Retirement - 1 million dollars ain't enough

[travelover]

Your age is irrelevant as to whether you can put money into an IRA. I am age 55 and do not earn any money from a job. (I have pensions, dividends etc) I am not eligible to put money in an IRA.

I have friends over age 60 who go to work. They are eligible to put money in an IRA.

I'd also add that if your spouse is still w*rking, as mine is, you can contribute to a spousal IRA even if you have no earned income.

 

[freebird5825]

I'd also add that if your spouse is still w*rking, as mine is, you can contribute to a spousal IRA even if you have no earned income.

The flip side...and the ONE thing I did not know about when I made the decision to FIRE. I found out about this little gem from this very forum.
I became involuntarily single as of Fall 2004. I continued to plunk $ into my Roth while w*rking.
However, when I FIREd in Spring 2007, I could no longer contribute to my existing Roth IRA because I had no earned income. My "single-hood" was not voluntary, but the IRS is the IRS is the IRS...
I'm sooooo glad I contributed all that I did to my Roth while I was w*rking.
Are all you single (widowed, divorced, or never married) AND soon-to-be FIRE people reading this ?
The test is on Friday.

 

[explanade]

OK, then I won't have to allocate an IRA contribution as part of my post-FIRE budget.

IRA is a fraction of the 401k and taxable accounts, so would kind of regret not being able to add to because I FIRE'd.

 

[freebird5825]

OK, then I won't have to allocate an IRA contribution as part of my post-FIRE budget.

IRA is a fraction of the 401k and taxable accounts, so would kind of regret not being able to add to because I FIRE'd.

Please make sure you go to the IRS site and double check the CURRENT rules for YOUR situation.

 

[Moemg]

If you work part time you can contribute to an IRA up to the limits . My last year of working I worked two weeks and make $1450 . I contributed $1450 to an IRA and got the deduction .The year before I worked one day a week and made $12000 and was able to contribute the max to my IRA .

 

[explanade]

Guess I could try to get a PT job slinging coffee at Starbucks for the health insurance and to earn the IRA contribution.

 

[CuppaJoe]

Guess I could try to get a PT job slinging coffee at Starbucks for the health insurance and to earn the IRA contribution.

You'll need the health insurance inhaling all that coffee dust. I used to dream of working in a coffee shop until I noticed how hard those baristas work.

 

[citrine]

I don't plan on retiring with a million....600-800K should be more than enough for me....

 

[ERD50]

I'll join the chorus of people who have said - the premise of this article is just silly.

It makes no more sense to talk about what an individual needs to retire, than it does to drive by a random house and use a fixed number to determine how much it would cost to replace all the worn out wall-to wall-carpeting in that house.

The house may have all wood/tile floors, it may have 100% w-w carpeting, it may have worn out carpeting or brand new.

It is an individual number. Comparing #'s w/o comparing the whole situation is meaningless, and worse than meaningless if by being published it lends some credibility to the idea.

-ERD50

 

[BunsGettingFirm]

Outside of a bank account and a very elaborate electronic ATM that functions as a piggybank, SWBGX 100%. Its a small balance and I am likely subject to the "prudent investor" standard as fiduciary, so no sense getting exotic. She can do that when she turns 8.

She's going to direct her own investments at 8? Brew, you're really slacking. I was thinking 7 and the CFA by 6.

 

[TeeRuh]

Question on spousal.

Spousal IRA Contribution
An individual may establish and fund a contribution on behalf of his or her spouse who makes little or no income. Spousal IRAs are subjected to the same rules and limits as that of regular Traditional IRA participant contributions. The spousal IRA must be held separately as IRAs cannot be held as joint accounts.

travelover or freebird; So I made a contribution to my TIRA (it was originally created via a rollover from my lump sum pension) based primarily on DW's eligible income. (I had a very small amount of income.) I'm confused regarding this term "spousal IRA". Was I supposed to establish a totally separate IRA? I thought that Vanguard was telling me (a note on the web site) that I could just make the transfer into my IRA based upon DW having eligible income. Now I'm questioning myself (though 2009 taxes already a done deal).

Thanks,
t.r.

 

[travelover]

travelover or freebird; So I made a contribution to my TIRA (it was originally created via a rollover from my lump sum pension) based primarily on DW's eligible income. (I had a very small amount of income.) I'm confused regarding this term "spousal IRA". Was I supposed to establish a totally separate IRA? I thought that Vanguard was telling me (a note on the web site) that I could just make the transfer into my IRA based upon DW having eligible income. Now I'm questioning myself (though 2009 taxes already a done deal).

Thanks,
t.r.

I think that all your TIRAs are considered to be one by the IRS. And all money in those TIRAs is considered to be untaxed except for what you have declared on form 8606, which you file each year when you make a nondeductible contribution.

 

[Alan]

I think that all your TIRAs are considered to be one by the IRS. And all money in those TIRAs is considered to be untaxed except for what you have declared on form 8606, which you file each year when you make a nondeductible contribution.

I believe that this is the case. In fact today I paid $6K into DW's IRA even though she didn't work this year (2010), but I have earned income for Jan and Feb this year so that qualifies her. The payment went into her regular IRA, co-mingled with the years she contributed when she did actually work.

