re: 401K millionaire check-in

[quote]Contributions versus earnings: Contributions are the funds you deposit into the IRA, while earnings are the profits or income generated from the investments within the account. Contributions to a Roth IRA can be withdrawn at any time without taxes or penalties, but earnings are subject to different rules.


[/quote

]LINK

If you want to tap retiremwnt accounts prior to 59.5 there's also
- 72(t) Substantially Equal Periodic Payments (SEPP)
- Roth conversion ladder
- Or, simply pay 10% penalty

I used to think I'd utilize Roth contributions in early retirement. Now, those Roth dollars are the last thing I ever want to touch.

quote:

---

To withdraw safely in retirement you should follow the rule of 4 or 5%. I wasn’t talking about total return but income provided.

---

This is another one of those "rules" for nobody. If you retire at 50, I'm not sure even 4% is completely safe if you have a bad year 1 or 2. On the other hand, if you work until 67 or 70 and then take only 4%, why did you work so long? Probably closer to 7% or 8% (depending on market returns - of course you have to be prudent and flexible if you targets are quite that high).

The key to a successful retirement is to build a floor that is acceptable, minimize debt as much as possible - (possibly excepting a mortgage with a very low rate) and then being flexible with your discretionary spending. If year 1 or year 2 is a bad one (a correction), you might have to sit out that trip to Europe for a year or two. Otherwise, folks slavishly living by the 4% rule are ignoring the fact that the guy who came up with it disavows it.

So, I have $1m at 70 and I can only spend $3k a month of it?

quote:

---

This is another one of those "rules" for nobody. If you retire at 50, I'm not sure even 4% is completely safe if you have a bad year 1 or 2. On the other hand, if you work until 67 or 70 and then take only 4%, why did you work so long? Probably closer to 7% or 8% (depending on market returns - of course you have to be prudent and flexible if you targets are quite that high).

The key to a successful retirement is to build a floor that is acceptable, minimize debt as much as possible - (possibly excepting a mortgage with a very low rate) and then being flexible with your discretionary spending. If year 1 or year 2 is a bad one (a correction), you might have to sit out that trip to Europe for a year or two. Otherwise, folks slavishly living by the 4% rule are ignoring the fact that the guy who came up with it disavows it.

So, I have $1m at 70 and I can only spend $3k a month of it?

---

Agree with this. But I will say the 4% rule provides a simple way to think about the nest egg for someone who has never thought about it (estimate your annual expenses in retirement, divide by 0.04, aim for that number).

quote:

---

But I will say the 4% rule provides a simple way to think about the nest egg for someone who has never thought about it

---

Yeah, but it's wrong, though.

Folks spend $60k to $70k. So, multiple by 25 - 60x25 is $1.5m. So, they can never retire?

They have to think in terms of what do I need over and above social security? How stable does SS even look? How can I get my expenses down to fit what I'm likely to have?

It is way, way, way more complex and nuanced than the (wrong, even by the guy who proposed it) "4% rule". It will be discouraging for most ordinary folks, IMHO.

quote:

---

Yeah, but it's wrong, though.

Folks spend $60k to $70k. So, multiple by 25 - 60x25 is $1.5m. So, they can never retire?

---

I’m not saying this should be the rule. I’m saying this can be where you start.

Most people’s retirement problems don’t involve mathematical precision and perfect projects. It’s almost always “I didn’t start early enough”.

If you give someone a simple number that’s at least close to the ball park, that person is more likely to start early enough to have a good retirement, even if their initial number was “wrong”.

quote:

---

It's just a rule of thumb.

---

It's a dumb one, though. It's designed as a worst case scenario, retroactively, and it results in folks underspending in the early years of retirement when they could have enjoyed it and leave a larger inheritance than they likely intended to their children.

While I understand the drive to want to prevent "going broke", I, personally, would rather overspend (a little) in those first years of retirement and have to cut back in my 80s, than sacrifice during those early, healthy years of retirement and be flush at 85 or 90 with no energy/health to enjoy it.

As always, you baws' MMV.

I am at 2.1M and hope to work a few more years to pay some things off. I feel like I have done pretty well contributing the max the last 15 years.

My wife is pressuring me to hire a financial manager. I am wondering what everyone's opinion about financial managers? I have heard stories of managers taking everything from their clients which makes me leery.

quote:

---

I am wondering what everyone's opinion about financial managers? I have heard stories of managers taking everything from their clients which makes me leery.

---

They're worth it and can help you in a ton of ways...helping manage risk, telling you where to invest and how to allocate across asset classes, help you with tax savings, etc. Without it you're just guessing and costing yourself a lot of money and missed returns.

Would be curious to hear some of those stories of advisors "taking everything" from their clients.

quote:

---

This is another one of those "rules" for nobody. If you retire at 50, I'm not sure even 4% is completely safe if you have a bad year 1 or 2.

---

Most retirees don’t realize how critical years 1 & 2 (post retirement date) are for their investment portfolios.

The case study on this are from hypothetical three identical portfolios that were “retired”: one at the end of 1972, one at the end of 1973 and one at the end of 1974.

The performance of the market drastically differently impacted each of those portfolios.

(Screenshot from FireCalc website)