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As I get closer and closer to retirement I am seeing there is no way short of a miracle I will make the goal of the million dollars the investment advisors say is needed for a decent retirement in my rollover IRA.

My question starts with some basic facts. I will have a modest pension and Social security monthly income, so when I calculate how much money I "need" towards the unlikely goal of one million dollars is it safe to add the yearly income into the total?

Lets say for the sake of argument and the stock market not tanking I will have about 650000.00 in the IRA about 100K in liquid stocks, 50K in cash savings, and a paid off home and newish car (under 5 years old). I am told I can expect about 2% income on the rollover account depending on the market conditions and lord only knows what else. Now assuming about 4,500 a month after income tax (with having 25% with held from pension and Social security) is it safe for me to add that money to the retirement fund balance?

So for every year I stay alive I will have that 54K income and can start drawing down my cash and rollover money. Or should I completely ignore the fact that I have any income and try to calculate my retirement funding excluding that income?

The financial advisors scare the heck out of me to the point I am already working past my 66 birthday and am hoping to work until I am 68 just because I am concerned there won't be enough funds for me to live and do some of the things I want to do in retirement. Nothing really fancy maybe take the grand kids to Disney World maybe a trip to Europe or South America once every 2 or 3 years. Maybe one more car before I am too old to drive and keeping the house in decent repair.

If I am conservative I can make it month to month on the income, paying Fed income tax and taxes and insurance on home and car, utilities, home upkeep and basic living needs and Part B, D, F and etc. for health insurance. I would then use the savings and retirement funds for the extra stuff. Am I being too cautious or should I really clamp down and try to exceed my savings goals mentioned earlier?

I know the first question is how old do I expect to live. Looking at family history I would estimate at least early 80's. Hopefully no need for long term care and minor assistance to stay in my home.

Thanks for any suggestions.

Nick
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Now assuming about 4,500 a month after income tax (with having 25% with held from pension and Social security) is it safe for me to add that money to the retirement fund balance?

Mostly Yes

Withholding taxes is a good choice, but I would calculate the tax liability differently. Add the total amount to your pension and SS income, and then include taxes in your expenses. Your tax rate will vary with your income. In around 4 years, you will be forced to take distributions from your retirement accounts and you will have less control over your tax liability.
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As I get closer and closer to retirement I am seeing there is no way short of a miracle I will make the goal of the million dollars the investment advisors say is needed for a decent retirement in my rollover IRA.

Can you cite where investment advisors are saying that everyone 'needs' $1MM in their IRA in order to retire? I don't think I've ever seen an investment advisor say that everyone 'needs' $1MM to retire. I have seen a lot of blogs, commentators, etc. use $1MM as a goal or rule of thumb, but they generally can't provide any math to validate their statements, because they just chose $1MM as a nice easy number. What someone 'needs' to retire is very specific to their situation, and depends a lot on what their expenses are and what income they will have in addition to their IRA. Any investment advisor who MAY* be worth listening to recognizes that, and doesn't give out blanket advice for an amount that everyone 'needs'.

*In general, you probably have the most motivation to be your own best investment advisor, because nobody else is going to care as much about how your investments will/won't support your goals.

My question starts with some basic facts. I will have a modest pension and Social security monthly income, so when I calculate how much money I "need" towards the unlikely goal of one million dollars is it safe to add the yearly income into the total?

I think you are going about this backwards. Start with what you will need to maintain your current lifestyle, plus any changes (plus or minus) you will be making when you retire. For instance, you won't need to save for retirement any longer, once you are retired - so you don't need to cover the amount that you are currently putting toward your retirement. On the other hand, if you will want to travel more than you currently do, then you should add some costs in for that. Don't forget to account for things like medical insurance, replacing your car every xx years and large ticket items for your house, like a new roof, or remodeling the bathroom.

Once you get a handle on how much you think you'll need to spend in retirement, then compare that to the pension and SS income you anticipate having. The gap is what you will need to cover with your IRA.

I am told I can expect about 2% income on the rollover account depending on the market conditions and lord only knows what else.

It's important to understand what these assumptions are based on. Does that 2% net assume that you are paying 25% of the withdrawals in income taxes and 1% of the account valuation each year towards an advisor? If so, then 2% a year is probably a safe assumption. But are those assumptions correct for your situation? In general, the average tax rate is probably closer to 15% - 20%, even if you are in the 28% bracket. Then, if you are having taxes withheld from your pension and SS, you may not need to have a full 25% withheld from your withdrawals.

And paying an investment advisor 1% of your account balance per year is crazy if you are only going to net 2% after paying 1% in taxes. Your investment advisor will be getting 1/4 of the total outgo from the IRA, and fully 50% of what you are netting.

