When You Realized You Don't Need 401k in Retirement...

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capitalhockey
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When You Realized You Don't Need 401k in Retirement...

Post by capitalhockey » Mon Feb 11, 2019 10:12 am

Hello all,

I am in my late 30s and will have another 15-20 years until retirement. My plan is to use 4 funding sources for my retirement: (1) Pension (2) Social Security (3) 401k and (4) Personal Investment Account.

I was crunching the numbers over the weekend, it looks like I can retired comfortably with only using pension and social security incomes. My mortgage will be paid off before I retired. This alone will drop annual expenses by 40k. In the retirement forecast, the 40k surplus was converted to travel, hobbies, weekly massages and unexpected big expenses (home repairs, etc). I am able to keep my health insurance from work after I retired. So we will continued to maintained my annual expense level into retirement with only my projected pension and social security incomes.

After looking at the numbers, it dawned on me that I might not use my 401k and personal investment account in retirement-- both of which are sizable since I have been maxing out 401k and investing 40% of gross income every year. A lot of things can change between now and when I retired but it was an big epiphany when I actually sat down to do the actual math. I felt very grateful to be in this position after many years or hard work and sacrifices in my youth. A number of philosophical questions about money popped up in my mind:

1) Does this mean that I am essentially building my 401k and investment accounts to pass along to my kids since I won't use them?

2) Does that mean I am over saving for retirement? (not sure if this is possible)

3) What do I want to do with my time and money that will be most fulfilling until I die? Traveling, donating to charities, starting my own nonprofit, setting up future grand kids finances, etc.

Can someone provide insight based on their own experiences facing this scenario? Thank you.

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Re: When You Realized You Don't Need 401k in Retirement...

Post by bloom2708 » Mon Feb 11, 2019 10:19 am

I think you are making a lot of assumptions.

What if you change jobs/careers?
What if the pension plan is discontinued? Pensions are massively underfunded all over.
What if you are unable to work until your 25 or 30 years of service is complete to fully fund the pension? Health issue, disability.

1. I can think of worse things than passing along to kids or family.

2. Doubtful you can save too much. Your pre-tax or Roth 401k is just another place to stash funds for future spending

3. No way to help with this question. One day at a time.

Jobs change, people change, economies change, rules change. Do your best and re-evaluate along the way.
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Re: When You Realized You Don't Need 401k in Retirement...

Post by Snowjob » Mon Feb 11, 2019 10:21 am

capitalhockey wrote:
Mon Feb 11, 2019 10:12 am
...

1) Does this mean that I am essentially building my 401k and investment accounts to pass along to my kids since I won't use them?

2) Does that mean I am over saving for retirement? (not sure if this is possible)

3) What do I want to do with my time and money that will be most fulfilling until I die? Traveling, donating to charities, starting my own nonprofit, setting up future grand kids finances, etc.

...
1.) Yes

2.) Depending on how much you've already saved & how secure your job is, possibly. It sure sounds like you are from my vantage point, I'd vote for spending a little more now if it will bring you joy and experience. Any savings at this point seems to be just a hedge against job loss.

3.) All seem valid and in the right order for now. as you get closer to retirement, this will shift possibly to where starting your own non profit will be the most rewarding as you will have the time to commit to it. followed by travel/kids and then donations take a back seat.

Sounds like you have a quite an enviable situation on your hands. Relax, don't feel overburdened to save. Go enjoy life and do something fulfilling.

KlangFool
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Re: When You Realized You Don't Need 401k in Retirement...

Post by KlangFool » Mon Feb 11, 2019 10:25 am

OP,

Why would you choose to work another 25 to 30 years even if you can? You have only one life to live. You may not be healthy enough to do a certain thing when you are older.

The perfect time to retire is when the kids left for college. You may not be able to retire at that time if you need your pension to be vested at an older age and you do not have enough money.

KlangFool

The Wizard
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Re: When You Realized You Don't Need 401k in Retirement...

Post by The Wizard » Mon Feb 11, 2019 10:30 am

Agree that OP is making too many assumptions 15-20 years out.
I would continue to monitor your situation year to year.
Having more $$$ means you could retire a few years earlier if desired.

I would also be sure to spend a reasonable amount of money on recreational activities NOW if you're not already...
Attempted new signature...

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Re: When You Realized You Don't Need 401k in Retirement...

Post by niceguy7376 » Mon Feb 11, 2019 10:31 am

capitalhockey wrote:
Mon Feb 11, 2019 10:12 am
I am in my late 30s and will have another 15-20 years until retirement. My plan is to use 4 funding sources for my retirement: (1) Pension (2) Social Security (3) 401k and (4) Personal Investment Account.
After looking at the numbers, it dawned on me that I might not use my 401k and personal investment account in retirement-- both of which are sizable since I have been maxing out 401k and investing 40% of gross income every year.
You might be the small minority lucky few that has all 3 options of Pension, 401k plan and SS contribution in the current workforce.
Without knowing the numbers in terms of Income, saved amt and expenses per year, we dont know if SS and pension can be good enough during your retirement.

The only caveats I can provide:
1. Pension plan properly funded
2. Ability to have health ins through employer even after you retired. In that case, be also aware that your current premiums might be paid in part by employer while that would not be the case when you retire. Also the premiums might be higher for retirees than for employers. This would be a big unknown.

