Author Topic: Case study: do I already have enough in my post 59.5 retirement accounts?  (Read 5307 times)

ac

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Age = 33
4 person family, single income

Income
salary = $113k/yr
employer match to a SIMPLE IRA = $3.3k/yr
Total annual = $116.3k/yr

Current expenses
Monthly average = $4k
Includes home mortgage with $98k left on 15 yr mortgage 3.125%
After mortgage is paid off, monthly spending will drop to $3,300

Assets: Amount & description
home value = $140k
cars = $15k
retirement investments post 59.5 (ira's) = $124k
investments accessible at any age = $213k

Liabilities: Amount - rate - description
home mortgage with $94k left on 15 yr mortgage 3.125%

Specific Question
Do I already have enough in my post 59.5 year old accounts?

If I assume 11% stock market growth, I calculate $1.68 Million at age 60 just with the $124k I have currently invested. 

If I assume 3.7% inflation (that's the number from 1950 to 2014), my current annual spending, and an effective tax rate of 10%, the $1.68 Million outpaces spending and grows to $3.5 Million by age 90.

If this calculation is sound, I'll put much less money into post 59.5 yr retirement accounts and more into investments I can withdraw from earlier in life penalty free.

Thanks for the help!

ac

matchewed

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Depends on your plan. Some plans have a great deal in retirement accounts some don't. How do you plan on drawing down from your assets?

ac

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I assume that when I'm 60 I'll withdraw how much I need every month.  Sell today's equivalent of about $3,000 every month and use it for spending. 

Is there more to it?

lauren_knows

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If I assume 11% stock market growth, I calculate $1.68 Million at age 60 just with the $124k I have currently invested. 


That is an amazingly lofty assumption.  Using historical stock information, a 26yr period, and a $124k start point... you're going to average with $750k in today's dollars by age 59.

Gone Fishing

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Is your IRA mony in a Roth or Traditional, or both?  Early on, I made the mistake of thinking that I could not withdraw anything from my ROTH IRA so I quit contributing for a while as I was pursing early retirement, I was wrong, you can withdraw your CONTRIBUTIONS with no taxes or penalties (with a few conditions), just not your EARNINGS.  You can also put money in a 401(k) or Traditional IRA, then roll it to your ROTH at a later date when you are in a lower tax bracket, almost a certainty if you retire early. You are probably right at the 15/25% tax bracket line after deductions so tax planning can have a profound impact on your savings results.  Unfortunatly, this type of tax planning can get real complicated real quick.  If you take the time to REALLY educate yourself on retirement accounts and tax implications, there are very few cases where it doesn't make sense to continue funding tax advantaged retirement accounts, at least to some degree, vs fully taxable accounts. 
« Last Edit: August 14, 2014, 11:48:54 AM by So Close »

ac

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If I assume 11% stock market growth, I calculate $1.68 Million at age 60 just with the $124k I have currently invested. 


That is an amazingly lofty assumption.  Using historical stock information, a 26yr period, and a $124k start point... you're going to average with $750k in today's dollars by age 59.

I think you are adjusting for inflation.  I am not since the post 59.5 yr old money will grow untouched over that 26yr period.

welliamwallace

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I agree with "So Close". You should absolutely not stop contributing to IRAS and 401ks just because your number will get you from 60 to infinity. There are many ways to access that money after early retirement, but before age 60, and the tax free growth is too awesome to pass up.

ac

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Is your IRA mony in a Roth or Traditional, or both?  Early on, I made the mistake of thinking that I could not withdraw anything from my ROTH IRA so I quit contributing for a while as I was pursing early retirement, I was wrong, you can withdraw your CONTRIBUTIONS with no taxes or penalties (with a few conditions), just not your EARNINGS.  You can also put money in a 401(k) or Traditional IRA, then roll it to your ROTH at a later date when you are in a lower tax bracket, almost a certainty if you retire early. You are probably right at the 15/25% tax bracket line after deductions so tax planning can have a profound impact on your savings results.  Unfortunatly, this type of tax planning can get real complicated real quick.  If you take the time to REALLY educate yourself on retirement accounts and tax implications, there are very few cases where it doesn't make sense to continue funding tax advantaged retirement accounts, at least to some degree, vs fully taxable accounts.

My wife and I each have both Roth and Traditional IRAs. 

Good point about withdrawing contributions.  Can you only withdraw contributions penalty free from a Roth because you've already paid taxes on it? 

Can I not withdraw contributions from a traditional penalty free?

lauren_knows

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If I assume 11% stock market growth, I calculate $1.68 Million at age 60 just with the $124k I have currently invested. 


That is an amazingly lofty assumption.  Using historical stock information, a 26yr period, and a $124k start point... you're going to average with $750k in today's dollars by age 59.

I think you are adjusting for inflation.  I am not since the post 59.5 yr old money will grow untouched over that 26yr period.

It doesn't matter where you adjust for inflation, you still have to do it.  You're adjusting for it at the end when you figure out spending.  The fact is, 11% nominal growth is high.

ac

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If I assume 11% stock market growth, I calculate $1.68 Million at age 60 just with the $124k I have currently invested. 


That is an amazingly lofty assumption.  Using historical stock information, a 26yr period, and a $124k start point... you're going to average with $750k in today's dollars by age 59.

I think you are adjusting for inflation.  I am not since the post 59.5 yr old money will grow untouched over that 26yr period.

It doesn't matter where you adjust for inflation, you still have to do it.  You're adjusting for it at the end when you figure out spending.  The fact is, 11% nominal growth is high.

Yes, this is 6 of one, half dozen of the other

lauren_knows

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http://www.moneychimp.com/features/market_cagr.htm     CAGR of the S&P500 is more like 9%.  With the numbers you present, using historical data, all I'm saying is that you're falling short.  If you are more optimistic about the future market than the last 150 years, then you can make the decision to stop saving.  But, there is also the argument that you should just keep dumping into the 401k anyways, and withdraw it in early retirement through other methods  (72t, Roth pipleline, etc).

ac

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Thanks to both of you for pointing out the roth pipeline!