Retirement Advice From Those Who Learned the Hard Way

[Sugarcubesea]

Do your co-workers really tell you they don’t contribute to the 401k or are you in a payroll position where you see the details?

I just retired from my company that has a Pension Plan (non- contributory by employees) and a very generous 401k match of up to 7% for the first 6% employee contributes after 10 years of service.

I was never aware of any of my co-workers participation in the 401-k but I’m sure there were some that couldn’t/ didn’t contribute the full amounts.

I’m not sure how the average worker retires with that “average” amount of $65k invested in their 401k (stat from another post here). Maybe why some of my older colleagues are still working and plan to continue until 70 years old.


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@Luvtoride, I'm in a position where I see those details, every year I have Town Hall Meetings where I show what the new max is per year and then I do slides that show if you just put in 5% you actually get 10% back --- employees 5% + Company's 5% match. Our 401K provider supplies me with great information that I pass on to our employees encouraging them to contribute. Most of our high earners contribute the max to all buckets but we still have those that do not contribute and our 401K provider each year does one on one training sessions with employees that want help and check ups on their retirement. I do not know how these folks will make it in retirement but I can not worry about every person. I make sure I give all of the information and tools sent to me to every employee and they alone have to decide how they want to proceed.

I had one employee at my previous company tell me that he only had $75K in his 401K because he had SS and he would then not have to worry about spending down his money to go on medicaid when he needed a nursing home

 

[HitchHiker71]

Millions of high-earning Americans to lose popular 401(K) tax deduction - here’s what it means for YOU​

• Workers aged over 50 making catch-up contributions to their 401(K)s will only be able to funnel them into a Roth account from next year
• It means they will be taxed upfront - rather than when they withdraw the money

High-earning Americans to lose popular 401(K) tax deduction

Changes to a popular 401(K) tax deduction are set to hit millions of high-earning Americans from next year.

www.dailymail.co.uk

Yeah I saw this when the legislation was passed. Not sure how I feel about it honestly -as this change means I'm forced to pay taxes on an additional $7500+ in income since the catch-up contributions are no longer pre-tax eligible. There's also an issue of many plans apparently not offering Roth 401k capabilities that won't be ready by 1/1/2024 hence a subset of people that were eligible for catch-up contributions may no longer be eligible until their plans are altered to allow for this change. I also cannot help but recall that the current administration promised that no one making under $400k per year would pay a dime more in taxes - yet here we are - paying more in taxes with this change in retirement plans effectively. Personally, it won't prevent us from contributing the maximum to our catch-up contribution limits even via Roth - provided both of our plans support this option of course - as we'd like to have a better balance of pre/post tax retirement savings long term - and provided our income levels don't change - we'll be able to increase our post-tax retirement savings quite a bit over the next ten years or so.

 

[HitchHiker71]

I am pretty sure when Roth‘s started, taking our income together,we earned too much to invest in one.

We're in the same boat with Roth IRAs - we make too much combined to qualify for them.

 

[Sugarcubesea]

We're in the same boat with Roth IRAs - we make too much combined to qualify for them.

Since Hubby retired on Dec 31, 2022, its just me working and since we are Married Filing Jointly (MAGI), my accountant told me this year I can contribute the max to a Roth IRA for both me and my spouse...

 

[HitchHiker71]

Sound similar to our last few years of employment before we retired. By that time, we had our house paid off and no other loans or leases so our living expenses were quite low. We were both over 50, so we qualified for catch-up contributions for both 401k and IRA. In addition, our company (we worked for the same company) had just started to offer the "Mega Backdoor ROTH" (as some people had started to call it) where you could contribute after-tax dollars of up to $17K to your 401k above and beyond the regular contribution limits, and then that money was siphoned to our ROTH 401k account. So our breakdown was this (as best I remember it):

$19K - 401k regular contribution (pre-tax)
$6K - 401k catch-up contribution (pre-tax)
$17K - 401k "Mega Backdoor ROTH" contribution (after-tax)
$6K - Backdoor ROTH contribution (after-tax)
$1K - Backdoor ROTH catch-up contribution (after-tax)
a little over $5K - 401k company match into the pre-tax 401k account

So in total, I was putting a little over $54K into retirement savings per year. And my wife was doing the same for a total close to $110K/year into retirement savings. Our take-home paychecks were smaller than they had been for decades, but as I said, our expenses were low so it worked out fine. Doing that level of contribution for the last several years before retirement certainly added a big boost to our accounts, and was a key factor in retiring at 56.