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Stinky
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Re: When You Realized You Don't Need 401k in Retirement...

Post by Stinky » Mon Feb 11, 2019 10:42 am

capitalhockey wrote:
Mon Feb 11, 2019 10:12 am

I am in my late 30s and will have another 15-20 years until retirement. My plan is to use 4 funding sources for my retirement: (1) Pension (2) Social Security (3) 401k and (4) Personal Investment Account.
OP,

In my view, the biggest risk to your mix of funding sources is the pension.

In the private sector, the traditional "defined benefit" pension plan is becoming more and more rare. Even private sector companies that have well-funded plans are "freezing" the existing plans, converting to cash balance plans, etc. So you likely won't lose your currently accrued benefits, but you might not get much in future accruals. I also expect that public sector pension plans will come under increasing pressure in future years.

As mentioned by others, you should continue to monitor year-by-year what goes on. But at your age, I wouldn't count on future pension accruals.
It's a GREAT day to be alive - Travis Tritt

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Watty
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Re: When You Realized You Don't Need 401k in Retirement...

Post by Watty » Mon Feb 11, 2019 10:43 am

capitalhockey wrote:
Mon Feb 11, 2019 10:12 am
......both of which are sizable since I have been maxing out 401k and investing 40% of gross income every year.
A lot of investing choices are about balance.

Saving 40% of your income would be pretty extreme even without having the pension.

If that is impacting your ability to do enjoy life now then cutting back to maybe 20% could be a very reasonable choice, but you would need to crunch the numbers on that.

One thing to watch out for is that saying something like " Don't Need 401k in Retirement..." is very black and white when it might be more true to say something like "Don't need as large of a 401k in retirement,,,:

dbr
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Re: When You Realized You Don't Need 401k in Retirement...

Post by dbr » Mon Feb 11, 2019 10:46 am

Late 30's is too early to be sure all will go well for the next 50 years, but, yes, you could be a person who will end up with more money than you know what to do with. Also, it could even happen that your income in retirement will be large enough that there is no tax advantage to deferring income. There was another thread here recently where it looked exactly like that.

However, I would never count a pension as a done deal until you are collecting it, and even then it is not a sure thing. Pensions can go belly up and are also contingent on you staying employed. What happens if you become disabled and don't work to planned retirement? Also, if you are married, divorce can change a lot of things.

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capitalhockey
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Re: When You Realized You Don't Need 401k in Retirement...

Post by capitalhockey » Mon Feb 11, 2019 10:49 am

KlangFool wrote:
Mon Feb 11, 2019 10:25 am
OP,

Why would you choose to work another 25 to 30 years even if you can? You have only one life to live. You may not be healthy enough to do a certain thing when you are older.

The perfect time to retire is when the kids left for college. You may not be able to retire at that time if you need your pension to be vested at an older age and you do not have enough money.

KlangFool
I only plan to work up to the age where I am eligible for my pension and healthcare benefits for retirement and not a day more. If they offer an early retirement package later on in my career, I will take it and enjoy life while I can with my health as you alluded to. My job is not my identity. There is more to life that I like to explore with my free time (traveling, photography, wood working, painting, etc).

KlangFool
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Re: When You Realized You Don't Need 401k in Retirement...

Post by KlangFool » Mon Feb 11, 2019 10:51 am

capitalhockey wrote:
Mon Feb 11, 2019 10:49 am
KlangFool wrote:
Mon Feb 11, 2019 10:25 am
OP,

Why would you choose to work another 25 to 30 years even if you can? You have only one life to live. You may not be healthy enough to do a certain thing when you are older.

The perfect time to retire is when the kids left for college. You may not be able to retire at that time if you need your pension to be vested at an older age and you do not have enough money.

KlangFool
I only plan to work up to the age where I am eligible for my pension and healthcare benefits for retirement and not a day more. If they offer an early retirement package later on in my career, I will take it and enjoy life while I can with my health as you alluded to. My job is not my identity. There is more to life that I like to explore with my free time (traveling, photography, wood working, painting, etc).
capitalhockey,

A) When will your pension be vested? 5 years? 10 Years? 15 years?

B) When will all your kids leave for college? 5 years? 10 years? 15 years?

KlangFool

cashheavy18
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Re: When You Realized You Don't Need 401k in Retirement...

Post by cashheavy18 » Mon Feb 11, 2019 10:53 am

capitalhockey wrote:
Mon Feb 11, 2019 10:12 am
Hello all,

I am in my late 30s and will have another 15-20 years until retirement. My plan is to use 4 funding sources for my retirement: (1) Pension (2) Social Security (3) 401k and (4) Personal Investment Account.

I was crunching the numbers over the weekend, it looks like I can retired comfortably with only using pension and social security incomes. My mortgage will be paid off before I retired. This alone will drop annual expenses by 40k. In the retirement forecast, the 40k surplus was converted to travel, hobbies, weekly massages and unexpected big expenses (home repairs, etc). I am able to keep my health insurance from work after I retired. So we will continued to maintained my annual expense level into retirement with only my projected pension and social security incomes.

