Okay, correction. There ARE big differences for me now that I think about it, it’s just for me they’re a little hidden by the nature of being a pensioner.
They are two big sources of savings. One, I am no longer paying into a retirement system - that’s a big savings right there. Two, I am no longer paying FICA (SS and medicare) or into mandated state disability insurance, taken together also a significant savings.
The reason I didn’t really think about them is because they are kind of offset in MY retirement by the fact that I am now paying more for healthcare. My once fully funded medical and dental is now only very partially funded, so those savings in my pension checks are more than offset by my decreased income and higher medical costs.
But they are very legitimate savings and while not everybody pays into social security if you’re in an opt-out job, not paying into retirement would be pretty broadly applicable to most retirees.
Oh, gotcha. Yeah, consumption is basically the same for me. I know people who are waiting to retire until their kids are out of college - that will be a big savings for them. But barring that or paying off the mortgage before retirement, I don’t see it being significant for most. As LSLGuy noted, stuff like wardrobe and commuting (offset in many cases by increased travel) just aren’t going to be big savings for most people.
My thoughts in this post are only as I understand the rules concerning retirement funds. Please don’t consider them to be gospel truth, as I am not a financial expert, but I do know a bit about taxes.
I believe this is true. If you are no longer a participant in a 401k, you have to withdraw the whole thing, or roll it all over to an IRA.
Correct, AIUI.
And, yes, you will be taxed on the funds you withdraw, BUT, if you are withdrawing them for an emergency, you will not be subject to an additional penalty. See the link below from the IRS.
The kicker here is that you must use all of the withdrawn funds to cover the hardship/emergency. If you get audited after filing next year’s return, you will need to show that you used the entire $7k to pay medical bills or mortgage/rent payments that kept you from being evicted.
In my role as a volunteer tax preparer, I have seen several early IRA or 401k withdrawals, usually due to medical bills or tuition payments. As the preparer, I mark the distribution as an emergency, and, as far as I know, none of these clients have had an issue with the IRS. Obviously, your experience may vary.
Hope this helps. And hopefully other Dopers can weigh in as well.
I think I will have a hard time justifying it as a true emergency, the medical bills are of a dental, not more-urgent nature, the car accident wasn’t a bad wreck, I’m not facing eviction. I may have no choice but to eat the 10% penalty. That’s OK in the big scheme of things.
Here is my thought: Since the amount of funds needed is not huge (“only” $7k, YMMV), can you reduce or suspend your contributions into your current 403b? Might not be a good idea if that costs you matching funds, but not contributing $7k into a retirement account is equivalent to withdrawing $7k (plus a possible penalty) from another retirement account, without the headache of dealing with having to justify a hardship withdrawal or pay the taxes. Of course, it may take several months to get the $7k this way, but perhaps the dental bill can be put on a payment plan.
Unfortunately, right now I’m only able to contribute about $2,000 to my 403b each year. Suspending my contributions would take me over three years to raise the $7k.
Same here. I bought a few shares of Palantir during a slump several years ago and benefitted from their huge run up. At the peak my holdings amounted to about $50,000. I sold half at a good profit a couple of years ago. But as I read more about them I felt less and less comfortable hanging on to the rest. Last month I put the remaining shares into my directed giving account. It won’t make any difference to Palantir, but I don’t get that icky taste in my mouth when I look at my portfolio now.
I’m also a volunteer tax preparer and agree with @Railer13 . If I were doing your return I would have no problem declaring your withdrawal as a hardship exempt from the 10% penalty. Dental bills are valid medical expenses and having a working car is essential in most places in the US. $7K is pretty small potatoes as far as these things go and I doubt you would even be challenged. Just make sure you save ALL your medical and car repair/purchase bills for that tax year.
Let’s switch from talking about one evil company (Palantir) to another: Sandisk. Well, they aren’t really evil, but they are building the materials for AI. I won’t tell you what I’ve bought, but I went into AI adjacent companies a year ago’ish, and they are my star. I have several others. People are making insane amounts of money on these companies (myself to a certain degree) and it feels almost illegal.
Heh. My best individual performers weren’t bought to be AI adjacent - bought as long view climate change considerations, electric infrastructure and energy efficient climate control - Trane, Eaton, and ABB. But being AI adjacent is why they’ve done so well. Better lucky than smart!
I hear you. I have a long term holding in an HVAC company that is doing quite well, but a couple of years ago they acquired a company that specializes in data center cooling. Holy cow! I feel like I should be sending a Christmas gift to the management team this year to show my appreciation.
Sure. Won’t touch them with a bargepole. As far as I can see they almost always have high overheads and hidden costs. You don’t have any control over the underlying assets. And the company offering them may not be sound: you’d have to do as much research on that as you would any stock or ETF.
You don’t control the underlying investments in fixed annuities. The vast majority of variable annuities have an assortment of mutual funds (selections usually look like what your 401k offers). Indexed annuities are tied to an index (like the S&P500, etc.). Your concerns about high overhead and hidden fees remains true regardless (though fixed annuities don’t have fees taken out at withdrawal - it’s all opportunity cost there).
I just don’t get it. We’re up 3% AFTER spending 10% for the last year. New truck, solar system with batteries, and a shit ton of charitable and political giving. A good outcome, but I don’t understand why.