IRA-poor?

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986racer
Posts: 531
Joined: Thu Aug 11, 2016 10:09 am

Re: IRA-poor?

Post by 986racer »

avalpert1 wrote: Sun Jun 09, 2024 10:30 am I am not astonished... that 'the math' of someone who had a perfectly formed life through a very profitable investing period would end up with a lot of money isn't surprising in the least... But the reality is that most people don't have that life, which is why the reality (and reality always beats math) is that you would be in the top 5% of folks in their 60s if you had lived that mathematical life and thus would indeed be ridiculous (and a tad oblivious to people around you) to suggest your outcome is 'a bit low' for the norm.
I never said that. I said that IF a couple were maxing out contributions, that the balance of 7MM would be low.

Somehow you took a jump in that statement to suggest that I implied that everyone should have that amount.

There are a few other reasons that even a diligent saver wouldn’t have this much
1. Many firms did not offer 401k plans 30 years ago. Heck, many still do not offer them now. So, the diligent saver might not have had the opportunity to invest.
2. If a firm did offer a plan, they provided VERY little information about the plan or why someone might want to utilize the plan. So, the diligent saver wouldn’t have the information needed to invest.
nukem
Posts: 9
Joined: Thu Jan 16, 2020 9:05 am

Re: IRA-poor?

Post by nukem »

AceSD wrote: Thu Jun 06, 2024 3:32 pm
suevv wrote: Thu Jun 06, 2024 1:09 pm I guess I didn't realize our saved amount was out of the ordinary.
$7M is above average.

0.7 million is above average :(
tibbitts
Posts: 24385
Joined: Tue Feb 27, 2007 5:50 pm

Re: IRA-poor?

Post by tibbitts »

nukem wrote: Sun Jun 09, 2024 12:26 pm
AceSD wrote: Thu Jun 06, 2024 3:32 pm
suevv wrote: Thu Jun 06, 2024 1:09 pm I guess I didn't realize our saved amount was out of the ordinary.
$7M is above average.

0.7 million is above average :(
I believe the OP implied "among Bogleheads."
esteen
Posts: 540
Joined: Thu May 23, 2019 12:31 am

Re: IRA-poor?

Post by esteen »

avalpert1 wrote: Thu Jun 06, 2024 5:58 pm
esteen wrote: Thu Jun 06, 2024 1:54 pm
the_wiki wrote: Thu Jun 06, 2024 11:34 am You cold take out a loan on the new house and then withdraw small amounts each year to pay the bill, keeping you in a lower tax bracket. For example, 24% tax bracket + 7% loan interest beats 37% tax bracket by a lot. Just have to do the math on tax bracket vs mortgage rate
Unfortunately this is untrue for most scenarios, due to the 7% compounding over the loan payback period while the tax brackets do not compound.

Example:

Need $630K for home purchase.

Option 1: Up Front Withdrawal
  • Take out $1M up front and pay 37% tax on it (nets $630K)
Option 2: Loan + Gradual Withdrawal
  • Take a $630K loan at 7%
    Take out $150K each year from your IRA to pay back the loan. Net annual loan repayment = $150K*(1-.24)=$114,000.
    Total loan balance keeps accruing 7% interest as you are paying it down.
    Total estimated repayment time ~7 years (or more if payments are paid after interest has accrued for the period, see below).
    Total withdrawn from IRA = $150,000 x 7 = $1,050,000.
Excel formulas for reference: =FV(7%,7,114000,-630000,0)=$25083.93 still left on the loan (end of period pmts) or =FV(7%,7,114000,-630000,1)=-$43,975.16 i.e. paid it off with $44K left over (beginning of period pmts)

The outcome would be even worse for longer terms, say a 15-yr home loan (if you didn't pre-pay).
Mortgage loans don't compound either, they are simple interest loans. You are also ignoring the returns on the money sitting in the IRA waiting to be withdrawn which would dramatically change your outcomes... I mean in your example you withdrew a total of $50k more over 7 years, you don't think the investments could cover that 5% (total, not annual)?
Mortgages are not quite vanilla compound interest, not quite vanilla simple interest. See this financebuff article for more info. There is a compounding effect of lowering the interest rate or the term. Yes, I could have been more accurate by writing out a mortgage amortization schedule rather than a FV formula. So, I'm sorry for the inaccuracy IF the loan is going to be a mortgage (it could however be a different loan type, then the compounding would apply as stated above).

The point is the_wiki's post about simply adding percentages (24% tax bracket + 7% interest < 37% tax bracket) is not the way to look at a 7% interest loan that has a multi-year payback.