After looking at the numbers, it dawned on me that I might not use my 401k and personal investment account in retirement-- both of which are sizable since I have been maxing out 401k and investing 40% of gross income every year. A lot of things can change between now and when I retired but it was an big epiphany when I actually sat down to do the actual math. I felt very grateful to be in this position after many years or hard work and sacrifices in my youth. A number of philosophical questions about money popped up in my mind:

1) Does this mean that I am essentially building my 401k and investment accounts to pass along to my kids since I won't use them?

2) Does that mean I am over saving for retirement? (not sure if this is possible)

3) What do I want to do with my time and money that will be most fulfilling until I die? Traveling, donating to charities, starting my own nonprofit, setting up future grand kids finances, etc.

Can someone provide insight based on their own experiences facing this scenario? Thank you.
I would say we are overall in the same situation as you with the same 4 pillars you mention (approx 10 years ahead of you). Pension and SS will cover all of our expenses.

We max out all of the tax advantage savings we can (since we are in a high tax bracket) and will continue to do so.

We annually donate half of my take home income (which is personally significant for us).

We spend and enjoy on things that are meaningful to us (mostly food and travel). We are not one to keep Joneses.

If calculations we've made come to fruition, we will have a good chunk of money to pass on, but we will do our best to "use" it during our lifetime - to enjoy with our families and continue to donate for efforts that are important to us.

As long as you are enjoying your life and helping others (because you can) - I don't think there is such a thing as saving too much.

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capitalhockey
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Re: When You Realized You Don't Need 401k in Retirement...

Post by capitalhockey » Mon Feb 11, 2019 10:55 am

Watty wrote:
Mon Feb 11, 2019 10:43 am
capitalhockey wrote:
Mon Feb 11, 2019 10:12 am
......both of which are sizable since I have been maxing out 401k and investing 40% of gross income every year.
A lot of investing choices are about balance.

Saving 40% of your income would be pretty extreme even without having the pension.

If that is impacting your ability to do enjoy life now then cutting back to maybe 20% could be a very reasonable choice, but you would need to crunch the numbers on that.

One thing to watch out for is that saying something like " Don't Need 401k in Retirement..." is very black and white when it might be more true to say something like "Don't need as large of a 401k in retirement,,,:
Yes, that is a better way of framing it....I dont need as large of a 401k than I originally planned.

My wife and I are both frugal by nature but we talked about maybe saving less and leveraging our financial position for a better lifestyle. We are thinking about having her go from full time to part-time so she can spend more time with kids and less stress in life. What's the point of money if you can't use it to make your life better?

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capitalhockey
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Re: When You Realized You Don't Need 401k in Retirement...

Post by capitalhockey » Mon Feb 11, 2019 11:00 am

KlangFool wrote:
Mon Feb 11, 2019 10:51 am
capitalhockey wrote:
Mon Feb 11, 2019 10:49 am
KlangFool wrote:
Mon Feb 11, 2019 10:25 am
OP,

Why would you choose to work another 25 to 30 years even if you can? You have only one life to live. You may not be healthy enough to do a certain thing when you are older.

The perfect time to retire is when the kids left for college. You may not be able to retire at that time if you need your pension to be vested at an older age and you do not have enough money.

KlangFool
I only plan to work up to the age where I am eligible for my pension and healthcare benefits for retirement and not a day more. If they offer an early retirement package later on in my career, I will take it and enjoy life while I can with my health as you alluded to. My job is not my identity. There is more to life that I like to explore with my free time (traveling, photography, wood working, painting, etc).
capitalhockey,

A) When will your pension be vested? 5 years? 10 Years? 15 years?

B) When will all your kids leave for college? 5 years? 10 years? 15 years?

KlangFool
My pension is already vested but I will need to work up to a certain age to meet retirement eligibility and get health care to carry forward which is a big benefit.

My kids will be in college roughly the time I am eligible for retirement. So the math works out well.

KlangFool
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Re: When You Realized You Don't Need 401k in Retirement...

Post by KlangFool » Mon Feb 11, 2019 11:01 am

capitalhockey wrote:
Mon Feb 11, 2019 11:00 am
KlangFool wrote:
Mon Feb 11, 2019 10:51 am
capitalhockey wrote:
Mon Feb 11, 2019 10:49 am
KlangFool wrote:
Mon Feb 11, 2019 10:25 am
OP,

Why would you choose to work another 25 to 30 years even if you can? You have only one life to live. You may not be healthy enough to do a certain thing when you are older.

The perfect time to retire is when the kids left for college. You may not be able to retire at that time if you need your pension to be vested at an older age and you do not have enough money.

KlangFool
I only plan to work up to the age where I am eligible for my pension and healthcare benefits for retirement and not a day more. If they offer an early retirement package later on in my career, I will take it and enjoy life while I can with my health as you alluded to. My job is not my identity. There is more to life that I like to explore with my free time (traveling, photography, wood working, painting, etc).
capitalhockey,

A) When will your pension be vested? 5 years? 10 Years? 15 years?

B) When will all your kids leave for college? 5 years? 10 years? 15 years?

KlangFool
My pension is already vested but I will need to work up to a certain age to meet retirement eligibility and get health care to carry forward which is a big benefit.

My kids will be in college roughly the time I am eligible for retirement. So the math works out well.
Great!

