IRAs, TSAs - Which is best for ER?

[Rita]

Greetings,

Everytime I come to this site I get so overwhelmed with emotion - the energy is so positive - I just know my plan for ER will work - but it is oh so scary to think about not having a paycheck every week.

So - what's my deal? Me - I'm 42, hubby is 48 - no kids, 2 dogs. Love to spend money on toys and are just discovering exotic travel. Still - we save lots and live below our means. I like all the discussion that savers really only need 50% or less of their gross income. I've always thought it but the "experts" all indicated I was wrong. Good thing I found this site - now I will begin to make a real plan. I am already beginning to feel the confidence build. I look forward to discussing and learning from like-minded souls.

We should have about 1.2M to 1.4M when we retire in 7 years (currently at about $750K). Hubby will get a pension of about 30K (inflation proofed), me about 12K when I hit 60 (not inflation proofed). He will not get SS as he has always worked for an organizaation that did not participate (lucky us!). I don't count on any SS for me as it will be at least 20 years before I can draw it. We think comfortable living expesnes will be about $50K with an optimum retirement spend of about 70-$80K.

I am in the process of consolidating accounts from previous employers. My big question is are 403Bs, 401ks or IRAs better for early retirees? I am having trouble finding good descriptions about early withdrawl options. It seems to me that several smaller IRAs are more beneficial than 1 great big one. What are the benefits of having money in one or the other type of account?

Ideas or thoughts are welcome.

Thanks!

Rita

 

[unclemick]

Find - The Retire Early Homepage - and read about taking money out before 59 1/2 - 72t.

In 1993, I rolled my 401k into a Vanguard IRA and looked into 72t - but it turned out that we didn't need it.

There are pro's and con's to single/mutiple IRA's and in certain circumstances keeping some 401k's.

Since I didn't use it (72t) - I won't comment further --?? perhaps some forum posters' out there did??

 

[sgeeeee]

Other posters have stated that in some states 401K's are protected from certain kinds of legal actions while IRAs are not. Other than that possible distinction, I'm not aware of any advantages of one over the other.

 

[cute fuzzy bunny]

Rolling your money into an IRA allows you to choose where it resides and what your investment options are, vs what the specific 401k/403b plans offer.

Not only can this give you a wider variety of more useful options, the cost structure for investing is also usually quite a bit better.

For example, my wifes 403b is with Lincoln Financial. They offer a reasonably decent range of mostly underperforming managed funds at an average cost of .75% annually. Migrated to a vanguard IRA, I'd have far more better performing options at 1/4-1/3 of the annual prices.

 

[sgeeeee]

Here's a link to a previous discussion about legal differences between 401Ks and IRAs. Check out the comments by Martha_M. in particular.

http://early-retirement.org/cgi-bin...t_board;action=display;num=1086725953;start=9

As TH mentioned, it is obviously better to have the money in a good IRA with low fees and acceptable choices than in a poor 401K with high fees and limited choices. That certainly needs to be considered too.

 

[cute fuzzy bunny]

(rubbing eyes vigorously as I clearly must have misread the above post)

 

[mike mahoney]

Although the vehcile is important the actual plan you have seems a bit aggressive. I would recommend you have your H work until he's 60 if you want to get anywhere near the spending limit you seek.

 

[mike mahoney]

Read The Four Pillars of Investing by William Bernstein

 

[Rita-Fire]

Greetings all,

I know know more about 72t than I ever wished. It's amazing what you can find on the web when you know what to look for. From what I can figure 403Bs or IRAs are both available to access before 591/2. The key for ER ,I think, is to not have all your money in one account. You can tap into the 72T rules for each of your accounts starting in different years. I've ordered the Four Pillars book - it sure has received great reviews. Thanks for the tips.

Although the vehcile is important the actual plan you have seems a bit aggressive. I would recommend you have your H work until he's 60 if you want to get anywhere near the spending limit you seek.

Mike - Im curious about having hubby work to age 60. I understand that $80k is an extremely agressive goal but ya gotta dream big. Realistically I think we can get to the $65-$70K arena and still be at about the 4%SWR (at least for the first 20 years). If you think that is unrealistic I would like to know - 'cause that's what I'm really counting on - anything over that is for pure fun. Even the $65K has a good amount of fun built in.

Having hubby work til 60 would be a real drag. I think we would adjust our lifestyle totally before going that route. What the heck - we lived for years in a small cabin with no running water. If we need to go back to our roots and live really simply - I think we can do it.

I'd be interested to know if folks think $65K to $70K is unrealistic. I'd prefer to figure that out now rather than later!

Thanks again.

 

[John Galt]

Hi Rita! With the ultimate fallback of a "back to our roots" lifestyle being a possibility (I understand no one wants to do it), I don't understand why either of you would still be working, nor why you need the income
level you have targeted (although I concede "just because we want to" is a valid answer). Bottom line,
when I read your first post, my first thought was
that I'd have been long gone in a heartbeat.
Remember, you can never have too much, but you can wait too long.

John Galt

 

[mickeyd]

Hey Rita,

In my opinion 401k, 403b, Traditional IRA etc are all about the same in that they are tax deferred savings. You will pay ordinary income tax when you withdrawn the funds and you must begin to RMD the money by age 70 1/2.

Your best option may be the Roth IRA in that you will not have to RMD it and all funds are ultimately are TAX FREE.

With the funds that you have saved so far and your future savings plans, coupled with the guaranteed income streams that you both have (pensions), and your likestyle, you will have no problems with adequate funding for retirement.