-es
This post is for entertainment or information only, and should not be construed as professional financial advice. | | "Invest your money passively and your time actively" -Michael LeBoeuf
Topic Author
suevv
Posts: 19
Joined: Tue Jan 02, 2024 12:45 pm

Re: IRA-poor?

Post by suevv »

986racer wrote: Sun Jun 09, 2024 11:47 am
avalpert1 wrote: Sun Jun 09, 2024 10:30 am 1. Many firms did not offer 401k plans 30 years ago. Heck, many still do not offer them now. So, the diligent saver might not have had the opportunity to invest.
2. If a firm did offer a plan, they provided VERY little information about the plan or why someone might want to utilize the plan. So, the diligent saver wouldn’t have the information needed to invest.
OP here.

This. We were very lucky to have had these retirement fund ideas pointed out to us.

35-ish years ago, we moved to California, fresh out of school. My employer offered a 401k and a bit of matching and I had no earthly idea what that was or why I should sign up. But the HR person said I should - just to get the "free money" from the match. Then one Saturday afternoon in 1989 - while I was cleaning house, I stumbled upon Bob Brinker. He talked about money, and stocks and bonds in such simple terms. And he convinced us we could figure it out ourselves. And he talked about Vanguard, and maxing out every vehicle we qualified for. Oh - and paying off credit card debt first and foremost.

For a professor's kid who didn't know what equity was and thought stocks were some mysterious $$$ thing for the rich that could never be applicable to me - the whole thing was a revelation. And then my husband started his (very simple sole-proprietor) business and we went to an accountant for help with taxes, and she told us about SEPs. And he had a part time job at a university, and the HR person there showed him how we could put almost his whole salary in a 403b.

Over the years we talked to Bob on his show a couple times. Once he helped us figure out the right balance between saving for retirement versus buying our first home. And we listened every weekend and learned and learned and learned, and always invested in things we understood that didn't charge us a ton of fees. And we always wanted to live in the Sangre de Christo Mountains and watch out for shark attacks and reach the land of critical mass. Forgive the walk down memory lane. But goodness he did us a world of good. So it's not being melodramatic to say he changed our lives, plus we had some really good fortune with smart, caring HR people who helped us when we were very young.

So anyway - that's how we got here. Right now I'm exploring an asset depreciation loan for that house in Carmel. Gratitude to you all for carrying the torch that Bob lit for us.
avalpert1
Posts: 731
Joined: Sat Mar 02, 2024 6:15 pm

Re: IRA-poor?

Post by avalpert1 »

esteen wrote: Mon Jun 10, 2024 4:41 pm
avalpert1 wrote: Thu Jun 06, 2024 5:58 pm
esteen wrote: Thu Jun 06, 2024 1:54 pm
the_wiki wrote: Thu Jun 06, 2024 11:34 am You cold take out a loan on the new house and then withdraw small amounts each year to pay the bill, keeping you in a lower tax bracket. For example, 24% tax bracket + 7% loan interest beats 37% tax bracket by a lot. Just have to do the math on tax bracket vs mortgage rate
Unfortunately this is untrue for most scenarios, due to the 7% compounding over the loan payback period while the tax brackets do not compound.

Example:

Need $630K for home purchase.

Option 1: Up Front Withdrawal
  • Take out $1M up front and pay 37% tax on it (nets $630K)
Option 2: Loan + Gradual Withdrawal
  • Take a $630K loan at 7%
    Take out $150K each year from your IRA to pay back the loan. Net annual loan repayment = $150K*(1-.24)=$114,000.
    Total loan balance keeps accruing 7% interest as you are paying it down.
    Total estimated repayment time ~7 years (or more if payments are paid after interest has accrued for the period, see below).
    Total withdrawn from IRA = $150,000 x 7 = $1,050,000.
Excel formulas for reference: =FV(7%,7,114000,-630000,0)=$25083.93 still left on the loan (end of period pmts) or =FV(7%,7,114000,-630000,1)=-$43,975.16 i.e. paid it off with $44K left over (beginning of period pmts)

The outcome would be even worse for longer terms, say a 15-yr home loan (if you didn't pre-pay).
Mortgage loans don't compound either, they are simple interest loans. You are also ignoring the returns on the money sitting in the IRA waiting to be withdrawn which would dramatically change your outcomes... I mean in your example you withdrew a total of $50k more over 7 years, you don't think the investments could cover that 5% (total, not annual)?
Mortgages are not quite vanilla compound interest, not quite vanilla simple interest. See this financebuff article for more info. There is a compounding effect of lowering the interest rate or the term.
You seem to have misunderstood that blog post (though I would quibble with the way he wrote because it lends itself to your misunderstanding. The part that would apply to this scenario, where the payoff is not based on teh 30 year amoritization schedule would be where he said (emphasis mine) "Between two mortgages, if you keep principal payments the same, they behave like simple interest loans."