KlangFool

Admiral
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Re: When You Realized You Don't Need 401k in Retirement...

Post by Admiral » Mon Feb 11, 2019 11:03 am

Why not just contribute to a pre-tax account, enjoy the tax savings now, and then know that you'll have a pile to donate in the future, should you choose to do so?

Might as well defer the taxes since you can.

15-20 years is much too far out to have any real sense of where you will be financially. 10 years is about the max I would feel comfortable projecting. We max out all retirement space even though 80-90% of our likely expenses will be covered by pension and two SS streams, mostly because we plan to retire at 58 and not take SS til 70.

Life is what happens when you make other plans...

Dandy
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Re: When You Realized You Don't Need 401k in Retirement...

Post by Dandy » Mon Feb 11, 2019 11:08 am

I think it means you can be a bit less frugal and a bit more generous with yourself, your children and charities. A bit not alot yet since, as you noted, things can change. It also means you can decide to take less or more risk with your portfolio. I would tend to take less risk. Later, if your good fortune continues, you might decide to change jobs, work part time or even retire and pursue whatever makes you happy.

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capitalhockey
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Re: When You Realized You Don't Need 401k in Retirement...

Post by capitalhockey » Mon Feb 11, 2019 11:13 am

The Wizard wrote:
Mon Feb 11, 2019 10:30 am
Agree that OP is making too many assumptions 15-20 years out.
I would continue to monitor your situation year to year.
Having more $$$ means you could retire a few years earlier if desired.

I would also be sure to spend a reasonable amount of money on recreational activities NOW if you're not already...
Yes, my wife and I plan to take more vacations with our little ones to create memories for life. We also want to spend money to make our life easier like paying more for better flight times (not red eyes), comfortable living arrangements on travels and more generous tips to people who provide good service (barber, hotel housekeeper, bartender, etc).

I plan to keep updating my spreadsheet projections every year....I am sure the picture will become more clear as I get near the retirement date. A lot can change over time.

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Re: When You Realized You Don't Need 401k in Retirement...

Post by RobLyons » Mon Feb 11, 2019 11:13 am

capitalhockey wrote:
Mon Feb 11, 2019 10:12 am


1) Does this mean that I am essentially building my 401k and investment accounts to pass along to my kids since I won't use them?

2) Does that mean I am over saving for retirement? (not sure if this is possible)

3) What do I want to do with my time and money that will be most fulfilling until I die? Traveling, donating to charities, starting my own nonprofit, setting up future grand kids finances, etc.

Can someone provide insight based on their own experiences facing this scenario? Thank you.

1) Yes
2) Yes (I personally believe most here do over save)
3) That is for you to decide. No one can tell you what you want to do.


My own scenario is somewhat similar to yours. Mid 30s. House will be paid by age 55. Plan to retire around 60-65. Pension that is currently estimated to pay us 120% of current income. Current retirees from company are reported to be living comfortably with their pensions and small retirement accounts. Maxing retirement accounts seems like overkill since we don't plan to live an extravagant post retirement life, just enjoy our kids/grandkids and some warmer weather in winter and a couple vacations annually, which will easily be covered by not having a mortgage payment.

Yes lots of assumptions, no guarantees, but there is a high degree of certainty.
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Re: When You Realized You Don't Need 401k in Retirement...

Post by Mike Scott » Mon Feb 11, 2019 11:17 am

The future is uncertain but it may be that you don't need to save as much as you are. Or maybe you can start one of your long term projects sooner. Maybe put more savings in a form that is more flexible (taxable account). I would not make any big changes until you have had some time to give it some thought and planning. It may not qualify as a midlife crisis but it sounds like you have the luxury of making some choices if you want things to be different going forward.

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Svensk Anga
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Re: When You Realized You Don't Need 401k in Retirement...

Post by Svensk Anga » Mon Feb 11, 2019 11:20 am

Looks like you will need a bridge fund to get from early retirement (mid 50's?) to optimum SS claiming age. Make sure your SS benefit estimate is valid for potentially earning zero between retirement and 62. (The SS statement estimate assumes you will earn at your current rate right up to retirement.)

You might need a fairly substantial inflation risk fund if that pension has no COLA. I also would not count on the retiree health insurance continuing on the same basis that far out.

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Re: When You Realized You Don't Need 401k in Retirement...

Post by Admiral » Mon Feb 11, 2019 11:26 am

RobLyons wrote:
Mon Feb 11, 2019 11:13 am
capitalhockey wrote:
Mon Feb 11, 2019 10:12 am


1) Does this mean that I am essentially building my 401k and investment accounts to pass along to my kids since I won't use them?

2) Does that mean I am over saving for retirement? (not sure if this is possible)

3) What do I want to do with my time and money that will be most fulfilling until I die? Traveling, donating to charities, starting my own nonprofit, setting up future grand kids finances, etc.

Can someone provide insight based on their own experiences facing this scenario? Thank you.

1) Yes
2) Yes (I personally believe most here do over save)
3) That is for you to decide. No one can tell you what you want to do.


