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Dear fix my portfolio,
Intellectually, I feel well prepared for retirement, but I have an irrational fear in my heart that I am not financially ready for retirement. I think my fears center around the uncertainty and lack of income in the market (I’ve been working since I was 14). I am currently 57 and my wife is 60. I am going to retire within three years at most. My wife thinks she wants to work part-time to keep herself busy, but I don’t want to spend my free time working.
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Can we really retire in a couple of years and live a reasonable life without money? Should we change our portfolio structure? How should we thin our retirement funds, especially while we wait for Social Security?
Our annual expenses, expectations for purchasing health insurance, and our expenses for entertainment and travel are approximately $70,000 in 2024 dollars.
We have no debt other than the $20,000 debt from the retirement account listed below, which will be paid off within the year; Two vehicles, each less than five years old; and a house and a room worth approximately $650,000. Our Social Security income would be $5,700 per month at age 67 and $7,400 per month at age 70.
Here’s what we have:
Head vs. Heart
Heart Against Dear Leader,
You are the retiree that the bucket strategy was created for. You have so many different types of accounts that listing them all seems like a huge mess. It’s definitely difficult to handle things that way.
The Bucket strategy It’s a form of mental accounting that helps you visualize your stocks in a way that makes more sense to you. Start by organizing your buckets according to tax efficiency: tax-deferred savings, tax-free growth, and taxable savings. This will help you see if you are saving in the right places for the next three years until you retire. The goal is to have a variety of income so you can choose where to get the money to minimize your tax burden.
When you start spending money, you can switch to thinking about time-frame buckets—one for the short term that is mostly cash, one that is more conservative for the medium term, and one that is more aggressive for the long term. That’s when you need to adjust your investments to make them work for you. For example, you wouldn’t want individual stocks in the short-term bucket and cash in the long-term bucket.
I suggest you delete Expected Inheritance from your list. You never know what’s going to happen and it’s not something you can count on. If a substantial inheritance should eventually come your way, you can adjust your plans accordingly without counting your chickens before they hatch.
Tax-deferred bucket
Group all your tax-deferred retirement accounts into one bucket: 457(b), 403(b) and employer-sponsored plan, all of which currently total $943,000. You still have two and a half years to touch that money without penalty, but your wife can start withdrawing money from her savings if she needs to. That said, when you start tapping that money, you have to pay taxes on it as ordinary income.
You should start withdrawing money from these accounts when you are currently 73 years old Minimum delivery required Rules. By the time you reach that age in 16 years, assuming an average growth rate of 7%, that savings will be more than $2.5 million. You can add to that bucket over the next few years or start spending early, but it’s up to you.
Duty free bucket
Your Roth IRAs are a bucket of tax-free growth. Those accounts are now worth $260,000, and no matter how much they grow, it will never affect your taxes because you pay taxes on Roth contributions. You can withdraw the money you put in at any time, but you have to wait until age 59½ to take out the growth without penalty.
If you need the money in the next few years, this bucket may do well, otherwise, you may want to spend the last time from this bucket because the growth is tax-free. If you just put that money away, you’ll have $1.2 million by the time you’re 80.
You don’t specify heirs, but Roth accounts are more advantageous when you die because your beneficiaries don’t have to pay taxes on the balances for 10 years.
Taxable bucket
If you have your balances in brokerage accounts and cash, you don’t need to touch that Roth money early. The goal is to have enough money on hand to cover your expenses from the time you retire until Social Security kicks in, followed by RMDs in the short term. After that you can choose which account works best for whatever you need.
If you retire at age 60, that’s about 10 years in which you’ll pay $70,000 in annual expenses.
This is when good financial-planning software comes into play, as it allows you to run precise numbers and set these variables and time frames. But by looking at the buckets, you can do a little back-of-the-envelope analysis and see that the $1.25 million you have now will cover your projected expenses—in fact, you’ll likely come out on top, and even at an average 7% return, your accounts could actually grow over that period. .
However, retirement cost projections are not an exact science. $70,000 a year may actually be low for you, especially if you don’t take into account future healthcare costs or other emergencies. Or maybe once you retire, you can decide to spend a little more freely first and enjoy it while you’re healthy.
When the time comes to hang up your spurs, you may decide that you just don’t want to do it. Some form of work may be in your future, but it will be driven by your passion, not your bank balance.
You can also join our retirement conversation .
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And fix my portfolio
2024-09-29 04:25:00