The interest does not compound, you weren't just inaccurate, you were using the wrong framework for evaluating them.
CookieDough
Posts: 242
Joined: Sun Dec 25, 2022 1:07 pm

Re: IRA-poor?

Post by CookieDough »

tibbitts wrote: Sun Jun 09, 2024 12:27 pm
nukem wrote: Sun Jun 09, 2024 12:26 pm
AceSD wrote: Thu Jun 06, 2024 3:32 pm
suevv wrote: Thu Jun 06, 2024 1:09 pm I guess I didn't realize our saved amount was out of the ordinary.
$7M is above average.

0.7 million is above average :(
I believe the OP implied "among Bogleheads."
See, now I want to know what the average portfolio is among Bogleheads. I get the feeling that lots of folks assume most Bogleheads have 8-figure portfolios and high 6-figure jobs. But I also get the feeling that both of those are inflated compared to the reality.
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cosmos
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Location: Third rock from the Sun

Re: IRA-poor?

Post by cosmos »

ScubaHogg wrote: Thu Jun 06, 2024 6:16 pm The words “$7M” and “poor” in the same post might be a new boglehead record
This one made me laugh.
It's 106 miles to Chicago, we've got a full tank of gas, half a pack of cigarettes, it's dark... and we're wearing sunglasses. Hit it.
tibbitts
Posts: 24385
Joined: Tue Feb 27, 2007 5:50 pm

Re: IRA-poor?

Post by tibbitts »

CookieDough wrote: Mon Jun 10, 2024 11:00 pm
tibbitts wrote: Sun Jun 09, 2024 12:27 pm
nukem wrote: Sun Jun 09, 2024 12:26 pm
AceSD wrote: Thu Jun 06, 2024 3:32 pm
suevv wrote: Thu Jun 06, 2024 1:09 pm I guess I didn't realize our saved amount was out of the ordinary.
$7M is above average.

0.7 million is above average :(
I believe the OP implied "among Bogleheads."
See, now I want to know what the average portfolio is among Bogleheads. I get the feeling that lots of folks assume most Bogleheads have 8-figure portfolios and high 6-figure jobs. But I also get the feeling that both of those are inflated compared to the reality.
The Boglehead survey I looked most recently a couple of years ago is dated now so I don't think it applies. Just anecdotally my guess is there has been a large increase in average salaries and wealth here vs. several years ago. I would not go so far as to say 8-figures or "high" six-figure jobs are typical but I would guess the Boglehead demographic has shifted toward wealth considerably faster than the general population. Not the case with me, definitely.
smitcat
Posts: 13560
Joined: Mon Nov 07, 2016 9:51 am

Re: IRA-poor?

Post by smitcat »

tibbitts wrote: Tue Jun 11, 2024 9:42 am
CookieDough wrote: Mon Jun 10, 2024 11:00 pm
tibbitts wrote: Sun Jun 09, 2024 12:27 pm
nukem wrote: Sun Jun 09, 2024 12:26 pm
AceSD wrote: Thu Jun 06, 2024 3:32 pm

$7M is above average.

0.7 million is above average :(
I believe the OP implied "among Bogleheads."
See, now I want to know what the average portfolio is among Bogleheads. I get the feeling that lots of folks assume most Bogleheads have 8-figure portfolios and high 6-figure jobs. But I also get the feeling that both of those are inflated compared to the reality.
The Boglehead survey I looked most recently a couple of years ago is dated now so I don't think it applies. Just anecdotally my guess is there has been a large increase in average salaries and wealth here vs. several years ago. I would not go so far as to say 8-figures or "high" six-figure jobs are typical but I would guess the Boglehead demographic has shifted toward wealth considerably faster than the general population. Not the case with me, definitely.
Often folks who are still employed have their salaries and savings increase over the years.
Often folks who are retired have their incomes and savings reduced over the years.
I do not see these as an apples to apples comparison.
tibbitts
Posts: 24385
Joined: Tue Feb 27, 2007 5:50 pm

Re: IRA-poor?

