Pick apart my retirement plan

[Grundy53]

Maybe think about long term care insurance. Nursing homes will burn through a nest egg fast.

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[NevadaMike]

I also agree with SDhunter. When I was in graduate school for finance I learned two very important things. Number one was I was not going to leave my pension heavy FD job to go into banking and finance but I still finished my masters anyway. Number 2 was I am not going to invest in individual stocks. We had to calculate the beta of portfolios. That is fancy for how volatile my particular stock holdings are relative to the S&P 500. It can absolutely be calculated but you needed to hold an average of 12 stocks(old memory) that nothing dramatic happens to to closely match the index. Sure you can buy one stock and become a gazillionaire but those stocks typically fall in a similar fashion on average. A risk I do not want. My finance professors invested in Vanguard index funds. Because of their overall lower fees you could definitely calculate the impact to your portfolio over the decades. A percentage here or there is huge over the life of you holdings hence my statement above about not hiring a commission based CFP. Because of this I hold Vanguard target date funds and sleep well at night. Don't get me started on annuities!! If your CFP mentions them find another unless you like buying her/him vacations and less returns on your investments!!

 

[eamyrick]

I suggest asking other professionals (CPA, Attorney, etc) you trust for a referral. They will know who the good guys are. If you do not have such a relationship ask your successful friends and family members who they use. The best referral is a personal recommendation from someone you trust.

Thanks for the recommendation. Wife and I sat down with a firm today and are working through a financial plan with a CFP. It’s not exactly cheap but seemed fair. I’m still on the fence whether or not I’ll do the % fee based asset management.

 

[LFC911]

Thanks for the recommendation. Wife and I sat down with a firm today and are working through a financial plan with a CFP. It’s not exactly cheap but seemed fair. I’m still on the fence whether or not I’ll do the % fee based asset management.

FWIW we pay our CFP 1% of assets under mgmt.

 

[drdrop]

FWIW we pay our CFP 1% of assets under mgmt.

A 1% investment fee seems small but it means you have to save 25% more for retirement. You can learn all about investment fees in this good documentary: https://www.pbs.org/wgbh/frontline/documentary/retirement-gamble/

 

[LFC911]

A 1% investment fee seems small but it means you have to save 25% more for retirement. You can learn all about investment fees in this good documentary: https://www.pbs.org/wgbh/frontline/documentary/retirement-gamble/

I will check it out. Our logic on paying the fee is (1) our CFP will help us with our financial plan and exit strategy, (2) help us with Roth conversions, (3) when to claim SS and (4) earn a better return than we could on our own. We’re hoping that that better return helps cover the CFP’s nominal fee. If something was to happen to me, then my wife would have someone we trust to help her make financial decisions. If at some point we don’t feel like the CFP is pulling his weight, we’ll pull our funds and take over mgmt.

 

[Jason Snyder]

Maybe think about long term care insurance. Nursing homes will burn through a nest egg fast.

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We did this earlier this year. We also re did our term life and a variable life policy.

We have a financial planner we’ve known for years. He has helped us tremendously in the past two years. We are 6-10 years out from retirement and are on a much better path than prior to meeting with him.

 

[drdrop]

A 1% investment fee seems small but it means you have to save 25% more for retirement. You can learn all about investment fees in this good documentary: https://www.pbs.org/wgbh/frontline/documentary/retirement-gamble/

I will check it out. Our logic on paying the fee is (1) our CFP will help us with our financial plan and exit strategy, (2) help us with Roth conversions, (3) when to claim SS and (4) earn a better return than we could on our own. We’re hoping that that better return helps cover the CFP’s nominal fee. If something was to happen to me, then my wife would have someone we trust to help her make financial decisions. If at some point we don’t feel like the CFP is pulling his weight, we’ll pull our funds and take over mgmt.

Here's the simple math behind that assertion:

Say you save $1,000,000 for retirement. With the 4% rule (an industry-accepted rule-of-thumb), that means you could safely retire on withdrawing $40k per year. But, if an advisor charges a 1% fee ($10k on a $1 million account), that safe withdrawal amount drops to $30k per year. To make up that extra $10k per year the middle man charges, you'll then need to save $1.25 million in order to live off of that initial 4% rule.

I understand finances can be uninteresting or a low priority for many, but I'd rather spend a few weekends learning the key concepts in order to avoid having to work longer and save 25% more to retire. Alternatively, look for fixed fee advisors (that will sign a statement that they will work as a fiduciary) rather than someone charging a fee as a percentage of your total investment amount.

 

[Grundy53]

Here's the simple math behind that assertion:

Say you save $1,000,000 for retirement. With the 4% rule (an industry-accepted rule-of-thumb), that means you could safely retire on withdrawing $40k per year. But, if an advisor charges a 1% fee, that safe withdrawal amount drops to $30k per year. To make up that extra $10k per year the middle man charges, you'll then need to save $1.25 million in order to live off of that initial 4% rule.

I understand finances can be uninteresting or a low priority for many, but I'd rather spend a few weekends learning the key concepts in order to avoid having to work longer and save 25% more to retire.

This. Or find someone who charges a flat fee.

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[z987k]

Here's the simple math behind that assertion:

Say you save $1,000,000 for retirement. With the 4% rule (an industry-accepted rule-of-thumb), that means you could safely retire on withdrawing $40k per year. But, if an advisor charges a 1% fee, that safe withdrawal amount drops to $30k per year. To make up that extra $10k per year the middle man charges, you'll then need to save $1.25 million in order to live off of that initial 4% rule.

I understand finances can be uninteresting or a low priority for many, but I'd rather spend a few weekends learning the key concepts in order to avoid having to work longer and save 25% more to retire.

