These two posts in a row made me chuckle.
I’d consider a money fund as cash. I didn’t understand that was what you meant by “mutual fund”.
Well, there is certainly the assumption that your mutual funds can be liquidated to give you cash - but if there’s a market downturn, you won’t get as much cash out of it. Our asset values went down about 40% in 2008. And about 20% in 2018 and 2022 (it recovered each of those times, but has not yet completely caught up from 2022. So using the 350,000 example, in 2018 your stash was only worth 250K or thereabouts.
Cash, on the other hand, is non-volatile. Well, if it ever becomes worthless, we may have bigger problems than retirement income. Right now the only real risk is that the bank might fail. The downside being interest rates on cash don’t remotely match the potential long-term returns of stocks / bonds.
eta: yeah, if by “cash” you mean something like a money market fund, then you don’t risk losing it in a market downturn - short of failing banks and so on.
I suppose this depends on how much of your income you were contributing to the 401k. If it was 5%, then yes. But if it was more like 15-20%, then the effect is much greater. I was putting in about 23%, and no longer having that expense is a big deal.
In addition, there is a follow on bonus. If you saved 5% and lived on the remaining 95%, then you are looking at replacing 95% of your income in retirement to maintain the same standard of living. If you saved 20% and lived on the remaining 80%, then you are looking at replacing 80% of your income to maintain your standard of living, and you have a bigger nest egg from with to do it with. I never see this mentioned in any retirement advice I have read. Just that you should save as much as you can; but being accustomed to living on a lower amount makes it much easier to transition to retirement.
Yes, the difference being that what you are doing is a conversion, not a contribution. Conversion is moving funds from one retirement account to another, contributions are adding money from income into a retirement account. It may not matter to you for your purposes, but there is a difference.
Also, I believe that once you start taking RMDs, you must take the RMD before you can do a conversion, and the RMD amount cannot be put into a Roth IRA.
Right. If you earn 10,000 a month, and (ignoring taxes, health insurance, or other deductions) you were saving 1,000 a month, your take-home pay was 9,000 a month. That’s what you need to replace to maintain an identical standard of living. My number crunching used my take-home pay as a launching point, for that reason.
Starting with that figure, 730 a month is going for Social security. So now your take-home pay is 8270 (if my math is right). BUT, in retirement you don’t pay SS on your SS benefits or IRA withdrawals - so you really only need to replace 8270 a month.
Let’s assume you were in a 25% tax bracket - or 2500 a month. Your take-home pay is now 5720 (10000 - 1000 - 730 - 2500). You’re still likely to have to pay income taxes since your income is over the limit. Your 25% is on the lower figure (8270) - roughly 2070 (too lazy to do the actual math). So out of your 8270 a month, you are taking home 6200. You are now doing BETTER than while you were working.
The actually taxes will depend, of course; only half of your SS benefit would be taxed. Medicare + suppllements will likely eat up as much of your income as health insurance did - possibly more. If your IRA etc. had a Roth component, less will be taxable (not sure how that affects the cutoff at which SS becomes taxable). If your IRA etc. was NOT Roth, you were paying less than the 2500 in taxes before.
All in all, I am personally a fair bit less worried about making ends meet in retirement, after this thread inspired me to look at actual numbers.
Looking at actual numbers is what made me comfortable to decide to retire. What matters to me is what I net per month after all deductions are taken out of my gross income. Fairly easy to calculate, and in my case I only need 75% of my working income to net the same amount. (And much of that reduction was due to no longer saving for retirement).
Another number I tracked was actual spending over the last several years. There were some lumpy expenses along the way, but with 5 years of spending data I was certain that my actual spending was under my net income. That wasn’t based on a guess, it was my actual spending, so that added confidence when determining what I needed to take from the retirement account. And I have a little bit of cushion in there for a margin of safety. Nothing extravagant, but if I want to buy a couple of rounds of drinks, I can.
Getting your actual numbers is good, and if you are like me you’ll continually tweak and refine them.
Well, they both move in the same direction when interest rates change. So do almost all asset groups, even gold mining stocks, since basically all investments are leveraged to some degree. The only thing that really doesn’t is something that already pays a variable rate based on interest rates, whether that’s because you’re invested in a fund that owns variable rate loans, or you’ve got all cash or short term-bonds in your portfolio. It’s gotten to the point where sometimes bad news about the economy is good news for stocks because it will mean less rate hikes. The economy is on such solid footing, with such low unemployment, that traders are more worried about corporate profits being eaten by debt service than corporations being unable to sell their product.
Very, very true.
I’ve been taking steps to get ALL our records updated in Quicken (which has data since 2000) including all our retirement accounts. Not that I can’t go to the individual providers’ sites (banks, brokerage) but it’s really useful to have it all literally at a glance.
And of course the spending is quite visible as well, with 23 years of history.
Now that we are no longer supporting the parents to quite the same extent, we are taking steps to improve our current and long-term cash flow. I was NOT looking forward to continuing that support after we retired.
That’s great. There are a lot of companies out there with an interest in scaring us that we will become destitute in retirement, even when we are in good shape.
And thanks for saving me from having to write about cash. Cash (in money market funds of course) is to let you ride out downturns without having to sell stuff at or near the bottom. I replenished it (when I was using it) when I thought the market was relatively high.