The Early Retirement Years Strategy

Patrick said:
Since tax brackets are incremental, breaking the next level by a bunch doesn't change the realized rate that much.
esp in the 22/24 zone.

Looking at conversions - I see I can convert the money in the IRA to a Roth and pay the tax bill with money on-hand.
This is what happens when wealthy people write the tax laws....

So say I had $100k in an IRA, I can convert that $100K to a Roth, have a that grow tax free forever, and pay the tax bill with post tax money -
vs if I took money out of the IRA, it would be taxed on the way out. So say $100 would become $80. which could then grow taxed (say cap gains rate)
what a coup.

Is that how you read it @Fire Lord Jim ? @tonyride ?
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Yeah, pretty much. Another good thing about Roth conversion is if you plan to leave money to your beneficiaries (kids, spouse, etc.) after you die is they can leave it in the Roth account and let it continue to grow tax free without having to worry about RMD. The only thing is now with the new Roth account you can't touch the money for 5 years without some kind of penalty. Again, everyone's situation and intent is different. If all you want to do is leave a pot of money as inheritance then the 5 year rule doesn't matter because the money is for them anyway so you will never tap into it and you only convert what you want to leave them. Of course you don't convert the entire amount all in one shot. You do it annually to keep your tax burden low until you reach that dollar amount. Then just withdraw from your traditional for your own use immediately. Or you can try to convert all your money but leave enough in traditional so you can use it in the 5 years it takes before you can start using your Roth. Like I said, so many different ways to go depending on your own goals and situations.
 
Norm said:
There are far too many assumptions for me to assume I'll make it this far. I would love to say I'll be still crushing it at 90. But...reality.

Obviously not knowing when you'll kick the bucket adds a huge variable.
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I doubt I will be "crushing it" at age 90, but the life expectancy for white males living in wealthy areas of the country is quite high. It would suck to to be asking grandkids to pay my bills.
 
olegbabich said:
But what about Canada becoming a 51st State? 😂
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OMG, don't get me started. My wife is from Canada and she has a few things to say about it. I had a whole paragraph written and decided to delete it and just leave it like this because it'll just get all twisted and misinterpreted anyway. Bottom line is I think it would be mutually beneficial if Canada joins the US, financially.
 
Patrick said:
Since tax brackets are incremental, breaking the next level by a bunch doesn't change the realized rate that much.
esp in the 22/24 zone.

Looking at conversions - I see I can convert the money in the IRA to a Roth and pay the tax bill with money on-hand.
This is what happens when wealthy people write the tax laws....

So say I had $100k in an IRA, I can convert that $100K to a Roth, have a that grow tax free forever, and pay the tax bill with post tax money -
vs if I took money out of the IRA, it would be taxed on the way out. So say $100 would become $80. which could then grow taxed (say cap gains rate)
what a coup.

Is that how you read it @Fire Lord Jim ? @tonyride ?
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Mostly agree.

Under both scenarios, there is a $100k IRA distribution that at marginal tax rates, requires the same size tax payment.
Under the no-Roth scenario, you take a $100k distribution, pay the tax and invest the net. That invested amount will attract future taxes on interest, dividends, and capital gain. (If you get a capital loss, you can offset other income with it.)

Under the Roth conversion, you settle the lifetime tax bill today for the same initial tax. Pay the same tax, invest, and the future interest, dividend and capital gains are tax free. (If you have a capital loss, you can't use it to offset anything.)

Don't be steered to scenario one because you don't have the cash to pay the tax. Assuming a 22% marginal tax rate, I could do a $78k Roth conversion, a $22k IRA distribution, and face and pay the same tax on distribution as either scenario above. The only difference is that my Roth account is smaller.

My goal is to maximize the Roth account, so that all the investment gains escape future taxation. I like having a pot of money that can be grabbed tax-free. I envision collecting (a bigger) Social Security at age 70, getting some dividends and capital gains taxed at 15%, and taking RMDs. Whatever extra spending I need can be pulled from the Roth without upsetting the plan.
 
Fire Lord Jim said:
Don't be steered to scenario one because you don't have the cash to pay the tax. Assuming a 22% marginal tax rate, I could do a $78k Roth conversion, a $22k IRA distribution, and face and pay the same tax on distribution as either scenario above. The only difference is that my Roth account is smaller.
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but if you had $22K around being taxed at 15% on the gains, wouldn't it make sense to put the whole $100k in the Roth?
this all assumes the money isn't committed elsewhere of course (ie food, ammo, bikes, backhoe, combine)

I try not to think of the sunken costs (tax already paid)

gotta think about this a bit.

$100,000 @22%
Expected return on investment over next 5 years 8%/yr

scenario 1
$100,000 -> Roth
$22,000 from other investments - say 50% taxed at 15% so actual is about $24,000
Roth goes to $146,933

Scenario 2
$100,000, 78,000 ->Roth
24,000 stays in bank

Roth goes to $114,600
24,000->35,500, of which 23,500 is taxed at 15% on w/d = 32,000ish net
which is 146,xxx

hmm - kinda what I thought if the rates don't change -
it is estate tax free/exempt tho, and doesn't tax the inheritor -

Other than the rmd, and inheritance, I guess taking it at the high tax rate doesn't make sense.....
taking it at a low rate - like you are doing makes mucho sense!

I got my first 1099 today.
 
MissJR said:
not gonna lie... was really hoping this thread was about retiring early... not the early years in a "normal" retirement.

i need to sit down with a financial advisor.
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I was 59 - is that early enough?

