Retirement Advice From Those Who Learned the Hard Way

[joestein]

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.

Sadly as a HCE, I am limited in my contributions. I can usually only contribute around $13K of the 401K regular contribution. I can also make the catch up contribution. Plus my company only contributes $1K to my 401K (25% contribution match with a $1K limit)

My wife is more similar to you, she can max out regular and catch up and she gets a generous match of up to 6% of her salary. We have moved since 2021 to contributing everything on a Roth Basis to build up non-taxable deferred income.

 

[joestein]

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.

Very dependant on where you live. My RE Taxes and Insurance are currently around $25K a year. I need to earn $45K to bring home $25K. Another $28K for P & I on mortgage - so another $50K or so.

I am at $95K a year without paying for food, utilities, clothes, transportation, house care, etc.... I think that we would be hard pressed to get by on 200K. Forget about saving for retirement at that salary either.

 

[joestein]

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

Do not forget that having lower taxable income also can save you on Medicare premiums and allow you to qualify for other gov't perks.

 

[HitchHiker71]

Sadly as a HCE, I am limited in my contributions. I can usually only contribute around $13K of the 401K regular contribution. I can also make the catch up contribution. Plus my company only contributes $1K to my 401K (25% contribution match with a $1K limit)

My wife is more similar to you, she can max out regular and catch up and she gets a generous match of up to 6% of her salary. We have moved since 2021 to contributing everything on a Roth Basis to build up non-taxable deferred income.

Well, our company uses a safe harbor 401k plan - which to the best of my understanding bypasses the HCE limitations - at least in part - so I don't have to worry about those particulars thankfully. My company currently offers a 5% across the board match for 401k contributions. I'm still maxxing out both of our plans on a pre-tax basis - but as of next year due to the changes in regs - I'll have to switch our catch-up contributions to Roth contributions - provided our two plans support this option of course, which is still TBD. Under the SECURE 2.0 act, there's also a larger catchup contribution cap under the new legislation - starting at age 60 in 2025 - bumping it up to 10k per year (or 50% higher than the base catchup amount - whichever is higher) with inflation adjustments from that point forward: https://www.kiplinger.com/retirement/bipartisan-retirement-savings-package-in-massive-budget-bill#:~:text=RMD Age Change.&text=SECURE 2.0 increased the required,age will move to 75.

 

[HitchHiker71]

Very dependant on where you live. My RE Taxes and Insurance are currently around $25K a year. I need to earn $45K to bring home $25K. Another $28K for P & I on mortgage - so another $50K or so.

I am at $95K a year without paying for food, utilities, clothes, transportation, house care, etc.... I think that we would be hard pressed to get by on 200K. Forget about saving for retirement at that salary either.

This is what I've been harping on in this thread - it's very different for the younger generations due to the marked increase in real estate values, rents, etc. Most of the primary expenses for households that they must purchase to survive in our economy - shelter, healthcare, education, transportation, etc. - have been increasing in price at a fast clip - in some cases much faster - than in times past and above CPI persistently over time. Combine that with real wage stagnation - and it's no wonder Gen X and below are having a hard time when it comes to retirement savings unless they are making 2-4x the household income averages.

 

[joestein]

This is what I've been harping on in this thread - it's very different for the younger generations due to the marked increase in real estate values, rents, etc. Most of the primary expenses for households that they must purchase to survive in our economy - shelter, healthcare, education, transportation, etc. - have been increasing in price at a fast clip - in some cases much faster - than in times past. Combine that with real wage stagnation - and it's no wonder Gen X and below are having a hard time when it comes to retirement savings unless they are making 2-4x the household income averages.

At the end of the day, we have become a very splintered society. The haves and the have-nots.

I am not talking about the ultra-wealthly - The most of the haves arent really rich, they just have enough for a comfortable life that is more closely defined as what middle class use to be.

In my mind (maybe I am wrong), middle class should be able to pay all their bills, afford a modest home and car, go on annual vacation and save for college and retirement. However, based upon income, the middle class can't afford these things.

The 80% - 95% of the upper income earners really are just able to do the above. Even the 95% - 99% is just rich relative to the poor. It is really just the 1% that is RICH.

I guess what I am saying is the middle class is now the new upper class.

 

[Ralph Sir Edward]

Very dependant on where you live. My RE Taxes and Insurance are currently around $25K a year. I need to earn $45K to bring home $25K. Another $28K for P & I on mortgage - so another $50K or so.