Kurt

That's really quite an accomplishment overall. Considering the average annual household income in 2023 is around $80k - you were able to accomplish far more than most today - saving more into your retirement plans than the entirety of the average US household income - hence the growing problems around retirement savings in our country overall. Basically, you, like me, are the exception and not the rule. Our current retirement savings:

22.5k - 401k pre-tax contribution limit (me)
22.5k - 401k pre-tax contribution limit (wife)
7.5k - 401k pre-tax catchup contribution limit (me)
7.5k - 401k pre-tax catchup contribution limit (wife)
10k - 401k 5% match company contribution (me)
3.2k - 401k 4% match company contribution (wife)

So this year we'll contribute a total of 73.2k into our retirement savings accounts. We've always contributed the maximum to our plans since roughly 2016 timeframe - we did so in some years prior to that as well - but it was hit or miss due to family related expenses and income limits year to year. Since 2016 we've made too much to contribute deductible contributions to either traditional or Roth IRAs unfortunately. That said, with the increases in the rate tables due to higher inflation over the past two years - it looks like we might actually qualify for deductible IRA contributions in the 2023 tax year - a first for us in a long time now.

 

[rapmarks]

Someone posted that a family needs 100k to live on. Neither of us ever made that much even both incomes together until the last years before we retired. But we have to live on what we saved when we were not making much. How do older retirees survive in this economy when they never earned a high salary.

 

[Sugarcubesea]

Someone posted that a family needs 100k to live on. Neither of us ever made that much even both incomes together until the last years before we retired. But we have to live on what we saved when we were not making much. How do older retirees survive in this economy when they never earned a high salary.

I so agree, I did not start making over $100K till 2016 and in that year it was just barely over. This is why I want to stay at this company till I'm 65 or 66 so that I can sock away as much as possible.

 

[ScoopKona]

Someone posted that a family needs 100k to live on. Neither of us ever made that much even both incomes together until the last years before we retired. But we have to live on what we saved when we were not making much. How do older retirees survive in this economy when they never earned a high salary.

We did it by living on 20% and investing the rest. Now that we're retired, we're used to living the sort of lives my grandparents lived (cooking everything, canning, preserving, repairing, mending). So we just keep with it.

The old way feels shallow and self-indulgent. Why go back?

 

[WinniWoman]

I'm really bummed about this because next year my salary when this goes into effect, I will be $1.00 over the limit and will have to put my catch up in a Roth

Honestly- you’ll be glad you did. We are in the process of doing Roth conversions because we want to have less money taxed when we are forced to do RMD’s when we are 73.

 

[WinniWoman]

US trucking company Yellow shuts down operations, Wall Street Journal reports​

US trucking firm Yellow shuts ops, to file for bankruptcy, Teamsters say

Cash-strapped U.S. trucking company Yellow Corp has ceased operations and is filing for bankruptcy after failing to reorganize and refinance over a billion dollars in debt, the Teamsters Union said on Sunday.

www.reuters.com

A lot of layoffs. Like 30,000 people! Plus their biggest clients are companies like Walmart. Be prepared for more price increases?

 

[WinniWoman]

Someone posted that a family needs 100k to live on. Neither of us ever made that much even both incomes together until the last years before we retired. But we have to live on what we saved when we were not making much. How do older retirees survive in this economy when they never earned a high salary.

We never made a 6 figure income individually either. And only in our last few years did both salaries add up to a little over $100,000.

In fact, 401ks didn’t exist for most of our working lives, so we did IRA’s.

