Assuming you draw from a brokerage, remember that you’re only paying long-term capital gains (sell the correct tax lot), and then you’re only paying that on gains greater than $94,050 (married, 2024). Zero tax. Maybe that’s not enough if you’re still paying a San Francisco mortgage, but that’s substantially more than my net take home pay (including after savings) in the midwest.
Different tax-advantaged plans need different types of strategies, though. No taxes on Roth withdrawals, and it’s not AGI. But traditional IRA (and 401(k) rollovers and pension lump sums) can kill you, if, as you say, it’s “all” your money.
I’m not sure I understand what taxes you’re paying on money you don’t withdraw, though? Dividends and distributions can’t be prevented on ETF’s, unfortunately. You mean taxed in the future?
I’ve been retired for over seven years now, and I have a bit more money than when I retired, and that includes paying off the mortgage, two new cars, and a good bit of travel.
It is all about cash flow. I had enough to hold off getting Social Security until I turned 70. That, and my wife’s spousal benefit, pays for almost all our expenses. We did take some money out before I hit 70. And I live in the Bay Area, not a particular low expense region.
Before you retire your investment strategy should be relatively high return investments that also are riskier, since you can wait out downturns. We moved a good bit of our money to less volatile dividend producing funds. Those in our post-tax accounts get taxed, of course, but those in the IRA and Roth don’t until you withdraw, We took money out of our IRA every year to reduce the RMD, but limited the withdrawal to keep us in a relatively low tax bracket.
We have good Medigap coverage. My wife has had two new knees and a new hip with almost no cost to us. The coverage is higher per month, of course, but it is a controlled expense and thus easier to plan for.
Before I retired we did an analysis of how we spent our money, which is pretty accurate. Most of our tapping capital has been for things like an air conditioning system, a new fence, and stuff like that, but a million dollars covers a lot of those.
Nursing homes could be an issue, but both my father and mother died very quickly and never saw the inside of one. My wife’s mother did also. My father-in-law died at over 100. He was in assisted living for about a year, but before that the expenses were fairly reasonable. He didn’t have anywhere close to $1 million but could afford it.
So, compute your cash flow, compute reasonable expenses, and see where you are. I suspect a million bucks plus a decent amount of social security income would be more than enough.
I was confused by that as well. In a non-tax-advantaged plan, e.g. a regular brokerage account, the 3% would be taxed if its growth was due to income (interest or dividends), but not if it’s due to stock market appreciation.
In the latter case, it’s taxed (at the capital gains rate) when you sell it.
If you hang onto it, and someone inherits it, their basis is whatever it was worth when you died - which is a useful way to avoid income taxes, and a useful estate-planning trick.
An IRA / 401(k), on the other hand, must be drawn down by your heirs (except spouses) much faster; there are nuances, and I think Roth vehicles are handled differently. So if leaving wealth to someone is a concern as it is for us, you’re better off not touching the non-tax-deferred stuff, and using your tax-deferred money (except maybe Roth) on yourself.
Assume a bunch of your money is NOT in IRAs and 401Ks. And you invest conservatively, which means relatively a lot of interest and dividends and rather little growth. All that interest and dividends will be taxable income whether or not you withdraw it from your account to either spend or send to the IRS.
You need to ensure the principal in the account is growing at the rate of inflation. That means you need to have more dollars in there next year, but they will be smaller dollars and as a result your actual spending power is unchanged.
The problem is that you’ll pay ordinary income taxes on the int/div money you’re leaving in the account to offset inflation. So that takes a disproportionate bite out of the money you did withdraw. You and the IRS will split the withdrawn money, but they’ll get a bigger share than you might expect.
That’s what I meant.
Separately from that …
Yes, capital gains are taxed at a lower rate. But the tax rate buckets on capital gains are based on your AGI, not only on your cap gains. Between SS, pensions, RMDs, and taxable interest and dividends in non-qualified accounts, you may well eat up the entire zero capital gains bracket with that, and find your first dollar of capital gains is taxed at the next cap gains bucket level (15% this year).
Okay, I will admit to buying an occasional lottery ticket for funsies. It’s always nice to have a little fantasy. But I do also know a little math and so my annual outlay is probably $5-7. A grand a month is…a lot of lottery tickets. I guess that retirement “plan” hasn’t panned out.
Bizarrely, sometimes you also give up the smaller salary in trade for higher benefits. I work for a larger government agency that employs many, many civil engineers (and a smattering of other types). I was shocked speaking to several that have jumped here from private practice that we pay more than most private firms in the state, not only for new graduates but also for many folks with Master’s degrees (can’t speak to the PhD’s, though we have a couple). Also fewer hours and less stress.
The trade-off for them is ultimately mostly career and personal mobility. Maybe occasionally more job satisfaction with less internal bureaucracy to deal with . Also I suppose the possibility that if you’re a superstar and climb the ladder high enough you might eventually make more as a partner/senior management in private practice.
