Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 05:57 PM   #1
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Ratio of taxed to tax deferred savings at ER

I suppose one definition of ER is doing it before your tax
deferred retirement savings are available to you,
at least not without doing "substantially equal payments".
So I'd be interested to know at what age you retired and what
%age of your investments where in taxed vs tax deferred
accounts. I seems to me to be critical to have substantial
after tax savings to ER.

I'm 44 and planning to retire in 4 years time. After I've realized
the equity in my house and bought a smaller place outright
I should have a 50/50 taxed to taxed deferred ratio

__________________

__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 07:35 PM   #2
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by nun
I should have a 50/50 taxed to taxed deferred ratio
That's an interesting question-- I'd never thought about it before.

I retired four years ago at age 41 but I'm not sure what our percentages were back then. Quicken claims that 22.87% of our ER portfolio today is in tax-deferred/tax-free investments. I suppose if we'd invested in better funds that we'd have a higher percentage. If we'd invested it all in NASDAQ puts we might have a completely different percentage.

For our entire working years our tax-deferred investments have been limited to IRAs. The military didn't even have a TSP until 2002, five months before I retired, and didn't raise its contribution limits to the IRS numbers until this year. I suspect that our tax-deferred/free basis is a much smaller number than most portfolios, and that's all about opportunities.

In a few more years our IRAs will be a bigger percentage of our portfolios. We're hoping not to have to touch them for another couple decades.
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 07:46 PM   #3
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
Re: Ratio of taxed to tax deferred savings at ER

Unfortunately, I can't claim to be ER'ed. I can tell you that I'm over 80% in tax deferred accounts which plays hell with the ER calcs. Right now, I'd be almost immediately into the 72t approach and I'll need a good 15% more to ER than if I had more in already taxed accounts.

It all comes down to math. I have more because of the IRA/401k but now I'll have to pay the tax to get it out. I'm working at building my already taxed accounts to get a little more room.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 07:51 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Re: Ratio of taxed to tax deferred savings at ER

95% tax-deferred (401K). About to fund a Roth at VG, and start throwing money at that. Still have 10% going to 401k, plus a 6% match, but will use another 10% for taxable and Roth. I like the three bucket idea.
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 07:55 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
Re: Ratio of taxed to tax deferred savings at ER

We are under 50 years old. Our taxed:tax-deferred ratio is about 55:45
__________________
LOL! is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 07:56 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Jul 2003
Location: Pasadena CA
Posts: 2,695
Re: Ratio of taxed to tax deferred savings at ER

Its an interesting idea to explore but I am not sure there is any kind of correct answer even for particular individuals. I am not retired yet, my wife is retiring in a couple weeks. Most of our income will be from pensions. Then we have deferred comp (403b/TSP) some Roth money, some cash in the credit union and some after tax stocks. We aren't going to change much of the "plan" (or accidental collection of funds).
The only advice I give, if it is available take whatever 401k funds you get a match for and the Roth IRA is a good thing. Other than that its probably to have tax deferred, tax free(Roth) and after tax investments as you can draw from those that work best at any given time. I don't know why the ratio would be fundamentally important if you have enough in the funds.l
__________________
T.S. Eliot:
Old men ought to be explorers
yakers is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 10:26 PM   #7
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by yakers
Its an interesting idea to explore but I am not sure there is any kind of correct answer even for particular individuals.
What I'm trying to get at is that to ER you need to have access to your money and if you are going to maximize your investments you'd better not tap those 401ks etc until 59 1/2. So to ER you need to save into both taxed and tax deferred investments. You might make the argument that its more important to save after tax money, after all it will have less time to
grow. Right now I'm saving 1.5 times as much into after tax investments as tax deferred.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 10:46 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Posts: 1,375
Re: Ratio of taxed to tax deferred savings at ER

DH and I have almost twice as much taxable as tax-defered, but that was more or less an accident of fate: taxable stock options, little or no 401k match, and with both of us working in the software biz, a large emergency fund.
__________________
You can't always get what you want, but if you try sometimes, you might find you get what you need.
astromeria is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 10:58 PM   #9
Thinks s/he gets paid by the post
retire@40's Avatar
 
Join Date: Feb 2004
Posts: 2,670
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by yakers
I don't know why the ratio would be fundamentally important if you have enough in the funds.
I would take it one step further and say as long as you have control over your withdrawals, it's not an important ratio. *Despite your ratio, you can take withdrawals to fit your best case tax-efficiency planning for that year and for following years, to the best of your abilities to predict future income streams and the taxation thereof.

