How much to allocate to different retirement “buckets”?

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Topic Author
JJP88
Posts: 58
Joined: Sun Apr 22, 2018 4:41 pm

How much to allocate to different retirement “buckets”?

Post by JJP88 » Mon Aug 12, 2019 7:32 pm

I am evaluating where to most effectively place my funds, and would like advice and what would be most advantageous for me. When evaluating, please consider that I think it is a possibility that I could leanfire/barista fire by age 50. I calculate my leanfire/baristafire number to be $750,000.

Info:
Age: 30
Status: Sink (definitely no children in my future)
Income: Base: $39,460 Overtime: 13k last year and on pace for about 10k this year
Marginal Tax Rate: 12% (this what I have calculated at least.
Debt: Mortgage (starting like next week): $119,500 at 2.875% (2.96% with closing costs) for 30 years.

Current Retirement Assets:

Roth IRA: $49,000
TIRA: $63,000
401k: $8,000
HSA: $1,500
Approximate Total: $121,000

Questions:

1. I am in the 12% tax bracket (most likely will for a long time in my current occupation as a production worker), Roth options should be my preferred option at that rate?

2. I have heard of the roth conversion ladder and understand the concept, however I think I have heard mention it is possible to 0% tax on the conversion... is this possible and if so how should I position my retirement funds to take advantage of that? It would seem that to do this somebody would need a Roth IRA with at least 5 years of income to withdraw from it.

3. My company just started offering a Roth 401k option, and they allow in service conversions. Would it be wise to take the tax hit now and convert the $8,000 into a Roth 401k? I am mainly thinking of my current tax bracket, and also how the tax brackets could change in the future (such as in 2025).

4. My open enrollment for my HSA is in October and plan to start monthly contributions to it, but do not want to use 5/3 where the HSA plan is. I have read that only 1 rollover is allowed per year, however I also read a direct transfer from HSA to HSA is allowed and can be done as many times as you want. Can anyone verify which rule is correct.

5. Lastly what is the order I should put my retirement contributions into?

$150 will be going into the HSA monthly starting in October. Wish I could elect to add more from payroll whenever I find myself comfortable to do so, but my understanding of my plan is I can only decide to alter my elected contribution during open enrollment.

6% with 3% matching goes into the 401k currently. (May up this now that I am done saving up to get a house).

I lump sum deposit what I can into an IRA in early January when doing taxes.

Thanks for the advice and taking the time to read this.
Last edited by JJP88 on Mon Aug 12, 2019 7:47 pm, edited 1 time in total.

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Wiggums
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Re: How much to allocate to different retirement “buckets”?

Post by Wiggums » Mon Aug 12, 2019 7:43 pm

What do you project your annual expenses to be in retirement?

I’m assuming you’ll need to obtain medical insurance.

How much money do you expect to earn in retirement from your Barista job?

Will you have money in taxable that you can access until you can tap into the retirement accounts?

Topic Author
JJP88
Posts: 58
Joined: Sun Apr 22, 2018 4:41 pm

Re: How much to allocate to different retirement “buckets”?

Post by JJP88 » Mon Aug 12, 2019 7:50 pm

Projected Expenses: $25,000, so 25k x 30 = $750,000 (original 450k number was a really leanfire scenario)

Medical Insurance would be gotten if I can find a more preferable job than the one I have, again this 15-20 years in the future so this will be addressed when I get closer.

From Barista job, again I would look at the feasibility once I reach the fire number. However I would to find something that pays for my expenses, 25k. I just would stop or drastically reduce retirement contributions.

As of now I do not have a taxable account, and thought it was not recommended to start one unless you can maximize all retirement accounts?

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Sandtrap
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Re: How much to allocate to different retirement “buckets”?

Post by Sandtrap » Mon Aug 12, 2019 8:50 pm

JJP88 wrote:
Mon Aug 12, 2019 7:50 pm
Projected Expenses: $25,000, so 25k x 30 = $750,000 (original 450k number was a really leanfire scenario)

Medical Insurance would be gotten if I can find a more preferable job than the one I have, again this 15-20 years in the future so this will be addressed when I get closer.

From Barista job, again I would look at the feasibility once I reach the fire number. However I would to find something that pays for my expenses, 25k. I just would stop or drastically reduce retirement contributions.

As of now I do not have a taxable account, and thought it was not recommended to start one unless you can maximize all retirement accounts?
If retiring at age 50 with projected retirement expenses of 25k/annually.
Your baseline target is: 40X, or $ 1million. (X = annual retirement expenses).
Adjust up or down depending on the following:
1. Size of pension. (monthly pension income).
2. Medical coverage from age 50 to 65 (Medicare). Great if included in pension.
3. Monthly Social Security income if taken at: 65, 70, etc.
4. Part or full time income in addition to the above after retirement at age 50.
(however, at some point, one can no longer work so consider this additional income as non permanent after age 50.)

What is a "barista"?

j
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LittleMaggieMae
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Joined: Mon Aug 12, 2019 9:06 pm

Re: How much to allocate to different retirement “buckets”?

Post by LittleMaggieMae » Mon Aug 12, 2019 9:29 pm

JJP88 wrote:
Mon Aug 12, 2019 7:50 pm

As of now I do not have a taxable account, and thought it was not recommended to start one unless you can maximize all retirement accounts?
That is the general advice, and it needs some tweaking. Remember that the traditional retirement accounts usually have age requirements for withdrawals. If you want to "fire" or "retire" or whatever at 50 yo, you will need some savings available to use for everyday life. If all your 'retirement' money is tied up in tax advantaged accounts you cannot access until you are 59.5 or older (without penalty) you could be in a bit of a bind. That's where the taxable accounts come in handy.

When I was 40 (about 15years ago), I started ramping up my retirement savings. I had been saving but just 8% (no employer match, instead there is a pension) but felt I should be saving more - since "early retirement" sounded awesome (especially since I can't see myself doing my job into my 60s). When I turned 50, I realize I had a huge pile of money in retirement accounts and on track to financial independence by 60 maybe sooner. The "maybe sooner" got me thinking and I realized I have next to no "money" outside of my retirement accounts (and pension at 65). I might have enough $$ to stop working at 57yos - but I'd have NO money to get me to 59.5 when I can tap my retirement accounts. :( I have been working on building up money in a taxable account - which I would use to "pay the bills" if I decide I can walk away from my day job sometime soon. I'm also working on developing some "side hustles" that I could work on once I'm "jobless" and that will provide some income as well. (I'm thinking I'm gonna have a hard time convincing an employer to hire me for minimum wage - I will be old and un-hip and they may wonder why I would want to do whatever menial job they are offering. :) )

So, my advice would be to go ahead and start saving some money to a taxable account. Let it grow. Sometimes having access to some money is very very useful. It gives you flexibility. FWIW: I've always had some money (3 months EF/new car fund/etc) in taxable account(s) which I didn't add to on a regular basis. I've never had to use it for job loss. I did use it for a down payment (a whooping 12K) to buy an investment property back when the housing market crashed. :) I was very happy I had access to 'quick money'. :)

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