I am at $95K a year without paying for food, utilities, clothes, transportation, house care, etc.... I think that we would be hard pressed to get by on 200K. Forget about saving for retirement at that salary either.

The question is - are people willing to arbitrage? Mostly they aren't.

To balance your numbers - look at DFW (and this is after a huge run-up in housing prices.) 2200 sq ft, all brick house in a nice neighborhood - $400K. RE taxes and insurance (including car insurance) 12K, mortgage @ 6.7% on all $400K (principle only - taxes and insurance already covered in the $12K number) is $32K annually. Total = $44K compared to your $53K - and no state income tax.

But you're in a flat, ugly, terrain; with lousy weather. It's the high cost/ low cost and lower wage arbitrage. Not as good as it used to be, but still profitable. And that profit can go into retirement funds.

 

[BJRSanDiego]

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.

Sounds like you have a decent advisor/FP.

You're correct in that my post was addressing the investment and return aspect rather than the holistic aspects.

 

[Tia]

Now there is also this https://www.cnn.com/2023/08/02/investing/premarket-stocks-trading/index.html

Fitch Ratings downgraded US long-term debt late on Tuesday from AAA to AA+

 

[DrQ]

America's great retirement divide: Wealthy households have nearly TEN times more money saved for later life than middle earners - while only 1% of America's poorest workers have a plan in place at all​

• New report from the Government Accountability Office (GAO) shows the gulf between retirement plans of the rich and poor is widening
• A high-income household has around $605,000 saved for their twilight years - compared to $64,300 in a middle earner's pot

Report lays bare America's great retirement divide

Wealthy households have almost nine times more money saved for retirement than those on a middle income, a landmark Government report lays bare.

www.dailymail.co.uk

 

[ScoopKona]

This is what I've been harping on in this thread - it's very different for the younger generations due to the marked increase in real estate values, rents, etc. Most of the primary expenses for households that they must purchase to survive in our economy - shelter, healthcare, education, transportation, etc. - have been increasing in price at a fast clip - in some cases much faster - than in times past and above CPI persistently over time. Combine that with real wage stagnation - and it's no wonder Gen X and below are having a hard time when it comes to retirement savings unless they are making 2-4x the household income averages.

We are 100% in agreement. I don't know if we agree on the solution, though.

My solution to this problem is to advise my younger friends and relatives to please stop listening to their much older "we had the best economy in the history of ever" relatives and instead start working with the economy they have.

It's like when older relatives advise kids to go "pound the pavements" and "hand out resumes" and "show some gumption" when trying to find employment. Their financial advice is just as out of date as their employment advice.

I tell them to get a partner/partners -- preferably one they're romantically interested in. But that isn't even a requirement anymore. As many incomes as possible, all renting the same tiny place to live. Two couples is ideal -- four incomes renting a two bedroom house and eating a lot of rice and beans. Platooning if necessary (which people resorted to in Key West before I left). And everyone plows all that savings into easily liquidated investments for the down payment. Once each couple owns something, then they can start working more traditional financial plans.

Wages have been flat for 50 years. Real estate and education run neck-and-neck "which can increase the most compared to inflation?" Without hard-core, non-traditional financial planning, the American Dream is dead. GenX was the last to have any chance of it working like it did in the old economy.

 

[DrQ]

‘Your tax dollars are helping Wall Street': Big-money institutions could control a stunning 40% of US rental homes by 2030, analysts say — here's why that's a problem​

While most Americans are anxiously watching the housing market show signs of cooling after running red-hot for years, one group may be cheering for a crash.​

​

After the 2008 financial crisis, corporations and institutional investors looked to ramp up their purchases of residential real estate, including single-family rentals (SFRs).​

​

Now analysts worry history may repeat itself. According to a 2022 report from MetLife Investment Management, 4-in-10 single-family rental homes could be owned and controlled by Wall Street within just seven years.​

https://moneywise.com/real-estate/wall-street-poised-to-buy-up-rentals

 

[DrQ]

More Americans say they can never retire​

A growing share of working Americans don’t think they will ever retire, recent surveys suggest.​

Retirement is a time-honored life stage and a near-universal expectation in working America. Yet, a comfortable retirement requires savings, and many workers fear they don’t have enough.​

More Americans say they can never retire

A growing share of working Americans don’t think they will ever retire, recent surveys suggest. Retirement is a time-honored life stage and a near-universal expectation in working America. Ye…

thehill.com

 

[pedro47]

We retired at 54 years old. It have been great. I just missed having lunch with the guys.