AJ
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Merrill Lynch at Bank of America is saying a million dollars is about the minimum anyone needs. If you use their calculator what they don't seem to take into account is the fact you might have income (like a pension) and they don't consider Social security for some odd reason.

They have sufficiently scared me into thinking I can never retire and they will just pull me away from my desk and send me off to the bone yard.

They give you that calculator to plan with and away you go. If you also go to that MINT site they also don't account for any income you might get other than your IRA account. They just want to know what you have right now and what you earn right now and then come up with these eye popping numbers.

The advisors basically want me cram as much money as I can into my account and say that you have to prepare for the worst, and hope for the best. I might add I have told them on several occasions that the managed funds at .0011 management fee a month seem to participate in every down turn very well, but don't seem to recover to the same degree. There is always a reason (excuse??) why that is the case.

So I sit here and obsess that there isn't enough money to retire with. I was actually planning on saving with that retirement income so I could have cash for that new roof you mentioned and etc. Saying I don't need to save as I currently do is something I have not thought of. I just assumed I would need to save using just the assured income in case there is a market melt down and I don't want to pull money out of the rollover. Then my cash on hand is the fall back.

Good plan?? Bad plan?? I am floundering.
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Merrill Lynch at Bank of America is saying a million dollars is about the minimum anyone needs. If you use their calculator what they don't seem to take into account is the fact you might have income (like a pension) and they don't consider Social security for some odd reason.

They have sufficiently scared me into thinking I can never retire and they will just pull me away from my desk and send me off to the bone yard.


My thinking is that most retirement planning calculators that are sponsored by financial institutions--which is most of them--are going to tell you that you need more money than you probably really do. Partly because they hope you will put more money with them, and maybe partly to cover their behinds so you can't sue them if it turns out to be not enough.

I'm thinking $1M plus a paid off residence would do me fine, and that's without a pension, and living in a high cost area in southern California, and hopefully with some cushion built in so I can cut spending if the market does tank. If I moved to a less expensive area, then I could do with less.

The number that gets thrown around most is a 4% withdrawal rate on your savings. So if you have $1M, that would give you $40,000/year to draw out (though keep in mind that any fees you are paying a financial advisor must come out of the $40K), plus your pension and social security. Is that enough to live on? It's a matter of lifestyle. Certainly there are boatloads of people that get by on less than that. The median household income in the US in 2014 was $54K, and that includes a lot of people raising families and saving for retirement, neither of which expenses I'm assuming you would have in your retirement.

Each year that you work is one less year that you will need to fund in retirement, so my guess is if you are 66, you're probably in good enough shape to retire now--though again it depends on lifestyle, plus comfort level. It doesn't sound like your advisors are encouraging you to feel comfortable with your financial situation yet, which may or may not be for good reason. There is a risk of a substantial market crash, which would hurt. But the more you learn, the more you may be able to find your own comfort level without needing someone else to tell you what it should be.

A very good book on the subject I read recently was How to Make Your Money Last: The Indispensable Retirement Guide by Jane Bryant Quinn. Covers a broad range of topics in understandable language.
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Well that is the point "IF" you have $1million. Big if. The only reason I am still working is to finish paying off the mortgage and build cash and reach the goal of 650000.00. I am about 18 months away from doing just that. I have delayed taking my Social security benefit as well so I can get a bigger monthly pay out.

I am assuming when I reach 70.5 and Uncle Sugar forces me to take money out of the roll over that I would pay the taxes on the withdrawal and then re-invest the balance in something fairly conservative. With any luck I won't need that money. Unless I am living in a box under bridge and I am standing at a busy intersection with a cardboard sign asking for quarters.

I have worked non-stop since I graduated with my first master's degree for 44 years and 2 months. Since that very first job I have never been without a full time job and I have always contributed to whatever 401K the job offered. As I changed jobs I rolled the money into the roll over IRA. Except the one place that way back in the dark ages offered a pension and I was vested I left that money and that is what is going to provide 50% of my retirement income the other 50% being Social Security.

Once the house is paid off and I hit the saving target I am so done with working full time. Corporate America is a hellish place to work now with all the H1B competition that is preventing salaries from keeping up and eliminating any potential moves..

It appears both candidates for President want to keep American salaries down. The DONALD is even against a minimum wage and would let states make them lower. Hillary wants to import more H1's because she has been bought by American big business who is feeding her the line they cannot find American workers with the talents they need. The big lie is that Big American Businesses (Mark Zuckerberg et.al) don't want to train nor pay American's to fill those jobs. They want plane loads of workers from India to come here and slave for them. Or better yet send the jobs over there.

As a result the American worker who has worked their entire life for a big business is left in the dust. The work place now looks at the older American life long worker as a big expense and can hardly wait to get them pushed out so they can hire someone with 24 letters in their last name. I can hardly wait to leave that environment and every day hold my nose and go into work and slave away at a 10 hour highly pressurized day.