Really early retirement strategy:
Hit lottery
Windfall inheritance from Aunt that was estranged, but you are only family left?
tiny house, off grid, make own cat food.
Steve works harder to keep you in the lifestyle you've become accustomed to (and deserve, of course)

Gotta feeling the hardest part is inflation.
 
Patrick said:
I was 59 - is that early enough?

Really early retirement strategy:
Hit lottery
Windfall inheritance from Aunt that was estranged, but you are only family left?
tiny house, off grid, make own cat food.
Steve works harder to keep you in the lifestyle you've become accustomed to (and deserve, of course)

Gotta feeling the hardest part is inflation.
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59 is early... but i would love earlier than that.
i guess i gotta start playing once in a while.
half sicilian... i've got a thousand relatives... my share wouldn't cover my lottery ticket.
i think my house is a good size... and franklin would love fresh chicken and fish.
steve will probably retire before me.
damn inflation (shakes fist at sky).
 
MissJR said:
i need to sit down with a financial advisor.
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So yeah, in looking at financial planners, there's reasonable evidence that 90% of the planners out there don't have the ability to beat the S&P indexed funds. So choose carefully. And keep in mind that financial planners will make money on you dumping your money into their vehicles, of which they get some percentage.
 
Norm said:
So yeah, in looking at financial planners, there's reasonable evidence that 90% of the planners out there don't have the ability to beat the S&P indexed funds. So choose carefully. And keep in mind that financial planners will make money on you dumping your money into their vehicles, of which they get some percentage.
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Index funds for life!

You want a fee-based FP if you go that route. Commission-based FP are just basically fancy-dressed used car salesman.
 
Norm said:
So yeah, in looking at financial planners, there's reasonable evidence that 90% of the planners out there don't have the ability to beat the S&P indexed funds. So choose carefully. And keep in mind that financial planners will make money on you dumping your money into their vehicles, of which they get some percentage.
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I don't think they try beat the market at all. They're happy trying to get you 7% and keep a % for themselves. This is the discussion we keep having. I'd rather throw it in a few low cost index funds, she's all about safety. The portion of the investments that I have managed have drastically outperformed any financial advisor we have used.
 
MissJR said:
not gonna lie... was really hoping this thread was about retiring early... not the early years in a "normal" retirement.

i need to sit down with a financial advisor.
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Been following along since my wife and I are moving closer to some type of retirement. We met with a financial advisor/planner that handles my retired parents and my brother and his family. We are D.I.N.K.S. My wife went into the meeting hoping we could do 58. He told us, you could do it, but staying to 62 would be better.
 
Cassinonorth said:
The problem is predicting the future regarding health insurance.
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This is honestly my biggest concern

JDurk said:
Been following along since my wife and I are moving closer to some type of retirement. We met with a financial advisor/planner that handles my retired parents and my brother and his family. We are D.I.N.K.S. My wife went into the meeting hoping we could do 58. He told us, you could do it, but staying to 62 would be better.
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better for who/what? that's 4 years i could be doing something other than working. i know more $$ is nice... but i also don't want to keep thinking "well... if i make it to X age, then i get more $$" and then some shit happens and i can't do the things i want to do anymore.


ETA: i'm also pretty sure i'm in the middle of a work-related mid-life crisis
 
Norm said:
So yeah, in looking at financial planners, there's reasonable evidence that 90% of the planners out there don't have the ability to beat the S&P indexed funds. So choose carefully. And keep in mind that financial planners will make money on you dumping your money into their vehicles, of which they get some percentage.
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They can't beat the index on a regular basis - i'm not sure that is what they are there for.
hell, you can invest in a target retirement account, or pay vanguard advisors to do the same thing.

Given your goals, how can you get there from here. Also makes you talk about this as a couple.
Does your current savings habit support it? Does it need a tweak?
Once you are at a certain level, other avenues open - like equity backed loans at 2% or prime minus something.
Hopefully they fill in things you wouldn't think about - like IRMAA, WEP, RMD, etc...

Plenty of online calculators for people who are good at math things, and have the time to learn.
If you are living on a budget which you wrote down, and tracking your spending, this is for you.

We had two years of detail leading in, and we did have a budget we kept to, with target dates for paying off the house, cars, etc.

It is also someone who you are paying to be accountable to.
Like a fitness coach.

I'm beating my guy too, by his percentage and a little, but he is going to take us to a Knicks game....he knows we have more money "around"
and he'd like to get it.....
 
MissJR said:
better for who/what? that's 4 years i could be doing something other than working.
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4 years in the plus column is ~50% more money in the retirement account, bridging to SS which creates less of a drag on savings, so it can keep growing (or keep up with your needs, and not deplete principal)

If ya have the ability to fund the bridge, will you be able to enjoy the 4 years pulling all that money out of an account?
if ya end up shutting down the vacations was it worth it? maybe.
 
Patrick said:
4 years in the plus column is ~50% more money in the retirement account, bridging to SS which creates less of a drag on savings, so it can keep growing (or keep up with your needs, and not deplete principal)

If ya have the ability to fund the bridge, will you be able to enjoy the 4 years pulling all that money out of an account?
if ya end up shutting down the vacations was it worth it? maybe.
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Better than I could have said it.
 
Patrick said:
4 years in the plus column is ~50% more money in the retirement account, bridging to SS which creates less of a drag on savings, so it can keep growing (or keep up with your needs, and not deplete principal)

If ya have the ability to fund the bridge, will you be able to enjoy the 4 years pulling all that money out of an account?
if ya end up shutting down the vacations was it worth it? maybe.
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I remember it went something like this.

"You could do it at 58. Mumbo jumbo mumbo jumbo if you stayed until 62 it would be better. Mumbo jumbo mumbo jumbo Social Security mumbo jumbo mumbo jumbo."
 
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