Author Topic: Fully funding retirement.  (Read 2963 times)

heybro

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Fully funding retirement.
« on: January 27, 2016, 04:36:55 PM »
Edited.
« Last Edit: February 03, 2016, 09:23:48 PM by heybro »

Heywood57

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You can send to to me.
We run a sanctuary for unwanted and neglected money.
We promise to find a good and loving forever home for it.

BarkyardBQ

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You can send to to me.
We run a sanctuary for unwanted and neglected money.
We promise to find a good and loving forever home for it.

I hate to jump on your dibs, but I want at least 10% of whatever he doesn't need.

OP, I will be sure to use your money before I use any of my own, just so you know it's not sitting on the sidelines.

Or you could feed impoverished children, or something. threesquare.org
« Last Edit: January 27, 2016, 05:08:52 PM by BackyarBQ »

GrowingTheGreen

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If you have a very long timeframe, go for a total stock market mutual fund or ETF.

aperture

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Money can buy other forms of wealth, like a healthier community and a better world.   Could this be an opportunity to deepen your charitable giving?  Best wishes, Ap.

Jeremy E.

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Many mustachians open a taxable Vanguard trade account and invest the same as they do in their other accounts (or putting less tax efficient things in this taxable account to reduce taxes), they generally consider it another retirement account on top of their 401k and IRA. It allows them to retire earlier, and also allows them money to last the first 5 years retired while they are doing the Roth IRA Escape Hatch Loophole(or Roth pipeline or Roth conversion ladder or whatever you wanna call it).

heybro

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Fully funding retirement.
« Reply #6 on: January 27, 2016, 05:58:56 PM »
Edited.
« Last Edit: February 03, 2016, 09:26:07 PM by heybro »

gliderpilot567

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Vegas, obviously.


Or seriously, invest it anyway and grow it so you can make a big donation to a worthy cause of your choice. Maybe get your name on a building somewhere!

NoStacheOhio

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Thank you.  My taxable income is below the 15% bracket so I wouldn't be paying any capital gains on this money if in bonds/stocks.  If I keep it in a high yield savings account, then I do pay taxes on the earnings.  So, this is why I want to put it in something that won't be taxed, which would be bonds and stocks I gather.

Very generally speaking, in a taxable account, you'll pay a higher percentage of bond gains in taxes than you would with stocks (same applies for the mutual fund/ETF flavors of both the aforementioned).
« Last Edit: January 28, 2016, 08:13:20 AM by NoStacheOhio »

Retire-Canada

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The fact your retirement tax advantaged accounts are maxed each year does not mean your retirement is fully funded.

Your retirement is fully funded when the total of all your liquid assets hits a target that you have determined will provide the income you need over the expected duration of your retirement.

Are you planning on working well past the date at which your are FI and able to retire?

nereo

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Thank you.  My taxable income is below the 15% bracket so I wouldn't be paying any capital gains on this money if in bonds/stocks.  If I keep it in a high yield savings account, then I do pay taxes on the earnings.  So, this is why I want to put it in something that won't be taxed, which would be bonds and stocks I gather.
I question why you are looking at it this way (looking to put it in something that won't be taxed).
What really should matter to an individual is how much return they get minus taxes.  Put another way, if you earn 10% but pay taxes on those earnings of 15%, you still net 8.5%.  Tha'ts better than finding some investment where you pay 0% in taxes but earn anything less than 8.5%.

Low cost index funds are my go-to choice for stashing post-tax money away.  Real estate (either REITs or actually owning property) is another popular method of generating income while increasing diversification and there are quite a few people who earn enough on rental income to fund >>100% of their expenses.

Retire-Canada is spot on though; maxing out your tax-advantaged accounts doesn't mean you are FI; it's having enough liquid assets to meet expenses.  There are countless ways of meeting that.

heybro

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Fully funding retirement.
« Reply #11 on: January 29, 2016, 01:28:24 AM »
Edited.
« Last Edit: February 03, 2016, 09:24:16 PM by heybro »

heybro

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Fully funding retirement.
« Reply #12 on: January 29, 2016, 01:30:56 AM »
Edited.
« Last Edit: February 03, 2016, 09:24:38 PM by heybro »

nereo

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Thank you.  My taxable income is below the 15% bracket so I wouldn't be paying any capital gains on this money if in bonds/stocks.  If I keep it in a high yield savings account, then I do pay taxes on the earnings.  So, this is why I want to put it in something that won't be taxed, which would be bonds and stocks I gather.
I question why you are looking at it this way (looking to put it in something that won't be taxed).
What really should matter to an individual is how much return they get minus taxes.  Put another way, if you earn 10% but pay taxes on those earnings of 15%, you still net 8.5%.  Tha'ts better than finding some investment where you pay 0% in taxes but earn anything less than 8.5%.