Post by tibbitts »

smitcat wrote: Tue Jun 11, 2024 9:57 am
tibbitts wrote: Tue Jun 11, 2024 9:42 am
CookieDough wrote: Mon Jun 10, 2024 11:00 pm
tibbitts wrote: Sun Jun 09, 2024 12:27 pm
nukem wrote: Sun Jun 09, 2024 12:26 pm


0.7 million is above average :(
I believe the OP implied "among Bogleheads."
See, now I want to know what the average portfolio is among Bogleheads. I get the feeling that lots of folks assume most Bogleheads have 8-figure portfolios and high 6-figure jobs. But I also get the feeling that both of those are inflated compared to the reality.
The Boglehead survey I looked most recently a couple of years ago is dated now so I don't think it applies. Just anecdotally my guess is there has been a large increase in average salaries and wealth here vs. several years ago. I would not go so far as to say 8-figures or "high" six-figure jobs are typical but I would guess the Boglehead demographic has shifted toward wealth considerably faster than the general population. Not the case with me, definitely.
Often folks who are still employed have their salaries and savings increase over the years.
Often folks who are retired have their incomes and savings reduced over the years.
I do not see these as an apples to apples comparison.
I'm saying that regardless of their stage in life, my guess is that the average Boglehead is far wealthier (whether a combination of earning more for an employed person, having more investment income, more wealth accumulated etc.) than was the case just a few years ago, to an extent that exceeds any improvement (or not) in the general population.

So it's a matter of comparing Bogleheads at the same stage of life between several years ago and today.

I'd be curious to know whether others who've been here for at least five or ten years or so have the same impression, or not.
smitcat
Posts: 13560
Joined: Mon Nov 07, 2016 9:51 am

Re: IRA-poor?

Post by smitcat »

tibbitts wrote: Tue Jun 11, 2024 10:45 am
smitcat wrote: Tue Jun 11, 2024 9:57 am
tibbitts wrote: Tue Jun 11, 2024 9:42 am
CookieDough wrote: Mon Jun 10, 2024 11:00 pm
tibbitts wrote: Sun Jun 09, 2024 12:27 pm
I believe the OP implied "among Bogleheads."
See, now I want to know what the average portfolio is among Bogleheads. I get the feeling that lots of folks assume most Bogleheads have 8-figure portfolios and high 6-figure jobs. But I also get the feeling that both of those are inflated compared to the reality.
The Boglehead survey I looked most recently a couple of years ago is dated now so I don't think it applies. Just anecdotally my guess is there has been a large increase in average salaries and wealth here vs. several years ago. I would not go so far as to say 8-figures or "high" six-figure jobs are typical but I would guess the Boglehead demographic has shifted toward wealth considerably faster than the general population. Not the case with me, definitely.
Often folks who are still employed have their salaries and savings increase over the years.
Often folks who are retired have their incomes and savings reduced over the years.
I do not see these as an apples to apples comparison.
I'm saying that regardless of their stage in life, my guess is that the average Boglehead is far wealthier (whether a combination of earning more for an employed person, having more investment income, more wealth accumulated etc.) than was the case just a few years ago, to an extent that exceeds any improvement (or not) in the general population.

So it's a matter of comparing Bogleheads at the same stage of life between several years ago and today.

I'd be curious to know whether others who've been here for at least five or ten years or so have the same impression, or not.
Wealth change over time - whether or not they are an active Bogle at any one point in time will remain a mystery.
Based on the spending rates of many posting Bogles the wealth of their heirs will be significantly affected.
https://www.federalreserve.gov/releases ... ute/chart/
esteen
Posts: 540
Joined: Thu May 23, 2019 12:31 am

Re: IRA-poor?

Post by esteen »

avalpert1 wrote: Mon Jun 10, 2024 10:53 pm
You seem to have misunderstood that blog post (though I would quibble with the way he wrote because it lends itself to your misunderstanding. The part that would apply to this scenario, where the payoff is not based on teh 30 year amoritization schedule would be where he said (emphasis mine) "Between two mortgages, if you keep principal payments the same, they behave like simple interest loans."

The interest does not compound, you weren't just inaccurate, you were using the wrong framework for evaluating them.
Except you only keep principal payments the same if it's an interest-only mortgage.

In typical mortgages the principal payment varies between the start and end of the loan cycle, which is why mortgages are technically a simple interest loan with a compounding effect on rates and terms.

Regardless, I've said the FV formula is incorrect if you're doing a mortgage. It's not if they're taking out a typical non-mortgage (compounding) loan.

You have not addressed the main point. Show me your math where a 24% tax rate + 7% multi-year loan, such as a typical 15- or 30-year mortgage, is numerically the same as paying 31% one time. If so, I'm happy to retract my post.
This post is for entertainment or information only, and should not be construed as professional financial advice. | | "Invest your money passively and your time actively" -Michael LeBoeuf
avalpert1
Posts: 731
Joined: Sat Mar 02, 2024 6:15 pm

Re: IRA-poor?

