset taxes and so that our kids aren't spoiled kinda blows her mind.  I'm still waiting for the global economy to collapse (or someone to pinch me) and bring me back to reality...

dandarc

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Re: Clueless Financial (Retirement) Advisors
« Reply #43 on: September 29, 2014, 07:44:06 PM »
Yeah it is definitely an  interesting problem - if you've got enough dough relative to spending even the 10 percent penalty is not a deal breaker

EscapeVelocity2020

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Re: Clueless Financial (Retirement) Advisors
« Reply #44 on: September 29, 2014, 07:51:56 PM »
Yeah it is definitely an  interesting problem - if you've got enough dough relative to spending even the 10 percent penalty is not a deal breaker
You know, I was wondering just earlier today what the point of the 10% early withdrawal penalty is anyways.  If people are desperate or clueless (probably the people most often penalized), they are the people who can least afford to lose an extra 10% (I know there are exceptions, but I'm betting many a 401k has been raided without any clue as to these).  And if you want to retire early and live off the money, why is this a bad thing?  It frees up a good job for a younger person.  Some of these rules and penalties seem very arbitrary and counterproductive.  I'd wager the whole system would be better off without the penalty.

dandarc

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Re: Clueless Financial (Retirement) Advisors
« Reply #45 on: September 29, 2014, 08:07:01 PM »
Back to the title of the thread - we recently cut back on our life insurance - pulled my policy entirely from our "adviser" and have asked for a big reduction in the term, and therefore the premium for my wife's policy.  He was giving me blow-back about this, and I let it slip that we currently are able to invest / pay extra on mortgage to the tune of nearly 100K / year.  His response - "maybe we should think about an annuity".  No thanks. 

Going to start putting all new contributions to our Roth IRAs with Vanguard starting next month (wife is on board with this dipping the toes in with Vanguard - hurrah!).  If all goes well, and we rollover the American Funds he sold us a few years ago, I think he might finally get the message.