Sometimes that depends on exactly where you are located - I worked for a NYS agency and there was a giant difference between NYC and the rest of the state as far as the people who filled certain jobs. NYC had about a $3000 location pay differential which is not much , so the salaries had to be on the high side for the rest of the state in order to fill the NYC jobs. The job that was called " Administrative assistant" when I left has a top pay of $64K which might be a great salary in a lot of the state, but not in NYC where a good administrative assistant can earn $90-100K.
Aside from winning the lottery there is absolutely no way I’ll be able to accumulate $1,000,000 prior to retirement.
I’m also a bit gobsmacked at the monthly expenses of some of you. I’m assuming a good part of that is due to location. (My household expenses are around $1200-1400/month including rent, utilities, fuel, food)
Due to a number of factors I don’t want to get into getting long term care insurance for me is impossible now.
Really, my only option is to try to stay healthy enough to never need to go into a nursing home. If I fail then I’m screwed - I don’t have money for a nice/decent/safe place and by then I expect to have no living relatives left who would advocate for me.
Me and a few others in the same position are planning to retire together as roommates and look out for each other, with plans to make that home as age-in-place friendly as possible in a part of the country with a low cost of living. If that doesn’t work… well, I’m screwed. There’s no way around it.
Since that is not fixable I will do whatever I can to maximize my life and health before that comes, if it ever does. No use dwelling on it. Or maybe it’s just that in my family death has almost always come suddenly, and without incapacitating dementia.
My planned retirement does not involve extensive or frequent travel and my current lifestyle is quite frugal. I did consult a professional financial planner a few years ago and I’m on track for maintaining my current lifestyle into my mid-90’s assuming nothing drastic upsets the apple cart. But that sort of thing can happen at any age. And I’ll be able to do it on less that a million dollars.
Between that and intending to work full time until 70, and likely part time as long as that’s reasonable/feasible past that time, I should be OK.
I have relatives who had the self-awareness to know they were not great at saving. They chose to get government jobs (teacher, corrections officer) that would give them a good pension without them having to do the hard work of saving. Could they have done better by going into private sector jobs and doing the hard work of putting money in a 401K? Probably, but they knew they wouldn’t do it so chose accordingly, and IMO, appropriately.
Yep. Location, location, location. And of course lifestyle.
There is no way that any place around here (DC suburb), that is safe, clean etc., could be had for less than a thousand a month. 2-3 people sharing a place might pay that apiece. We’re in one of the more expensive markets in terms of buying a home, as well.
My daughter lives on something like what you are paying. She’s in a very inexpensive apartment - 650 a month, in a small town in Vermont. It is NOT a “nice” apartment at all, but seems safe enough (though we were honestly surprised the building survived that earthquake a few weeks ago). She only works part time (but is working on opening up her options), and receives Medicaid and a little bit from SNAP.
I think you will be fine, for a couple of reasons. First, while the LTCI industry has seemed to instill a fear of financial ruin based on stories of several years of LTC at $80-100k per year, the majority of people who enter LTC are there for less than a year. Sure, you might be one of the ‘lucky’ ones who need years of LTC, but probably not. Second, you are right to be concerned about no one advocating for you. You still have to try to get an insurance company to pay out, you need to be in the right type of facility, you have to meet the insurance company definition of what daily activities you need assistance with (with medical documentation), and you have to do this at an old age when you are not as sharp as you once were, even if you don’t have dementia. A facility might advocate for you, and probably will if you have insurance, but it is a difficult system to navigate, and I don’t expect insurance companies to make payouts easier.
So the good news is that any random person has a 75% chance of not residing in a nursing home at the end of their life. And of those that do, 65% of them die within a year. Putting those two stats together, any random person has a less than 9% chance of needing more than a year in a nursing home.
I would also point out that that article doesn’t seem to distinguish between “assisted living” and “skilled nursing”. The costs and lengths of stay for these two categories differ dramatically.
And while LTCI covers more than nursing homes, a person might look at the left hand side of that chart while noting that most LTCI insurance has a 90 day elimination period. The cynic would also note that premiums are not locked in, they can change. I don’t have data, but I suspect they rise more than they fall.
I decided against getting LTCI, and I will know if I made a good decision when I am dead. However, if I change my mind and do decide to get it, I think getting a minimal policy that only provides 1 or 2 years of coverage is the best choice, providing for the most likely outcome (in the event I do need LTC).
For all those anticipating funding a potentially lengthy stay in assisted living, I urge you to spend some time in such facilities now. Either volunteer, or just visit a few, saying you are scoping options for yourself or an aged relative. Depending on your functioning, different levels of care may not appeal to everyone.
Personal circumstances and, more importantly, the capability of people to handle finances varies so much that the concept in the OP is useless.
For us, having a million in savings is overkill. It would take a huge, huge nursing home hit to have a serious affect on our finances overall. But we are kind of rare. That is, we are financially responsible.
E.g., the fallout of the housing market crash caused quite a big problem for some of our neighbors who had lived in their homes about as long as us. 2 of them lost their homes. 1 nearly did. Meanwhile we paid off our mortgage early in that time frame. All of those people made repeated idiotic financial decisions.