My own scenario is somewhat similar to yours. Mid 30s. House will be paid by age 55. Plan to retire around 60-65. Pension that is currently estimated to pay us 120% of current income. Current retirees from company are reported to be living comfortably with their pensions and small retirement accounts. Maxing retirement accounts seems like overkill since we don't plan to live an extravagant post retirement life, just enjoy our kids/grandkids and some warmer weather in winter and a couple vacations annually, which will easily be covered by not having a mortgage payment.

Yes lots of assumptions, no guarantees, but there is a high degree of certainty.
Obviously everyone's situation and needs are unique, and each person needs to find their balance.

But: if one can afford to do so, I believe it is a major financial mistake not to max retirement space. Here are my reasons:

1) The future is uncertain. Changes to jobs and health happen all the time.
2) Deferring taxes to a time when marginal tax bracket is lower is generally a good strategy
3) Money saved for retirement can be used for things other than retirement (for example, college, from a Roth) and not maxing these accounts means you are giving up extremely valuable tax free growth. The compounding of this money over many years can result in hundreds of thousands of dollars more than one would have otherwise.
4) Having too much is rarely a problem. Being able to help adult children is a valuable thing.

Clearly each person needs to decide what's worth spending money on NOW versus what may be important later, and no one should live like an acetic (unless that's their preference) just to have ten million in 25 years. But--just to take an example from my own life--I would not pay for first-class airfare at the expense of maxing my retirement accounts; I upgrade to economy plus instead, which has no impact on my ability to save. Nor would I buy a very expensive car, even though I could easily if I chose not to sock away $5k per month.

YMMV.

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Re: When You Realized You Don't Need 401k in Retirement...

Post by The Wizard » Mon Feb 11, 2019 11:36 am

Svensk Anga wrote:
Mon Feb 11, 2019 11:20 am
Looks like you will need a bridge fund to get from early retirement (mid 50's?) to optimum SS claiming age. Make sure your SS benefit estimate is valid for potentially earning zero between retirement and 62. (The SS statement estimate assumes you will earn at your current rate right up to retirement.)
SS does say that, but it's not totally correct.
35 years of comparably high inflation adjusted earnibgs and that estimate will be close.
Less than 35 years then yeah, it'll be off...
Attempted new signature...

lexie2000
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Re: When You Realized You Don't Need 401k in Retirement...

Post by lexie2000 » Mon Feb 11, 2019 11:38 am

I agree with other posters - you are making a lot of assumptions that could change. Here are some that happened to us.

When planning for retirement, we never included getting SS. We figured if we got it, it would be icing on the cake. On the other hand, we never planned that our pre-medicare retiree medical would cost as much or more than a mortgage payment, but today it does. We assumed that my DH would get a pension, which he is; but a couple of years after he retired the Fortune 500 aerospace company that he worked for, froze the pension program - no more years of service would be added to current employees' pension calculation. Those employees who needed maybe 5-10 more years of service to hit the pension that they felt they would need for retirement were out of luck.

Without DH's 401k (double commas) we can live quite well off of his pension and SS (we do not have a mortgage or any other debt). We did not buy into LTC insurance, so we figure a chunk of it will go to that; the balance will go to our son.

When it comes to retirement planning and/or personal finances my motto has always been, plan for the worst and hope for the best.

nolesrule
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Re: When You Realized You Don't Need 401k in Retirement...

Post by nolesrule » Mon Feb 11, 2019 11:43 am

The answer may not be save less in the 401k, but perhaps save in 401k with partial or all Roth contributions. I have not run numbers, so this is not a suggestion, but something to think about.

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Re: When You Realized You Don't Need 401k in Retirement...

Post by cherijoh » Mon Feb 11, 2019 11:58 am

capitalhockey wrote:
Mon Feb 11, 2019 10:12 am
Hello all,

I am in my late 30s and will have another 15-20 years until retirement. My plan is to use 4 funding sources for my retirement: (1) Pension (2) Social Security (3) 401k and (4) Personal Investment Account.

I was crunching the numbers over the weekend, it looks like I can retired comfortably with only using pension and social security incomes. My mortgage will be paid off before I retired. This alone will drop annual expenses by 40k. In the retirement forecast, the 40k surplus was converted to travel, hobbies, weekly massages and unexpected big expenses (home repairs, etc). I am able to keep my health insurance from work after I retired. So we will continued to maintained my annual expense level into retirement with only my projected pension and social security incomes.

After looking at the numbers, it dawned on me that I might not use my 401k and personal investment account in retirement-- both of which are sizable since I have been maxing out 401k and investing 40% of gross income every year. A lot of things can change between now and when I retired but it was an big epiphany when I actually sat down to do the actual math. I felt very grateful to be in this position after many years or hard work and sacrifices in my youth. A number of philosophical questions about money popped up in my mind:

1) Does this mean that I am essentially building my 401k and investment accounts to pass along to my kids since I won't use them?

2) Does that mean I am over saving for retirement? (not sure if this is possible)

3) What do I want to do with my time and money that will be most fulfilling until I die? Traveling, donating to charities, starting my own nonprofit, setting up future grand kids finances, etc.

Can someone provide insight based on their own experiences facing this scenario? Thank you.

