Guidance for One Getting Started Very Late

[mjwillyone]

Hello all!

I would love some suggestions for my particular situation and one which I am sure many older people who have stepped into the FIRE zone can attest to:  Starting late to investing enough.

My question is:  what investment accounts are best used for someone who is NOT planning to retire early but wants to pay $0 in tax??  When I retire I do plan to retire .. no further income other than what comes in from social security and my investments.

I am 54 (almost 55) and have about $19,000 in retirement accounts.  My house will be paid off in December and my wife and due to our excellent health our renew for 20 years of term life (even at our ages) is a mere $45 for $300,000 of coverage.  We have no debt and my credit rating is 790.   I have just received 3 credit cards in an attempt to make use of sign-on bonuses for travel that we would like to do (Chase Sapphire Preferred, Southwest Rapid Rewards business card and Southwest Rapid Rewards personal card - I am about to get the companion pass with the amount of sign-on bonuses I will soon be getting.)

My question is this:  My plan is to retire at 67.  I want to live on $50K each year from investments.  I will draw $2,200 each month ($26,400 yearly) from social security.   This leaves $23,600 to take care of on my own.  At an 8% rate of return for 12 years, and needing $590,000 ($23,600 x 25) I need to set aside $2,437 each month. 

What's the best investment location for me?  I have access to 403(b), Roth 403(b), IRA, Roth IRA, and a standard investment account.

It is unfortunate that I didn't come across those in the FI community sooner (Go Curry Cracker, Mr. Money Mustache, J.L Collins, etc.)  I chose, instead, to pay for all of my 4 children's college educations (with them working to do the same) and to pay off my house and keep other debt as zero while making about $50,000 per year. 

Thank you to all who can give insight on this issue.

Mike

PS ... I would love to see spreadsheets created in the FI community that would address these type of questions.   I have created a spreadsheet that can help some .. but I don't have enough of a handle on the particulars of when one type of investment would be better suited to someone (based upon age, or other criteria) to build a spreadsheet that would actually give me greater clarity.

[gocurrycracker]

Paying off a house and sending 4 kids to college is a heck of an accomplishment, congrats!


The difference with a later starting date is you have less time for compound interest to do its thing. Otherwise the principles are all the same.

Key principle: If your expected withdrawal marginal tax rate is higher than your current tax rate, then it is better to contribute to Roth accounts. If the opposite, then contribute to Traditional.


Most of your SS income will be tax-free. (I assume the $2,200/month is for both of you, either from spouse's own benefit or 50% spousal benefit.)
That puts a tax rate of 0% on a large chunk of other income due to standard deduction. 0% tax space shrinks a bit when the inevitable happens (switch to single from MFJ.)

With 0% tax rate in the future and 12% tax rate now (MFJ, $50k gross income) that says to contribute to Traditional accounts (take the tax deduction now), e.g. 403b


8% is a bit optimistic for real returns for 20 years, I'd plan for a percent or two lower - which means more of your nest egg needs to come from direct savings.

[Toofuzzy]

I would contribute the maximum to work retirement accounts to the extent they are matched
Then I would max out ROTH IRA. Both spouses can have one even if only one is working.
Lastly I would contribute to a taxable brokerage account but try not to trade in that account. Do any trading in retirement accounts.

If you want $50,000 in today's dollars and know you will get $20,000 from SS then yo will need $30,000 x 20 ( or 25 ) = $600,000

If you multiply present savings by 7% compounded  and subtract that from the $600,000 that will give you how much additional you will need.

From there you can take a yearly savings amount and compound it and figure out how much you will need to save.

The above has a fudge factor in it as it assumes you never spend the principal.