how much is too much?

[SingleMomDreamer]

I've been thinking about this for about a year now. I've poured a lot of money into my 403(b) at work. I'm now 43. By the time I hit 45, the funds should easily accumulate to at least $2 million by the time I'm 65. I am not a big spender and I just can't see accumulating to a point where I end up dying with a million bucks still left in the bank. I am wondering if I should keep plowing $$ into my retirement funds, or should I start to prioritize investing outside of my retirement, which I'd like to use to help support my ER. The other factor is that we don't pay social security here--instead, my employer contributes 9% of salary into an American Funds account--so contributions to the employer-sponsored retirement fund would continue.

What should I do? Continue pouring funds into the 403(b) or get moving forward on taxable investments that can be used to ER? Both are not possible at this time.

Brenda

 

[FinanceDude]

I think you answered your own question..........

You ARE looking to ER, so you need to have money to live off of until you can access your retirement monies without a penalty.

Based on my observations on here, a lot of ER folks have a large retirement account AND a pretty large non-qualified account...........

 

[TromboneAl]

I started to slow down contributions to my SEP-IRA when I was about 49, thinking I'd need money to tide me over until age 59.5.

But then I heard about 72t withdrawals, and went back to maxing out all retirement account contributions.

Now I'm 53, retired, and I probably have enough non-taxable funds to make it 59.5 without any 72t withdrawals.

So, if your situation is like mine, I'd say to continue to put money into the tax-deferred accounts. Also, remember, it isn't an all-or-none decision -- you can decide to put less into the retirement accounts.

 

[SteveR]

If you get "free" money from your employer without having to contribute your own money, then by all means start an after tax portfolio. Maxing out your retirement plan contributions are fine for long term tax deferred growth and should be a part of your plan but as FinanceDude said, you have to live on something before you can start taking the money back out again and it will most like cost you more in tax since all of it will be counted as ordinary income and not capital gains.

The basics are put in as much as your company will match and then contribute to a Roth IRA and then to your after tax portfolio..if there is anything left (assuming your emergency fund is full) then plow it back in as pre-tax money since it will reduce your taxes today by lowering your taxable income.

 

[Enuff2Eat]

hey man, nothing wrong being the richest man in the cemetery.



enuff

 

[Calgary_Girl]

I'm now 43. By the time I hit 45, the funds should easily accumulate to at least $2 million by the time I'm 65.

Although $2 million sounds like a lot, in 20 years' time won't it be eaten away by inflation?

 

[donheff]

How does a 403(b) work as compared to 401(k) or an IRA? Can you 72T out under age 59? Also, what do you mean no social security? Are you in a government organization with a defined benefit pension as well as these other accounts? I thought everyone else in the U.S. has to have SS.

 

[youbet]

I thought everyone else in the U.S. has to have SS.

Nope. For example, public sector elementary/secondary teachers are generally not in SS. They participate in their own plan organized at the state level. If they do work at jobs covered by SS in addition to teaching, their SS benefits are calculated using modified formulas which give them much less credit for low earnings. This is called the Windfall Elimination Provision or WEP.

 

[Coach]

Brenda, do you have a retirement age you're aiming for?

Coach

 

[SingleMomDreamer]

I'd like to be able to leave my job in my early 50s (I'm 43 now). My daughter is 9 now. I want to be able to put her through college; I make regular investments in a college plan for that purpose. The mortgage will be paid off when I'm 54--although I'd love to find my house on the lake one day. I started a small publishing business which has drained my savings for the time-being--I'm optimistic that I'll break-even by the end of the year and begin to see some decent returns next year. Lots going on here...Just feeling a bit anxious at the moment.

 

[kcowan]

... I started a small publishing business which has drained my savings for the time-being--I'm optimistic that I'll break-even by the end of the year and begin to see some decent returns next year. Lots going on here...Just feeling a bit anxious at the moment.

I think you are really changing careers, moving from an employee to an entrepreneur with your own publishing business. This interim step will make retirement seem farther away until it starts to return its investment. Just make sure to give it the time and effort it needs to get those returns.

 

[Telly]

Although $2 million sounds like a lot, in 20 years' time won't it be eaten away by inflation?

Yup. Since she's viewing $2M in the future from now, at age 43, there is 22 years of inflation to come.

For a 3% annual inflation over 22 years, divide that $2M by 1.916

For a 3.5% annual inflation over 22 years, divide that $2M by 2.132

For a 4% annual inflation over 22 years, divide that $2M by 2.370

That is also the trouble with all of the compounding stories online and in print... they leave out inflation effects.

 

[donheff]

Nope. For example, public sector elementary/secondary teachers are generally not in SS. They participate in their own plan organized at the state level. If they do work at jobs covered by SS in addition to teaching, their SS benefits are calculated using modified formulas which give them much less credit for low earnings. This is called the Windfall Elimination Provision or WEP.

Yeah, that is what I asked her: Are you in a government organization with a defined benefit pension as well as these other accounts? Teachers fit that bill. Otherwise she would have SS. But she hasn't answered whether she is in such a category.

 

[SingleMomDreamer]

I work for a non-profit that has a special relationship with government--we don't pay into social security. We have a retirement account in which the employer contributes 9% of salary (about $8500 last year). In addition to that, I contribute $8450 annually to a 403(b). So even if I stop contributing, I'll continue to see that 9% of salary contribution go toward the employer-sponsored retirement account (managed by American funds).

