For the same 100k for someone who is 55, the life expectancy is 41.6, so the RMD = 100k / 41.6 = $2,404. http://www.madfientist.com - In this episode of the Financial Independence Podcast, I talk to the original Mustachian himself, Mr. Money Mustache! She finished her book, took care of that last one or two things, and proceeded to live for ten more years. Another one to consider is this: if you are in the position of having to roll your 401k into an IRA then converting that into a ROTH, you need to remember your other IRAs that you may have out there. Thank you! But the bottom line is, for each hundred grand you have in your 401k, your SEPP payment will be about $2900 per year, according to this popular calculator on the subject: http://www.dinkytown.net/java/Retire72T.html. I just wanted to add that the advise to start receiving dividends is highly country specific. Anyway, with regards to 401ks, here’s the approach I plan on using. A $1.2 million starting amount is a 3.3% withdrawal rate. That’s right, you’ve moved money from a tax-deferred account to a tax-free account and paid NO tax and will pay no tax on the principal or future earnings. While working, all capital gains can be deferred by not selling anything until you retire, and dividends are relatively small over the few years it takes to save to retirement, and are taxed at a reasonable 15%. But they’d likely go down as we’d be bringing in much less income by then. Part B is $99.90 per month and it covers 80% of standard doctor bills and 100% of some other things. With this type of account, you do indeed need to be aware of capital gains taxes. Complaints and insults generally won’t make the cut here, but by all means write them on your own blog! There will always be the “what if” skeptics. If you start a Roth IRA today, 7/10/13, say with $1000 and leave it alone gathering dust for 5 years, then put this plan into effect in 2018, you can start your first withdrawal of the new money you put in in 2019. December 11, 2018, 2:21 pm. For me when I say several of my family members live ‘nearby’ I mean I can walk or ride my bike there. So these days, I just do a bit of unpleasant consulting work here and there to cover my expenses and to get the employer subsidized health insurance. But the assumption was 1 million and $40,000 adjusted annually for inflation. So by putting in the 5% I will get a 9% total into my 401(k). Except that, since not everyone else is buying (because they must see the 20th installment in the Marvel Cinematic Universe, or else they will surely die), there are extra slices left over. JPMorgan Equity Index Fund They should be used for what gives us the greatest advantage, ie, to keep the most of our ‘stash’ from the ‘gubmint’. This calculator combines the retirement projections based on historical stock/bond returns with your longevity probability to give you a better sense of whether you are likely to outlive your money. The cash value can also be used to show banks you have ready access to cash if need be, and the cash value is protected against legal judgements. First, the maximum contribution limit for a solo-401k or SEP-IRA is now 49k, not 44k. Given all of this, I wouldn’t change a thing. If you currently own no bonds, now (while in a 8+% dip) is probably not a good time to start buying bonds and certainly not a good time to rebalance into them. I work for the State, so I fund both a 401k and a 457. Mr. Money Mustache is the website and pseudonym of 47-year-old Canadian-born blogger Peter Adeney. I save 6% in interest which is an immediate return. It took me two years of research to discover the answer and since then I have been reducing my debt in preparation , paying off the house early with a 2.29 percent mortgage for 7 years as this procedure requires you to have little to no debt. And design the big picture with a generous Safety Margin, which allow lots of slop and mistakes in your original forecasts and allows you to still come out with a surplus. Paying dividends just ensures that the company throws off real cash, which keeps management a bit more honest, compared to their pure capital gains competition. It seems that he gives lots of it away. November 29, 2018, 5:55 pm, I am confused about a couple things regarding Obamacare and the simulation you did at healthcare.gov. Now, I structure my investments such that Stocks and muni bonds are in taxable funds (and nothing else). Kandice, couldn’t agree more. A good argument for the “robo-advisors” is that they will do this for you through rebalancing. If you are doing this, then saving that $17,500 in the 401k saves you paying taxes on this money at the 28% federal rate. I am happy not working and don’t plan to work again, although I may feel differently in the future. Hey MMM— However, if I’m going to make my early retirement plan work, I’m still going to need some of that 401(k) money. Hoping they improve the quality of life for the citizens like your BIL as well. In order to avoiding adding to our taxable income, a vehicle such as this is highly attractive. November 29, 2018, 10:46 pm. Mar 15, 2020 - The accountant of Mr Money Mustache spills the beans. We are there now with house paid off, no debt, etc… We have 5 years worth of yearly expenses in HYMM right now, and then