Hi everyone, I am 50 years old and my wife is 49. We are planning to retire in 5 years (2028) and trying to use 55 rule. We both work and max out 401k contribution each year from now til 2028. We each currently have 500K in both IRA & 401K. We would like to know what should we change to our AA right now so we would have enough $ to retire when we turn 55. We like to spend $50k/year . We currently have all in S&P 500 index (VOO) . Should we do 60/40 or keep it same 100% in S&P 500? - Thank you.
50 Years old - Plan to retire in 5 years - Need help in AA
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COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Use Firecalc or Fidelity’s retirement planner. They will help you decide on an allocation.
I would leave your current stash in VOO. Going forward I would only contribute to 401K up to company match. Any additional moneys I would put in taxable accout to give you some flexibility. New contributions to 401K should go to money market or non equity AA. One big thing going into your last 5 years prior to retirement is expenses. Nail those down. Maybe try to live on that 50K retirement budget and see how it works out. Mind you this advice is worth exactly what you paid for it. Good luck to you and your future ER.
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travelover
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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I'd look into the lazy portfolio once you decide on an asset allocation. I was 100% in stocks until I retired, but then I had a pension as a floor.
Does that mean you have $1 million total in traditional accounts, or something else? Total amounts in taxable? ...in Roth?
Any pensions? Expected SS income (and likely start years, perhaps using Open Social Security: Free, Open-Source Social Security Calculator as a guide?
Unfortunately you can't know what you "should do" - you can know only what you "should have done".
See Safe withdrawal rates and references in that article for suggestions about what you might consider.
COcheesehead - Thank you for the Firecalc . I will take a look.
Bigdawg - Thank for your advice. I dit not think about minimum contribution 401k company match. This is a good idea.
travelover - I would look into the lazy portfolio
SevenUP. Yes, total both of us is $1million in 401K. We have about 50K in taxable acct.
No pension and no expected SS income or likey to start at 62 years old.
I know it is hard to predict with what is going on with how the stock market is doing. I just like to be safe and have enough money to retire and won't run out til 85years old.
Bigdawg - Thank for your advice. I dit not think about minimum contribution 401k company match. This is a good idea.
travelover - I would look into the lazy portfolio
SevenUP. Yes, total both of us is $1million in 401K. We have about 50K in taxable acct.
No pension and no expected SS income or likey to start at 62 years old.
I know it is hard to predict with what is going on with how the stock market is doing. I just like to be safe and have enough money to retire and won't run out til 85years old.
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Ok - didn't want to be too much of a downer, but your plan looks a lot more realistic now that you spell out both having $500k in IRA/401k.
I'd take a look at tax brackets now and potential future tax brackets, choose Roth or t-IRA accordingly. If you don't have a Roth, it might be worthwhile setting one up now.
It might also be worthwhile to have your wife retire the year she turns 55 in order for her to utilize the rule of 55 if her plan allows it.
Play when to take SS by ear, if the market is down, it might be better to claim early and not sell investments when they are down, best return could be to delay SS in order to capture a higher monthly payment if you have longevity in the families.
When you say rule of 55 - do you mean that your 401k plans specifically allow you to withdraw without penalty starting at 55? You need to check on that since the federal law *allows* rule of 55, it does not require it... so some plans don't allow it.
I disagree, to an extent, about only putting in match amount in your 401k... See the paragraph above - if your plan, does indeed, allow penalty withdrawals at age 55... ***AND*** you are in a highish tax bracket currently, and will be in a lower tax bracket after you retire at 55, you might want to put in more into your 401k than the match, to avoid higher current taxes. But you'll have to do some math to see the sweet spot. There is a benefit to having already-taxed money to work with - but not if you have to pay super high taxes on it. So maybe do 2/3's into your 401k, and 1/3 into a brokerage after-tax account... Do the math and estimate the taxes to figure out the sweet spot.
Is there a reason you aren't expecting any SS? There might be a haircut in the future - but it is unlikely they will eliminate it.
I disagree, to an extent, about only putting in match amount in your 401k... See the paragraph above - if your plan, does indeed, allow penalty withdrawals at age 55... ***AND*** you are in a highish tax bracket currently, and will be in a lower tax bracket after you retire at 55, you might want to put in more into your 401k than the match, to avoid higher current taxes. But you'll have to do some math to see the sweet spot. There is a benefit to having already-taxed money to work with - but not if you have to pay super high taxes on it. So maybe do 2/3's into your 401k, and 1/3 into a brokerage after-tax account... Do the math and estimate the taxes to figure out the sweet spot.
Is there a reason you aren't expecting any SS? There might be a haircut in the future - but it is unlikely they will eliminate it.
With another five years to contribute, you will likely be fine. Starting a Roth IRA for each of you now is probably a good idea: contributions may be withdrawn at any time without tax or penalty, and if you start one now, after you reach age 59.5 anything in the Roth IRA may be withdrawn without tax or penalty.
For general suggestions, see Investment Order and Prioritizing investments.
If your company 401k will allow partial withdrawals (some do, some don't) then continuing to maximize those contributions is likely best. Given your existing balance, and assuming your current federal marginal tax rate is 22% or more, it's a close call whether those contributions should go to traditional or Roth. Perhaps traditional for now, because if that works best then you will be glad you did, whereas if it turns out Roth would have been better it will be because you have more money than you need.
If the "ifs" and assumptions above are not correct, then the suggestions may also not be good.
