Over 60: 401k...or other options?

[RipCurl]

Hope someone can help me out.... I am 61 and plan on being employed for 2-4 more years.

Here's what I need to sort out: I am currently doing about 20% on 401k (doing the catchup). But - I am wondering if this is the correct thing to be doing?? For example, does it make more sense to change my 401k to the minimum to get the company-match....and take the diff on a weekly basis and put it in some tax-free bond funds. Or - is there a better option(s)?

Thanks!

[Like2Plan]

Originally Posted by RipCurl

Hope someone can help me out.... I am 61 and plan on being employed for 2-4 more years.

Here's what I need to sort out: I am currently doing about 20% on 401k (doing the catchup). But - I am wondering if this is the correct thing to be doing?? For example, does it make more sense to change my 401k to the minimum to get the company-match....and take the diff on a weekly basis and put it in some tax-free bond funds. Or - is there a better option(s)?

Thanks!

RipCurl,
There are a lot of variables to consider. But, I believe your tax bracket would be a bigger factor more than your age in deciding whether or not to change your contribution level. The other important consideration would be your investment choices inside the 401K (are you able to decrease your risk with the fund families offered in the 401K?) and then finally how soon before you are planning to take out funds from the 401K? Are you planning to achieve an immediate income stream? Or, do you need some money to tide you over until you have a retirement income? Are you going to wait until your full SS kicks in?

[RipCurl]

My 401k choices are not the best. Right now I am split between a mid-cap fund and an income fund.

Have no idea if I will be into SS sooner than I really want. I DO plan on SS as income when I officially retire, sooner or later.

[jIM_Ohio]

Originally Posted by RipCurl

Hope someone can help me out.... I am 61 and plan on being employed for 2-4 more years.

Here's what I need to sort out: I am currently doing about 20% on 401k (doing the catchup). But - I am wondering if this is the correct thing to be doing?? For example, does it make more sense to change my 401k to the minimum to get the company-match....and take the diff on a weekly basis and put it in some tax-free bond funds. Or - is there a better option(s)?

Thanks!

You are older than 59.5 right? And when you actually need the 401k monies for retirement you will be older than 59.5?

Will you be older than 70.5 when you take your FIRST withdraw? Do you know what your RMD would be when you are 70.5? RMD= required minimum distribution=> this is the money the IRS requires to pay tax on each year.

What tax bracket are you in now? Is the RMD calculated above in a different tax bracket?

There are 3 parts to this puzzle
1) the amount you have saved already and anticipate having saved for retirement inside tax deferred vehicles
2) the tax bracket you are in now
3) the expenses and tax bracket you might be in when you take the first retirement distribution

Shed some light on each of those pieces for a better answer.

[RipCurl]

jIM Ohio:

Here are the answers to the question you posed:

1) I will have about $450k in traditional IRA. $50k in current 401k. $160k in general "savings" and investments.

2) Currently in 25% tax bracket

3) I plan on taking only the portion of the IRA and 401k that generates income (primarily bond and income funds) on a monthly basis. Will most liklely still be in the 25% bracket in retirement.

--RipCurl

[jIM_Ohio]

Originally Posted by RipCurl

jIM Ohio:

Here are the answers to the question you posed:

1) I will have about $450k in traditional IRA. $50k in current 401k. $160k in general "savings" and investments.

2) Currently in 25% tax bracket

3) I plan on taking only the portion of the IRA and 401k that generates income (primarily bond and income funds) on a monthly basis. Will most liklely still be in the 25% bracket in retirement.

--RipCurl

How much is the interest relative to
a) current expenses
b) the total amount invested? (express this as expenses/amount invested)

a) for example you have $660k saved as you declared above
this will generate (let me guess)- $23100 per year (3.5% interest).

Is this enough to pay for expenses? If you are in 25% bracket probably not.


b) if you are expecting to be in 25% bracket, which is $70,000 of needed income (guessing based on tax bracket cap for married filing joint, $70,000/$660,000=11%. You want this to be 4% (either save more to raise the bottom, or spend less to lower the top).

[jIM_Ohio]

My summary is to concentrate on the big picture- the equation of expenses/amount saved being less than or equal to 4%.

If you cut expenses it helps
If you can save more it helps.

In next 3-4 years the $660 you have now could grow to more than $750k (growing at 4-5%). This helps. But that ratio is still 70/750 which is around 9%.

The ratio is more commonly know as "withdraw rate" and you want your starting withdraw rate (swr) to be 4% of assets saved. This will prevent you from running out of money in 30 years, allowing you to slighting increase withdraws each year in retirement.

If you are conservative- plan for 3 or 3.5% swr
if you like living on the edge, plan for 5% (like if your family tends to die young). Moving the swr by even .5% changes things considerably over a 20 or 30 year period- your room for error will be to cut expenses or eat with the stray cats.

So focus new money into the 401k assuming the options are good, and defer taxes until later. Keep the growth profile of the investments at between 40-60 and 60-40 (%stocks-%bonds). If you have 70k of expenses, the savings goal would be $1.75 million. While that looks like a goliath goal, I would actually advise you have done well thus far- if you give yourself another 9 years to work, the $660k you have now could become $1.3M, and over the next 9 years I think you could save another 400k (~35k per year).

If you follow all that above, the 60-40 tells you what to invest in...

60% stocks would be 30% large cap, 20% foreign large cap and 10% small/mid cap
the 40% bonds and cash would be in government, corporate, muni and money markets to taste (10% to each would be OK, maybe slightly more to cash as you near retirement).