Wave of "Peak Boomers" Is About To Hit & Many Are Financially Unprepared For Retirement
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I've been trying to run some tax planning numbers the past week or so, and what stands out to me is that the RMD rules give the diligent 401K saver no choice but to turn his "possession" into income at age 73, no matter what. There is no escape. This inevitable conundrum has been planned for by Uncle Sam. Isn't he generous?
not true at all ..our rmds are put right back into the same funds they came out of in the taxable account.
they get a taxable hat instead of a tax deferred hat
When the rest of us think about pensions, it was "good fortune" (or call it luck, if you will) that they existed when you were able to join that employer. The employee has no influence on whether they "exist" or not. If they don't exist, you can't choose them.
Same way that starter homes "existed" when we were new buyers so we were able to get in on that. Now, starter homes don't seem to exist, so younger folks can't "choose" them.
I think we were indeed "lucky" to be able to take advantage of that. Same with pensions.
My employer still offers a 20year pension to anyone who joins, even in 2024.
not true at all ..our rmds are put right back into the same funds they came out of in the taxable account.
they get a taxable hat instead of a tax deferred hat
That's true but doesn't solve the fact that psychologically you have to touch the portfolio even when you don't want to, which was the point I was responding to.
That's true but doesn't solve the fact that psychologically you have to touch the portfolio even when you don't want to, which was the point I was responding to.
i don’t look at it mentally as altering the portfolio at all . in fact the taxes come from our cash so even the amount stays the same .
once the bigger rmds start the only difference is it will be less taxes as the original investment will still be utilized , but since i made money on the tax money i have not paid out yet , MEH
it’s really something i dont dwell on or think about .
don’t want rmds , then spend the tax money up front with conversions
this is what happens when you use untaxed money.
but they in no way force you to spend the money and turn it into income , it only has to have a portion taxed . what you do with what’s left is up to you. we choose to put it back in the same investment
Last edited by mathjak107; Yesterday at 04:09 PM..
Folks hired after NG eliminated pensions enjoy much better employer 401K contributions. Depending on market conditions, you may be better off than your Dad.
Left there after two years.
At $34k/year back in 2011, I don't think I had much choice.
Honestly, is getting a pension how some of you chose your career for life in your 20s? I mean, I get weighing the benefits of one career choice over another on various issues of pay, lifestyle, content, location and retirement benefits—but did you really turn down a career you were interested in so you could get a pension in your later years? Maybe as a career change in your 50s, but in your 20s?
Money is very, terribly, awesomely important to all of us, but so many of us make choices that bring us less money but more of something we value. I’m not arguing for people making crazy or thoughtless decisions about their lives, or ignoring their futures, but when someone tells you, “you’re lucky to have that pension!” I think the best answer might be, “Thanks! I’m very grateful to have it!”
That's true but doesn't solve the fact that psychologically you have to touch the portfolio even when you don't want to, which was the point I was responding to.
It's a universal dilemma. Example: Bobby has $1M in his taxable Fidelity account, all in the S&P 500. Fidelity sends him a 1099, showing $15K in dividend distributions. Bobby has dividends on automatic-reinvest... he never sees them as "real" money. But he certainly has to pay taxes on them! As a result, Bobby has less money to save every year.
Bobby's richer friend, Rufus, has $20M in a similar account. Rufus thus gets $300K/year in dividends. Rufus has hardly any capacity to save, because his paycheck goes to cover his income taxes, including those taxes on the dividends. In effect, he's not working to enjoy his money, or to save more money... he's merely working to keep his portfolio untouched. By being richer, Rufus is effectively... poorer!
It's the same with RMDs. Sancho, unlike Bobby or Rufus, structured his lifetime savings so that most went into his 401K. Last year, Sancho turned 72, and has a $100K/year RMD bill. Sancho needs to go back to work, just to earn money, to cover income tax on his RMDs. Of course, whatever dollars he earns, also incur income taxes.
Bruno was a law-enforcement employee for his entire career. Bruno was profligate, saving $0. But he gets a $60K/year defined benefit pension, plus subsidized health insurance. Bruno not only pays very little income tax, but he doesn't have to work, as there's no portfolio - either taxable or discharging RMDs - to which he'd have to tend.
Nice, eh?
