Finance Dave
Thinks s/he gets paid by the post
- Joined
- Mar 29, 2007
- Messages
- 1,864
Ok...excuse me if a bit long-winded...but would like your thoughts on my situation.
Keep in mind I’m making several simplifying assumptions to keep the analysis from getting overly complex. For example, we actually plan to work PT in retirement…but we’ll leave that out for now.
Scenario 1:
Scenario 2 (my preferred method)
Thanks,
Dave
- Age 46, wife 50
- No kids
- Hope to retire when I'm 52 in 6 years, wife will be 56
- Currently $850k in retirement accounts, split amongst 401k, Roth, traditional, and some after tax 401k as well.
- $75k in MM fund as our emergency fund
- All proper insurance in place, including $1M umbrella (may have to increase to $2M soon )
- House will be paid off in 5+ years
- Minimal car debt...will be paid off in 10 months
- No pension...company has a cash balance plan, and the amounts for that are included in the $900k above.
- Including both our contributions and our company's contributions...we are adding $61k/year to our retirement balance currently
- I'm estimating our balance at retirement to be $1.8M in all accounts (using an 8% growth rate for the next 6 years…a bit risky for sure)
- Currently combined gross is $160/year, but I’ve done a complete retirement needs analysis and estimate we'll need about $85k/year net to live on after retirement (just stopping our retirement savings along will save us $45k net...and the house will be paid off..saving another $25k/year)
- We’ll most likely have to purchase health insurance on the open market…I’ve included that in our needs analysis
Keep in mind I’m making several simplifying assumptions to keep the analysis from getting overly complex. For example, we actually plan to work PT in retirement…but we’ll leave that out for now.
Scenario 1:
- Follow popular wisdom of taking all AT money first.
- Pay zero taxes in first 5 years, effectively depleting after-tax amounts
- Then start using PT money and pay taxes on full amount
- Years 1-5 – pay zero taxes
- Years 6 - ?? pay $13,930/year (adjusted up for inflation)
Scenario 2 (my preferred method)
- Each year in retirement, take out just enough from the pre-tax money to get us to the top of the 15% marginal bracket (~$61k in 2008, then take all additional amounts from monies that have already been taxed. This would limit our tax rate to 15% for all future years
- Years 1-?? – pay $3,600/year (adjusted up for inflation)
Thanks,
Dave