Elizabeth Richardson wrote:
> Most folks don't find they've saved too much for retirement. Most folks
wish
> they'd saved more when they were younger. If you put it off now, when
you're
> in your 50s the amount you'd have to save will be overwhelming.
It's easy to find data that sup****ts Elizabeth's statement above. Last I
read, less than 25% of retirees have saved more than $25,000 for
retirement. So, while there are some out there who are fortunate enough
to have actually over-saved, there numbers are pretty small.
Bill, there's no magic formula. You seem to be asking a combination of a
few questions. There's the risk of 'saving yourself into the next tax
bracket." You don't mention any pension plans. A pension replacing a
chunk of your income at retirement can make the 401(k) and IRA
withdrawals heavily taxed. If no pension, only your own savings and
social security, it's a bit tougher to do. Look at Fairmark
http://www.fairmark.com/refrence/index.htm
and you can see that for a
couple, the standard deduction is $10,900, plus 2 exemptions, $3500
each. This totals $17,900 that a retiree can withdraw each year tax
free. Using the 4% initial withdrawal rate, that's $447,000 gross pretax
savings needed to generate. The next $16,500 is taxed at 10%. Another
$412,500 needed to sup****t that withdrawal rate. With about $75K in
pretax accounts, you have a way to go, even adding the $31K to the
401(k) and $10K to the IRA. In the dozen years it would take, the
brackets will creep up as will the standard deduction and exemptions. I
doubt there will be any huge jump that would catch you by surprise. Tied
into all this - if you ae in the 28% or higher bracket now, I'd not use
Roths, just pretax. If you have a baby and the missus takes some time,
you can convert while in a lower bracket.
(mixed in to this is the Social Security tax trap that needs to be
monitored. When half your social security plus other income exceeds $32K
joint, the SS becomes taxable. A high earner, and high saver will blow
through this. My study shows that it's only an issue for those
straddling the line, where the next $1,000 is taxed at a high phantom
rate)
Your real question seems to be how much non-retirement funds need to be
available for the high ticket things you mention. I'd suggest that's
more a function of how steady your income is and how predictable the
expenses are. I'd go back to the 'emergency fund' conversations, so when
the furnace fails you don't need to panic to replace it. Of course a
homeowner has more potential unexpected repairs than a renter.
If you wish to pay cash for the cars, start saving now.
But I'll close with this - run the numbers to see if you are on track to
your retirement goals. Not knowing your income, I can't guess whether
you are on on your way or falling short.
Joe
www.blog.joetaxpayer.com
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