more $ in Roth, and will convert more to Roth from 401K’s to bridge the time between now and 60 (with a good cushion built in). WageSlave This is not inconceivable if gasoline is $12/gallon, organic cheese is $30/pound, and property taxes are $15k/year. I contribute only enough to get the employer match (5%/4%). I personally use my backdoor ROTH for REIT fund investing, but you can put anything here that does (or will) benefit from tax free treatment. Everyone has to make their own individual roll of the dice, but I feel OK about my decision to retire only after I had assets enough to use a withdrawal rate way below 4%. Toby. The month before that I spent in California. Adeney lives in Longmont, Colorado, and contends that most middle-classindividuals can and should spend less money and own fewer physical possessions, and that they can live with increased financial freedom an… Or they could go up then go down, or vice versa. We also paid off the mortgage on the primary house. Mutual funds always do all of their transactions are market close; by the security’s structure, you are supposed to receive your shares’-worth of NAV, and NAV is calculated when the market closes. A lot of that depends on your income and how much you are willing/able to sacrifice in order to keep your lifestyle in check. In fact he actively encourages us to be “maxing out any tax-deferred savings accounts like the 401k”. Also, if I move it, I’ll no longer have access to the G Fund, with is mindblowingly good and you can’t get anything like it outside of the TSP! And to answer your question: All capital gains are taxed at 0% if you are in the 10 or 15% bracket and 15% if you are in a higher bracket. Thank you! MA plans offer far superior benefits (many have no premiums and $0 copays for some services, plus drug coverage) but you are typically limited to an HMO network. more after each gets paid off), $350k in retirement accounts, $250k in brokerage, side-hustles that bring in ~$2000 a month. July 10, 2013, 12:02 pm, I would like to share my strategy. The government lets you make any of these contributions out of your. Abby H. Which means when prices go back up, you will have fewer shares recovering their price than you did when they went down. – evaluate the income needs for your whole retirement [including CPP + OAS], – project your RRSP value throughout your retirement and calculate the mandatory withdrawal income combined with CPP + OAS. Do you dream of retiring early? In every business, decisions are made on a daily basis based on risk and confidence level. downtownshuter I think if you have maxed out your other savings and don’t qualify (income to high) for a tax deductible IRA than a Roth is a great place to save. First, this exception applies if you leave your job at any time during the calendar year in which you turn 55, or later, according to IRS Publication 575. I like my taxes to be spent on education and environmental protection. Plus, if you do it right, work is fun. Since you can withdraw the money tax free, it would lower the money you need in a 401k substantially. I’m going through my numbers, trying to figure out if I’ve amassed enough in my Qualified accounts to stop contributing and focus on my young person retirement plan (though I might keep putting some into my 401k to get the employer match, like Carl mentioned above). There are of course fees, so buyer beware. Rebalancing a stock/bond split portfolio ensures this will happen. And if the market only grows at an average of 8%, you will continue to have to sell shares at an increasing rate since your portfolio value will remain flat with that 8% growth only making up for the shares you are selling. It’s hell to go through, but moral of the story is plan for long term care whether through FI or LT care insurance. If he lived to 40, then he could expect to be alive until his late sixties. https://thesavingninja.com/how-to-last-until-you-can-access-your-pension/, But, I’m a strong believer in still doing something that will earn a little money in retirement. Also don’t forget the possibility of locking in a tax-free capital gain now and getting to claim the capital loss in a future year (when it is not in fact a loss from the ORIGINAL cost basis. Join over 100,000 others on the Mad Fientist email list and start tracking your progress in the FI Laboratory! You can see how this can create some serious Zombie Data and Junk Science. This is a good example of an often overlooked reason to reach FIRE sooner than later. You pay a premium for the coverage, and it is basically a 80/20 plan. I actually wrote a similar post about how to build a bridge to your pension accounts not so long ago. Keep in mind, Medicare DOES NOT help with long-term care. During all these first 13 years of retirement, we never really spent the full amount that our savings/investments were generating anyway. Hi, I’m fairly new to investing, but I have a couple of thoughts on this. mostly held low by the infant mortality rate and high youth death rate. The quick answer is “No” – since we had a relativlely luxurious and spendy lifestyle while married (especially in the area of expensive housing), we could have easily just each downsized to 50% of that spending level and continued on without having to work. Don’t