We saved what we could. I never had a pension except for a $5000 lump sum from a job I had for 3 years. My husband got a reduced lump sum pension because the company he worked for started changing thing with it, but it still was was a big help. And then I inherited some money from my parents and the sale of their house split with my brother.

And we are living on savings and not even collecting SS yet and been retired almost 3 years. Waiting until age 70, which my husband turns next year. I’m 67.

All in all we are very blessed.

 

[ScoopKona]

And we are living on savings and not even collecting SS yet and been retired almost 3 years. Waiting until age 70, which my husband turns next year. I’m 67.

Make a plan for Social Security decreasing over time, while inflation just keeps chugging along. Either lowering expenses, having passive income streams, or having retirement accounts that you can live on while only withdrawing 4% a year.

Our solution for this problem was "all of the above."

 

[DrQ]

A lot of layoffs. Like 30,000 people! Plus their biggest clients are companies like Walmart. Be prepared for more price increases?

AND they had underfunded their pension and health obligations. I wonder what shape their retirees are in.

 

[PigsDad]

I'm really bummed about this because next year my salary when this goes into effect, I will be $1.00 over the limit and will have to put my catch up in a Roth

Personally, I think it is a good plan to have a mix of ROTH and pre-tax in your retirement portfolio. At the time of our retirement, we ended up with about 20-25% of our retirement assets in ROTH accounts. I would have liked it to be a bit higher, but was happy we were able to get to that level. This allows you much more control on your taxable income when you are retired and making withdrawals, and can prevent you going into a higher tax bracket if, for example, you have a year where you want to withdraw an extra lump sum to pay for a remodeling project, a wedding, a new car, etc. I know a common argument against ROTH is that your tax rates will be lower when you retire, but I don't necessarily agree with that. With the current political climate, I only see tax rates increasing in the future, and personally, our level of income in retirement puts us in the same marginal tax bracket as when we were working (total income less, but same marginal tax bracket).

Also, remember that $1 in a ROTH account is worth much more than $1 in a pre-tax account. When you withdraw that $1 from a pre-tax account, it will only have the spending power of about ~2/3, since ~1/3 will go for taxes; when you withdraw $1 from a ROTH, you have the whole $1 to spend. This makes a big difference when you are planning for retirement!

Kurt

 

[DrQ]

My sister is 68 and still working, has steadily refused to save even though I have been after her for 20 years to at least get her company 401k match. Just can't change some people that spend spend spend on all the crap you can't take with you.

The last few years, I maxed my 401K and my HSA to act as a warchest in retirement.

.... I’m 68 and still working because I love it. I wouldn’t have to. We are totally set for retirement. I’m a tightwad so I don’t understand your sister’s mindset either.

I was working until I was 68 and then I was RIF'd in March. I can retire now, but I'm still looking for contract work. As you, our FA says that we are set for retirement, but I'm still having insecurity on turning off a large income stream. We were able to transition to Medicare with Plans D and G supplements.

I'm having a hard time working the transition to retirement.

And we are living on savings and not even collecting SS yet and been retired almost 3 years. Waiting until age 70, which my husband turns next year. I’m 67.

I'm planning on applying for Social Security in January that will add another $$/mo which will have me delaying to ~69. The next jump would be in the year I turn 70, so I'm going to pull the ripcord at 69 with DW taking spousal benefit.

 

[WinniWoman]

Make a plan for Social Security decreasing over time, while inflation just keeps chugging along. Either lowering expenses, having passive income streams, or having retirement accounts that you can live on while only withdrawing 4% a year.

Our solution for this problem was "all of the above."

We have been working with a fee only financial planner since retiring.

 

[dago]

Personally, I think it is a good plan to have a mix of ROTH and pre-tax in your retirement portfolio. At the time of our retirement, we ended up with about 20-25% of our retirement assets in ROTH accounts. I would have liked it to be a bit higher, but was happy we were able to get to that level. This allows you much more control on your taxable income when you are retired and making withdrawals, and can prevent you going into a higher tax bracket if, for example, you have a year where you want to withdraw an extra lump sum to pay for a remodeling project, a wedding, a new car, etc. I know a common argument against ROTH is that your tax rates will be lower when you retire, but I don't necessarily agree with that. With the current political climate, I only see tax rates increasing in the future, and personally, our level of income in retirement puts us in the same marginal tax bracket as when we were working (total income less, but same marginal tax bracket).

