Planning for Retirement

[polly_mer]

How are you managing finances now so you can have a retirement?

What are your other plans for retirement?

Let's share some great tips and help each other sort through the complexities.

[monarda]

One of the things I learned on these fora is the existence of another forum, at mrmoneymustache.com
That has helped me to realize I'm in pretty good shape for my age, but I have only found a couple of academics over there. Most of the folks on that forum are highly paid techies who absolutely hate their jobs and aim to be financially independent in their 30's and retire.

But you all are my peeps over here.

Only three years ago (way too late based on what I know now), I learned about the 403b and 457b programs that my university offered. I've been playing catch-up and filling those accounts as much as I am able, some pre-tax and some Roth.

I'm at the point where a 50% appointment would be wonderful. I'm starting a list of all the things I want to do outside of my academic job. (Like, make fine chocolates. And make artisan cheese.)  In between my last adjunct job and this current soft money staff scientist job, I was unemployed from May to October, but I called it "practicing retirement". We learned that we are close, but not quite there.

I've learned to separate the concepts of being "able" to retire, from being "willing" to retire. I'm close to being able, but not sure about willing, because I like my job.

So, fellow 50-somethings, how are you feeling? Will you work until you're 75 in the Emeritus office in your department?  Or are you itching to leave academia?

[Bbmaj7b5]

I don't have any hobbies or interests or bucket lists I'm dying to find more time to address. I have a couple of hobbies that serve as sanity preservers. I don't want to start woodworking, hiking the Appalachian Trail, taking up painting, or working on that old car I've got sitting around (if there is an old car at my house, it's being used). If anything, I'd like to spend the energy others are devoting to retirement planning toward cutting out the parts of this job I dislike.

Given that, I am still saving for retirement. I have my old government retirement plan still out there, and am contributing to our pre-tax accounts at an accelerated pace.

[clean]

As a state employee (or a non profit employee), you probably have access to a 403b (the non profit version of the 401k).  you should have 2 choices - Roth and traditional/regular.  In addition you may have access to a 457 plan.  Currently you can contribute $19000 a year, plus an additional $6000 if you are over 50.

In addition, employees (and spouses if not working outside the home) can contribute up to $6000 in 2019 (plus an extra $1000 if over 50).  If your income is too high you will not be able to contribute

Roth or Regular/Traditional?
The Traditional 403b/401k and 457 plans allows you to deduct the contribution from this year's taxes.  However, you have to pay taxes on everything you withdraw (both the initial contributions and the earnings). The tax rate will be your ordinary income rate, so even though the earnings will be 'capital gains', you will pay the higher regular income tax rate. If you contribute to a Roth version of the plans, you pay taxes on the contributions, but everything that is withdrawn is taken out tax free.

Pros and cons?
One argument for the traditional over the Roth accounts was made by an accounting professor I know. He argued that you never pass a tax deduction today for the promise of a tax deduction in the future.  The government can always change or modify the code and reduce or remove past promises.

The argument FOR the Roth versions is the tax savings.  Suppose that one contributed $20,000 a year for 25 years in a combination of 401/403 plans, 457 plans &/or IRA plans.  They would have paid taxes on those contributions of say $4000 a year (assuming an average tax rate of 20%).  Let's also assume that the account grew to $1,000,000.  In the Roth account, the withdrawals are not required, but would be tax free.  The retiree could withdraw the entire million and pay not taxes.

IF on the other hand, the employee contributed the same money to traditional accounts, they would have received a tax savings each year, but under current law would have to begin mandatory withdrawals from the accounts at age 70 1/2.  Assuming the same million dollar balance, the initial withdrawal would be about 36,500 the first year.  This would be taxed as regular income.  Further, this income would be counted as part of your "combined income" to determine if you will pay taxes on your social security income.  So in addition to paying taxes on the withdrawals, this income counts against you when determining if and how much of your social security income is also taxed.  So the answer to the question, "will you be in a lower tax rate when you retire?" is not so simple if you count all of the sources of income the government used in calculating your "combined income" (with even includes interest on tax free bonds... so you dont pay income taxes on tax free bonds, but the income does determine how much of your social security is taxable).  Currently, withdrawals from a Roth account are not required (there is no Required Minimum Distribution on a Roth, and any distributions you take are tax free, and dont count towards your 'combined income".

Even if you have a 'pension' (or a defined benefit plan that promises to pay some percent of your salary * your years of service) you can still contribute to a 403b, 457 plan and an IRA. 

"Im not going to retire, so I dont need to save for retirement". 
Are you sure?
One of the reasons cited for people taking Social Security at age 62 rather than waiting for full retirement is that they unexpectedly exited the work force due to job loss or poor health.  Can you guarantee that your state will not cut your position?  Can you guarantee that your health will remain in tact?  Can you guarantee that your administration will not change and challenge your mental well being? 
Prepare for the worst, but hope for the best.