Also, front-end planning is more important than back-end planning since it involves a real known. *For example, if you are in the 35% bracket, it makes more sense to contribute to your 401(k) since you know you are deferring a 35% tax now rather than worrying about whether your future withdrawal will be taxed at a higher rate than your current savings. *In the future, your tax may be higher or lower than 35%, but since it is an unknown or at best a probable unknown, it may be an exercise in futility.

So, you plan for the present while being conscious of what could happen in the future, but unless you are very sure of where you will be in the future, you don't let future predictions dictate your present financial decisions, especially when it comes to the taxation of those decisions. *
__________________
No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
retire@40 is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 11:10 PM   #10
Recycles dryer sheets
Papi's Avatar
 
Join Date: Jan 2006
Posts: 90
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by nun
What I'm trying to get at is that to ER you need to have access to your money and if you are going to maximize your investments you'd better not tap those 401ks etc until 59 1/2. So to ER you need to save into both taxed and tax deferred investments. You might make the argument that its more important to save after tax money, after all it will have less time to
grow.
Hi Nun,

I'm trying to understand your argument that to ER you better have enough $$$ in a taxable account.* I plan on ERing in 5-7 years, and I will probably have nearly 95% of my assets in Roths/IRAs.* Using the various retirement calculators and doing the 72t IRA early withdraw plan, I should have a very nice retirement.* What am I missing here??
__________________
Here's to FIRE http://www.bloodydecks.com/forums/im...s/beerchug.gif
Papi is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 11:29 PM   #11
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by Papi
Hi Nun,

I'm trying to understand your argument that to ER you better have enough $$$ in a taxable account. I plan on ERing in 5-7 years, and I will probably have nearly 95% of my assets in Roths/IRAs. Using the various retirement calculators and doing the 72t IRA early withdraw plan, I should have a very nice retirement. What am I missing here??
You're doing the 72t so you can get at your tax defered money before 59 1/2 without the
10% penalty. I don't like the inflexibility of the 72t, so I'm trying to avoid it, and hence I need after tax money to live on until 59 1/2. I see the 72t as similar to an annuity, but without the guarantee. I suppose you can do the 25% FI and 75% stocks within the 72t arrangement to protect against down years, but you're locked into it and that's what I don't really like
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 11:36 PM   #12
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by retire@40
I would take it one step further and say as long as you have control over your withdrawals, it's not an important ratio. Despite your ratio, you can take withdrawals to fit your best case tax-efficiency planning for that year and for following years, to the best of your abilities to predict future income streams and the taxation thereof.
Are you assuming a 72t plan to access tax deferred accounts?

Its obviously good to defer taxes, but if you want to ER and leave those tax deferred funds alone to compound over the years until 59 1/2 or even longer you will need after tax money too. Therefore, defer as much tax as you can with with 401ks and IRAs and make sure you go from say the 28% tax bracket to the 15% when you retire (although I see taxes going up steeply in the next 20 years), but you should save just as much after tax in my opinion.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-25-2006, 11:52 PM   #13
Recycles dryer sheets
Papi's Avatar
 
Join Date: Jan 2006
Posts: 90
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by nun
You're doing the 72t so you can get at your tax defered money before 59 1/2 without the
10% penalty. I don't like the inflexibility of the 72t, so I'm trying to avoid it, and hence I need after tax money to live on until 59 1/2. I see the 72t as similar to an annuity, but without the guarantee. I suppose you can do the 25% FI and 75% stocks within the 72t arrangement to protect against down years, but you're locked into it and that's what I don't really like
Thanks for the update Nun.

You're right, you are locked into the withdraw rate with the 72t which does reduce the flexibility. My plan is to have a small portion of my assets in a taxable accounts for emergencies while doing the 72t arrangement. My feeling still is that the benefits of the long-term tax deferred accounts (IRAs only, not my Roth) far outweigh the inflexibility of having to do the 72t.
__________________
Here's to FIRE http://www.bloodydecks.com/forums/im...s/beerchug.gif
Papi is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 03:08 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 1,152
Re: Ratio of taxed to tax deferred savings at ER

Hi Nun,

I am 40 years old and about 75% taxable, 24% tax deferred, and 1% tax free (ROTH). So that gives me some flexibility. There is an advantage to being diversified in your tax situation so that you can mix and match to current tax policy and spending requirements.

I plan to retire in my early to mid 40s, and I have thought about starting a SEPP in my early to mid 50s, mostly for tax reasons, to even out the payments over time. By then, you are not locked into 72(t) for very long, possibly the minimum of 5 years. Also, you will be more sure about your retirement and financial situation.