Post by avalpert1 »

esteen wrote: Tue Jun 11, 2024 11:15 am
avalpert1 wrote: Mon Jun 10, 2024 10:53 pm
You seem to have misunderstood that blog post (though I would quibble with the way he wrote because it lends itself to your misunderstanding. The part that would apply to this scenario, where the payoff is not based on teh 30 year amoritization schedule would be where he said (emphasis mine) "Between two mortgages, if you keep principal payments the same, they behave like simple interest loans."

The interest does not compound, you weren't just inaccurate, you were using the wrong framework for evaluating them.
Except you only keep principal payments the same if it's an interest-only mortgage.
Not at all - why don't you go back to your scenarios above and tell me if principal payments can't stay the same regardless of the type of mortgage...
The monthly payment agreed to based on a 30 year amortization sets a minimum floor for principal payments, it doesn't keep you from paying a constant principal that leads to an earlier payoff.

And that still doesn't make for a 'compounding effect', naming what is going on that just mischaracterizes what is going and only serves to confuse. It is mischaracterizations like this that leads people to misunderstand the loans and say things like the interest is front-loaded.
You have not addressed the main point. Show me your math where a 24% tax rate + 7% multi-year loan, such as a typical 15- or 30-year mortgage, is numerically the same as paying 31% one time. If so, I'm happy to retract my post.
Of course you can't simply add an annual interest rate on a changing principal to the tax rate... but now you redo your analysis accounting for the earnings on that invested capital and see how that impacts the decision...
CookieDough
Posts: 242
Joined: Sun Dec 25, 2022 1:07 pm

Re: IRA-poor?

Post by CookieDough »

tibbitts wrote: Tue Jun 11, 2024 9:42 am
CookieDough wrote: Mon Jun 10, 2024 11:00 pm
tibbitts wrote: Sun Jun 09, 2024 12:27 pm
nukem wrote: Sun Jun 09, 2024 12:26 pm
AceSD wrote: Thu Jun 06, 2024 3:32 pm

$7M is above average.

0.7 million is above average :(
I believe the OP implied "among Bogleheads."
See, now I want to know what the average portfolio is among Bogleheads. I get the feeling that lots of folks assume most Bogleheads have 8-figure portfolios and high 6-figure jobs. But I also get the feeling that both of those are inflated compared to the reality.
The Boglehead survey I looked most recently a couple of years ago is dated now so I don't think it applies. Just anecdotally my guess is there has been a large increase in average salaries and wealth here vs. several years ago. I would not go so far as to say 8-figures or "high" six-figure jobs are typical but I would guess the Boglehead demographic has shifted toward wealth considerably faster than the general population. Not the case with me, definitely.
What survey?
tibbitts
Posts: 24385
Joined: Tue Feb 27, 2007 5:50 pm

Re: IRA-poor?

Post by tibbitts »

CookieDough wrote: Tue Jun 11, 2024 12:18 pm
tibbitts wrote: Tue Jun 11, 2024 9:42 am
CookieDough wrote: Mon Jun 10, 2024 11:00 pm
tibbitts wrote: Sun Jun 09, 2024 12:27 pm
nukem wrote: Sun Jun 09, 2024 12:26 pm


0.7 million is above average :(
I believe the OP implied "among Bogleheads."
See, now I want to know what the average portfolio is among Bogleheads. I get the feeling that lots of folks assume most Bogleheads have 8-figure portfolios and high 6-figure jobs. But I also get the feeling that both of those are inflated compared to the reality.
The Boglehead survey I looked most recently a couple of years ago is dated now so I don't think it applies. Just anecdotally my guess is there has been a large increase in average salaries and wealth here vs. several years ago. I would not go so far as to say 8-figures or "high" six-figure jobs are typical but I would guess the Boglehead demographic has shifted toward wealth considerably faster than the general population. Not the case with me, definitely.
What survey?
viewtopic.php?t=154364
Kruser64
Posts: 151
Joined: Wed Feb 20, 2019 5:41 pm

Re: IRA-poor?

Post by Kruser64 »