We have really sunk into the mud for the future of the American worker. I fear what my grand children will be facing when they get out of college for job opportunities.

Maybe that is another driving force in the back of my mind to try and leave the children and grand children some money to help survive the dark future.
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Merrill Lynch at Bank of America is saying a million dollars is about the minimum anyone needs.
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If you also go to that MINT site they also don't account for any income you might get other than your IRA account. They just want to know what you have right now and what you earn right now and then come up with these eye popping numbers.

The advisors basically want me cram as much money as I can into my account and say that you have to prepare for the worst, and hope for the best.


Especially at your age, if you are using calculators that don't account for pension or SS income, that blindly assume you will need at least 80% of your current income, and don't account for any accounts other than IRA/401(k) accounts, then you are using the wrong calculators.

The calculator I have found most useful is Fidelity's: https://www.fidelity.com/calculators-tools/planning-guidance... It's more complex than the simple calculators that I've seen at many of the other sites, which just ask for your age, current income, current savings, amount saved per year, and when you want to retire.

But the complexity allows for you to adjust the plans for things like:
- How much do you need per year, starting out?
- What do you anticipate various inflation rates to be?
- Are you going to have single year large income (like from selling a house) or expense (like needing a new car or roof) events, and when do you anticipate those?

The Fidelity calculator also runs simulations (rather than just using averages) and allows you to assume either an underperforming market or an average market, and then gives you likelihood of success.

I was actually planning on saving with that retirement income so I could have cash for that new roof you mentioned and etc. Saying I don't need to save as I currently do is something I have not thought of. I just assumed I would need to save using just the assured income in case there is a market melt down and I don't want to pull money out of the rollover. Then my cash on hand is the fall back.

Good plan?? Bad plan?? I am floundering.


That sounds like an overly conservative plan to me. From your next post, you also said:

I am assuming when I reach 70.5 and Uncle Sugar forces me to take money out of the roll over that I would pay the taxes on the withdrawal and then re-invest the balance in something fairly conservative. With any luck I won't need that money.
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Except the one place that way back in the dark ages offered a pension and I was vested I left that money and that is what is going to provide 50% of my retirement income the other 50% being Social Security.


Looks to me like you believe that your pension and SS will provide your living expenses, once you have your mortgage paid off. So, do you think your extraordinary expenses (new roof, new car, etc.) will consume more than the rollover IRA money will pay for, keeping in mind that if your rollover IRA is at $650k (i.e. no growth between now and then) your initial RMD will be $23,723?

My guess, based on just what you've shared, is that you have plenty to retire right now, including covering your mortgage, but that you haven't actually looked closely enough at the numbers to convince yourself of that. Go sit down with a realistic calculator, making sure you understand the assumptions that are being made, and see if you can convince yourself of that.

AJ
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Merrill Lynch at Bank of America is saying a million dollars is about the minimum anyone needs.

Using the famous (and controversial) 4% burn rate figure that implies income of $40,000/yr.

If you own your home and are out of debt, many live comfortably with numbers in that range. But if you have a mortgage and lease two cars, i.e., live a $100K lifestyle, that will require quite a squeeze.

Take your choice. Learn to live on less or save more. The more you save, the less you need in retirement.

And then don't forget inflation. Who knows what the figure will be 30 yrs from now. But save now and work hard to keep up with inflation.
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Thanks for the link. I will try it out and see what it tells me.
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Well I have to say that Fidelity site made me feel somewhat better. I still think it would be better if I had the house totally paid off so that I would have no debt. I am not comfortable having to support a mortgage plus the high cost of property tax and all the various insurances.

Texas may not have an income tax but believe me they get you but good with property taxes. Every year you have to protest your property tax evaluations. Turning 65 does little to no good as it freezes only the rate of the school tax but as they raise the value of the house by 8 to 10 percent every year you still pay more in all brackets. Otherwise turning 65 does nothing to the taxing entities like the city, county, state, hospital, and on and on.

So bottom line I need to stick to the plan I had in my head.
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Well I have to say that Fidelity site made me feel somewhat better.

Glad to hear it. If you want another comparison and you have accounts at Vanguard, they have a similar site, although I find it more cumbersome to use than the Fidelity site.

I still think it would be better if I had the house totally paid off so that I would have no debt.

You could consider taking a withdrawal out of your rollover IRA, or using other savings if they are available, to pay off the rest of the mortgage in a lump sum. You may want to look at the timing of this, and, say, wait until January of next year to take the money out, due to tax consequences.

Texas may not have an income tax but believe me they get you but good with property taxes.

Having owned a couple of houses in Texas, I understand. ;-)

AJ
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