You are way too far from retirement to make the assumption that I highlighted. (You probably will have paid off your mortgage - IF you stay in the same house). Your pension is far from guaranteed since you could leave the company/lose your job, the pension could be frozen, or the company could go bankrupt and shed their pension obligations (think airlines and big 3 car companies). In the latter case, you might be partially made whole by the PBGC, but that may no longer exist by the time you retire. There is asbolutely no guarantee that your company will continue to offer retiree healthcare or if it does that your company will subsidizes the cost. The board prohibits speculation on future legislation, but I wouldn't discount the possibility that SS will have some changes between now and when you retire.

I had 20+ years in at a company with a good DB pension, when the company decided to close our site. I was offered a transfer to the new out-of-state site but opted out because of the location and the known work environment. Because I separated from the company before retirement, I still had my pension, but the benefit was frozen and I lost access to retiree health care. In addition, unless I wanted to take a 20% hit, my pension payout was delayed by 5 years. (For sticklers, the reduction was reduced for every month I delayed my pension until the end of the 5 year period). The company has since eliminated retiree healthcare and frozen the pension for everyone (including current employees), so I'm really glad that I didn't let that influence my decision to stay vs. leave.

Fortunately, I looked at the pension as a nice little bonus and aggressively saved in the 401k plan and in taxable accounts. (I did ease up a little in the past 10 years in terms of only funding my 401k and Roth, but not adding to taxable investments). Otherwise I would probably have been forced to take the relocation as many of my contemporaries at the company were. Other fortunate coworkers were already eligible to retire under the early retirement policy although the younger of those retirees had to cover their health insurance costs on their own until eleigible for Medicare.

I retired last year at ~59.5 about 4.5 years behind my original schedule. I very well might not be able to spend all the money I have accumulated, but I prefer that to the alternative of worrying about running out of money!

I'm enjoying spending more time with friends (also retired), volunteering my time for worthy causes, traveling, and donating money to make the world a better place. I haven't started my own non-profit but I have set up a donor advised fund at Fidelity Charitable - something I learned about here on Bogleheads.

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BolderBoy
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Re: When You Realized You Don't Need 401k in Retirement...

Post by BolderBoy » Mon Feb 11, 2019 12:43 pm

capitalhockey wrote:
Mon Feb 11, 2019 10:12 am
1) Does this mean that I am essentially building my 401k and investment accounts to pass along to my kids since I won't use them?
At the very least, when you reach age 70.5 you'll have to take RMDs from this 401k whether you want to or not.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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Re: When You Realized You Don't Need 401k in Retirement...

Post by willthrill81 » Mon Feb 11, 2019 12:48 pm

What if SS reduces benefits by 30%, as they have said that they must under current law, in about 15 years?

What if you lose your job and a sizable chunk of your pension benefits before retiring?

What if your pension, like many others right now, is not adequately funded?

What if your financial needs in retirement are greater than you anticipate?

If you become financially independent before your planned retirement age, then you can just retire early. That's precisely what I'm planning to do.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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capitalhockey
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Re: When You Realized You Don't Need 401k in Retirement...

Post by capitalhockey » Mon Feb 11, 2019 1:50 pm

lexie2000 wrote:
Mon Feb 11, 2019 11:38 am
I agree with other posters - you are making a lot of assumptions that could change. Here are some that happened to us.

When planning for retirement, we never included getting SS. We figured if we got it, it would be icing on the cake. On the other hand, we never planned that our pre-medicare retiree medical would cost as much or more than a mortgage payment, but today it does. We assumed that my DH would get a pension, which he is; but a couple of years after he retired the Fortune 500 aerospace company that he worked for, froze the pension program - no more years of service would be added to current employees' pension calculation. Those employees who needed maybe 5-10 more years of service to hit the pension that they felt they would need for retirement were out of luck.

Without DH's 401k (double commas) we can live quite well off of his pension and SS (we do not have a mortgage or any other debt). We did not buy into LTC insurance, so we figure a chunk of it will go to that; the balance will go to our son.

When it comes to retirement planning and/or personal finances my motto has always been, plan for the worst and hope for the best.
That's a good point about reduced SS benefits....quick frankly, we view our personal investment account as hedge for not expecting any SS in our retirement....if it's still there then it's a bonus but not an expectation in our model. That's why we saved so aggressively in a taxable account.

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capitalhockey
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Re: When You Realized You Don't Need 401k in Retirement...

Post by capitalhockey » Mon Feb 11, 2019 1:52 pm

nolesrule wrote:
Mon Feb 11, 2019 11:43 am
The answer may not be save less in the 401k, but perhaps save in 401k with partial or all Roth contributions. I have not run numbers, so this is not a suggestion, but something to think about.
We are in a high tax bracket now and would rather max out pre-tax accounts for present tax avoidance.

We do backdoor Roth contributions since we are over the income threshold.

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capitalhockey
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Re: When You Realized You Don't Need 401k in Retirement...

Post by capitalhockey » Mon Feb 11, 2019 1:54 pm

Svensk Anga wrote:
Mon Feb 11, 2019 11:20 am
Looks like you will need a bridge fund to get from early retirement (mid 50's?) to optimum SS claiming age. Make sure your SS benefit estimate is valid for potentially earning zero between retirement and 62. (The SS statement estimate assumes you will earn at your current rate right up to retirement.)

