@Lauren

Have you done calculations to see if investing 100% in case is a good idea for you? While cash doesn’t drop in nominal value- it rarely earns more than inflation and thus may lose real value over time. If you don’t take any investment risk, you may not be able to retire unless you have a huge amount of savings or some other pension plan.

Is it worth moving money into an IRA? Since you are over 50 you can move up to $12,000 year into the Roth IRA. We don’t know what rates will be in 10 or 20 years but let’s say you got 3% interest over the next 10 years adding 12,000 each year then you would have 141,693.55 Earning and withdrawing 3% interest on that money every year after that means you get $4250 tax free each year. How much that is worth depends on your tax bracket, but even at a rate of 15% that would be $637/year.

You could also effectively move up to $22,500 from your saving account to a 401K or Roth 401K over the course of the year by contributing a large % of your salary and living off savings.

If you have a Roth 401K plan available at work you could contribute up to $22,500/year providing even more tax free income.

Even if you don’t have a Roth 401K available you could contribute up to $22,500/year into a traditional 401K. The traditional 401K contributions would reduce your current taxable income, but any money taken out will eventually be taxed as income. The advantage is that while the money is in the account the growth isn’t taxed. During retirement you could leave the money in the 401K to earn tax free interest until you have spent all of the money that isn’t tax sheltered. You could also take out just enough money from the 401K each year to stay in the lowest tax bracket minimizing taxes over all of the years you withdraw from the 401K. A rough estimate would be that you might save around $1K of tax savings each year by using a 401K assuming you have enough savings to move $22,500 each year for another 10 years.

Together these tax strategies should save on the order of $100/month… it isn’t a gigantic number but it certainly could improve the quality of your retirement. I would say it is worth some work now to realize these savings.

If I were in your situation I would spend some money on some retirement planning advise – I would look for a fee only financial planner ideally one that is also a CPA and have them run some calculations based on your current taxes as the maximum tax savings may come by contributing less than the full $22,500/year. I would also ask them evaluate your current retirement planning to see if your savings are reasonable, you may find that you are in grave danger of running out of money in retirement. The sooner you find out the more options you will have.

-Rick Francis

]]>Q9: It’s very interesting that Trent thinks it’s “pretty solid” to save just 12% of ONE partner’s salary, when just yesterday he was going on about how no amount of retirement savings is ever enough.

Andre, don’t worry about being priced out of the housing market forever. Prices and interest rates cannot sustainably rise to the point where nobody can afford them.

Coupon coupon coupon coupon coupon.

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