Also, remember that $1 in a ROTH account is worth much more than $1 in a pre-tax account. When you withdraw that $1 from a pre-tax account, it will only have the spending power of about ~2/3, since ~1/3 will go for taxes; when you withdraw $1 from a ROTH, you have the whole $1 to spend. This makes a big difference when you are planning for retirement!

Kurt

Absolutely agree.

 

[TheTimeTraveler]

Sound similar to our last few years of employment before we retired. By that time, we had our house paid off and no other loans or leases so our living expenses were quite low. We were both over 50, so we qualified for catch-up contributions for both 401k and IRA. In addition, our company (we worked for the same company) had just started to offer the "Mega Backdoor ROTH" (as some people had started to call it) where you could contribute after-tax dollars of up to $17K to your 401k above and beyond the regular contribution limits, and then that money was siphoned to our ROTH 401k account. So our breakdown was this (as best I remember it):

$19K - 401k regular contribution (pre-tax)
$6K - 401k catch-up contribution (pre-tax)
$17K - 401k "Mega Backdoor ROTH" contribution (after-tax)
$6K - Backdoor ROTH contribution (after-tax)
$1K - Backdoor ROTH catch-up contribution (after-tax)
a little over $5K - 401k company match into the pre-tax 401k account

So in total, I was putting a little over $54K into retirement savings per year. And my wife was doing the same for a total close to $110K/year into retirement savings. Our take-home paychecks were smaller than they had been for decades, but as I said, our expenses were low so it worked out fine. Doing that level of contribution for the last several years before retirement certainly added a big boost to our accounts, and was a key factor in retiring at 56.

Kurt

Yes, and we need not forget the ROAR of the stock market between 2017 and 2021. Some incredible compounding and growth for all.......

Some call it Opulence!



.

 

[Sugarcubesea]

Honestly- you’ll be glad you did. We are in the process of doing Roth conversions because we want to have less money taxed when we are forced to do RMD’s when we are 73.

@WinniWoman, that is what my accountant keeps telling me, that I will be happy once I have to do RMD's, I hate paying taxes so the last few years that I'm working for my company, I have will have Roth 401K for Catch Up

 

[Sugarcubesea]

Personally, I think it is a good plan to have a mix of ROTH and pre-tax in your retirement portfolio. At the time of our retirement, we ended up with about 20-25% of our retirement assets in ROTH accounts. I would have liked it to be a bit higher, but was happy we were able to get to that level. This allows you much more control on your taxable income when you are retired and making withdrawals, and can prevent you going into a higher tax bracket if, for example, you have a year where you want to withdraw an extra lump sum to pay for a remodeling project, a wedding, a new car, etc. I know a common argument against ROTH is that your tax rates will be lower when you retire, but I don't necessarily agree with that. With the current political climate, I only see tax rates increasing in the future, and personally, our level of income in retirement puts us in the same marginal tax bracket as when we were working (total income less, but same marginal tax bracket).

Also, remember that $1 in a ROTH account is worth much more than $1 in a pre-tax account. When you withdraw that $1 from a pre-tax account, it will only have the spending power of about ~2/3, since ~1/3 will go for taxes; when you withdraw $1 from a ROTH, you have the whole $1 to spend. This makes a big difference when you are planning for retirement!

Kurt

@PigsDad, thanks, good info to have. I do have about 5 years worth of Roth IRA's, the bulk of my career, my salary was low, I had two kids with Type 1 diabetes, which cost us about $4K a month, I still give my daughter money each month to purchase her insulin as her insurance at her company for the lowest plan is $450 a month, and she has an $8K deductible to hit before her 80/20 split happens. We never had much left over after medical bills. So I'm using these last 4 to 5 years to really sock away all I can. Hubby is 65 and will collect SS when he turns 70, so we should be fine in retirement.