You might need a fairly substantial inflation risk fund if that pension has no COLA. I also would not count on the retiree health insurance continuing on the same basis that far out.
I was planning on using our Roth account as the bridge fund to delay SS withdrawal. That will also keep the taxes lower during those years.

I am fortunate that my pension has COLAs.

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Re: When You Realized You Don't Need 401k in Retirement...

Post by RobLyons » Mon Feb 11, 2019 2:21 pm

Admiral wrote:
Mon Feb 11, 2019 11:26 am
RobLyons wrote:
Mon Feb 11, 2019 11:13 am
capitalhockey wrote:
Mon Feb 11, 2019 10:12 am


1) Does this mean that I am essentially building my 401k and investment accounts to pass along to my kids since I won't use them?

2) Does that mean I am over saving for retirement? (not sure if this is possible)

3) What do I want to do with my time and money that will be most fulfilling until I die? Traveling, donating to charities, starting my own nonprofit, setting up future grand kids finances, etc.

Can someone provide insight based on their own experiences facing this scenario? Thank you.

1) Yes
2) Yes (I personally believe most here do over save)
3) That is for you to decide. No one can tell you what you want to do.


My own scenario is somewhat similar to yours. Mid 30s. House will be paid by age 55. Plan to retire around 60-65. Pension that is currently estimated to pay us 120% of current income. Current retirees from company are reported to be living comfortably with their pensions and small retirement accounts. Maxing retirement accounts seems like overkill since we don't plan to live an extravagant post retirement life, just enjoy our kids/grandkids and some warmer weather in winter and a couple vacations annually, which will easily be covered by not having a mortgage payment.

Yes lots of assumptions, no guarantees, but there is a high degree of certainty.
Obviously everyone's situation and needs are unique, and each person needs to find their balance.

But: if one can afford to do so, I believe it is a major financial mistake not to max retirement space. Here are my reasons:

1) The future is uncertain. Changes to jobs and health happen all the time.
2) Deferring taxes to a time when marginal tax bracket is lower is generally a good strategy
3) Money saved for retirement can be used for things other than retirement (for example, college, from a Roth) and not maxing these accounts means you are giving up extremely valuable tax free growth. The compounding of this money over many years can result in hundreds of thousands of dollars more than one would have otherwise.
4) Having too much is rarely a problem. Being able to help adult children is a valuable thing.

Clearly each person needs to decide what's worth spending money on NOW versus what may be important later, and no one should live like an acetic (unless that's their preference) just to have ten million in 25 years. But--just to take an example from my own life--I would not pay for first-class airfare at the expense of maxing my retirement accounts; I upgrade to economy plus instead, which has no impact on my ability to save. Nor would I buy a very expensive car, even though I could easily if I chose not to sock away $5k per month.

YMMV.


We can agree to disagree! But I would much rather use my money here and now, while alive and healthy, in more productive ways than to sock away another million or three that I wont ever need, on top of a healthy pension and soc security.

Life experiences. Helping family. Entrepreneurship.

Because when this life is over the most important accomplishments for me are how I treated others, how I lived life, what I did to make a positive impact, not how well I did saving for retirement.

Imagine how different the world would be if everyone had similar beliefs?

Have a great day!
"Great parenting sets the foundation for a better world"

Admiral
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Re: When You Realized You Don't Need 401k in Retirement...

Post by Admiral » Mon Feb 11, 2019 3:05 pm

RobLyons wrote:
Mon Feb 11, 2019 2:21 pm
Admiral wrote:
Mon Feb 11, 2019 11:26 am
RobLyons wrote:
Mon Feb 11, 2019 11:13 am
capitalhockey wrote:
Mon Feb 11, 2019 10:12 am


1) Does this mean that I am essentially building my 401k and investment accounts to pass along to my kids since I won't use them?

2) Does that mean I am over saving for retirement? (not sure if this is possible)

3) What do I want to do with my time and money that will be most fulfilling until I die? Traveling, donating to charities, starting my own nonprofit, setting up future grand kids finances, etc.

Can someone provide insight based on their own experiences facing this scenario? Thank you.

1) Yes
2) Yes (I personally believe most here do over save)
3) That is for you to decide. No one can tell you what you want to do.


My own scenario is somewhat similar to yours. Mid 30s. House will be paid by age 55. Plan to retire around 60-65. Pension that is currently estimated to pay us 120% of current income. Current retirees from company are reported to be living comfortably with their pensions and small retirement accounts. Maxing retirement accounts seems like overkill since we don't plan to live an extravagant post retirement life, just enjoy our kids/grandkids and some warmer weather in winter and a couple vacations annually, which will easily be covered by not having a mortgage payment.

Yes lots of assumptions, no guarantees, but there is a high degree of certainty.
Obviously everyone's situation and needs are unique, and each person needs to find their balance.

But: if one can afford to do so, I believe it is a major financial mistake not to max retirement space. Here are my reasons:

1) The future is uncertain. Changes to jobs and health happen all the time.
2) Deferring taxes to a time when marginal tax bracket is lower is generally a good strategy
3) Money saved for retirement can be used for things other than retirement (for example, college, from a Roth) and not maxing these accounts means you are giving up extremely valuable tax free growth. The compounding of this money over many years can result in hundreds of thousands of dollars more than one would have otherwise.
4) Having too much is rarely a problem. Being able to help adult children is a valuable thing.

