Sound Strategy RE: Taxes / Retirement ?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
RRAAYY3
Posts: 926
Joined: Thu Jan 17, 2013 12:32 pm

Sound Strategy RE: Taxes / Retirement ?

Post by RRAAYY3 » Thu Mar 29, 2018 12:12 pm

I plan on retiring early [or at least being financially able to do so]:

1. Is it wrong to view a taxable account as part of my retirement package/portfolio?
2. I understand fund placement/tax efficiency/cap gains as well as asset allocation [ thanks BH ! ]

So, my plan as of now [say, 20 years from retirement] is as follows:

1. Max ROTH IRA for as long as eligible. 100% equity, I want that to grow tax free as much as possible
2. Max 401K - forced savings / reduced taxes now. Save / Invest a minimum of 23,500 annually.
3. Supplement taxable account / rebalance - option 3 after maxing 1 + 2

*Tax free growth in 1, tax breaks on 2, investing excess cash accordingly in 3 when able to.

I don't need mansions, Mercedes, or impressing other people. I want to be able to live with no alarm clock, no debt, and the ability to dine out / travel as I see fit.

I've reached a point in life where I think I've struck a good balance of live now / save for later - just want to ensure my plan isn't way offbase or misguided. Thank you, as always BH, for your sage wisdom. Have a great day and enjoy [hopefully[ your 3 day weekend !

RE: Savings rate, my plan involves investing 36% of my GROSS PAY and total savings of 44% [after tax + 401K + ROTH]

User avatar
KlingKlang
Posts: 730
Joined: Wed Oct 16, 2013 3:26 pm

Re: Sound Strategy RE: Taxes / Retirement ?

Post by KlingKlang » Thu Mar 29, 2018 12:36 pm

RRAAYY3 wrote:
Thu Mar 29, 2018 12:12 pm
I plan on retiring early [or at least being financially able to do so]:

1. Is it wrong to view a taxable account as part of my retirement package/portfolio?
2. I understand fund placement/tax efficiency/cap gains as well as asset allocation [ thanks BH ! ]

So, my plan as of now [say, 20 years from retirement] is as follows:

1. Max ROTH IRA for as long as eligible. 100% equity, I want that to grow tax free as much as possible
2. Max 401K - forced savings / reduced taxes now. Save / Invest a minimum of 23,500 annually.
3. Supplement taxable account / rebalance - option 3 after maxing 1 + 2

*Tax free growth in 1, tax breaks on 2, investing excess cash accordingly in 3 when able to.

...

RE: Savings rate, my plan involves investing 36% of my GROSS PAY and total savings of 44% [after tax + 401K + ROTH]
A taxable account is a very useful component of your retirement portfolio. That and your ROTH allow you the maximum amount of flexibility in controlling your retirement taxable income, especially in the years between your early retirement and taking Social Security and RMDs. It is also available for financial demands before retirement, allowing you to make purchases without acquiring debt.

Your savings rate is very aggressive, but if you are satisfied with the lifestyle available on your remaining income then more power to you. Saving aggressively when you are younger also gives you the option of reducing your savings rate later in life if you need/want to increase your spending.

smitcat
Posts: 2094
Joined: Mon Nov 07, 2016 10:51 am

Re: Sound Strategy RE: Taxes / Retirement ?

Post by smitcat » Thu Mar 29, 2018 2:02 pm

RRAAYY3 wrote:
Thu Mar 29, 2018 12:12 pm
I plan on retiring early [or at least being financially able to do so]:

1. Is it wrong to view a taxable account as part of my retirement package/portfolio?
2. I understand fund placement/tax efficiency/cap gains as well as asset allocation [ thanks BH ! ]

So, my plan as of now [say, 20 years from retirement] is as follows:

1. Max ROTH IRA for as long as eligible. 100% equity, I want that to grow tax free as much as possible
2. Max 401K - forced savings / reduced taxes now. Save / Invest a minimum of 23,500 annually.
3. Supplement taxable account / rebalance - option 3 after maxing 1 + 2

*Tax free growth in 1, tax breaks on 2, investing excess cash accordingly in 3 when able to.

I don't need mansions, Mercedes, or impressing other people. I want to be able to live with no alarm clock, no debt, and the ability to dine out / travel as I see fit.

