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No chance for ER but still trying to learn.
Old 12-21-2010, 11:15 AM   #1
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No chance for ER but still trying to learn.

Did everything wrong, used credit cards poorly, used my home as a bank, spent big money on toys and expensive hobbies. Never thought I would live this long and told myself that for many years (turned 56 yesterday). It is smacking me in the face that I am in trouble but enjoy reading success stories and ER plans on this site. Had a paid off mortgage at 30 but now have refinanced so many times that I'll have to sell and down size eventually. We have about 60K in stock but will be using it to pay off CC debt (thanks D. Ramsey for waking me up). Still making 125K a year and have about 300K in my 401K(neglected to learn how to manage this BTW). Like I said, no hope for ER but decided to at least try and retire modestly someday. Although I get left behind on many of these discussions I still manage to grab a few good ideas. Anyways....I guess I'm just venting and want to get introduced so I can enter a few discussion. Thanks.
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Old 12-21-2010, 11:26 AM   #2
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Welcome malwardt,

it looks like you have learned your lesson. You can't go back, so there is no need to beat yourself up over mistakes you did in the past. You are still young and have time to right the wrongs. What matters is what you do from here on out. This board is a fantastic resource and you should use it liberally. Again, welcome.
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Old 12-21-2010, 11:28 AM   #3
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You are not really in bad shape...probably better off than a lot of Americans your age.

If you can cut your budget and be thrifty, perhaps you can max out your 401K contribution for the next 6 years until you are 62? That should give you well over half a million in your 401K with only a modest expectation of investment returns. If you could also contribute $6000 for you (and spouse?) to a Roth it would be awesome. If you could use some of the $60,000 in your taxable account to do this by early Jan, that would be $12,000 or $24,000 in a Roth. If your house is underwater, try for a loan modification...they are handing them out like candy nowadays. The 401K and Roth are untouchable by bankruptcy, so there is another good reason to lock up as much cash as possible there.
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Old 12-21-2010, 11:50 AM   #4
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You are not really in bad shape...probably better off than a lot of Americans your age.

If you can cut your budget and be thrifty, perhaps you can max out your 401K contribution for the next 6 years until you are 62? That should give you well over half a million in your 401K with only a modest expectation of investment returns. If you could also contribute $6000 for you (and spouse?) to a Roth it would be awesome. If you could use some of the $60,000 in your taxable account to do this by early Jan, that would be $12,000 or $24,000 in a Roth. If your house is underwater, try for a loan modification...they are handing them out like candy nowadays. The 401K and Roth are untouchable by bankruptcy, so there is another good reason to lock up as much cash as possible there.
Well I do have approx. 150k of equity left. I got lucky and stepped into my first home prior to a housing boom where I live. Kinda scary thinking what if I lost my job and having to start over. I do think I have left a lot on the table as far as my 401K is concerned. I never bothered to look at my fund choices and have only contributed 10%. My employer matches up to 5%. Still learning there. As far as the Roth IRA, I was told it wasn't a good idea given my age and tax bracket. I told you I'm just learning
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Old 12-21-2010, 11:53 AM   #5
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Welcome malwardt,

it looks like you have learned your lesson. You can't go back, so there is no need to beat yourself up over mistakes you did in the past. You are still young and have time to right the wrongs. What matters is what you do from here on out. This board is a fantastic resource and you should use it liberally. Again, welcome.
It does seem like a great board and thanks for the welcome.
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Old 12-21-2010, 12:01 PM   #6
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As far as the Roth IRA, I was told it wasn't a good idea given my age and tax bracket. I told you I'm just learning
Who told you that a tax free account where you can withdraw contributions and earnings in 5 years (for your age) is worse than keeping the money in a taxable account? I hope you didn't pay a lot for that advice.
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Old 12-21-2010, 12:04 PM   #7
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Welcome to the boards, Mal.

Look at your situation as you chose to defer early retirement by enjoying the fruits of your labors early (expensive toys and experiences, it sounds like)--remember that you had fun with those things and let it go.

You are still in better shape than most people at your age, who would kill to already have $300K in their retirement accounts, $150K equity in their houses, and to have a nice salary. Your mortgage rate is probably superlow if you regularly refinance (and if not, refinance once again to get it there but don't take any more cash out), so that's good.

Run Firecalc and different scenarios to see where you'll be at 62. You can surely cut back on expenses (especially once the CC debt is gone) and save more than you think you can, in addition to the 401k and Roth. If you are still working at 65, that's not the worst thing that could happen to you.
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Old 12-21-2010, 01:38 PM   #8
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Welcome to the boards, Mal.

Look at your situation as you chose to defer early retirement by enjoying the fruits of your labors early (expensive toys and experiences, it sounds like)--remember that you had fun with those things and let it go.

You are still in better shape than most people at your age, who would kill to already have $300K in their retirement accounts, $150K equity in their houses, and to have a nice salary. Your mortgage rate is probably superlow if you regularly refinance (and if not, refinance once again to get it there but don't take any more cash out), so that's good.