 

[donheff]

I work for a non-profit that has a special relationship with government--we don't pay into social security. We have a retirement account in which the employer contributes 9% of salary (about $8500 last year). In addition to that, I contribute $8450 annually to a 403(b). So even if I stop contributing, I'll continue to see that 9% of salary contribution go toward the employer-sponsored retirement account (managed by American funds).

Interesting. I didn't realize Government affiliated non-profits (I guess like MITRE) could opt out of SS like state and local governments. Is the plan they offer in lieu of SS a COLAd defined benefit plan?

 

[SingleMomDreamer]

Since the 9% contribution is based on salary, and the salary increases are typically a meager 3.5% in good years, essentially, the contributions are increased to match inflation. But it's not a pension per se. Results are based on the allocation of funds and their performance. In other words, no guarantee. BTW, I have contributed to social security in previous employment so am eligible -- although I assume the fund will be bankrupt by the time I'm in my 60s.

 

[Dog]

"I started to slow down contributions to my SEP-IRA when I was about 49, thinking I'd need money to tide me over until age 59.5.

But then I heard about 72t withdrawals, and went back to maxing out all retirement account contributions.

Now I'm 53, retired, and I probably have enough non-taxable funds to make it 59.5 without any 72t withdrawals.

So, if your situation is like mine, I'd say to continue to put money into the tax-deferred accounts. Also, remember, it isn't an all-or-none decision -- you can decide to put less into the retirement accounts."


T-Al,

So did you also contribute to non-taxable accounts after maxing out retirement contributions? It sounds like you did not opt for 72t. DH and I are 49 and would like to retire around 55 and are considering 72t option. Most of our savings is in tax-deferred accounts - going to start maxing out Roth IRAs, but we don't have much time to build a sizable cushion between now and then. Overall financial picture for us is solid - our challenge will be income between 55 and 59.5. Thanks for sharing.....

 

[ats5g]

Brenda,

Another option is a Roth IRA, if you are under the income limits. I think you can contribute $4,000 in after tax dollars in 2007, and $5,000 in 2008.

- Alec

 

[wstu32]

retire earlier.

 

[rw86347]

Although $2 million sounds like a lot, in 20 years' time won't it be eaten away by inflation?

I guess that depends if you keep your money in your matress. Your money should grow faster than inflation.

 

[runchman]

SingleMom, I'm at around the same stage in life, 43, have an 11 year old and 9 year old.

Anyway a side effect of putting away too much could be, later in life, choosing to help out some organization you feel strongly about by giving them some money. I can imagine that would be satisfying after a lifetime of savings.

Anyway just a thought.

- John

 

[SteveR]

Maybe the question should be how much is the correct amount to save each week, month, quarter, year, decade in order to retire when you WANT to and still be able to live a decent life style without working again. That is the FI part of FIRE. My FIRE goal was sent long before I found this board or ever heard of SWR or any of the other buzz words on this and other similar forums. We had a goal to retire at age 55. We were tracking our expenses and our incomes and knew what it would take to create a cash flow to support our chosen ER budget. The hard part was staying the course despite the urge to spend like our neighbors and fall deeply into debt. I learned very early on that debt is the enemy and it will suck the life out of your FI plans if you let it.

Most of us have gotten to FIRE by using the three-legged stool....

Live on less than you make.

Invest in low cost balanced equity and bond funds.

Eliminate all debt.


The end result is a fast track to FIRE. It works!


We saved 40% of our salary for several years and still managed to have nice cars and a nice house. We took trips and bought toys but each one was bought at discount or not at all.

Hang in there. The first $Million is the hardest to make. After a few of them they start showing up sooner than you can imagine.

 

[chinaco]

I am not a big spender and I just can't see accumulating to a point where I end up dying with a million bucks still left in the bank. I am wondering if I should keep plowing $$ into my retirement funds, or should I start to prioritize investing outside of my retirement, which I'd like to use to help support my ER.

It all depends on when you want to retire. You mention $2mm @ 65. Then you mention ER. The onlything you can do today is project your expenses in retirement. Target the desired age of retirement. Identify any income streams you will have in retirement. Then determine the size of portfolio needed to fill the income gap.

Personally I would over save a little in the early years to better ensure my plans are not interrupted. But... You are correct, once you are properly funding the target retirement plan... you may decide that you can spend more today. Let's face it... You work to earn money to support a particular lifestyle. If you are forgoing things you would like to acquire, you may be able to afford those things. That said, I would not spend frivolously.

Another way to look at it is if you want to ER and you have a lifestyle that requires less spending. Your aggressive savings may allow you to ER sooner than you expected.

 

[Mwsinron]

Better off saving early than later. Besides the compounding gig you never know when something bad might happen and work wont be possible

 

[TromboneAl]

T-Al,

So did you also contribute to non-taxable accounts after maxing out retirement contributions? It sounds like you did not opt for 72t. DH and I are 49 and would like to retire around 55 and are considering 72t option. Most of our savings is in tax-deferred accounts - going to start maxing out Roth IRAs, but we don't have much time to build a sizable cushion between now and then. Overall financial picture for us is solid - our challenge will be income between 55 and 59.5. Thanks for sharing.....

Sorry, I didn't notice this question until today.

Yes, we'd always saved some in non-tax-deferred investments after maxing out the deferred ones.