gtrplayer wrote: Fri Jun 07, 2024 5:09 pm
a.s.r wrote: Fri Jun 07, 2024 2:13 pm
gtrplayer wrote: Fri Jun 07, 2024 1:50 pm
MoreTaxes wrote: Fri Jun 07, 2024 1:40 am
123 wrote: Thu Jun 06, 2024 12:49 pm Diligent savers can often accumulate higher after-tax level of assets by avoiding tax favored accounts (except for Roth). Tax deferred accounts rob you of the capital gains tax treatment of stock investments since all the gains get taxed as regular income. And taxable accounts don't have RMD issues. However few people will have the discipline to grow and maintain sizeable taxable accounts. Just about everyone succumbs to the siren call of "save money on taxes" by contributing to tax-deferred retirement accounts.
I'm sorry, but you have it exactly backwards. Tax-deferred accounts don't rob you of the capital gains treatment of stock investments. They let you get away without paying capital gains tax on the gains at all. The income tax has nothing to do with that -- whether you use taxable account or a tax-deferred account, you are eventually paying the income tax, and that will be the same fraction of the account whether you do it on the front end or the back (assuming your tax bracket stays the same before and after, of course). Only the tax-deferred account lets you avoid the capital gains tax, though.
I think he’s missing that because the income taxes wasn’t paid upfront, there’s no loss when it’s paid now. Yes, you’re paying the tax but you’re also paying it in a taxable account, too… you just pay it upfront. But then you also pay capital gains.

The tax on a distribution from a tax deferred account is really the tax on the income you didn’t pay upfront. It’s not an extra income tax.
No, 123 can be right. There is a lot hidden in the unrealistic assumption that tax bracket stays the same in this logic. Here, the original poster wants to take a large withdrawal out of an IRA to buy a house and will need to pay at the maximum tax bracket to do so. It may well have been cheaper to pay income taxes 20 years ago in a significantly lower bracket and then capital gains taxes now.

For most people, in most situations, IRAs are better. But by the time you get to $7MM of assets it makes sense to have some money in brokerage accounts too, if you can. Too late for this poster, unfortunately.
It’s possible but if you’ve had significant gains, you also have to factor in what gains would have been lost by not investing that extra 20% a year in tax savings originally. I agree there could be limited circumstances where it does t come out ahead, but to me, taxable only makes sense when you want money prior to 59 1/2.
I get what you are saying but there is an estate angle at play here to at least think about for some. Secure 2.0 with it's 10 year forced withdraw rule has the effect of pushing tax rates on traditional IRA's up, at least in general. Not to mention all the things that are subject to phase-in/phase-out along with higher magi - cap gains tax rates, irmaa, aca ptc, niit, etc, etc. Compare that to step up in basis for taxable brokerage. That 10 year withdraw rule has the potential to bite big.
CookieDough
Posts: 242
Joined: Sun Dec 25, 2022 1:07 pm

Re: IRA-poor?

Post by CookieDough »

tibbitts wrote: Tue Jun 11, 2024 12:28 pm
CookieDough wrote: Tue Jun 11, 2024 12:18 pm
tibbitts wrote: Tue Jun 11, 2024 9:42 am
CookieDough wrote: Mon Jun 10, 2024 11:00 pm
tibbitts wrote: Sun Jun 09, 2024 12:27 pm
I believe the OP implied "among Bogleheads."
See, now I want to know what the average portfolio is among Bogleheads. I get the feeling that lots of folks assume most Bogleheads have 8-figure portfolios and high 6-figure jobs. But I also get the feeling that both of those are inflated compared to the reality.
The Boglehead survey I looked most recently a couple of years ago is dated now so I don't think it applies. Just anecdotally my guess is there has been a large increase in average salaries and wealth here vs. several years ago. I would not go so far as to say 8-figures or "high" six-figure jobs are typical but I would guess the Boglehead demographic has shifted toward wealth considerably faster than the general population. Not the case with me, definitely.
What survey?
viewtopic.php?t=154364
Thanks!
Tundrama
Posts: 276
Joined: Thu Mar 11, 2021 9:26 am

Re: IRA-poor?

Post by Tundrama »

suevv wrote: Thu Jun 06, 2024 12:44 pm Thanks for the thoughts, folks.

bradpevans - $7M in retirement accounts is a combo of following Bob Brinker's "max out retirement accounts" from early days of careers, plus husband maxing out a SEP which has always had higher contribution limits plus long-term growth in the market. It was all just a year-over-year build.

Also - we are both still working, and our combined income puts us in a high tax bracket in fed and California. Both looking to retire in 2-5 year window. And we'd like to be able to pull the trigger on the second home purchase in the same time-frame.

John221122 - we are just coming to terms with your point that we only live once. We have just spent so long not spending, saving every penny. We need to look up and realize how blessed we are, and how much we need to change our ways. It's surprising how hard it is to do!
….Bob Brinker was perhaps my all time favorite money guy to listen to. Loved his show!
MoreTaxes
Posts: 137
Joined: Mon Feb 20, 2017 1:36 am

Re: IRA-poor?