Run Firecalc and different scenarios to see where you'll be at 62. You can surely cut back on expenses (especially once the CC debt is gone) and save more than you think you can, in addition to the 401k and Roth. If you are still working at 65, that's not the worst thing that could happen to you.
Yes, I'm beating myself up everyday for that. Yes my mortgage rate is low (5%) but it was the equity lines that were abused. Thanks for the reply I will check out Firecalc.
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Old 12-21-2010, 01:46 PM   #9
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Who told you that a tax free account where you can withdraw contributions and earnings in 5 years (for your age) is worse than keeping the money in a taxable account? I hope you didn't pay a lot for that advice.
A relative actually(free advice ). Obviously he understood it as much as I did but it's my fault for not doing my own homework. Could I really contribute $24K to a Roth this year if I max my 401K contributions?
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Old 12-21-2010, 02:03 PM   #10
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Welcome! A saying I've leaned on my times over the years "it's never too late to start doing the right thing". As I'm sure Dave R would say, you've got a large shovel ($125k, that's a great salary), so get at it!

good luck!
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Old 12-21-2010, 02:03 PM   #11
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You can contribute the 24K to the 2 Roths, regardless of what you put in the 401k. They are 2 separate things. You have until April 15th, 2011 to contribute the $12000 for you & your wife's Roths for tax year 2010, and then you can turn around & contribute the other $12000 into the same accounts after April 15th for the 2011 tax year. I strongly endorse Roth IRA's! Think about looking into Vanguard as a home for the Roths, too. Very low expenses. Remember that Roth contributions are post-tax contributions, so they don't have any effect on your 401k situation.
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Old 12-21-2010, 03:31 PM   #12
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You can contribute the 24K to the 2 Roths, regardless of what you put in the 401k. They are 2 separate things. You have until April 15th, 2011 to contribute the $12000 for you & your wife's Roths for tax year 2010, and then you can turn around & contribute the other $12000 into the same accounts after April 15th for the 2011 tax year. I strongly endorse Roth IRA's! Think about looking into Vanguard as a home for the Roths, too. Very low expenses. Remember that Roth contributions are post-tax contributions, so they don't have any effect on your 401k situation.
Great info. I'm starting to feel like I have some sort of plan. Not to wear out my welcome to soon but my wife and I were gifted IRA's 20 yrs ago(never contributed anymore) they both are around 15K each. Would it be possible to roll those over into a Roth or would the tax be more than if I kept them there until withdrawal?
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Old 12-21-2010, 03:43 PM   #13
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Somebody else will have to answer that one...I'm still in the "accumulation" phase! I don't have any traditional IRA's so it's not an issue I've spent any time on. My retirement in a couple of years will be based on a couple of pensions (federal and military) a couple of smaller 401ks (mine & wife) and a couple of Roth IRA's. We won't be living like the Rockefellers, but we'll make it.
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Old 12-21-2010, 03:48 PM   #14
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Great info. I'm starting to feel like I have some sort of plan. Not to wear out my welcome to soon but my wife and I were gifted IRA's 20 yrs ago(never contributed anymore) they both are around 15K each. Would it be possible to roll those over into a Roth or would the tax be more than if I kept them there until withdrawal?
I would rather see you invest $24K in jan in brand new Roth contributions for you and your wife for tax year 2010, 2011 than pay tax in a 28% bracket to roll over your current IRAs to Roth, unless those IRAs have a very high cost basis (were they gifted to you as non deductable IRAs? I am not even sure how you gift someone an IRA anyway).

Depending on when you want to collect SS and what type of lifestyle you desire, I think you could retire at 62 or a bit later with close to 1 million in cash investments. I would be tempted to say start collecting SS for you and your wife at 62 before the government spends it all for you.
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Old 12-21-2010, 03:54 PM   #15
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I would rather see you invest $24K in jan in brand new Roth contributions for you and your wife for tax year 2010, 2011 than pay tax in a 28% bracket to roll over your current IRAs to Roth, unless those IRAs have a very high cost basis (were they gifted to you as non deductable IRAs? I am not even sure how you gift someone an IRA anyway).

Depending on when you want to collect SS and what type of lifestyle you desire, I think you could retire at 62 or a bit later with close to 1 million in cash investments. I would be tempted to say start collecting SS for you and your wife at 62 before the government spends it all for you.

Can you contribute for both tax years (2010 & 2011) in January? I thought you had to wait till April 15th to do the 2011 contribution.
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Old 12-21-2010, 04:22 PM   #16
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I would rather see you invest $24K in jan in brand new Roth contributions for you and your wife for tax year 2010, 2011 than pay tax in a 28% bracket to roll over your current IRAs to Roth, unless those IRAs have a very high cost basis (were they gifted to you as non deductable IRAs? I am not even sure how you gift someone an IRA anyway).

Depending on when you want to collect SS and what type of lifestyle you desire, I think you could retire at 62 or a bit later with close to 1 million in cash investments. I would be tempted to say start collecting SS for you and your wife at 62 before the government spends it all for you.
They were just funded for us. As far as lifestyle in retirement I'll have a better idea as soon as I get used to this present lifestyle reduction...lol
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Old 12-21-2010, 05:04 PM   #17
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Great info. I'm starting to feel like I have some sort of plan. Not to wear out my welcome to soon but my wife and I were gifted IRA's 20 yrs ago(never contributed anymore) they both are around 15K each. Would it be possible to roll those over into a Roth or would the tax be more than if I kept them there until withdrawal?
If you do the rollover before 12/31 of this year, you can spread the tax over two years, not one. Sounds like you have some work to do........

As far as tax rates go, your guess is as good as mine for the future. However, we have the Bush tax cuts for 2 more years, so why not?
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Old 12-22-2010, 02:47 AM   #18
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Put the little things right and the big ones will follow.
Start tracking your spending TODAY with high detail. A lot of people incl. myself notice that the expenses get down automatically for some % just by tracking. When you know exactly where your money goes start implementing corrections. Every $ counts.

I would leave some of my savings for (a real) emergency, and eliminate that part of the CC debt by aggressively saving within the next year. For many it is easier to save to get rid of debt than to save up to create a new emergency fund.

If your current house is too expensive, rightsize asap. It will also cut indirect cost like heating, tax etc.
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