You need to do some reading to educate yourself. You haven't provided enough info for me to give advice, other than if you want to retire in 5 years you should not have 100% in equities.
https://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit
Good that you have like $1 million, but you never mentioned if you still have a big mortgage or car loan. I mean this is a great level of savings at 50, but could be a challenge if you still had $300,000 - $500,000 in mortgage, if you know what I mean.
Thank you for all your Reponses. We have no debt. We don't expect much about SS but we will collect it when it is a good time either at 62yo or 72yo? May I ask, if i put my cash $ in brokerage acct, what funds would I invest in ? should we just keep cash or buy some CDs?
I will wait for my wife to turn 55years old so we can both retire and use rule 55 to withdraw $ from our plan ( assume that we both leave from the company that allows us to withdraw 401k without 10% penalty.
I will wait for my wife to turn 55years old so we can both retire and use rule 55 to withdraw $ from our plan ( assume that we both leave from the company that allows us to withdraw 401k without 10% penalty.
Alex The Great
Recycles dryer sheets
You did not mention how much do you have in taxable accounts. It is important, because it may be beneficial to do Roth conversions and use taxable money to live before you turn 59.5, rather than using 55 rule and make distributions from 401K directly.
We have total of 50k in saving and planning to save 1k each month for the next 5 years after we have contributed max out 401k/IRA . Would you think changing our 100% stock to 60/40 is wise to do now so we can protect our retirement when we both hit 55 ?
Alex The Great
Recycles dryer sheets
It is hard to recommend anything with respect to allocation. It really depends on your risk tolerance. Stock is a risky asset but potentially can provide more portfolio growth. I personally have ~55% funds in stock but those are in taxable accounts. For IRA/401K I prefer bonds/CDs because I eventually need to pay tax on them anyway.
Totally disagree.
If hes 50, barring a tragedy, and if hes in good health he most likely has 30-40 year investment time horizon. I'd stay with heavy stock allocation.
To the OP, only change I'd make is diversify into small caps and international. S and P is great , but its all large cap.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
How do you suggest he deal with sequence of return risk with 100% equities? His million could go to $700,000 or less and $50,000 out = a 7% withdrawal rate.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
If you are now 100/0 and start putting 401k contributions and dividends into fixed then your 401ks will slowly gravitate away from 100/0 between now and when you ER. Does your 401k offer a stable value fund? If so, what does it yield?
so now you're predicting ANOTHER bear market?
Even IF that happens bull markets follow bears and they are usually very big moves. People don't realize volatility works both ways and missing out on bull markets are much more detrimental to achieving ones goals than investing trying to avoid a bear market.
Think about it, most bear markets only last a year or maybe two. The long term 10% average for stocks INCLUDE bear markets!
So as long as one isn't foolish and doesn't sell out when markets go down along with not going nuts with expenses you'd be fine even with the doom and gloom scenario you spelled out.
You don't leave money in equities that you'll be needing for expenses in 5 years.
Such advice is putting this person at risk of a sequence of returns tragedy.
OP - you really do need to educate yourself. Stop asking such vital questions of strangers on the internet.
"tragedy"
thats really fear mongering IMO
If you run numbers in a monte carlo simulation or against actual historical data the big picture isn't as grave as you're stating.
see my response above
Al18
Full time employment: Posting here.
Congrats on your early retirement plans. I like Rodi's suggestion of continuing to contribute 2/3 of your money to 401K and the other 1/3 you can contribute to a brokerage account or a CD. Many early retirees like keeping 3-5 years in CD's, to insure you don't have to sell stocks in a down market - as parts of a bucket strategy. Bucket 1 is your CD bucket, Bucket 2, has 3-5 years of a 60/40 balanced fund/ETF, and bucket 3 contains your stock fund/ETF.
Note IRS rules dictate that 20% of your 401K withdrawals will need to be withheld for taxes between ages 55 and 59 1/2. So 10K of taxes will be withheld on a 50K withdrawal, and when you file taxes you'll likely get a 6-7K refund. You'll be able to reduce taxes if you take a 30K withdrawal (6K withheld), draw 10K from a CD and sell 10K from your brokerage account. This will likely result in a much smaller refund of 3-4K.
Note IRS rules dictate that 20% of your 401K withdrawals will need to be withheld for taxes between ages 55 and 59 1/2. So 10K of taxes will be withheld on a 50K withdrawal, and when you file taxes you'll likely get a 6-7K refund. You'll be able to reduce taxes if you take a 30K withdrawal (6K withheld), draw 10K from a CD and sell 10K from your brokerage account. This will likely result in a much smaller refund of 3-4K.
Glincoln
Confused about dryer sheets
Big fan of Bucket Strategy
I would check out Fritz from Retirement Manifesto. He retired in his early 50s and talks a lot about his bucket strategy. He also has a book which I use as a template. FI(RE), which I have been studying/practicing over some years now is really personal (i.e. personal finance, personal life). And if we are seeking absolute security (financial/health, etc), it does not exist.
I would check out Fritz from Retirement Manifesto. He retired in his early 50s and talks a lot about his bucket strategy. He also has a book which I use as a template. FI(RE), which I have been studying/practicing over some years now is really personal (i.e. personal finance, personal life). And if we are seeking absolute security (financial/health, etc), it does not exist.
Once again, thank you so much for all your advice. I am gratful for this forums. I will discuss with my wife and will make decision base on our risk tolorance and tax advantage. I am excited and can't wait til 2028. Ya'll take care. I wonder if we might need to hire a Certified Retirement Counselor.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
If a bucket strategy interests you, here is a good blog to read.
https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/
https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/