 

[Sugarcubesea]

The last few years, I maxed my 401K and my HSA to act as a warchest in retirement.

I have also max'd out each year my HSA and cash flow our medical. Our HSA allows for investment and mine is now at $62K, so that will really help me in retirement.

 

[billymach4]

The last few years, I maxed my 401K and my HSA to act as a warchest in retirement.

I was working until I was 68 and then I was RIF'd in March. I can retire now, but I'm still looking for contract work. As you, our FA says that we are set for retirement, but I'm still having insecurity on turning off a large income stream. We were able to transition to Medicare with Plans D and G supplements.

I'm having a hard time working the transition to retirement.


I'm planning on applying for Social Security in January that will add another $$/mo which will have me delaying to ~69. The next jump would be in the year I turn 70, so I'm going to pull the ripcord at 69 with DW taking spousal benefit.

I feel that we have planned well for retirement. However I also see the separation anxiety as an issue. Separation from a steady paycheck.

 

[rapmarks]

Yes, and we need not forget the ROAR of the stock market between 2017 and 2021. Some incredible compounding and growth for all.......

Some call it Opulence!



.

When my husband died, half of estate was moved to a trust, cost basis as of June x 2022. In one year, that estate went up 30%. So perhaps 2023 should be added as a growth year

 

[BJRSanDiego]

We have been working with a fee only financial planner since retiring.

I used a fee only advisor for one year. His advice seemed classic and sound. But, at the end of the year I did a 3 part analysis - - (1) how much $ did he make me if I followed his advice (which I did) ? (2) how much $ would I have made if I did nothing, and (3) how much money would I have made if when he told me to buy X shares of company Y, I instead shorted the position. It turns out the option 2 would have resulted in about 50 plus percent more profit and option 3 even more. So, I cancelled it. But I have an MBA in finance and am already diversified by foreign/domestic, asset class, fixed income vs. equities, etc. There are a lot of people who would have benefitted from his advice. I have a nephew who has most of his nest egg in the stock of his parent company. He could benefit.

 

[WinniWoman]

I used a fee only advisor for one year. His advice seemed classic and sound. But, at the end of the year I did a 3 part analysis - - (1) how much $ did he make me if I followed his advice (which I did) ? (2) how much $ would I have made if I did nothing, and (3) how much money would I have made if when he told me to buy X shares of company Y, I instead shorted the position. It turns out the option 2 would have resulted in about 50 plus percent more profit and option 3 even more. So, I cancelled it. But I have an MBA in finance and am already diversified by foreign/domestic, asset class, fixed income vs. equities, etc. There are a lot of people who would have benefitted from his advice. I have a nephew who has most of his nest egg in the stock of his parent company. He could benefit.

Well you are only looking at this from an investment perspective. Our guy is holistic.

First off, he doesn’t handle our money. I do. And I’m a journalism major. Lol!

He charged a one time fee for a comprehensive holistic plan of like $1500 if I recall and we pay him $1000 annually as a retainer for advice only. Next year we will probably go to his hourly rate which I believe is $200.

We rarely touch our investments. They are set it and forget it. He’s made a few recommendations for additional fund investments and we went either with his suggestions or with ones that I felt were similar, but mostly everything we have is what we have had way before hiring him.

The real value in having him is things he brings up that maybe we never thought of in terms of our lifestyle, and plans as we age, etc. He’s helped us with advice for my husband’s retirement plans, our moving to another state and buying and selling our home, taxes, ACA insurance, got us thinking about hobbies, travel, what we want out of life, Roth conversions, delaying SS, etc.

I can call or email him. Do zoom calls. Sometimes I just need a little hand holding with some decisions such as can we really afford this or that? Someone to bounce ideas off of.

He’s a certified FP ( part of the Garrett network), worked with the big guns on Wall Street, and he also has a philosophy degree and a wonderful mild, low key personality to go with his expertise.

And yea- sometimes I know more about some stuff than he does. I like that. We’re both humans.