 

[northwoodsgal]

For years I have been saying that I want to go on a Safari in Africa. My wife doesn't want to go (though she is warming up to the idea lately) and told me I should go with myself or some friends. I countered that I would just hire an local woman to escort me.

A number of years ago, my husband and I were at a fundraiser and he put up his hand to bid on a safari package. We had NEVER talked about going on a safari before this. He claims he was just trying to up the bid but somehow we won the auction. I was mad for weeks because I knew the cost would also be airline tickets, etc., etc. We spent 3 weeks in South Africa and was probably the best vacation we've ever taken. Feel free to show your wife this thread.

 

[Hindsite]

I struggle with what retirement actually is. Back in the day it was clear you did school (education in whatever form), then you worked for 35-40 years then you got mandatory retired (assuming you were still alive) then you were lucky to live 10 years and die.
Now you can get education at any point in your life, work at anything or nothing, draw a pension from 50-55, do stuff until you can't, hopefully avoid mandatory incarceration in a home and die.
I'm struggling with understanding how I know if I'm retired or not.

 

[Ralph Sir Edward]

I struggle with what retirement actually is. Back in the day it was clear you did school (education in whatever form), then you worked for 35-40 years then you got mandatory retired (assuming you were still alive) then you were lucky to live 10 years and die.
Now you can get education at any point in your life, work at anything or nothing, draw a pension from 50-55, do stuff until you can't, hopefully avoid mandatory incarceration in a home and die.
I'm struggling with understanding how I know if I'm retired or not.

When work becomes a matter of choice, rather than necessity - on a long term basis.

 

[WinniWoman]

I struggle with what retirement actually is. Back in the day it was clear you did school (education in whatever form), then you worked for 35-40 years then you got mandatory retired (assuming you were still alive) then you were lucky to live 10 years and die.
Now you can get education at any point in your life, work at anything or nothing, draw a pension from 50-55, do stuff until you can't, hopefully avoid mandatory incarceration in a home and die.
I'm struggling with understanding how I know if I'm retired or not.

Simple: Retirement is not having to work for a living. That’s it!

 

[PigsDad]

Simple: Retirement is not having to work for a living. That’s it!

Or is it when you start going out for dinner early-bird specials at 4 pm?

As a newly retired person, I recently did what I thought was the most "retired" thing I've done yet -- I joined a bocce ball league.

Kurt

 

[Ralph Sir Edward]

When work becomes a matter of choice, rather than necessity - on a long term basis.

I'd like to expand on this. I am busier in retirement than when working. The main difference is that I am doing things <I> want to do, for reason that <I> think need to be done.

Nobody would pay me to read Scientific Papers that interest me. Or raise killifish, rose garden, read books, listen to music, get together with friends, trade the stock market occasionally (for my own account - and nobody else's) . . And the list goes on.

I'm now living Billy Joel's My Life. . .

(I don't know how long this will last - but I'm enjoying the ride!)

 

[Talent312]

Retirement: An endless weekend.

 

[joestein]

I too find retirement a big question mark. Not so much on the financial side. But I keep thinking I want this or that, but dont really know if that is what I truly want. Same thing about where to retire to.

Not even sure if I will be happy with giving up my job. I mean I know I hate going into the office in NYC and especially the 2 hour each way commute (not sure how I did that 5 days a week for 20+ years). But I kinda like my job. And like many, my job is a large part of my identity - it is not an easy change.

 

[geist1223]

I loved my job and its challenges. I put in well over 40 hours per week with some weekends. I could get so much more done in 4 hours on a Sunday than during a regular work day. No one emailing, calling, or dropping in. Many of my co-workers thought I would go nuts in retirement. But I have loved almost every hour of my over 10 years of retirement. And it has been that way since almost day one of retirement.

 

[DrQ]

Is America going backwards? 'Forgotten' middle class is WORSE off when they retire now compared to 20 years ago​

• Lower-middle class Americans struggle to pay for healthcare and housing
• Health at age 50 for lower-middle class has declined over the past two decades

US Middle class is worse off when they retire compared to 20 years ago

The lower-middle class in the US today has a lower life expectancy and is expected to suffer more from chronic illnesses compared to the previous generation who had a similar income in 1990s.

www.dailymail.co.uk