Cash poor, retirement fund rich

[pb4uski]

^^^^ Bad advice. I'm pretty sure that the OP is not yet 59 1/2 so all that "extra income" will have a 10% early withdrawal penalty in addition to being taxable income.

 

[Tracer]

^^^^ Bad advice. I'm pretty sure that the OP is not yet 59 1/2 so all that "extra income" will have a 10% early withdrawal penalty in addition to being taxable income.

True if he's not 59 1/2 yet, but he did not say that... and true if ALL his savings is in qualified accounts but he did not say that either.

 

[pb4uski]

I believe he is not yet retired and his wife is 50, so I'm assuming he is less than 59 1/2. I'm sure that he has some taxable savings but it sounds like not near enough to buy the property he wants to.

 

[armor99]

True if he's not 59 1/2 yet, but he did not say that... and true if ALL his savings is in qualified accounts but he did not say that either.

This one is overlooked a lot. Some people are either OK with paying penalties, or are not aware of this issue.
I worked too hard over the years to give the govt even more of my money for no reason. There is a school of thought that say 5 years before you plan to retire, you might want to stop contributing to 401k, IRA, etc., and pour all of that money into a standard brokerage account, or even straight cash. You loose 5 years of free match money... but if your retirement account is over $1 million, And the majority of your money in your retirement accounts is being made on the interest of your nest egg at that point anyway.

 

[RxMan]

This one is overlooked a lot. Some people are either OK with paying penalties, or are not aware of this issue.
I worked too hard over the years to give the govt even more of my money for no reason. There is a school of thought that say 5 years before you plan to retire, you might want to stop contributing to 401k, IRA, etc., and pour all of that money into a standard brokerage account, or even straight cash. You loose 5 years of free match money... but if your retirement account is over $1 million, And the majority of your money in your retirement accounts is being made on the interest of your nest egg at that point anyway.

I am wondering about this myself. I’m not quite sure if I’m five years out or if I’m working say 7-8 more years but the idea is the same.

While I haven’t stopped contributing to my 401k I am putting more than half of my contributions into the Roth 401k option. I’m also going to try and boost my taxable account contributions.

I watched a You Tube video from a financial planner. He went over the scenario of someone in their mid-60s with a $1 million 401k. He explained that depending on your age there was a good chance that $1 million 401k would turn into $2 million by the time RMDs kicked in if that person did nothing. That could push people into higher tax brackets based on their larger RMDs.

He advocated the Roth conversion strategy up to certain tax levels. I certainly see that as an option but my thinking is to just contribute more to the Roth 401k now so I can just roll that over to my Roth IRA in retirement. I’ve had the Roth IRA for over five years and it seems like a good plan to reduce my need for massive Roth conversions of my 401k balance after I retire before I hit the RMDs.

I just want to make sure I have access to enough unrestricted non-retirement funds when I retire early to make it to 59.5 years old. I’m also going to check with HR to see if my 401k plan has the Rule of 55 provision which will potentially impact all of this planning.

The other issue I’m debating is how to handle the catch up provision for my 401k when I reach 50 years old. Do I not take advantage of the ability to contribute additional funds and direct that money to taxable accounts? Do I take advantage of the catch up contribution option and put it into the Roth 401k side of my 401k plan?

I was always excited before about reaching 50 years old so I could contribute all of that extra money into my 401k plan but now that I’m only a few years away from reaching 50 and I see my 401k growing faster than I expected I’m not 100% sure catch up contributions is a good idea. It might create more of a tax nightmare down the road as I try to plan withdrawal strategies in retirement.

 

[Sniggle]

I am glad this thread is grown beyond my somewhat self inflicted problems.

Just an update on what I am doing. I decided to go ahead with the cash out refinance, to liberate $200k. Essentially the mortgage cost me nothing with lender credits, except that it converted equity into cash and moved me from a 15 year mortgage to be paid off in 7 years to a 30 year. It is a means to an end....hopefully not my end.

