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Retirement advise [message #1814] Fri, 21 June 2019 12:22 Go to next message
Quenton is currently offline  Quenton
Messages: 51
Registered: August 2015

The Candy Dragon, Made of Gooey Sticky Candy
I've been thinking a lot about my retirement lately. I was just curious if anyone here had advise on the subject. My company offers 401k matching, so I'm maxing that. That part seems like a no brainer. The rest, I don't know. I'm maxing roth contributions with spillover going into a traditional plan, but I'm wondering if Roth is really the best way to go. Originally, it seemed smart, pay taxes now, taxes go up later, pay less tax later(my limited understanding). But once I'm retired, won't I be in a significantly lower tax bracket? Even if taxes do go up, my taxable income would, presumably, be based on my 401k and other assets. Wouldn't that mean they were a lot lower than what I pay now? And should I manage my funds, or just let my company do it. My old companies plan, which i haven't merged yet, has stayed even, or lost money over the years. My new companies plan seems to be making money. But advise online says it's too early to judge, that I should wait 5 to 10 years. But at that point, it seems a bit late to do anything about it.

Just a ramble. Any advise, or links to good resources to read would be appreciated. I'm a long way from retirement, but it feels like now is the time to make the important decisions.
Re: Retirement advise [message #1815 is a reply to message #1814] Fri, 21 June 2019 12:46 Go to previous messageGo to next message
Thaco is currently offline  Thaco
Messages: 14
Registered: October 2018

the Hero of the Shield
Nothing wrong with planning ahead! I am in Canada, so I'm not sure my advice would be right for you... I would say though that regardless of country, yes your tax bracket goes down post-retirement and is based on whatever your income is. For us, it is CPP and whatever you've put aside in RRSPs. Sorry I couldn't help more! I'm doing the same, in my 30s and trying to get myself set up as best as I can!
Re: Retirement advise [message #1816 is a reply to message #1814] Fri, 21 June 2019 21:51 Go to previous messageGo to next message
Feroz is currently offline  Feroz
Messages: 14
Registered: February 2019

the Enchanting Master of the Tower
I am by no means an expert (I am in IT), but I did a bit of research.

I do this:
Max out my 401k with 50% going to traditional and 50% going to Roth - don't ask me the exact reason behind this, I make good money, but not rich by any means; I figured I could handle to pay some taxes now, but also pay some later without knowing what the conditions will be of the market
With my investment plan, I follow a three-fund portfolio and re-balance it yearly
My wife does not have a plan through her company (she works on contract), so I have also setup both traditional and Roth IRA's for her on Vanguard doing something very similar as I do for my 401k
On top of this, I do invest in some stocks, but this is just leisurely
I also have plans for my kids' college funds (this is more or less to make sure I can retire while helping my kids get educated)

Re: Retirement advise [message #1817 is a reply to message #1814] Sat, 22 June 2019 14:27 Go to previous messageGo to next message
Tasslehoff is currently offline  Tasslehoff
Messages: 1
Registered: March 2019

the Hero of Divine Wrath
I'm the benefits manager at my company, so I'd say that I probably have a better-than-average understanding of this topic. That said, though, I'm not a licensed financial advisor. So now that the disclaimer is out of the way...

Since your company offers matching contributions to your 401k, you should definitely contribute enough to get the maximum match the company will give. You're right about that part being a no brainer. You won't find any other investment opportunity that will guarantee an immediate 100% return - so always throw enough in there to get your company's match.

Beyond that, it is really very situational. There are circumstances where Roth plan will outperform traditional plans, and there are time where it will be the other way around. One thing to keep in mind about Roth plans is that the growth is also tax-free when you draw it out in retirement. If you started early and are saving over a long period of time, it is very possible that the growth from your investments could be considerably larger than the principle amount you saved. A Roth account can give you a huge advantage in that situation, as you can avoid paying any taxes on the considerable growth that you account has accrued by the time you retire. Here's are a couple examples:

Let's say you start saving at age 30, and you put $6,000 into your retirement account each year, and that your account is invested in such a way that you average a 6% annual rate of return (that's a pretty conservative rate of return, btw - over long periods of time, it is usually possible to do much better). At age 65, your account balance will be sitting at around $695,000. Of that, $210,000 will be the money that you put into your account over the years ($6,000 x 35 years). The other $485,000 is all growth. In this example, a Roth plan will almost certainly be better than a traditional plan (regardless of your tax brackets before & after retirement), as you will have amassed almost $700k, and will have only paid taxes on a little over $200k of it.

Now, let's say you start saving at age 55. Since you're off to such a late start, you're putting $24,500 into your retirement account each year. We'll also assume the same 6% annual rate of return from the first example. By age 65, your account balance will be at around $326,000. Of that, $245,000 will be the money you saved ($24,500 x 10 yrs), while the other $81,000 will be growth. In this example, the vast majority of your account is money you have earned & saved, and the growth on your investments is relatively small. A traditional plan might be better than a Roth in this instance, depending on your tax bracket during those last 10 years vs. your tax bracket in retirement.

Hope that helps a little. Smile

[Updated on: Sat, 22 June 2019 14:28]

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Re: Retirement advise [message #1818 is a reply to message #1817] Sat, 22 June 2019 22:58 Go to previous messageGo to next message
Quenton is currently offline  Quenton
Messages: 51
Registered: August 2015

The Candy Dragon, Made of Gooey Sticky Candy
Thanks guys, awesome responses. Tasslehof, that made me feel a bit more relaxed about my choices. Feroz, what type of college fund did you set up for your kids? I also wanted to start one of those whenever they eventually arrive.
Re: Retirement advise [message #1819 is a reply to message #1818] Sun, 23 June 2019 07:31 Go to previous messageGo to next message
Rhea is currently offline  Rhea
Messages: 135
Registered: April 2017

the Enchanting Heroine of Object Manipulation
Again, my disclaimer is I am Canadian....

I am sure, either at the state or federal level you can find a fund that will match contributions up to X amount for a college fund. We've done that for our daughter, so here in New Brunswick, Canada (it is a federal program though) the gov't matches a up to a certain amount and that will sit aside for her and accumulate interest and just build through our contributions and the gov't of Canada's contributions.
Re: Retirement advise [message #1820 is a reply to message #1818] Sun, 23 June 2019 11:44 Go to previous message
Feroz is currently offline  Feroz
Messages: 14
Registered: February 2019

the Enchanting Master of the Tower
I setup a 529 through a program our state treasurer provides, but you can open a 529 through other investors.
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