Quote:
Originally Posted by Buitenzorg
Honestly, is getting a pension how some of you chose your career for life in your 20s?
Honestly, is getting a pension how some of you chose your career for life in your 20s? I mean, I get weighing the benefits of one career choice over another on various issues of pay, lifestyle, content, location and retirement benefits—but did you really turn down a career you were interested in so you could get a pension in your later years? Maybe as a career change in your 50s, but in your 20s?
Money is very, terribly, awesomely important to all of us, but so many of us make choices that bring us less money but more of something we value. I’m not arguing for people making crazy or thoughtless decisions about their lives, or ignoring their futures, but when someone tells you, “you’re lucky to have that pension!” I think the best answer might be, “Thanks! I’m very grateful to have it!”
honestly, I stumbled into mine. I got a job and gave no thought to the benefits, etc. I was in need of employment and the job with the feds came along. it was some time later when I realized the value of what I had.
some days I do feel like I've won the lottery, I am very grateful for the more than generous pension I have. what that has done is allowed me to be pretty conservative in my investments. as a single person I need security vs. shooting for the moon. I have only myself to depend on.
i don’t look at it mentally as altering the portfolio at all . in fact the taxes come from our cash so even the amount stays the same .
once the bigger rmds start the only difference is it will be less taxes as the original investment will still be utilized , but since i made money on the tax money i have not paid out yet , MEH
it’s really something i dont dwell on or think about .
don’t want rmds , then spend the tax money up front with conversions
this is what happens when you use untaxed money.
but they in no way force you to spend the money and turn it into income , it only has to have a portion taxed . what you do with what’s left is up to you. we choose to put it back in the same investment
I understand how taxed versed non-taxed works on the income side, but why would I not want to understand the tax implications of mixed investment strategies, too? I wanted to understand the tax implications of large balances and forced RMDs that throw off tax planning in order to see if there are better tax strategies and/or investment mixes for maximum growth. Today. Not tomorrow.
Federal taxes only: What RMDs mean in 2024 is that at age 73 you can't take out $47,150 (and not a dollar more) at a 12% tax rate if you have multiple millions, even if your expenses are only 35k or less. You will be in a higher tax bracket for RMDs for accounts in the millions, no...matter...what. We don't know what the tax rates will be in 2064, but a 25-year-old starting out today who maxes zes [sic] pre-tax traditional 401K will easily reach millions if invested in the right investment vehicles. These aren't preposterous numbers to reach. And I'm not 25, but a hypothetical 25-year-old may reach mathjak numbers some day.
EDIT: $47,150 at a 12% tax rate is doable for someone with 35k in expenses. They can do that from ages 59-1/2 until the max limit of 70 years old when they have to take Social Security, if they qualify for that, which throws off the tax brackets as well. Still, forced RMDs will affect the tax structure in addition to other income.
The different mixes I looked at were the following:
1) Pre-tax 401K + ROTH IRA (already taxed, future growth not subject to tax) + After-tax (S&P 500 index) mix
2) Pre-tax 401K + after-tax (S&P 500 index) mix
3) ROTH IRA (already taxed, future growth not subject to tax) + after-tax (S&P 500 index) mix
4) After-tax (S&P 500 index) only, no pre-tax 401K or ROTH IRA mix
All mixes went into the S&P500 and got the historical market return rate of 10% for simplicity of the calculations.
Taking out living expenses and current taxes, amounts which change depending on each mix, and which then changes the available money to invest (naturally) in post-tax, what was the total taxed amount at total cash out at age 73? That's what I wanted to know.
Post-tax money did not beat pre-tax money at TOTAL cash out - again, using total cash out at age 73 to keep the math simple - even when considering a 20% longterm capital gains tax and a 3.8% ACA surcharge/tax with every other dollar invested in a post-tax index fund.
The difference in tax savings between the best tax plan and the lowest plan was +13.35% more net worth when going with the best mix. These numbers are still preliminary, so I won't post the math breakdown of each, as that wouldn't be prudent. There may still be some calculations I didn't consider.
Now, dolllars-wise, is it worth living like a pauper when younger to squeeze out an extra 13.35% of total net worth when you're 73 just to be able to afford the finest steaks in retirement? Even for me, the answer is no.
Last edited by Free-R; Yesterday at 06:06 PM..
Reason: Social Security and its tax implications
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