I did find a nice piece of property, and am making an offer today. Not sure if I will get it, as the seller will need to come down some for it to be viable. I am really trying to not get stupid and spend too much on land. If I get this property then the 2 year process of getting my ducks in a row begins, as well as some sweat equity on the land.

I did reduce my 401k contribution to 6% to get full match, and then 4% in ESPP, + $7k in HSA. I am going to look for other cost cutting measures...maybe getting rid of cable as a good start.

I do wish I had thought about this 10 years ago, and adjusted accordingly, but I guess I will just have to go with my gut. At the end of the day, I still will have $60k pension, SS and retirement saving ($2.3 M) to fall back on. I may start a separate thread to document this adventure, be it a successful strategy, a huge mistake, or something in between (most likely).

 

[ivinsfan]

Good Luck..

cutting cable is fine but at some point between now and when you retire, you and your DW need a real heart to heart about the horse/hobby farm spend. Cable is a drop in the bucket compared to that. I would put down on paper a realistic budget on horse costs.

 

[Texas Proud]

Have not read it all but at first read it is a spending problem...


I think your 2nd post got you to see that...


BUT, if you are squared away for retirement then STOP putting any money in those accounts... even a ROTH is not going to help you...


Edit to add.... yes, put in enough to get match... but why put in HSA? My brother has more money in his than he can spend... I think he gets more put in by his company every year...

 

[Sniggle]

Edit to add.... yes, put in enough to get match... but why put in HSA? My brother has more money in his than he can spend... I think he gets more put in by his company every year...

An HSA is, based upon others analysis, the best savings vehicle available. Triple tax free, and I can use it to pay tricare premiums when I turn 60.

Company matches 12 for 6 in 401K

ESPP is a pretty good deal, at 15% discount to current stock price at purchase.

It is hard to stop trying to squirrel money away

 

[Sniggle]

Good Luck..

cutting cable is fine but at some point between now and when you retire, you and your DW need a real heart to heart about the horse/hobby farm spend. Cable is a drop in the bucket compared to that. I would put down on paper a realistic budget on horse costs.

Horses make her happy. Happy wife, happy life.

 

[ivinsfan]

Horses make her happy. Happy wife, happy life.

Even happy comes with a budget, BTW I never said you shouldn't spend on horses, I said you should talk over a horse budget so you both have some idea of the carrying costs. You need to know this before you stop working. Perhaps the two of you will decide to cut back on something else to completely fund her horses. Do you have money set aside for something to do that makes you "happy"? Better to ask these questions while you still have a good income. I don't know your wife, but most intelligent women realize money isn't infinite and it's OK to plan for future costs.

 

[OldShooter]

Even happy comes with a budget, BTW I never said you shouldn't spend on horses, I said you should talk over a horse budget so you both have some idea of the carrying costs. You need to know this before you stop working. Perhaps the two of you will decide to cut back on something else to completely fund her horses. Do you have money set aside for something to do that makes you "happy"? Better to ask these questions while you still have a good income. I don't know your wife, but most intelligent women realize money isn't infinite and it's OK to plan for future costs.

I think it's pretty clear by now that you don't like the horses and the OP does. Recall please, that the OP has never asked for opinions on the horses.

 

[ivinsfan]

I think it's pretty clear by now that you don't like the horses and the OP does. Recall please, that the OP has never asked for opinions on the horses.

What the heck, I never said I didn't like horses, Geez I live in the county surrounded by all kinds of animals. I'm talking about budget costs not horses, I would have the same question if the OP said he was an avid fisherman with a fancy power boat. How do you know you can sustain a lifetime enjoyable hobby in retirement if you don't really know the annual costs?

Mt DH continues to run a smallish crop farm, more as a hobby, it's a business but we sure know what it costs every year so that if our farm stops turning a profit or doesn't make much money we can make an informed decision together.

 

[Sniggle]

Its funny. I would advise any guy to run from a women that loves horses, as they are indeed an expensive hobby. However, I committed to my DW 29 years ago, knowing full well that she loved horses (although admittedly I did not comprehend the cost at that time), so here we are today.

