Author Topic: Saving too much for retirement?  (Read 2214 times)

Beach_Stache

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Saving too much for retirement?
« on: September 09, 2017, 11:07:07 AM »
I am 37, DW is 38, we have 1 home/mortgage, 3 young boys and we are both working.  Combined income is around $225k, our assets are:
TSP - 450k (max out each year)
401k - 200k (max out each  year)
Roth IRA's - $120k (will both be maxing out each year now)
Post-tax investment - $65k (about $600/month)
Savings - $25k (About $300/month)
Home - Worth around $460k or so, $300k left on mortgage, making aggressive payments, should be done in hopefully 10 years
529 plans - $45k, contribute about $750/month for our 3 boys, should end up being enough to fund most of College but not all
By the time our 1st son goes to college our house should be paid off.

I love looking at finance calculators, and with our current TSP/401k/Roth IRA (we max out all now - and plan on doing so for the rest of our working careers) at 8% interest and not putting another cent into any retirement plan, after 20 years we'll be at like $3.7M at 8% interest.  I realize a crash is coming at some point, and we will likely not continue to get 8% the next 20 years, but I have no idea.  I like saving and feeling good about our money in retirement, and I currently enjoy my job and don't plan on retiring for another 20 years when our last is out of college, but could end up continuing to work, no clue what I'll be feeling like then.  I could retire my DW in 10 years but honestly she's a busy body as well so I could see her wanting to keep working as well. 
My plan was for us to retire at 58 (at least her anyways) and then take her 401k money and slowly start doing a conversion to her Roth IRA each year for the next 10-12 years while my TSP continues to build up.  I'll have a pension when I retire of maybe $35k/year (if I continue on another 20 years) and that would leave us around 12 years to do slow Roth IRA conversions on some of the money at a lower tax rate, up until age 70 when we'd both have RMD's on the TSP/401k. 

I've been so focused on just saving really since I started working that I just started to think maybe we'll have too much in our tax deferred TSP/401k that we'll be in a much higher bracket in our older ages.  Even if DW retires in 10 years we may still have that issue, unless we both retired at 50.  I personally don't see myself retiring before 58 (30 years in gov't) unless I don't enjoy the work I'm doing, and that is a possibility, all it takes is 1 bad boss.  But should I be switching around investment/savings strategy?

Until now I've been maxing out TSP/401k every year of work, my wife just started maxing out the last few years, I've been maxing out Roth IRA since I started working and DW just did her Roth for the first year this year.  Should I be focused more on the Roth IRA's and then post-tax investments, or just continue the course knowing that 8% for the next 20 years may be wishful thinking and then have the luxury of worrying about taxes at that point?

Or maybe I need to start embracing the idea of retiring DW sooner, and myself as well? 

MDM

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Re: Saving too much for retirement?
« Reply #1 on: September 09, 2017, 07:38:52 PM »
Should I be focused more on the Roth IRA's and then post-tax investments, or just continue the course knowing that 8% for the next 20 years may be wishful thinking and then have the luxury of worrying about taxes at that point?
Do you have Roth TSP and/or Roth 401k options?

Doubtful that forgoing tax advantaged (either traditional or Roth) in favor of taxable investing will be best.

It is possible that you are one of the relatively few for whom Roth will be better than traditional.  See Most TSP Participants Should Switch To the Roth TSP for some thoughts.

See Investment Order for some thoughts on how you might estimate your marginal withdrawal rate in retirement, and some considerations about making the "wrong" traditional vs. Roth choice.


Beach_Stache

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Re: Saving too much for retirement?
« Reply #2 on: September 10, 2017, 05:08:19 AM »
Thanks for the input, I had thought about the Roth TSP, but I was under the impression last time I researched it that you could not have a Roth TSP and a Roth IRA as well, but you can have a regular TSP and Roth IRA and max out both.  I also didn't like that the Roth TSP had RMD's, and I was also under the impression that you could not roll over the Roth TSP to a regular TSP, but maybe that thinking is obsolete if I have a large TSP account and can just roll that over.  We're in the 25% tax bracket now, slightly creeping into 28%, so maybe it is time to check out the Roth TSP again if I can also contribute to my Roth IRA.  It could possibly affect our tax status as well though if Roth TSP is taken post-tax so my MAGI would be higher I believe.  I guess I've got some research to do on that, I just don't want to not be able to max out Roth IRA as well.

MDM

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Re: Saving too much for retirement?
« Reply #3 on: September 10, 2017, 10:12:38 AM »
I was under the impression last time I researched it that you could not have a Roth TSP and a Roth IRA as well, That is not correct.

but you can have a regular TSP and Roth IRA and max out both.  Yes, you may do that also.

I also didn't like that the Roth TSP had RMD's, True, but you can roll a Roth TSP into a Roth IRA.  You may have to roll your traditional TSP into a tIRA at the same time - check the TSP rules.

and I was also under the impression that you could not roll over the Roth TSP to a regular TSP, Probably true, but why would you want to do that anyway?

We're in the 25% tax bracket now, slightly creeping into 28%, so maybe it is time to check out the Roth TSP again if I can also contribute to my Roth IRA.  It could possibly affect our tax status as well though if Roth TSP is taken post-tax so my MAGI would be higher I believe.  I guess I've got some research to do on that, I just don't want to not be able to max out Roth IRA as well.

Doing some research is good.  I'm guessing you are still at a point when traditional TSP contributions will be better, but much closer than most people to when Roth will be preferable.  It depends on those marginal tax rates.

yachi

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Re: Saving too much for retirement?
« Reply #4 on: September 10, 2017, 06:47:57 PM »
Two thoughts:
1. Re: 8% 
If you aren't accounting for inflation separately, you should use an after-inflation interest rate.  Otherwise, your projections will look too rosy.
2.  Re: saving too much
The hidden agenda of this website is to get rich by reducing our impact on the environment.  This way you get to retire, and the planet is happier too.  If you're keeping your income the same, you'll either save the money or spend the money.  If you aren't missing any of the things money can buy, then you aren't saving too much.
By way of comparison, if I wait until my son graduates college in 18 years, my nest egg will have grown past 25x my current income, and I'm still saving.

Acastus

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Re: Saving too much for retirement?
« Reply #5 on: September 11, 2017, 08:57:26 AM »
You probably need the income reduction from the regular 401k to qualify for a Roth IRA. Married income limit is $195k. You could always do a back door Roth from a nondeductible IRA, but your current method is simpler. I would stick with it as long as you don't earn out.

Goldy

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Re: Saving too much for retirement?
« Reply #6 on: September 11, 2017, 08:41:49 PM »
I'm on track to have a silly amount of money in 20 years but I don't count on it yet because life happens.  We still max our retirement savings because if we get laid off I think it's better to have the retirement savings box checked rather than need to scramble later in life.  If I did get laid off I would work on converting as much money into a Roth as possible so it could grow tax free instead of turning into a massive RMD when we get old.