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54 and hopeful to RE and bridge the gap
Old 07-07-2015, 02:50 PM   #21
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54 and hopeful to RE and bridge the gap

Thanks. I understand the anxiety. I pulled the switch at age 45 after a long tech career too.

Helps to think about the "buckets" of money.

And I inherently applied a conservative approach to yours too - market gains, social security for you and wife, Medicare kicking in at 65 etc etc all potential upsides.

Another option if you didn't want to factor in the option to leave a lot of inheritance to your daughter is to annuitize your assets. likely a 2M dollar annuity will toss off 10k per month in today's crazy low interest rate environment. Maybe put half in an annuity to toss off a guaranteed 5-6k per month ... Plus SS at age 62 giving another 2k per month. The other million keep it invested in stocks /bonds etc- between dividends ( maybe 25k per year) cap gains ( sky is the limit) and your real estate ( frp home) you have some longevity - inflation /COLA hedges too.

FIRE - It's scary but totally worth it

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Old 07-08-2015, 07:25 AM   #22
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Originally Posted by RunningBum View Post
Some cherry picking of numbers there. He takes an example of where someone has $5000 to invest for retirement, and (correctly) points out that since Roth is after tax, you can only put $4250 in the Roth because $750 goes to taxes that year. Thus Roth and tIRA comes out the same.

But what if you have a little more than $5000 to invest for retirement, enough to invest the full $5000 in a Roth plus pay taxes? For tIRA, you can still only put $5000 in that account, so the excess is kept in a taxable account. Where any gains will eventually get taxed as you sell. Unless you can keep cap gains at 0% tax, the Roth will come out ahead assuming your investments grow, and tax rates stay the same.

Even so, he still quotes a 5-10% increase in net worth doing Roth conversions according to retirement calculators and consultants, though he says he can't figure out all the complexities and claims with his own spreadsheet he only gets 2-3% better, admitting he doesn't consider everything.

He says that doing Roth conversions add paperwork and complexity and he doesn't like that. They really don't add much at all. Sure, you have to open an account. Then, at least at Vanguard, you do a simple exchange between accounts for the conversion. At the end of the year you get a pretty simple tax form that you plug into Turbo Tax. Done. If you don't fully convert your tIRA, you have to do RMDs at 70 1/2. Guess what, paperwork and complexity!

So his argument is that doing Roth conversions add a little bit of work and don't make a major impact on your finances. Fine by me. A lot of us have FIREd by doing a lot of little things like this that add up to a big enough impact to enable us to FIRE, or maybe to be FIREd with more buffer.

+1 not that complicated and when your safe withdraw rate is 3-4% the tax free forever growth provides tremendous upside opportunity when the market returns are large! and also provide for the best wealth transfer to heirs.

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