 

[Koolau]

We're not just subsidizing other countries who pay lower drug prices.

We're paying huge profits for big Pharma and their lobbyists make sure we keep paying big profits. Hence Congress blocking or making it difficult to import drugs from Canada and prohibiting volume-discount negotiations for Medicare D.

I'll give you the same advice I gave folks who were complaining about "big oil's obscene profits" not so many months ago. Stop complaining and buy their stock!!!

 

[Vincent Brannigan]

Paid off house

I note that several people stress the "paid off house". A paid off house provides "imputed income' equal to the value of the rent you would have to pay or alternatively equal to the income you would receive.. But you also have the expense of taxes and repairs. The advantage of imputed income is that it is tax free, however you have to take it in the form of housing. If your house is too big or expensive for your overall income and lifestyle, a paid off house is actually a very poor allocation of funds. As an example I know a neighbor who lives in a million dollar paid off house and has a $35,000 pension. She forgoes 40,000 in income a year becasue the money is sunk in the house and pays 10,000 a year in Taxes repairs and insurance. So she has a total "income" of $75,000 but "pays" 50,000 a year on housing In effect she is spending far more than half her total income on housing.She is also completely illiquid. So while a paid off house is a great comfort, it should not be confused with a great retirement investment.

 

[rescueme]

...a paid off house is actually a very poor allocation of funds.

Not for me (and my DW). Our home (in retirement) is a lifestyle which we have chosen. Do we need as large a place as we have for just the two of us? Of course not.

But to rent an equal place (2,400sq ft/over an acre of land, an hour west of NYC) would cost us much more in rent, and would be a major impact to our retirement expenses/lifestyle.

Our home is not an investment. It's as simple as that. When we pass, it will have some value and will be liquidated as part of our estate. As to its value at that time? Who cares?

 

[REWahoo]

And the "pay off the mortgage" debate is off an running once again...

 

[travelover]

Should I take Social Security early to pay off my mortgage?

 

[rescueme]

Should I take Social Security early to pay off my mortgage?

If you can claim SS and still have a note/mortgage, than you have more problems than I'm willing to talk about!...

 

[travelover]

If you can claim SS and still have a note/mortgage, than you have more problems than I'm willing to talk about!...

OK, then I won't ask if any remaining monies should be invested passively or actively...........

 

[ERD50]

if you can claim ss and still have a note/mortgage, than you have more problems than i'm willing to talk about!...

-erd50

 

[rescueme]

OK, then I won't ask if any remaining monies should be invested passively or actively...........

I'm of SS age (even though I choose not to collect at this time), but I can give you my opinion on your question.

Don't invest at all. At that age, it's spend it on "wine, women, and song" (not necessarily in that order, according to my DW )...

 

[wolfbay]

There may be more people winding up with early retirement than we realize. There are millions unemployed and many of these jobs may never come back.This could turn into a lifetime annuity as congress will keep extending benefits. If you had a part time job under the table you wouln't have a luxurious lifestyle but it could be a slackers dream. This could explain why they couldn't fill23 dollar an hour census jobs in Boston.

 

[Vincent Brannigan]

Not for me (and my DW). Our home (in retirement) is a lifestyle which we have chosen. Do we need as large a place as we have for just the two of us? Of course not.

But to rent an equal place (2,400sq ft/over an acre of land, an hour west of NYC) would cost us much more in rent, and would be a major impact to our retirement expenses/lifestyle.

Our home is not an investment. It's as simple as that. When we pass, it will have some value and will be liquidated as part of our estate. As to its value at that time? Who cares?

Actually you are making my point. It only cost you "much more" in rent because you don't see what you pay in opportunity costs. Think of owning a million dollar gold brick. It costs you the foregone interest on a million dollars every year. A million dollar house costs your the same thing and you have to pay taxes and upkeep. You also have no liquidity, which can cost you money.

In a more or less efficient marketplace the long term costs of owning and renting property are the same. We do distort the marketplace with tax benefits for home loans, but few retired people get that benefit.

A home is ALWAYS an investment, income and consumption all at one time so calculations are complicated. In general however the lower your tax bracket the less value there is in the various tax benefits and the lower total return you get on owning a home.
Spending 25% of your total income on housing is reasonable, whether you own or rent your home.

All that being said, I own my home. I've done the calculations and its total cost is 26% of my expected retirement income. (My wife is still working) I have sufficient liquidity without the home. So its rational for me. But that does nto make it automatically rational for everyone.

 

[MasterBlaster]

VB:

While you are strictly correct, many take the position that a paid off house gives great peace of mind and hence keep it paid off rather than borrow against the equity.

A year or two back we there was quite a bit of discussion about a paid off house versus investing the money in equities. The gist was that long term equity gains beat out mortgage rates.

What many fail to appreciate is the risk normalized returns on either a paid off house or in equity investments. The house being the low risk approach and equities being considerably higher. That concept was lost on many a few years ago. It should be painfully obvious to most people now.

You mention foregone opportunity cost interest. Where in the world can you get rates of return anywhere near what your mortgage rate is by drawing interest ?