get me wrong, I’m totally in your boat and working hard on my ‘stache. In my case, I’m stuck with stupid fees, but after the 2nd year I should have $12,000 which should be enough to bypass the $2.50/month fee. November 30, 2018, 8:30 am. This is because, the IRS doesn’t let you simply pick and choose which IRA you want to Roth. I’d rather pay 10% now, than 20 – 30% or more later. For married couple, filing jointly, this is about $20,000. I’ll probably check the forums as well. December 19, 2018, 10:23 am, Here’s the nice article on CCP website: https://canadiancouchpotato.com/2016/07/11/foreign-withholding-taxes-revisited/, Mary Noonan MMM, your reference to life expectancy in the 19th century is accurate…but misleading, especially for the purposes of discussing retirement needs. If the market tanks after year 10 of your retirement, you’re probably fine. (I’m curious/skeptical that you have $15 – $20K in capital gains annually.) I’m trying to find the downsides to this. Standard retirement advice is based on protecting people from any form of hardship or change, which is completely counterproductive. Finally, don’t forget our hypothetical MFJ taxpayer will be eligible for a $24k standard deduction. Then once you quit working you can pull out the principal if you want. ‍♀️. It’s so ingrained in our society to always be earning money, because you never know what might happen (e.g. So, sure, in theory it covers cancer treatment, but none of the plans cover the doctor or hospital that specializes in cancer treatment. My wife works for one of the local school districts and i was just reading about her options. But you’ve got the maximum withdrawal per year from the 72(t) wrong. September 24, 2019, 11:30 am. Pretty irrelevant in this case whether the 3 or 4 or whatever % rule works, as for most early retirees an extra 30k annually would blast them out of safe withdrawal territory and they would far exceed a 4% withdrawal rate in this scenario. No – because that 15% tax rate is not a flat tax, it is the MAXIMUM amount they make you pay on long term capital gains. You could live somewhere lovely, and cheaper, or even in one of your rental units. Note: This is actually the opposite of what suggest about deferring those gains until retirement when they’ll be taxed at only 15%. I use Mint to track spending, and it works great. ($100,000) so I structured my other investments around that holding. I think I might need to revisit the 401K though. That account just throws off those gains each year. I’d still rather be the FIRE guy with a huge nest egg and no debt when the problem started. Glad you have been blessed with good health, and I hope it continues. I’ve been mulling over paying my mortgage early, but right now I am about $30 underwater on my mine (house worth $170, I owe $196K) so I am loath to put more money in it if something happens that requires money – when the mortgage is closer to break even, then I’ll start throwing more ‘stash in it. Or, you could look for ways to make work less of a painful experience by gaining influence and building relationships. Smart Money MD Obviously the match is nice too, if you get one, but not necessary to make the math work. Had we *not* been well positioned with F.I.R.E, and instead had each been working 40 hours a week with debts to carry, we would have been hard pressed to care for her mother. I skimmed but I didn’t notice anyone else mention that retirement accounts don’t count towards the parents’ assets when you’re filling out a FAFSA so that’s another point in favor of stashing in a retirement account. The difference being that the cash value can be easily accessed after the first ten years and the contribution limits are much higher that current Roth limits. I know, its easy to talk without fear about the cost of healthcare, when, you are (like me) Canadian but please, don’t try to plan for the “extreme unplannable”. What “insane” qualifies as is debatable, but we’re nowhere near there right now. It helps me put together all the FI pieces. If you make a withdrawal of earnings before age 59½, there’s a 10% federal penalty tax unless an exception applies. Those productive assets are going to exist either way (unless we move to hardcore communism in the future), so the only question is how much of them you want to own. I know I can move, however, I have a 2 year old…3 soon, and she is the only child so she has some cousins in Toronto and my parents whom are older are near by. But, if the market tanks in year two of your retirement, you’re not going to make it to year 20 if you keep pulling money out at the same rate. I just turned 48 and have $292,000 in the 401k. You could spend everything you have right now, but instead you don’t, why not? No, we would no longer contribute to her retirement funds if she quit her job, but we also would no longer have a mortgage ’cause she’d take $90K out of her 401 (without a penalty, but we’d have to pay taxes on it – another $28K-ish). It still isn’t the 6% it was a few years ago, but it is far better than .1%. Mr. Money Mustache. Mate, you’re dreaming if you believe you’ll get that 60% retirement once you hit the number in Finland. In other words, most of us get to the door of financial independence with something like this: A complex