Low cost index funds are my go-to choice for stashing post-tax money away.  Real estate (either REITs or actually owning property) is another popular method of generating income while increasing diversification and there are quite a few people who earn enough on rental income to fund >>100% of their expenses.

Retire-Canada is spot on though; maxing out your tax-advantaged accounts doesn't mean you are FI; it's having enough liquid assets to meet expenses.  There are countless ways of meeting that.

Say I put it in low cost index funds and the market tanks and then I decide I want to use a good chunk of it to buy a different place to live.  I guess I think I need it in safer things and was thinking avoiding taxes was the way to go such as municipal bonds and CDs.
Ok - part of knowing where to stach your money is determining what your expected timeline is for that money.  IF you expect to spend that money within, say, >5 years, it's really not "long-term" savings and you should look at putting it somewhere very safe, like a savings account.  The lack of a good yield (return) won't matter very as much over a period of a few years, but the safety will.  If you have a longer time line, or if you are able to remain flexible (for example, if you can put off purchasing a home for a couple of years if the market tanks) then I'd put it all into the market.

Quote
Yes, I want to work forever.  I want to work at least part time forever.  Really, I am having trouble figuring out when to start going part time.  I know they say 25x your expenses in the stock market means you are FI.  But my expenses are only 10k a year.  So that means FI at $250k.  But I want to work always so I'd say FI at 125k but that seems so low.  I am not sure how to figure out how much I need before I pull back on working full time.
Congratulations!  So long as you want to work you have some measure of FI right now.  Your expenses are impressively low, so $250k is really all you'd need *providing that also accounts for infrequent but large expenses (new roof, major repair, etc).*  With such a low target you could go to part time almost anytime so long as you are able to earn at least your annual expenses, which shouldn't be too hard in your case.   All you need is a few years' worth of expenses to insure against long-term unemployment and some savings that can compound for old-man/old-woman money (total retirement someday).   I'd challenge yourself to earn at least enough extra to fund your IRA, so $15.5k/year.

How much do you have saved now outside of your condo?

Retire-Canada

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Yes, I want to work forever.  I want to work at least part time forever.  Really, I am having trouble figuring out when to start going part time.  I know they say 25x your expenses in the stock market means you are FI.  But my expenses are only 10k a year.  So that means FI at $250k.  But I want to work always so I'd say FI at 125k but that seems so low.  I am not sure how to figure out how much I need before I pull back on working full time.

I'd look at it two ways.

You don't mind what you do for work - maybe you really like it.

- save and invest $250K + inflation
- switch to part-time and work as much or as little as you like
- pull the plug fully anytime

You don't love working full-time and can't wait to be part-time.

- save and invest $125K + inflation
- switch to part-time earning at least $10K
- let you money grow and maybe throw more in when you can
- after it reaches $250K + inflation pull the plug anytime you like

I put it in low cost index funds and the market tanks and then I decide I want to use a good chunk of it to buy a different place to live.  I guess I think I need it in safer things and was thinking avoiding taxes was the way to go such as municipal bonds and CDs.

I'll be the minority opinion on this. I agree that if you have a short-term [0-5yrs] savings mission for a specific purpose than you need a less risky investment vehicle. However, what you are saying is - "I'm going to save money could be for 20yrs+....could be for 4yrs... who knows???" In that case I would say invest in the market.

Your money will grow more strongly there with capital growth and dividends. Yes a market crash soon after you start investing there would be painful if you suddenly decided you needed the money, but if that's only a problem early on. After a few years if you have invested $20K and it's worth $25K on paper....then just as you want to use it the market drops 20%...so you can only get $20K from it. You haven't lost anything, but the growth.  And you can always decide not to pull the money out and wait a bit for the market to recover if your plans don't need to be executed ASAP.

If OTOH you invest in a safe investment with low returns you'll be in good shape if you suddenly decide to take the money out after 2yrs in the middle of a market crash, but 10yrs later if you never decided to use that money you are likely way behind where you would be had you invested in stocks.

To illustrate:

- $5K invested each year for 10yrs getting 7% = $72.5K
- $5K invested each year for 10yrs getting 3% = $58.4K

Keep in mind that if you start to want to move say 2yrs from now after investing in the market for 3yrs you can always change your investments at that time to something less risky once you have a solid goal and as long as you aren't making a snap decision to move next week there will be some time to deal with whatever is going on in the market.

I can't comment on the taxes vs. CD/Muni Bonds as I am not in the US.
« Last Edit: January 29, 2016, 08:04:45 AM by Retire-Canada »