I've reached a point in life where I think I've struck a good balance of live now / save for later - just want to ensure my plan isn't way offbase or misguided. Thank you, as always BH, for your sage wisdom. Have a great day and enjoy [hopefully[ your 3 day weekend !

RE: Savings rate, my plan involves investing 36% of my GROSS PAY and total savings of 44% [after tax + 401K + ROTH]
"1. Is it wrong to view a taxable account as part of my retirement package/portfolio?"
Absolutely - taxable accounts can form much of your FIRE planned goals.

"RE: Savings rate, my plan involves investing 36% of my GROSS PAY"
Similarly our breakdown is about 22% spend / 33% taxes / and 44% savings.

I would say that the balnce you speak of between life now and life later is a key - dont sacrifice one for the other.

bloom2708
Posts: 5011
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Sound Strategy RE: Taxes / Retirement ?

Post by bloom2708 » Thu Mar 29, 2018 2:22 pm

Having $300k or $400k in taxable will allow you to let your Traditional and Roth accounts "work" longer.

As mentioned, just don't forget to live and enjoy live for the next 20 years. The "FI trap" can get you and consume too much energy. It won't do as much good to retire early if you are miserable for the next 20. :wink:
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

RRAAYY3
Posts: 926
Joined: Thu Jan 17, 2013 12:32 pm

Re: Sound Strategy RE: Taxes / Retirement ?

Post by RRAAYY3 » Thu Mar 29, 2018 2:36 pm

Thank you all

It was a blessing / curse graduating during the financial crisis. I worked hard, for terrible pay, but learned how to enjoy life on a pathetic salary

Fast forward 10 years (8 years of “higher education”), and I’m now what most would consider “successful”.

The thing is, salary has basically tripled - but my lifestyle hasn’t much. I budget money to go out all weekend - and I do - then Monday it’s back to healthy home made options and no Starbucks / ordering out breakfast or lunch or dinner. I couldn’t be more frugal / healthy than I am during the week ... I generally spend $0 M-Thursday.

Weekend / Travel money is no object ... it’s not that difficult when you finally make money, aren’t materialistic, and don’t feel like going out all the time. I’m too busy / tired to spend money during the week

Short version : Salary bump = investments

WanderingDoc
Posts: 1283
Joined: Sat Aug 05, 2017 8:21 pm

Re: Sound Strategy RE: Taxes / Retirement ?

Post by WanderingDoc » Thu Mar 29, 2018 2:50 pm

What do you consider "early retirement"? If you are 20 years from retiring, so much can happen in that time. Its such a long time, that you might as well think of it as just retirement. You don't know how the world, your mind, your life, technology, and laws will change 10 years down the like, let alone 20! If you were 3-5 years away, you are in a better position to make changes with any reasonable amount of expectation behind them.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

RRAAYY3
Posts: 926
Joined: Thu Jan 17, 2013 12:32 pm

Re: Sound Strategy RE: Taxes / Retirement ?

Post by RRAAYY3 » Thu Mar 29, 2018 4:24 pm

My questions, I thought, were pretty straight forward

Yes, things change / past results don’t predict future blah blah blah ...

I save / invest 40% of my gross and view my taxable as part of my overall retirement portfolio

Basically, is this logical / sensible / practical / a sound strategy ?

22twain
Posts: 1607
Joined: Thu May 10, 2012 5:42 pm

Re: Sound Strategy RE: Taxes / Retirement ?

Post by 22twain » Thu Mar 29, 2018 5:23 pm

RRAAYY3 wrote:
Thu Mar 29, 2018 12:12 pm
1. Is it wrong to view a taxable account as part of my retirement package/portfolio?
Why would you think that might be so? Then people can address those specific concerns instead of making general statements that may or may not apply in your situation.
My investing princiPLEs do not include absolutely preserving princiPAL.

RRAAYY3
Posts: 926
Joined: Thu Jan 17, 2013 12:32 pm

Re: Sound Strategy RE: Taxes / Retirement ?

Post by RRAAYY3 » Thu Mar 29, 2018 6:08 pm

22twain wrote:
Thu Mar 29, 2018 5:23 pm
RRAAYY3 wrote:
Thu Mar 29, 2018 12:12 pm
1. Is it wrong to view a taxable account as part of my retirement package/portfolio?
Why would you think that might be so? Then people can address those specific concerns instead of making general statements that may or may not apply in your situation.
I don’t - juuuuust making sure I’m not off base in treating it as such

Post Reply