You can also remove money for medical expenses from your IRA without penalty for the portion of medical expenses (not insurance premiums) that are over 7.5% of your income that year. And this is independent of whether you actually itemize on your taxes. So for a lower AGI ER, this could come in handy, even for high deductible insurance to cover part of the deductible. You could dribble a little out over time up to the top of the 15% bracket.

I just happened to post an example of this earlier tonight:

http://raddr-pages.com/forums/viewtopic.php?t=2458

Kramer
__________________
kramer is online now   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 06:17 AM   #15
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by Papi
Thanks for the update Nun.

You're right, you are locked into the withdraw rate with the 72t which does reduce the flexibility. My plan is to have a small portion of my assets in a taxable accounts for emergencies while doing the 72t arrangement. My feeling still is that the benefits of the long-term tax deferred accounts (IRAs only, not my Roth) far outweigh the inflexibility of having to do the 72t.
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?
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 07:22 AM   #16
Recycles dryer sheets
 
Join Date: Nov 2004
Posts: 283
Re: Ratio of taxed to tax deferred savings at ER

We're both retired for past 3 years on CSRS and StateTeachersRS Pensions - DW working half-time - No stock options were available for us, and never a match from employers - we tried to max out IRAs, TSP, 403b, Roths in addition to our mandatory contributions to the retirement systems and also saved in taxable low cost Vanguard MF accounts - LBYM works.

Current savings Tax-deferred 41.5%, Roths 2.5%, Taxable Savings 56%

We have yet to tap into our savings - probably won't tap tax-deferred $ until we must.

JohnP
__________________
Dad's Dream; to have enough money someday to live the kind of life my wife and kids do...
Life is what happens while you are making other plans... John Lennon...
the more you look, the more you see...
JohnP is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 08:24 AM   #17
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 4,005
Re: Ratio of taxed to tax deferred savings at ER

nun,

not sure if you are aware of this, but you can split your tax-deferred money into multiple IRA's. Then start the SEPP from one IRA and let it run for 15 years (or whatever period you want). If it spits out too much money, save the rest in a taxable account. If it doesn't spit out enough money or is depleted, start another SEPP from a different IRA. You can have more than one SEPP distribution scheme at a time.
__________________
justin is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 08:58 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Re: Ratio of taxed to tax deferred savings at ER

Age 62/3

75% tax deferred Trad IRA, 7% Roth(conversion), 15% taxable stock, and 3% cash.

heh heh heh
__________________
unclemick is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 10:05 AM   #19
Thinks s/he gets paid by the post
grumpy's Avatar
 
Join Date: Jul 2004
Posts: 1,321
Re: Ratio of taxed to tax deferred savings at ER

When we retired at ages 56 and 57 we had just about a 50/50 split between taxable accounts and tax deferred accounts. Since then we bought and furnished a new house so we have drawn down the taxable account somewhat and the tax deferred accounts have grown. Now the split stands at 42% taxable, 58% tax deferred. I don't anticpate having to touch the tax deferred accounts until age 70.5 when mandatory withdrawls kick in.

Grumpy
__________________
...you can check out any time you like, but you can never leave...
grumpy is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 10:19 AM   #20
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by justin
nun,

not sure if you are aware of this, but you can split your tax-deferred money into multiple IRA's. Then start the SEPP from one IRA and let it run for 15 years (or whatever period you want). If it spits out too much money, save the rest in a taxable account. If it doesn't spit out enough money or is depleted, start another SEPP from a different IRA. You can have more than one SEPP distribution scheme at a time.
Thanks, I wasn't aware that you can do a SEPP from a single IRA if you have multiple IRAs. I was assuming (wrongly it seems) that the IRS lumped all the IRAs together for the calculation of SEPP. This new wrinkle would let you get at a portion of your tax deferred savings. 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?
__________________

__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Bush floats a national sales tax dex FIRE and Money 22 08-17-2004 08:15 AM
Proposal for Tax Free Savings Accounts johnblake Other topics 5 08-14-2004 08:01 PM
Tax Deferred to Roth Strategy mccl FIRE and Money 10 06-09-2004 12:08 PM
Taxable vs. Tax Deferred Accounts Theo FIRE and Money 1 06-03-2004 07:42 PM
EE bonds to ??? cute fuzzy bunny FIRE and Money 1 12-24-2003 01:33 PM

 

 
All times are GMT -6. The time now is 10:58 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.