re: Retirement

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If you are debt free, you really shouldn't need much in retirement per month. I'm looking at retiring in 3 years. I'm planning on taking 4,500 per month. Should be plenty enough for me. I'm debt free as well and will be almost 60 at retirement. Been making around 100K for quite some time but saving an arse load.

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I'm hoping to retire in 3 years myself. I will only be 55 though, so I have to bridge myself to 59.5 (to start collecting) and the biggest issue is healthcare costs. I think your number is the same number I was looking at. This is considering no real monthly debt.

Im shooting for just over 2 mil, assuming no debt, that's 6k/ month for 30 years.

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Can you explain the benefits of the Roth option and why it wouldn't be more beneficial to accumulate more money into a single account?

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Money doesn't gain power as it grows in one account. Your earnings depend on investments, not the number of accounts you spread it around in.

You can always access a roth IRA principle and it hedges your risk in the event you currently pay less taxes now than you will in retirement.

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While that is true, I have a real hard time figuring out a normal situation where that would actually happen.

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Most people earn more money later in their careers than they do early in their careers. The taxes paid early in the career will be at a lower rate. This happens for the vast majority of people with professional careers.

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Most people earn more money later in their careers than they do early in their careers. The taxes paid early in the career will be at a lower rate. This happens for the vast majority of people with professional careers.

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The question is what tax rate they will pay in retirement, not that they will pay a higher tax rate later in their career than earlier, which should be just about a given.

I propose someone who starts working at 40k a year and retires making 100k a year isn't going to draw >100k in retirement a year, and therefore it is way more likely their tax rate in retirement is going to be < or = to their working years for most people.

But maybe I'm wrong in my thinking.

In any event if you get to the point you're backdooring Roth's you're crushing anyways

Really depends if you only have a 401k, or 401-k, plus company pension, and company paid health insurance after retirement. Of course plus social security if there is still such a thing. Makes a big difference in how much you need to save. I am retired but am allowing my 401-k grow in the stock market until I am forced to begin withdrawing it. My financial adviser tells me I can reinvest it after taxes are taken.

Does this assume that the tax rates do not change?

Also, I have the option to defer a good bit of my compensation to later years (the program is specifically for taxes), so I could see someone in my position having a higher tax burden later.

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The question is what tax rate they will pay in retirement, not that they will pay a higher tax rate later in their career than earlier, which should be just about a given.

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This is an incorrect oversimplification for many reasons.

1) Both of my parents will earn more money in retirement than they do right now just months before they retire due to pensions and good savings.

2) The tax rate during retirement is NOT the only tax rate that matters. The tax rate from the day you start earning income until the day you die matters when analyzing roth vs traditional options. Do you know what future tax rates will be? most people don't. Even if you earn more you could be paying less later in life. Even if you earn less, you could be paying more later in life due to tax increases. This is why well balanced investing typically includes contributing both to a Roth and a Traditional option to hedge risk of tax change.

At some point as you get older, the benefits of the Roth options will become less and less significant to the point that it will likely make more sense to stop contributing to Roth options. When you are within a few years of retirement, you should have a better idea of your tax bracket for retirement and can make much more informed choices.

I read the article that you linked. I find I agreed more with some of the comments.

I have two primary reasons for contributing to a Roth. One, over a 40 to 50 working period your investments should double or triple or better. If you contribute $5500 as a 22 year old it should be double in value every 12 years at 6% (rule of 72). So let us say that that $5500 becomes $20,000 by the time you begin to withdraw. You will not have to pay taxes on any of the withdrawal. With a traditional you would have to pay taxes on all of it. Second, is that the Roth allows me to manage my tax bracket. As an example, if I need to withdraw $90,000 for a given year in retirement. Then I can take out $75,900 (married filing jointly for 2017) and pay 10% tax on the first $18,650 and 15% tax on the rest. I then take $14,100 ($90,000 -$75,900) out of the Roth and pay no taxes on the $14,000.

A Roth is not subject to Required Minimum Distributions as long as I am alive. I don't have this listed as a top consideration because I don't believe it will be an issue for most people. However, if you are in position to make a healthy contribution to your 401k and your Roth and your investments do well then you may find that you will indeed be subject to Required Minimum Distributions.

None of this takes into account other income in retirement - pension, social security, investment income, etc. And finally, the tax laws will no doubt change over time so none of us know for sure what is the best strategy. All you can do is play with the cards that are dealt.