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12-26-2017, 06:41 AM
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#41
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Recycles dryer sheets
Join Date: May 2012
Location: Brewster
Posts: 367
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I'm probably missing something, but if your current annual expenses are 63K, and that's roughly what you draw down from tax-deferred investments, and assuming you file your taxes as married filing jointly, your marginal tax bracket under TrumpTax is 12%. Why pay 22% to convert an extra $70K to Roth?
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12-26-2017, 08:27 AM
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#42
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Full time employment: Posting here.
Join Date: Dec 2017
Posts: 945
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Quote:
Originally Posted by Sunset
So I would like to know how you think having all the money moved to a ROTH vs leaving $400,000 (for example) in an IRA results in you having more money by 100 ??
Also are you counting money in today dollars, or inflating them ?
Finally how are you sure that all your return factors (the stock market moves per year) are exactly the same for each senerio each year. Are you hard coding them or are you allowing them to be randomly calculated within a boundary. ?
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Q1: I am not sure why, but that is the scenario that works out best in my model.
Q2: Future dollars, inflated at 3% annually. Doesn't matter, I think, as long as I compare all monies in the scenarios the same way. I know that $2.5M in 40 years is worth $730K in today's dollars.
Q3: Yes, the modeled returns are the same for each scenario. Even though a constant return is easier to work with, I feel it does not reflect reality much. Therefore, I came up with the following that I used for each scenario:
Year Return
1 -0.250
2 0.150
3 0.000
4 0.050
5 -0.180
6 0.140
7 0.120
8 0.160
9 -0.120
10 0.010
11 0.150
12 0.060
13 -0.050
...
which is a first year big loss, followed by the pattern of 3 years of gain and 1 year of loss. It all averages out to 4.2% over the 40 years. I don't know if it is any better than something like a constant 4.2% gain, but I just thought it might be more realistic. I generated these numbers one time and use the same set in all scenarios.
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12-26-2017, 08:30 AM
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#43
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Full time employment: Posting here.
Join Date: Dec 2017
Posts: 945
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As for i-orp, as has been suggested a couple of times before, I looked at it briefly, and it looked like the simple run was not going to be very accurate, and I need to come back to it sometime and do the detailed run. Thanks, I will get to it sometime.
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12-26-2017, 08:32 AM
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#44
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Full time employment: Posting here.
Join Date: Dec 2017
Posts: 945
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Quote:
Originally Posted by Nightcap
I'm probably missing something, but if your current annual expenses are 63K, and that's roughly what you draw down from tax-deferred investments, and assuming you file your taxes as married filing jointly, your marginal tax bracket under TrumpTax is 12%. Why pay 22% to convert an extra $70K to Roth?
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On my current best scenario, I am keeping my Roth conversions just barely inside the 12% bracket, thanks.
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12-26-2017, 12:05 PM
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#45
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 17,099
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Quote:
Originally Posted by camfused
Q1: I am not sure why, but that is the scenario that works out best in my model.
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So that is very scary since you are going to plan your future on it.
Once you know which way is better, then you should be able to figure out why it is better to confirm that it actually is better.
Otherwise it could be wrong, and you don't know it.
Other things you are not considering will end up biting you as you will have lost a lot of flexibility.
Example: what if in 10 years after you have emptied your IRA, interest rates spike, like they did back around 1980, all the people that have a spare $125,000 in their IRA could buy a well paying annuity, removing that $125,000 from RMD calculations and then enjoy life long high payments as interest rates again fall to normal.
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12-26-2017, 12:23 PM
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#46
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Thinks s/he gets paid by the post
Join Date: Apr 2013
Location: Gosport, IN
Posts: 1,218
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To be contrarian, I model my worst case scenario using an annual inflation rate of 4% with an annual investment return and SS increase of 2% over a 30 - 35 year lifespan.
Start SS at FRA and budget for a SS haircut of 23% starting in 2034. Still in the black, I am good!
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12-26-2017, 09:05 PM
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#47
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Full time employment: Posting here.
Join Date: Dec 2017
Posts: 945
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Update: This evening, I went over with my DW the plans and info y'all have been giving me here, and in other threads. We agreed on one of the scenarios, and I have the green light to FIRE end of next year.
This plan meets the revised goals of a) having the most money in our 80s and early 90s, b) not excessive taxes, and c) has plenty in the Cash bucket. In this scenario, I take SS at 62, she also takes half of that until 70 and then starts taking her own, and we convert some money the first 10 years (until RMDs kick in) from 401K to Roth. This scenario is not the one with the most money at 100, but is the one with the most money for most of the 40 year span (including when we are in our 80s and early 90s).
Also, I will adjust our AA to 60/40 in a few days, and not touch it, other than rebalancing once or twice a year.
Hopefully this employs most of the advice from you fine folks, so thanks everyone.
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12-27-2017, 01:17 PM
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#48
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Thinks s/he gets paid by the post
Join Date: Jul 2014
Location: Undisclosed
Posts: 1,239
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The tax law changed in 2016 regarding the underlined portion. You needed to be aged 62 in 2016 to continue to be allowed to "take half of that" while allowing her own to grow. If/when she files she will get the larger of her own at that time or half of yours.
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12-27-2017, 02:33 PM
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#49
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Full time employment: Posting here.
Join Date: Dec 2017
Posts: 945
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Nuts! Ok, thanks.
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