If you have a traditional pension, is your state plan healthy?

Are you sure that you will be getting what was promised?  Search the news for stories of pensions that have been cut.  I dont remember the cities or states, but I am aware of retired police and firefighters that have suffered cuts in retirement payments after the cities they worked for had financial difficulties.  These cuts were appealed, but upheld by the courts.  That "payment for life" is not necessarily for YOUR life!  It could be the financial life of the state's/City's plan. IF there is no more money, there are no more payments.  Do a google search to see what the plans are for the retirees of Puerto Rico.  Is Illinois on the same plan?  Is your state?

IF You are Looking out for YOU, then NO One IS!

[monarda]

Thanks, clean, for this summary. I sure could have used this information 10 years ago!
I need to really think through the pretax vs Roth at this stage, counting the required minimum distributions.
At some point I'm going to stop the pretax and switch over to Roth. Unsure when, and how to decide when.

One additional point to clarify, if they are both available to you, you can contribute $19,000 (plus $6000 if over 50) to BOTH the 403b and 457b.  So at my age, up to 50K a year.

[clean]

I've learned to separate the concepts of being "able" to retire, from being "willing" to retire. I'm close to being able, but not sure about willing, because I like my job.

So, fellow 50-somethings, how are you feeling? Will you work until you're 75 in the Emeritus office in your department?  Or are you itching to leave academia?

Willing and Able are definitely different!  One might precede the other, and hopefully you are Able no later than you are Willing!!

My hope is to be fully ABLE in about 2000 days when I meet the qualifications for retirement health care (I have a countdown clock running!).  My TIAA advisor claims that I have met the funding level I would need to retire, but Im not exactly sure that I trust their assumptions and Im not sure that I am know what age they projected I would stop working.  (Did they assume 67, my social security age?  Was it 70 an age I would have used long ago?  Or some other age?)

Not too long ago, i expected that I wouldnt 'retire' until I was 70, and 'retire' was more like not teach summers.  many things have changed.

First,  the university and college administrations changed.  It is not the place that hired me, and it is not the kind of place that I would have applied to when I was last on the job market. (Why not return to the job market?  Well, Im trapped here now- at least until I have health insurance in retirement. IF I leave now, under most plans I would not qualify for retirement health insurance until I was 65 to 67, and I d rather suffer here until I qualify for health insurance, than move and be trapped somewhere else 'til  Im 65 to 67)

Second, my parents retired when they were in their early 60s and they did A LOT of things! Now they are in their low/mid 70s and are physically not able to do what they did a decade ago. Both of my parents have either had or scheduled to have knee replacement surgery.  One parent has a genetic form of arthritis (I dont have the marker) and is getting progressively worse.  I guess that the bottom line is that I want to be ABLE to retire as early as I can.  I want to be ABLE to do the same sorts of things my parents did and I no longer think that I will be able to do them if I wait. 

So, fellow 50-somethings, how are you feeling? Will you work until you're 75 in the Emeritus office in your department?  Or are you itching to leave academia?

I guess I would be in the middle.  I no longer think that I will stay employed until I am 70.  Im not sure that Im exactly itching to leave today, though, or even the moment I am convinced I am ABLE .  Once I am ABLE, I suspect my tolerance for administrivia and admincritters will markedly decrease.  I can certainly imagine, for instance, some admincritter giving me a crappy schedule (again) and me saying, "I dont think that will work for me, I suggest you make these adjustments".  I m sure that I will be reminded that there are plenty of people who would love this schedule and are itching to move here.  I can see myself giving them a few week's notice of my immediate intention to continue the current break indefinitely.  (And reminding them what they have said, that they should have no difficulty finding my replacement, from what they tell us regularly). 

I think that I will be happier when Im ABLE to retire, just knowing that they no longer have as much power to threaten me.  Im not sure that I would just walk away, but knowing that I could would make me happy!  Concentrating on the parts of the job that I enjoy most, knowing that when they really push me to do things I dont want to do, I really dont have to do them anymore, if I so choose!

[clean]

One additional point to clarify, if they are both available to you, you can contribute $19,000 (plus $6000 if over 50) to BOTH the 403b and 457b.  So at my age, up to 50K a year.

The short answer is Yes. The longer answer is that the IRS allows 457 plan participants a further catch up provision if you are within (I think) 2 years from retirement. IF your employer's system allows (mine doesnt anymore with the conversion to 'workday') you can double up that contribution.  So, IF your employer allows, you might be able to contribute even more than $50K in your last few years of employment.

