My Retirement Plan

Discussion in '401k, IRA and Retirement' started by coloradogy, Jul 30, 2015.

  1. coloradogy

    coloradogy Active Member

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    Sorry in advance that this is really long winded. I have retirement plan that I've shared with several people though most poo-poo it. Let me know your thoughts. Information in advance, I'm married and we plan to have a couple kids, not more than three. I already have a pretty sizable 401K, a Roth IRA, and I have a share purchase plan through my company. I have not included these assets in my retirement scenario for conservancy. I'm also not going to use a draw down retirement plan. I will live off of only qualified dividends from investments.

    Required money in retirement: $4,500 per month
    Status: Mortgage and all cars paid off
    College Savings: $25,000 in the S&P 500 index for each kid by the time they are 8 years old (let it grow from there)

    Based on the required monthly needs, I need an income of $54,000 a year. My current stocks have an average dividend of 3%. If the yield continues, I'll need $1.8 million to provide the required $54,000. On top of that I'll need $75,000 for the kids. I can already see your question, what about taxes. As I'm planning to only have qualified dividends so the first $72,500 of taxable income will is taxed at 0%--at least that was the case in 2014. Also, I can see the question, what about health insurance. I have two answers, one is probably the moral option, the other is the freeloader answer. For the moral approach, I did a quick health insurance quote for a family of 5 with three kids less than 15 years old. I put an extremely high deductible ($10,000) so most will be out of pocket but we'll still be covered for catastrophic events. The monthly payment was $950 leaving me with $3,550 of disposable income per month--probably tight but my investments should grow over time as I'm not selling them to cover my living costs. The second option is the Affordable Care Act. As I mentioned before, my taxable income will be $0; thus, in all their wisdom, the government has given me a chance to qualify for ACA insurance at a lower than expected cost even though I'd be a millionaire.

    Things I've miss but hoping my conservancy will mitigate: inflation, tax changes, big ticket purchases, etc.
     
  2. Sunflogun

    Sunflogun Well-Known Member

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    Thanks for sharing this here colorado. I think it's pretty great that we have a retirement plan, after working for so many years it's important that we can enjoy a safe retirement.
     
  3. Corzhens

    Corzhens Senior Investor

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    That's a mighty good computation you have. I'd say it's well thought of and if things go right then you are on your way to a good retirement plan. However, it looks like you are still young but you already seem to have your focus on retirement. My question is this - how are you sure that you can reach your retirement? I think it is better for you to enjoy life. With the income you are getting and will be getting, it is wiser to spend it in ways that will make you and your family happy. Life is short and let's make the best of it.
     
  4. Penny

    Penny Well-Known Member

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    Keep in mind that if your kids want to be something like a veterinarian, the average debt at graduation is $115,000. I am not sure what your target for those education plans is but it might be a bit low if they are planning to go into a profession that requires postgraduate training.

    When you talk about health insurance I can't really comment, but I would run the ACA numbers to be sure whether you qualify. ACA coverage si still commercial coverage so I don't think it is cheating to use it but I am having trouble understanding how someone with triple-redundant retirement plans has no income as counted by ACA.

    Keep in mind ACA is not based in taxable income per se but adjusted gross income (MAGI). This *includes*foreign income *and* tax-exempt interest. So just the plans you mention having mean you have non-zero MAGI income as far as I understand it.
     
    Last edited: Jul 30, 2015
  5. L_B

    L_B Well-Known Member

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    Thanks for sharing your retirement plan with us. Sounds like you have thought it out and really crunched the numbers to come with a plan that will work for you and your family. Since you are still young you are well on your way. You have to prepare for all the unexpected expenses that will come with having children. Great job though.
     
  6. crimsonghost747

    crimsonghost747 Senior Investor

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    It's good to see that you have thought about this and made a plan for yourself. Now to the more realistic question, is it possible for you to scrap together a $1.8 million portfolio before you retire? If the answer is yes then it looks like you've got nothing to worry about.
     
  7. ay989

    ay989 New Member

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    Good but..

    You have a lot of thought here, but I did want to point out a few things.

    You didn't give your age or salary or years until 65, but $54,000 is pretty modest, especially for someone that has the ability to save $1.8m. I'd suggest you carefully track spending now and make sure you can do it. Get a program like YNAB. I'm preretired, no mortgage, no loans, and I would find that impossible.

    Second, living off dividends is a great dream, but dividends do change with economic conditions so research that a bit. I'd recommend to rely less on just dividends, and diversify a bit more, and plan on spending down the principle.

    Finally, when you say that when your dividend is $72,000 or below that you have no taxable income, that just isn't true. Currently its true that you would not have to pay federal taxes on this dividend income, but its no true you have no income. Affordable Care subsidy's are not based on your federal taxable income but rather your full income, so you may get some subsidy based on family size, but its NOT free. Then there is a $12,000 or so deductible for a family on this plan. Put that in your budget. Also, your Social Security could be partially taxable because again they use full income, NOT federally taxable income to calculate this. Tax free muni bond interest DOES count. And also, the tax-free dividend interest is true today, but that can be changed at any time and may be. So you may be paying more taxes in the future than you think.

    Some things to think about.
     
  8. Corzhens

    Corzhens Senior Investor

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    I also believe that relying on dividends is both bad and good. Good in a sense that you have a fixed income of sorts. Bad because the value of money is ever a-changing. There was this humorous story where a man was preserved in suspended animation and was wakened in the year 2050. The computer beside him said his bank account has 5 million. He jumped with joy, realizing that he is rich. And then the computer sounded again to say that the inquiry cost him 1 million. It's supposed to be funny but it has a semblance of reality that the cost of money will eat your fortunte.
     
  9. ay989

    ay989 New Member

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    Very true. The problem I see is that high dividend stocks are typically large cap US companies. Not a bad group overall but also not very diversified. Research shows that over time a well diversified portfolio will outperform high dividend stocks by several percentage points. For example small stocks usually produce a higher return even including the dividends. No small stocks typically don't pay dividends, but that doesn't matter its total return that counts. Diversify and use the 4% rule, and that should get through 30 years.
     
  10. baudwalk

    baudwalk Senior Investor

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