for Fin Expert

28 right now, 66 retire, pass away at 88. 7% on accumulation, 4% on retirement. #3,500 contribution every year. 100,000 annual income after retirement. Current plan value 50,000.

Retirement plan

First of all I want to thank you, Mr. and Mrs. Kimball, for all your questions about retirement planning and now we shall look deeper and do some research that will find the best deals for you guys. I am very glad that you came to me right after both of you got the first job! Many people won’t start thinking about retirement planning until much later; nevertheless, start thinking earlier will be much more beneficial for everyone. I saw the numbers you have given me and I see that you desire a total annual income of $100,000 once retirement comes. Before getting into more details about the plans that I specifically selected for you guys, I have to be honest with you and tell you that saving money is tough, but it is not impossible. We will have to look carefully at each plan and decide which one will be the most valuable choice for you two. The decisions are yours, but I sincerely hope that you consider my recommendations when making your final decision.

At the moment I have collected 5 different scenarios that I would like to explain to you guys as we go along. In each scenario, both of you guys are starting to make contributions at the age of 28 and a planned retirement age at 66. Starting at a younger age allows you to make smaller contributions in a longer period of time, which also means more annual income after the age 66. Begin contributing to a traditional IRA/401k or a ROTH IRA at 28 will give you 38 years. In the following situations, we are putting an actuarial death of age 88 for the both of you. Also, with all the situations that I will explain thoroughly to you, the rate of return in your accumulation phase is 7% and 4% rate of return in the retirement stage. You are probably confused about some of the terms here, no problem; let me explain them to you. The accumulation stage is simply just describing the time that you have to make contributions into your IRA/401k. In other words, 38 years. Therefore the same situation for you guys when you reach the retirement stage.

One last thing before we jump right into the available choices that I tailored for you tow. I need to inform you on the difference between regular IRA/401k and ROTH IRA/401k. What is a ROTH IRA? It is a special retirement account where you pay taxed on money going into your account and then future withdrawals are tax-free. ROTH IRAs make the most sense if you expect your tax rate to be higher during retirement than your current rate. To sum up, your annual contributions will be taxed at the current rate of return, but once you are 66, you won’t ever have to worry about your annual income getting taxed again. With all that being said, I am sure you have plenty to think of and discuss with each other. This could be very tricky because tax rates are never really steady and you kind of have to make a decision and also a bet at the same time. The tax rate might look very unpleasant at the moment but you never know what will happen with the rates in the future. Finally, I am going to explain to you guys my best recommendations.

1st plan

In the first plan for a traditional IRA/401, I set up your accumulation tax rate to 30% and the retirement tax rate to 20%. In other words, if you contribute $3,500 a year, with a 7% rate of return, the future value would be worth about $603,964. As attracting as it sounds, after taxes are taken out, the amount you are putting in your pocket won’t be too pleasant. If you were to choose the ROTH IRA plan for this offer, of the $3,500 you contribute each year, 30% of that amount will be taxed and you will have only $2,450 that is going to the retirement stage.