Another post mentioned the FIRE movement (and Mr. Money Mustache).  IF I were in that crowd and able, my primary contributions would be in the 457 plan.  Generally, you can not withdraw from retirement accounts until 59 1/2. The rules for 401/403 accounts is a little complicated if you retire in your 50s, as you may have access to some 401/403 accounts prior to 59 1/2 if you retire. However, you can access 457 plans at ANY AGE, once you leave that employer.  So even if you were to retire at say 38, IF you had amassed a fortune in a Roth 457 plan, you could withdraw any or all of it, tax free. 


Remember, also, you can always simply save the money in a taxable account (either CDs, or a broker like Ameritrade, E*Trade, Shwab or whoever you choose).  These accounts wont have the protection from taxes or creditors as retirement accounts, but they dont have the restrictions either. You can use the money for any purpose and at any age!  If you invest in stocks, you will only pay capital gains taxes on the gains you actually realize.  You dont pay taxes on profits until you sell the stock, so not only are capital gains taxes lower than ordinary income rates, you have the option of deferring them if you choose to hold the stock. 

[monarda]

Again, all great things to have known a while ago. Thanks!
Since I'll be 59 1/2 in less than 100 days, I suppose I can put things wherever I wish. But I hope this discussion helps some 40-somethings in our group.

Back to one point you made, you said that once retired and receiving a pension, I can still contribute to IRA and these 'bee' programs? Am I understanding you correctly? I suppose if the pension is W2 income, then contributions can continue, and that's the rule, right? A retirement advisor told me that IRA contributions would end upon the end of my W2 income. Maybe I misunderstood, or they don't assume that most people get pensions. Huh.

[Cheerful]

I've learned a great deal from the Personal Investments forum at Bogleheads:

https://www.bogleheads.org/forum/index.php

[clean]

A retirement advisor told me that IRA contributions would end upon the end of my W2 income. Maybe I misunderstood, or they don't assume that most people get pensions. Huh.

You can contribute to an IRA ONLY if employed... and there are some other sticking points....like you must be under 70 as well, so even if you work and get a W2, but are over 70, IRAs are no longer an option (from what I understand of the programs). 

Your retirement distributions will be taxed as ordinary income (just as interest on a CD is taxed).  It is not employment income, however, so you can not use retirement distributions to fund an IRA. 

There are a lot of generalities that hold most of the time.  There are some special case rules that are harder to deal with because they are sort of special cases.
For instance, as I mentioned above, if you retire at 55, you can access your 401k/403b without paying the penalty usually associated with withdrawing from retirement accounts before 59 1/2 .  However, the rules are technical. IF you retire at 55 (or older) you can access the retirement account only of the employer you retired from.  SO lets say you worked somewhere else for 10 years before this job you are retiring from.  You can not access that account until 59 1/2 without a penalty.

Again, there are a lot of good, general rules that work in most cases, but there are some special situations that are treated differently. 

Back to one point you made, you said that once retired and receiving a pension, I can still contribute to IRA and these 'bee' programs?

I dont think that I said this. 
As I have clarified above, you can only contribute to an IRA if you have wage income (what you called W2 income). That is true.  You can not contribute to a 401k or 403b plan unless you are working (and only if your employer offers them).  These are essentially "salary deferral' plans... as such you have to receive some sort of salary to participate in them.

While working, however, you can contribute both a pension And a 'salary deferral' plan like a 403b or 401jK.  I do suggest that even if you have a pension plan, that you still take advantage of the 401k or 403b plans where you work.    It gives flexibility in a lot of ways.

[Conjugate]

I got a chunk of money at my mother's death that could be rolled over into an IRA. I haven't been able to contribute to it since, though. So it will probably be of little use.  On the other hand, I'm vested in one University system's retirement plan (which may actually pay me some money, even if it's only 'couch change,' about to be vested in another plan (which is in good shape at the moment), and have two other plans from other institutions (both of the TIAA or VALIC sort). On top of that, SocSec claims that if I wait until I'm 70 I will get a large chunk of money each month from them.

Since I'm in fairly good health, no chronic conditions that I know of, I'm likely to wait until I'm 70 to retire, and then take all I can get from each of those sources.  It would probably mean I'd be no worse off in retirement than I am now, though with less ability to handle cost-of-living increases.

[monarda]

Back to one point you made, you said that once retired and receiving a pension, I can still contribute to IRA and these 'bee' programs?

I dont think that I said this. 
As I have clarified above, you can only contribute to an IRA if you have wage income (what you called W2 income). That is true.  You can not contribute to a 401k or 403b plan unless you are working (and only if your employer offers them).  These are essentially "salary deferral' plans... as such you have to receive some sort of salary to participate in them.

While working, however, you can contribute both a pension And a 'salary deferral' plan like a 403b or 401jK.  I do suggest that even if you have a pension plan, that you still take advantage of the 401k or 403b plans where you work.    It gives flexibility in a lot of ways.