We have since moved (and still no mortgage). Our new neighbors are young people who spend money at unbelievable rates despite having ordinary middle class jobs (many with one earner). E.g., they are constantly buying new cars. We have a 20+ year-old Corolla we intend to keep until the wheels fall off. (This is our 3rd 20+ year car.)
I don’t see most of them surviving a major long term economic slump.
If they had $1 million in the bank at retirement it would be gone in 5-10 years. And they would “know” that they couldn’t possibly have stretched it out.
Sure. $1 million invested and used well at retirement is enough. But that presumes their lifetime economic mind set was rational. And few people have the stuff it takes to figure that out.
You also, clearly, did not have million-dollar or multi-million dollar medical episodes.
I’m assuming that you never had your home and everything you own destroyed by fire or flood.
Yes, a lot of people are fiscally irresponsible, but don’t assume that someone with wrecked finances is always so. There is an element of luck in life few want to acknowledge.
The last few years of my spouse’s life were financially draining - he could not work, and his medical expenses kept rising until cancer showed up and finished the job. Then I lost the home I had lived in for 20 years a quite a bit of my material possessions for reasons I had absolutely no control over and could not have foreseen.
I did everything right, was fiscally responsible, and yet I will never have a million dollars. It is extremely frustrating to be lumped into the garbage bin with the irresponsible members of society. Please consider your words, as not everyone on this forum is wealthy, and some not even middle class.
I agree that it depends a lot on your intended lifestyle. My wife and I both retired and lived comfortably in our own home for 12 years. Bought three different cars in that time (not expensive ones) and a small RV. Our retirement income covered our expenses just fine as we owned the house and had no debt. Since we did a lot of traveling in our working life, we had no real desire to go overseas, and never considered a cruise as an attractive thing to do.
Then we sold the house at a substantial profit and moved in to a senior non-assisted living apartment. This runs us about $50K/yr, but is creeping toward the $60K mark with each year’s increase of about 4%. Our retirement(s) still covers that plus all our expenses, and we write a nice check to kids and nieces each year. Haven’t touched the house sale proceeds, and we have long term care (LTC) insurance if one of us is suddenly incapacitated. Net worth is probably in the $1M range, but like I said, our income from five retirement sources pays the bills. Now, if we suddenly decide to do something stupid like going on luxury vacations or buying a $500K motor home, all bets are off. And if one of us croaks, the loss of that retirement income might cause the survivor to have to tap into savings. I guess “don’t be stupid with your money” is the key.
This is a more important statement than it looks like, at first glance.
For more and more people, “retirement sources” will boil down to Social Security, and your own savings (which may or may not involve employer contributions).
For someone with pension-type income, then you don’t need as much in other savings to get by. Someone mentioned the other day, that he was expectiing roughly 57K a year from a pension. In his case, the million bucks is just the cherry on the sundae - to allow for fun stuff, major emergencies (like medical, or long-term nursing care).
Another person who is NOT getting a pension would need to replace that income from their own savings. You’d need another million (roughly) to provide the kind of income that the first person is getting from that pension.
So: person 1 has a pension of 57K, plus 1M for fun / emergencies; person 2 has no pension, plus 1M for fun/emergencies, plus some kind of savings to make up the income difference. Assuming similar amounts of Social Security income, similar housing expenses, etc. person 2 needs more savings than person 1 to have the same lifestyle.
Another thing about pensions: they are not all created equal.
I have a pension coming, but it’s pathetic. So much so that I’m pretty sure (after speaking to a financial professional) that my best course might be to take it as a lump sum then do my own investing.
Pretty much the case for ours. We each have Social Security, of course. I have a military retirement that my ex-wife gets half of, so it’s about $12K/year in my pocket. There’s a small state of Alaska retirement of about $600/month (I only worked there long enough to qualify for the minimum). My wife has a federal retirement check, also relatively small. Oh, and there is a goodly chunk from our TSP accounts, which are like IRAs. Those have about a ten-year life before they zero out. The big dog in the room is, of course, having zero debt for the last 20 years or so.
I’m 62 and retired last year. I have about $700K in retirement accounts. I have no debt, including my farm.
I’ve lived on half my income for the last several years. My living expenses are covered by my SS. Then I have a couple thousand extra each month from my retirement income to do with as I please. I don’t travel, and don’t foresee myself doing much of that now, while my animals are alive. I live a little life, really. I tend my animals and bees. I check books out from the library. I don’t care to die a millionaire. I’m thinking of having a separate account just to fund nursing home care. $100K in that, with investment growth, should cover end-of-life care. Although end of life nursing care is very expensive, it also, on average, doesn’t go on too long. The average stay (before death) is generally less than a year.
If I can’t manage the farm at some point, that’s another $5-700K asset that I can sell and move somewhere with less maintenance.
. Also I suppose the possibility that if you’re a superstar and climb the ladder high enough you might eventually make more as a partner/senior management in private practice.