Ratio of taxed to tax deferred savings at ER

[jerryo]

At 56 (and hoping to retire soon) I'm about 45/55 taxed/tax deferred without including house equity and about 60/40 including the house.

 

[region2]

A little off the subject. But not really. I first thought I was a millionaire when my net worth broke a mil. I soon will be a millionaire II when my nest egg of taxable + tax deferred savings hits the mark. But, oh no, I recently read in Forbes magazine that you are not really a millionaire until your taxable savings (not including residence equity) hits a million. AAAAAAAAGGGGHHHH. I doubt if I will ever see that.

And then recently, again, Forbes says you are not even rich until your taxable savings (no residence equity) gets to 5 Million dollars.

GEEEZ.

 

[justin]

However, it still doesn't avoid the problem of if you deplete your IRA with SEPPs you'll have to pay the 10% penalty retroactively. This has made me think that if you invested in FI or an annuity inside the IRA so that the return was guaranteed to be more than your required payments you could avoid the possibility of depleting the IRA. What do folks think?

There is an exception in 72(t) that says if you violate the SEPP rule because you're IRA is depleted to a zero balance, you WILL NOT have to pay the 10% retroactive penalty. You just don't get withdrawals anymore.

That's when you SEPP your other IRA(s) to get the income you need.

Having some taxable accounts will certainly help out with liquidity and cash flow issues. For example, if you need to buy a new car or a house, you could use your taxable accounts to fund that big lump sum expense.

Otherwise, the amount you are taking out of the IRA with the SEPP will probably be higher than your SWR anyway.

 

[free4now]

Personally only about 10% of my net worth is tax-deferred. Partly because I invested my tax-deferred accounts in the most volatile investments (as I should) and lost a bunch in the dotcom bust. And partly because I got a lot of savings from taxable stock options.

 

[2B]

I can see doing a 72t for 5 years and using minimum distributions, but I'd get worried at doing it for say 15 years with the bigger payout methods. What investment mix do people use in 72ts, can you use an annuity in them?

Annuities provide no value inside an IRA (if ever). You can create a pseudo-annuity with a much better interest rate and no fees (except some transaction costs setting it up) by buying laddered CD and bonds. The money will be there when you want to withdraw it. You can set it up for any period you want.

 

[Gone4Good]

Looking to retire in 3 years at 38. My projections claim that I'll have about 13% of the portfolio in tax deferred and the rest taxable at that time.

 

[rs0460a]

A little off the subject. But not really. I first thought I was a millionaire when my net worth broke a mil. I soon will be a millionaire II when my nest egg of taxable + tax deferred savings hits the mark.  But, oh no, I recently read in Forbes magazine that you are not really a millionaire until your taxable savings (not including residence equity) hits a million.   AAAAAAAAGGGGHHHH. I doubt if I will ever see that.

Yes, it's not part of this subject string, but you do bring up something that constantly crops up - that is "what you actually have"...

I look at it in a slightly different manner....

What if you were to apply for a job, and the base salary was $xxx.  Would you ask the company what was the "net salary?"  Of course not, since net is different for each indivudial.

Now, what if your "favorite brother in law" (or your father in law!) asked you how much you made last year?  Would you quote your net (after taxes, deductions, 401k, IRA, etc, etc, etc?)  Of course not!  You would tell (either of them) your "gross salary".

For me, that's a "constant measurement".  Some people on this thread are looking at the value of their home as a "non taxable holding".  I don't.  A home is somewhere where you "hang your hat" and regardless of the value, you still need somewhere to live.  Therefore, it's not part of my "gross" or "net" "Net Worth".  If I sell it (downsize, move to an apartment, move in with my father-in-law!) I'll add whatever value is left and add it to my net worth.

Unless you can "cash it in" tomorrow (regardless of being taxable, or non-taxable), I don't consider it in my calculation...

- Ron

 

[nun]

Looking to retire in 3 years at 38. My projections claim that I'll have about 13% of the portfolio in tax deferred and the rest taxable at that time.

I bet there's a good correlation between having a high proportion of after tax savings and
"high net worth". Me I'm currently 66/34 tax deferred to taxed ratio, no stock options, but 20 years of contributions to 401ks etc and buying mutual funds, should be 50/50 when I downsize the house. I like that ratio, but its a very personal thing.. Saving after tax might not be optimum for tax purposes, but I hope to be able to leave the tax deferred alone until I'm 60 and I have the freedom of the after tax investmenst rather than a 72t.

 

[SteveR]

We are at 60% deferred and 40% after tax at age 54. We will retire next year and plan on using the after tax funds to carry us to age 60 when we start nipping away at the pre-tax accounts.

Our projections show a tax problem due to too much income from our IRAs after age 70.5 when RMDs are required unless we spend down the larger accounts before we reach age 70.5 to avoid some of the tax hit since the RMDs will be taxed at a pretty high rate (30+%). Spending our after tax accounts first will lower our tax bill by about half since most of our income will be from capital gains and dividends.

Spreadsheets help you see the effect of RMDs and taxes. I just projected a constant conservative % increase compounded annually until RMDs are required and then calculated the RMDs for each IRA and the overall tax hit based on all of our expected income (pension, dividends and RMDs). We also track changes in expenses over time and match income stream requirements to anticipated expenses. (I know....looks like work ) but our situation is a bit complex and I needed this data to know how all the various IRA-income-expense-tax issues played out over time.

Do what works best for you.

72t site that might help you. http://www.72t.net/Default.aspx

 

[nun]

Our projections show a tax problem due to too much income from our IRAs after age 70.5 when RMDs are required unless we spend down the larger accounts before we reach age 70.5 to avoid some of the tax hit since the RMDs will be taxed at a pretty high rate (30+%). Spending our after tax accounts first will lower our tax bill by about half since most of our income will be from capital gains and dividends.

Part of my ER planning is to keep my income requirements in the 15% tax bracket. I'll live off after tax money for the first 10 years of ER and then when I hit 59 1/2 I'll start spending down the IRAs etc. My calculations show that I won't have the enviable problem of getting into a high tax bracket because of RMDs. I'll be 70 in 2031, given today's 15% bracket is $35k ($28k+$5k standard deduction) at a 3% annual increase the 15% tax bracket would be $71k in 2031. Using today's life expectancy factor of 27.4 I'll need an IRA balance of about $2M to make the RMD $71k.