Retirement: How are you funding it?

[Snave]

Since I was the original poster and never answered my own question... Currently we have my wifes 403b (converted to IRA) from when she taught. We also have my 401k at my current employer (which just added a roth component this year) and money I rolled from my former 401k to an IRA. We also have our roth's. We max out all of the above every year and then I also have a pension from a previous employer and also my current company has one. The pensions combined will probably make up about 30-35% of our income. I don't really count the pensions b/c I don't know if I will be with the company forever. Lastly, we have mutual funds and individual stocks. The goal is is 10 million when it is said and done.

[Staceyy]

We plan to pay off the house and buy a new car with the 401k.

I have started a business that is already starting to pay off and will supplement our retirement.

We will both get social security.

I am learning to garden.

[disneysteve]

We plan to pay off the house and buy a new car with the 401k.

What does this mean? Are you cashing out your account? If so, why?

[hakuna matata]

First post here!
I stumbled on this site and it looks like good reading so far.

Okay I will outline the retirement plan for my wife and I.

both 48 will be 49 this year.

Her:
Pension plan with city max out each year
Deferred Comp (basically 401k) max out each year
Roth IRA max out each year at $5000

Me:
Pension/Profit Sharing Plan at work--Company contribute roughly $10k year
401K max out each year
401k match by employer to 6%
Roth IRA max out each year at $5000

We also have our home which is now under $100k owed and own 5 acres outright.

Our plan is to retire at age 55--so far it looks good!

[Staceyy]

What does this mean? Are you cashing out your account? If so, why?

No, not totally cashing out. We prefer not to have a mortgage. Dh has about ten more years until retirement. The mortgage balance will be pretty small then, so it won't take much to pay it off. We also prefer not to have any car payments and we generally buy a car that is two years old.

[disneysteve]

No, not totally cashing out. We prefer not to have a mortgage. Dh has about ten more years until retirement. The mortgage balance will be pretty small then, so it won't take much to pay it off. We also prefer not to have any car payments and we generally buy a car that is two years old.

Have you figured out how much you will lose in taxes and penalties for taking an early withdrawal from the 401k. There is no way it can be worth it to cash out your retirement plan to buy a car or pay off your mortgage. It will cost you thousands, if not tens of thousands, of dollars. Pull out $50,000, for example, and you'll pay a 10% penalty ($5,000) and probably 25% taxes ($12,500) for a total loss of $17,500. Plus you lose the future growth of that $50,000. At a 7% return, that 50K would more than double in 10 years to just over $100,000.

I'd stongly suggest reconsidering that plan.

[aida2003]

No, not totally cashing out. We prefer not to have a mortgage. Dh has about ten more years until retirement. The mortgage balance will be pretty small then, so it won't take much to pay it off. We also prefer not to have any car payments and we generally buy a car that is two years old.

I greatly DISAGREE with this kind of thinking/decision. I think it's OK when you have too much savings and you'd like to draw down in order to pay-off your house (many would disagree about this step as well), but I would NEVER touch 401k for that purpose...maybe only if I'm older than 59.5.

[noppenbd]

The way I read it, Staceyy was saying that she would use part of the 401k to pay off the house and buy a used car AFTER her DH retires. In that case the argument isn't a clearcut. I agree that this shouldn't be done before retirement because of the penalties.

[disneysteve]

The way I read it, Staceyy was saying that she would use part of the 401k to pay off the house and buy a used car AFTER her DH retires. In that case the argument isn't a clearcut. I agree that this shouldn't be done before retirement because of the penalties.

Staceyy, I'm sorry if I miss understood. If you meant that IN RETIREMENT you would be using money from the 401k to pay off the house and buy a car, that's totally different. I thought you meant you were cashing out now.