Clearly each person needs to decide what's worth spending money on NOW versus what may be important later, and no one should live like an acetic (unless that's their preference) just to have ten million in 25 years. But--just to take an example from my own life--I would not pay for first-class airfare at the expense of maxing my retirement accounts; I upgrade to economy plus instead, which has no impact on my ability to save. Nor would I buy a very expensive car, even though I could easily if I chose not to sock away $5k per month.

YMMV.


We can agree to disagree! But I would much rather use my money here and now, while alive and healthy, in more productive ways than to sock away another million or three that I wont ever need, on top of a healthy pension and soc security.

Life experiences. Helping family. Entrepreneurship.

Because when this life is over the most important accomplishments for me are how I treated others, how I lived life, what I did to make a positive impact, not how well I did saving for retirement.

Imagine how different the world would be if everyone had similar beliefs?

Have a great day!
Sorry, I did not realize that my life and all my accomplishments and positive impacts would be over when I achieved financial independence. My mistake! :shock:

nguy44
Posts: 184
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Re: When You Realized You Don't Need 401k in Retirement...

Post by nguy44 » Mon Feb 11, 2019 4:15 pm

To the OP: 20 years ago, I was about your age. My Megacorp had a very good pension plan. Fully funded. I was just 10 years from being retirement eligible. The pension would have been about 65% of my pay at retirement. I thought that would be the main part of my retirement. I had a 401K, but was not maxing it out. The overal economic outlook in the U.S. was brighter than at any point before in my lifetime.

Then, Megacorp reduced the future eligibility for the pension. I managed to keep it, but had many co-workers just a year younger than me that lost it. Iin a another few years the company froze it and change its formula. calculation so that it would not longer be based on your salary at retirement. Bottom line: when I retired this year, it was only 30% of my retirement salary.

And I consider that lucky. Because I had many co-workers who, while they were still eligible for a pension, were laid off within months of their pension eligibility date. I will never forget a co-worker sending out emails across the company begging for any organization to hire her to do anything at any location at any salary for six months, so that she could get her pension.

I was VERY fortunate to see the light when the first round of changes hit, to realize that I could not count on it, and I better max out my 401K and other vehicles, so that if the pension was reduced or even eliminated, I could still retire at some some point. Again, fortunate that it was not eliminated, only reduced.

The lesson I learned is not to expect your company has your best retirement interests at heart, and strive to max out the vehicles you can control. If your pension does not change, you have a bonus. But if it does - you will be prepared.

I retired 7 months ago. Yeah, I have a large 401K. It is likely that, at age 70.5, my pension + SS (with DW) + investment income + RMDs will exceed my Megacorp salary at retirement. But I would rather have that "good" problem than finding out that I have to work longer to retire, or not be able to retire at all, due to a reduced/lost pension.

YMMV, but the more one plans for the unexpected, the less unexpected it will be should it happen. At least consider the impact of your pension being reduced by more than half. If that does not change anything, fine. But if it does... consider planning for it.

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capitalhockey
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Re: When You Realized You Don't Need 401k in Retirement...

Post by capitalhockey » Tue Feb 12, 2019 8:29 am

nguy44 wrote:
Mon Feb 11, 2019 4:15 pm
To the OP: 20 years ago, I was about your age. My Megacorp had a very good pension plan. Fully funded. I was just 10 years from being retirement eligible. The pension would have been about 65% of my pay at retirement. I thought that would be the main part of my retirement. I had a 401K, but was not maxing it out. The overal economic outlook in the U.S. was brighter than at any point before in my lifetime.

Then, Megacorp reduced the future eligibility for the pension. I managed to keep it, but had many co-workers just a year younger than me that lost it. Iin a another few years the company froze it and change its formula. calculation so that it would not longer be based on your salary at retirement. Bottom line: when I retired this year, it was only 30% of my retirement salary.

And I consider that lucky. Because I had many co-workers who, while they were still eligible for a pension, were laid off within months of their pension eligibility date. I will never forget a co-worker sending out emails across the company begging for any organization to hire her to do anything at any location at any salary for six months, so that she could get her pension.

I was VERY fortunate to see the light when the first round of changes hit, to realize that I could not count on it, and I better max out my 401K and other vehicles, so that if the pension was reduced or even eliminated, I could still retire at some some point. Again, fortunate that it was not eliminated, only reduced.

The lesson I learned is not to expect your company has your best retirement interests at heart, and strive to max out the vehicles you can control. If your pension does not change, you have a bonus. But if it does - you will be prepared.

I retired 7 months ago. Yeah, I have a large 401K. It is likely that, at age 70.5, my pension + SS (with DW) + investment income + RMDs will exceed my Megacorp salary at retirement. But I would rather have that "good" problem than finding out that I have to work longer to retire, or not be able to retire at all, due to a reduced/lost pension.

YMMV, but the more one plans for the unexpected, the less unexpected it will be should it happen. At least consider the impact of your pension being reduced by more than half. If that does not change anything, fine. But if it does... consider planning for it.
Congrats on your retirement! Thanks for sharing your experience and insight.

I will assume lower pension and SS benefits and keep socking away at 401k and personal investment savings!

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