financial picture with lots of dollar signs – but can you retire on it? 7% return until 60, then dropping to 6% November 30, 2018, 8:07 pm. You don’t need to leave the province or even move much more than a manageable distance/ whatever meets your values to benefit from a non-Vancouver/Toronto ridiculous cost of living. I realize you made a lot of money from your blog and gave some to charity. See more ideas about mr money mustache, early retirement… It’s not great and to be clear, this is shitty health insurance because it has a high deductible. I’m aware that inflation figures here in Australia (and presumably elsewhere) are based on the consumer price index, which is based on a hypothetical ‘basket of goods’ (presumably including services). I loved the firefighter infographic hehe. I would than save tax on those gains because I should be able to keep income below $36900. His reply, “because there’s lots of money to be made”. Should I put money into my 401(k) if I’ll be retiring much younger than the standard age? It is pretty clear that US stocks and bonds will not have moved in opposite directions in 2018. Best portrayed by Forrest Gump : Shit Happens. OK, I have double checked. She lived with me for several years, however once the wandering began we couldn’t take a chance of leaving her at home and it wasn’t feasible for me to quit my job to become a full-time caregiver. I contribute 10% of my salary annually. Today you can buy a new Nissan Micra for about $10,000, therefore inflation is 0%. The rest of us don’t. One interesting thing about index investing is it looks a lot like voluntary socialism – with so many companies in an index like VTI, you are effectively buying yourself a slice of the means of production. 09/12/2014 09:56 Subject: Re:Mr. Money Mustache- DC version. And when you transfer it into the mutual fund and redeem it as long-term capital gains, anything less than 72,500 is tax free. So I have tried to become more sensitive about health and not just assume it’s 100% in our control. And someone retiring that same year with $500,000 would be able to buy the same stock you own. Good post covering the basics of the 4% rule . I’ll forgo the income potential from the investments for a few more years to avoid the risk that comes with higher potential returns. I do not feel the need to die with a million dollars in the bank. Your risk tolerance needs to reflect your position in life and your likelihood of needed to liquidate holdings. The issue I have with dying broke is that I don’t know how long i’m going to live. But knowing there’s a few hundred thousand hidden away somewhere will make me feel more comfortable. Regardless, withdrawing $40k would mean that I net somewhere between $30 and $35k, no? The only accounts offered all have high fees. In Canada our government/central bank uses the same system to measure inflation, naturally it’s out of touch with reality. Ms Blaise Especially if you lean towards do-it-yourself maintenance instead of expensive outsourcing. November 29, 2018, 2:49 pm. It’s one of the reasons I advocate a nice safety margin in your retirement savings, and also a reason I recommend staying skinny and healthy through your whole life, to drastically cut down on the risk and cost of health problems later in life. November 16, 2011, 9:20 pm, MMM, I don’t understand how you arrived at the $600,000 figure in your example. In Sweden, it works pretty much as described for Finland, except that we can hold stocks in an ISK account where dividends are not taxed at all provided they are moved to a checking account within the quarter year. The government provides yet another complicated-but-still-useful way to draw a little penalty-free income from your 401(k). Especially, so long as one is young, dynamic and healthy. If a stock goes up 10% in a year, and you received four dividend payments that were reinvested in additional shares, the cost basis will rise as the reinvestment buys shares with a higher price. The most important thing is the message delivered by him to the general reader which is indeed a less notificable perspective. 2, Lower tax bracket Do you think there’s a reasonable probability that tax rates will rise enough by the time I want to retire, that I’d actually have been better off just paying tax on the money up front? How would you suggest people plan for such eventualities? You are giving a good (capital) for a service (interest/dividend/capital growth). KarlaCash Remember too, you’ll be FIRE, so visiting family in TO could be easier even that it is now, despite a larger distance, given more time availability. – assess the likely input tax rate vs. output tax rate and use this to identify when it makes sense to put $$ in your RRSP and when to take it out. Mr. Money Mustache completely changed how I thought about money and work. theFIREstarter December 9, 2018, 7:07 pm. But that’s my total tax for the year. You can do both or just one or the other. Suze Orman VS Mr. Money Mustache (benefits, raise, family, senior) User Name: Remember Me: Password Please register to participate in our discussions with 2 million other members - it's free and quick! Please explain…..Is a traditional 401k option better for most people? 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