That and a lot of work plans will provide all those services for free.

 

[ETtikka]

One word

ROTH

Maximize Roth contributions before retirement and Roth conversion after retirement.

Your savings and pension are awesome , but don’t lose track of tax avoidance where possible

 

[92xj]

For a 401k that offers both traditional and Roth and you contribute max, what the best option? Split the max 50/50 between traditional and Roth? 100%in Roth for the rest of career?

Spent the first 12 years of career with only a traditional option. Two years ago the Roth option came to be so I split my contributions 50/50 between the two. What to do the next 20 years?


Edit: sorry to intrude on your post eamyrick!

 

[ETtikka]

In most cases the tax advantages are far better in a Roth vs 401k or any pre-tax, especially if your current tax bracket is reasonable ( not 22,25% or more)

Roth gives tax free earnings when you withdraw after 59.5 yrs

And everything you put into a Roth , you can access for college , pay off house , etc if you had too

Any college financial aid form: first question is do you have a college savings account? A Roth is NOT , but could be if needed

You can’t pull out earnings, but you can access amount contributed

 

[Axle]

For a 401k that offers both traditional and Roth and you contribute max, what the best option? Split the max 50/50 between traditional and Roth? 100%in Roth for the rest of career?

Spent the first 12 years of career with only a traditional option. Two years ago the Roth option came to be so I split my contributions 50/50 between the two. What to do the next 20 years?


Edit: sorry to intrude on your post eamyrick!

It really just depends on what your tax bracket is now, vs what you think it will be in retirement. Unless you are in a super low tax bracket now, I think it makes sense to have some in Roth and some in traditional.

 

[92xj]

It really just depends on what your tax bracket is now, vs what you think it will be in retirement. Unless you are in a super low tax bracket now, I think it makes sense to have some in Roth and some in traditional.

Jointly in the 24%bracket and doubt I’ll ever go higher

 

[Axle]

I will check it out. Our logic on paying the fee is (1) our CFP will help us with our financial plan and exit strategy, (2) help us with Roth conversions, (3) when to claim SS and (4) earn a better return than we could on our own. We’re hoping that that better return helps cover the CFP’s nominal fee. If something was to happen to me, then my wife would have someone we trust to help her make financial decisions. If at some point we don’t feel like the CFP is pulling his weight, we’ll pull our funds and take over mgmt.

If your CFP can consistently beat the market by 1%, then you found a gold mine. We used to be at Edward Jones, and our advisor was super nice and helpful. I didn't know the first thing about investing, and he made it all seem really complicated. Since he was so nice and helpful, he took care of everything for us. The trouble was, we got charged a lot for that service, and they did a good job of hiding those costs.

I started doing some research on my own. I figured out in the ~7 years we were with them, we would have had much better returns if we had just invested in a simple total market fund and a bond fund, plus I would not have had to pay them anything. They had us in maybe 7 different mutual funds.

Expense ratios on ETFs or mutual funds that roughly follow the stock market are around .003-.004% at Schwab and Vanguard. I think Fidelity may even have some free ones, but I don't have any money there.

It is nice to have someone to talk to about finances. Schwab has been great to work with in my experience. Our accountant is also really helpful. I haven't needed anything beyond that so far.

I will say, if you are prone to panic selling/speculating, that is one place where an investment guy could really pay off. A lot of people have lost money by selling when the market drops or going all in when they see the market continuing to climb. An advisor can help you figure out a good investment plan, and will help you stick to it.

 

[Axle]

Jointly in the 24%bracket and doubt I’ll ever go higher

Math says-if you are saving 24% on taxes now by making traditional contributions, and you will be in the 12% bracket in retirement, you save ~12% by going traditional. I think it's slightly more complicated than that, but that's the general idea.

Nobody knows the future, tax laws change, etc. That is what makes it a complicated decision....

 

[txtransplant]

I will check it out. Our logic on paying the fee is (1) our CFP will help us with our financial plan and exit strategy, (2) help us with Roth conversions, (3) when to claim SS and (4) earn a better return than we could on our own. We’re hoping that that better return helps cover the CFP’s nominal fee. If something was to happen to me, then my wife would have someone we trust to help her make financial decisions. If at some point we don’t feel like the CFP is pulling his weight, we’ll pull our funds and take over mgmt.

This is all valuable stuff to get advice on. The issue isn’t that you’re paying for advice - that’s *good.* Just don’t pay 1% of your investments for it every year. That’s a rip off.

Find a flat fee or hourly fee advisor. These are the two most ethical fee models in my opinion.

 

[mtwarden]

My plan is to not touch my deferred comp account until 55 and start drawing down then to counteract inflection. Should be a chunk. I also kinda struggle with the idea of what is productive? I’ve don’t get to spend time with my friends like I would like to or be a regular at church small group. I plan to be busy I’d just rather not have a boss forever. I very well may still do some part time contract work.

I'll make a suggestion if you do consider part-time work. If you have a federal Courthouse anywhere near, contact the US Marshals there and look into contract work. They pay very good wages (but no pension) and they have some positions that are half time—you work two days one week and then three the next, essentially giving you a four day weekend and then a five day weekend (you earn vacation and by taking just a few days of it, gives you two full weeks).

I did contract work for them for six years after I retired, full time. Having a good pension rolling in AND a good wage check too, allowed me to pay off everything and sock a bunch more in an IRA (they have a pre-tax IRA plan, also medical, but you have to pay into them-no match or anything).

After the six years, I got into one of their part-time positions and did that for a couple of years. It was a nice transition into full time retirement.

Anyways all they basically hire are retired federal, state and local law enforcement; I found it to be a pretty good gig.