I do enjoy watching the horses in the back yard, watching my wife work with them, and occasionally going on a ride with her. I also enjoy having land, having a tractor, and doing the jobs that are required to keep horses (fix the fence, mow the pastures, stack hay, clear brush, etc.). So, in a sense, it is my hobby also.

I would be satisfied doing this when retired. It is not for everyone. For me good food, comfortable living, and some sweat and hard outdoor work will make me a happy man. I absolutely don't want to drain my retirement savings getting there, but if I dent it that is what it is for.

(since I am sharing, another thing I found I really enjoy is messing around fixing my cars. Simple stuff that costs a bundle at a mechanic like brakes, replacing axles, etc.)

 

[pb4uski]

Yes, different strokes for different folks. DSIL loves horses and DBIL puts up with it much as Sniggle does... it seems that every time I visit their farm his is knee-deep in some farm maintenance project or farm equipment maintenance chore. We used to regularly get sucked into loading and unloading hay but then he got some better equipment so he doesn't need as much manpower anymore.

Another DSIL used to have a couple horses and concluded that they were way too expensive a hobby for a middle income person and got rid of them.

 

[ivinsfan]

I know a lot of horse people. And it's the pet/hobby dichotomy...they cost what they cost and unlike hobbies that don't involve living things if they need something, they need something and there is no "I'll make do with what they have or wait and upgrade my boat next year".

I will say for a lot of people with horses it's a lifestyle and not a "hobby". But then again any person that actually has horses know what they cost...

I would never tell anyone not to have horses as long as they can afford to take care of them.
I think of my DD FIL who just loves horses. Doesn't ride them, just loves them. He became know as the local guy who would rehome your horse if you couldn't keep it anymore. Ended up taking care of over a dozen hayburners that he never rode.

When the care of those horses became too much he had to "rehome" all but two of them to the slaughter plant.

 

[38Chevy454]

I love horses too, the under the hood type. They also take time and money

There are many hobby activities that can burn both time and money. Pick what makes you happy. I'm also a more rural, get out of the big city person. Have my 2.5 acres on edge of suburbia. I like having a large yard and separation from my neighbors. So OP Sniggle and I have those things in common, just different kinds of horses.

 

[ivinsfan]

I love horses too, the under the hood type. They also take time and money

There are many hobby activities that can burn both time and money. Pick what makes you happy. I'm also a more rural, get out of the big city person. Have my 2.5 acres on edge of suburbia. I like having a large yard and separation from my neighbors. So OP Sniggle and I have those things in common, just different kinds of horses.

Some day we need to start a thread on hobby costs, highest to lowest...it could be mind blowing...

 

[Amethyst]

That is a good attitude to have, I think. The road to retirement is long; some oases along the way are necessary. As long as LBYM can be maintained, retirement will still happen.

I absolutely don't want to drain my retirement savings getting there, but if I dent it that is what it is for.

(

 

[Amethyst]

Be prepared for extensive quibbling over what constitutes a "hobby."

"No, no, that's not a hobby, that's just collecting!"

"That's not a hobby, that's a job."

"Not a hobby - an avocation."

etc.

Some day we need to start a thread on hobby costs, highest to lowest...it could be mind blowing...

 

[Gumby]

For some, picking nits can be an enjoyable and rewarding pastime.

 

[JustCurious]

Horses make her happy. Happy wife, happy life.

Happy husband, happy life.

 

[ivinsfan]

Be prepared for extensive quibbling over what constitutes a "hobby."

"No, no, that's not a hobby, that's just collecting!"

"That's not a hobby, that's a job."

"Not a hobby - an avocation."

etc.

Yep had this exact discussion with my 72 yo DH about farming...bring it on!

 

[ivinsfan]

For some, picking nits can be an enjoyable and rewarding pastime.

But you must pick the nits nicely and politely...

 

[Big_Hitter]

- DW has horses

my last boss' wife had horses, he's still working