That makes much more sense. I reread your original point and now I see what you meant. Sorry, I misunderstood. I think I don't understand what kind of income that my pension will be considered. Evidently not wage income. A friend of mine just retired at the end of May. I'll learn these kinds of things from her.

[clean]

I got a chunk of money at my mother's death that could be rolled over into an IRA. I haven't been able to contribute to it since, though. So it will probably be of little use

I dont know if this is a terminology issue or not.  "rolled over into an IRA"... Was the money you got an 'inherited IRA"?  You could not exactly "roll that over" as 'inherited IRAs' have their own rules for non spouses transfers. IF this is an inherited IRA then you must see an accountant quickly as you must move it into  'inherited IRA' status before December 31 of the year after your mom died.  (As I mentioned before, there are sometime picky rules for special cases, and inherited retirement accounts have special rules that are different from the general case of retirement accounts inherited by spouses).

IF you are saying that you got a chunk of money and had intended to move it into a retirement account, but havent been able to do so you, I can offer some suggestions. 
1. Keep it out of your retirement accounts.  Simply transfer the money into a brokerage account or open a savings account or CD with a bank. You can invest it as you see fit. Better, you can use it at any time, for any purpose - retirement or not - with no tax consequences!  The downside is that any realized earnings would be taxed each year.  (Interest at your ordinary rate, and capital gains at the lower, capital gains rate.... and you only pay taxes on realized capital gains.  In addition if you are sued or file bankruptcy, non retirement money can not be shielded from creditors).

2.  IF you want it in a retirement account (and not being able to touch it until you retire at 70), I have some suggestions. I assume that you are not able to contribute any of it into a traditional or Roth IRA because you earn more than the income limits. 
A Otherwise, that is my first suggestion to make it a retirement account.  You are free to deposit $6000 a year or 7000 a year if over 50, and dont exceed the income limits.  Once you are 59 1/2 you can withdraw the money without a penalty, whether you are officially retired or not, and the growth will be shielded from taxes (forever if a Roth account, or until you take the money out if a traditional account).

B.  Transfer an amount of money into a checking/savings account, and then go to your HR office and increase your annual contributions sufficient to use up that money.  For instance, lets say that you are not fully funding your 457 or 403b accounts and you want to save an extra $9000 this year (and you get 9 checks a year - no summer checks).  {I hope that I dont lose you by setting up all of the assumptions,} but the bottom line is that if you want to save for example $9000, move it into your checking account, go to HR and have them deduct $1000 a month for each of your 9 checks a year.  The money in the account, which came from your bequest, will make up for the pay cut and you have indirectly contributed it to your retirement account.  (At the end of the year, make sure you go back to HR and reduce the distribution once you have fully depleted the money you wanted to put into retirement)

Again, assuming that this is money that is NOT in the form of an 'inherited IRA', you could use the money to pay down your mortgage  or any other outstanding debt if you have one/any.  That is a guaranteed, risk free return!
(A reason NOT to pay down the mortgage - if you have one- is that IF you are married, this converts a personal asset into a marital asset.  Should you divorce, you dont have to split or share inherited assets (unless you have commingled them with other marital assets).  Home equity is usually a marital asset and would be split, so using an inheritance would be making a 'gift' to your (potential, future ex) spouse of half of whatever you use to pay down the debt. 

Anyway, I m sure that you are not fully funding all of your retirement account options available, and you should be able to indirectly put the inheritance into your retirement accounts if that is what you decide to do.  This may not be your best course of action, though, if you think that you might want even the option to access the money while you are still employed.

[Conjugate]

I got a chunk of money at my mother's death that could be rolled over into an IRA. I haven't been able to contribute to it since, though. So it will probably be of little use

I dont know if this is a terminology issue or not.  "rolled over into an IRA"... Was the money you got an 'inherited IRA"?  You could not exactly "roll that over" as 'inherited IRAs' have their own rules for non spouses transfers. IF this is an inherited IRA then you must see an accountant quickly as you must move it into  'inherited IRA' status before December 31 of the year after your mom died.  (As I mentioned before, there are sometime picky rules for special cases, and inherited retirement accounts have special rules that are different from the general case of retirement accounts inherited by spouses).

I was unclear; I got this money (split between myself and my sister) back in 2010, when my mother passed away. I was advised by my financial advisor that it should be rolled into an IRA, because if I didn't, there would be a fair size chunk of money taken out of it. I did, and my sister did, and all was well; after 9 years, if we'd done it wrongly, someone should have noticed.

[Tenured_Feminist]

For those of you with offspring, how much and for how long do you intend to support/help them? We figure through college and maybe a bit in grad school, but it is hard to think about how to manage prioritizing them, planning for our own retirement, and being ready for whatever comes with our own aging parents. Right now, MIL could really use some respite care for FIL but it's prohibitively expensive. And I don't yet have a great plan for my own mother.