Post by MoreTaxes »

avalpert1 wrote: Sun Jun 09, 2024 10:30 am
986racer wrote: Sun Jun 09, 2024 7:55 am
avalpert1 wrote: Sat Jun 08, 2024 8:39 pm Since $7m in your early 60s in total investments would put you in the top 5% of households the notion that it is 'a bit low' for the norm in tax-deferred accounts alone (even on this board) is kind of ridiculous.
I did the math and you are both going to be astonished.
I am not astonished... that 'the math' of someone who had a perfectly formed life through a very profitable investing period would end up with a lot of money isn't surprising in the least... But the reality is that most people don't have that life, which is why the reality (and reality always beats math) is that you would be in the top 5% of folks in their 60s if you had lived that mathematical life and thus would indeed be ridiculous (and a tad oblivious to people around you) to suggest your outcome is 'a bit low' for the norm.
You keep misstating what was said and then calling your mischaracterization ridiculous. No one said anything about the norm or the top 5%. The actual statement about a "bit low" was:

"If a couple has been maxing out the IRA/401k space since age 22, I think 7MM might actually be a bit low by mid 60s"

That is absolutely true, and the math bears out that even a single person could get there, to say nothing of the OP which is in a married couple. I'm surprised anyone would ask for the math on this. This whole board is dedicated to following this sort of approach, and back tests are posted regularly. You don't have to be be investing perfectly or anywhere close to perfectly to get to $7M in your 60s, if you have been maxing out your retirement accounts since 22.
986racer
Posts: 531
Joined: Thu Aug 11, 2016 10:09 am

Re: IRA-poor?

Post by 986racer »

MoreTaxes wrote: Wed Jun 12, 2024 4:57 pm
"If a couple has been maxing out the IRA/401k space since age 22, I think 7MM might actually be a bit low by mid 60s"

That is absolutely true, and the math bears out that even a single person could get there, to say nothing of the OP which is in a married couple. I'm surprised anyone would ask for the math on this. This whole board is dedicated to following this sort of approach, and back tests are posted regularly. You don't have to be be investing perfectly or anywhere close to perfectly to get to $7M in your 60s, if you have been maxing out your retirement accounts since 22.
Actually, what astonished me is that if a person used the IRA savings and nothing else, that grew to about 1.6MM. Considering that many of the beginning years had a cap of 2k, that’s a lot of compounding!
avalpert1
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Joined: Sat Mar 02, 2024 6:15 pm

Re: IRA-poor?

Post by avalpert1 »

MoreTaxes wrote: Wed Jun 12, 2024 4:57 pm
avalpert1 wrote: Sun Jun 09, 2024 10:30 am
986racer wrote: Sun Jun 09, 2024 7:55 am
avalpert1 wrote: Sat Jun 08, 2024 8:39 pm Since $7m in your early 60s in total investments would put you in the top 5% of households the notion that it is 'a bit low' for the norm in tax-deferred accounts alone (even on this board) is kind of ridiculous.
I did the math and you are both going to be astonished.
I am not astonished... that 'the math' of someone who had a perfectly formed life through a very profitable investing period would end up with a lot of money isn't surprising in the least... But the reality is that most people don't have that life, which is why the reality (and reality always beats math) is that you would be in the top 5% of folks in their 60s if you had lived that mathematical life and thus would indeed be ridiculous (and a tad oblivious to people around you) to suggest your outcome is 'a bit low' for the norm.
You keep misstating what was said and then calling your mischaracterization ridiculous. No one said anything about the norm or the top 5%. The actual statement about a "bit low" was:

"If a couple has been maxing out the IRA/401k space since age 22, I think 7MM might actually be a bit low by mid 60s"
I'm not misstating it, I'm just not letting the 'if' carry as much weight as you want... That is is a far tail outcome tells me those 'ifs' aren't all that common. It has nothing to do with hypothetical math on hypothetical people's hypothetical lives.
986racer
Posts: 531
Joined: Thu Aug 11, 2016 10:09 am

Re: IRA-poor?

Post by 986racer »

avalpert1 wrote: Wed Jun 12, 2024 7:43 pm
MoreTaxes wrote: Wed Jun 12, 2024 4:57 pm
avalpert1 wrote: Sun Jun 09, 2024 10:30 am
986racer wrote: Sun Jun 09, 2024 7:55 am
avalpert1 wrote: Sat Jun 08, 2024 8:39 pm Since $7m in your early 60s in total investments would put you in the top 5% of households the notion that it is 'a bit low' for the norm in tax-deferred accounts alone (even on this board) is kind of ridiculous.
I did the math and you are both going to be astonished.
I am not astonished... that 'the math' of someone who had a perfectly formed life through a very profitable investing period would end up with a lot of money isn't surprising in the least... But the reality is that most people don't have that life, which is why the reality (and reality always beats math) is that you would be in the top 5% of folks in their 60s if you had lived that mathematical life and thus would indeed be ridiculous (and a tad oblivious to people around you) to suggest your outcome is 'a bit low' for the norm.
You keep misstating what was said and then calling your mischaracterization ridiculous. No one said anything about the norm or the top 5%. The actual statement about a "bit low" was:

"If a couple has been maxing out the IRA/401k space since age 22, I think 7MM might actually be a bit low by mid 60s"
I'm not misstating it, I'm just not letting the 'if' carry as much weight as you want... That is is a far tail outcome tells me those 'ifs' aren't all that common. It has nothing to do with hypothetical math on hypothetical people's hypothetical lives.
It feels like you are trying to argue some other agenda. I don't think I could be much more clear with my statement and don't think that I implied that everybody should have that much in their accounts. And, if I did imply that, I certainly didn't intend to.

It's about the same as if I argued that if you go to the bank 1000 times and deposit $1000 each time, you would have $1MM in the bank. You are then trying to say that the statement is ridiculous because most people don't have 1MM in the bank. Yes, both statements are true, but other than the amount involved, they have little to do with each other.

On your point about this being "hypothetical". In some sense, I agree and that's exactly why I provided the detail that I did. Let's use the example of the OP... The OP said that they didn't take advantage of Backdoor IRAs (I'll assume they also didn't do traditional IRAs) and therefore mainly used 401Ks. They also said they started at age 27 and were either maxing out the contributions or close to it. If you look at the table I provided, putting in the max at age 27 and letting it grow would give a balance of about 3.8MM each. Put those together and that's 7.6MM. Subtract out some money because early 401k plans often had expensive fees with them, and the 7MM balance that they currently have seems about on target (albeit a "bit low" compared to the perfect hypothetical growth). In this case, the likely expensive early 401k plans cost them at least a few hundred thousand (and probably more since the spouse contributed more than the normal 401k max).

By providing the hypothetical perfect growth, someone can take a look at their actual growth to get a sense of how much the fees from bad 401k plans robbed them of that growth. Or they can see how sub-optimal choices in the 401k plan (e.g., only having access to actively managed funds) robbed them of growth.

Yes, most people didn't contribute the max as soon as they possibly could. Those people can plug in whatever numbers that they did contribute.
MoreTaxes
Posts: 137
Joined: Mon Feb 20, 2017 1:36 am

Re: IRA-poor?

Post by MoreTaxes »

avalpert1 wrote: Wed Jun 12, 2024 7:43 pm
MoreTaxes wrote: Wed Jun 12, 2024 4:57 pm You keep misstating what was said and then calling your mischaracterization ridiculous. No one said anything about the norm or the top 5%. The actual statement about a "bit low" was:

"If a couple has been maxing out the IRA/401k space since age 22, I think 7MM might actually be a bit low by mid 60s"
I'm not misstating it, I'm just not letting the 'if' carry as much weight as you want... That is is a far tail outcome tells me those 'ifs' aren't all that common. It has nothing to do with hypothetical math on hypothetical people's hypothetical lives.
You said the notion that $7M is 'a bit low' for the norm in tax-deferred accounts is ridiculous. What you are calling ridiculous is something no one ever said.
It's okay to just admit you made a mistake. We all make them. Not a big deal.

It is not hypothetical, either. The original poster in fact has the $7M.
smitcat
Posts: 13560
Joined: Mon Nov 07, 2016 9:51 am

Re: IRA-poor?

Post by smitcat »

MoreTaxes wrote: Fri Jun 14, 2024 1:12 am
avalpert1 wrote: Wed Jun 12, 2024 7:43 pm
MoreTaxes wrote: Wed Jun 12, 2024 4:57 pm You keep misstating what was said and then calling your mischaracterization ridiculous. No one said anything about the norm or the top 5%. The actual statement about a "bit low" was:

"If a couple has been maxing out the IRA/401k space since age 22, I think 7MM might actually be a bit low by mid 60s"
I'm not misstating it, I'm just not letting the 'if' carry as much weight as you want... That is is a far tail outcome tells me those 'ifs' aren't all that common. It has nothing to do with hypothetical math on hypothetical people's hypothetical lives.
You said the notion that $7M is 'a bit low' for the norm in tax-deferred accounts is ridiculous. What you are calling ridiculous is something no one ever said.
It's okay to just admit you made a mistake. We all make them. Not a big deal.

It is not hypothetical, either. The original poster in fact has the $7M.
The original poster is a couple - based on the math in this thread (thanks to 986racer) they could have twice that $7M if the maxed out tax deferred.
That same math says they could have over $23M if they had access to a SEP as well - which they did have.
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