For those that must save for their own, how much money will you need for retirement?

How are your public schools paid for in Maine?

State and Federal money covers a bit.

For folks who live in the citys, their property tax bill includes a seperate line "school tax". My tax bill is sent to us by the state auditors office and has no such entry.

Since our township is 'un-organized' we have no schools, so we can enroll our children in any school in any of the surrounding towns' schools. To those schools, our children are labeled 'tuition students'.

Each school has a set budget worked out by the town auditors, but when a 'tuition student' shows up then the school gets extra money from the state, so it works out that the schools really like tuition students, and we have seen them offering slightly more services to the tuition students than they do to the townie children.

Our teen is slightly handicapped, he has been tested but he is just above the cut-off for special ed and tutors. He could be 'mainstreamed' but he can not keep up with the math or english. However since he is a tuition student, the school has included him into their special ed / tutoring classroom. So while he does have math and english classes, he also has that one classroom each day, where he is tutored on those subjects. He gets his homework done there and that teacher reviews his papers for completeness before they are handed in.

I do not understand this statement. With a traditional 401(k), you pay no federal income tax on the contributions, so the current value of the tax-shelter is equal to the relevant marginal tax rate you face.

401(k) contributions are tax-deferred, so you pay tax on distributions, which are treated as ordinary income. The tax advantage is extent to which tax-rates on your ordinary income in retirement vary from long-term capital gains rates.

Starting last year, you could contribute to Roth 401(k) plans, which are on an after-tax basis, but the distributions are tax-free.

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"Farming looks mighty easy when your plow is a pencil and you're a thousand miles from the cornfield." Dwight D. Eisenhower

For purposes of these numbers, are we presupposing a home owned free and clear, and the absence of debt? Further, I'm wondering whether it's being assumed that the principal of our retirement savings will be spent down without regard to preserving something for our children. Seems to me these factors would make a huge difference in the amount needed for retirement, but it's not clear from the numbers being bandied about here what's being assumed.

Good question. I would assume that most are striving for a free and clear house and land, but that is an assumption. I do know some that are retired and have a mortgage. I have no reason to worry about leaving money to my heirs, If possible I would like to bounce my last check, unfortunately this goes back to knowing your expiration date, that would make all of this a lot simpler.

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"Education is the ability to listen to almost anything without losing your temper or your self confidence"
Robert Frost

Right exactly.

The tax benefit is only on the investment. It does not provide any sheltering of your remaining income.

Another issue with traditional 401K plans is that you pay the current tax rate when you withdraw, not when put in money. Since federal taxes are at multi-decade lows, tax rates have no place to move up! I suspect that as gov't fiscal stablity goes south in a few years that taxes on 401K withdraws will be substantially higher. It would be wise to maxout a Roth IRA fund before putting a dime into a 401K plan.

The problem is that most people make very little and therefore a "normal" amount of taxes to a working man is a lot to a retired person. Maine is what, 40% retired or 60%? something like that. A lot of people's budget was for the taxes before they went up. Not the new taxes.
Or if you live in Aroostook county and raise potatoes and something happens to the potato market, you still have to pay your gobernment taxes. No matter what you have.
Or you live in Portland and work at Burger King and rent and your rent has just gone up. Where will that come from. Your second job, thats where. Then you listen when people say taxes are high.
Sorry, I got started.

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A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.
Ralph Waldo Emerson (1803–1882)

Not if your employers matches your contributions--then you would be giving up free money

'most people make very little' - here I had thought that the average Joe makes an average income.

But if the average guy's taxes [which you said are very little] is a lot to a retired guy, um, oh, um, what?

You feel that folk go into retirement planning their future budget based on their working income? I do not think that would be smart.

I do understand that sometimes taxes do go up. But from what I have seen thus far, Maine taxes are so low to begin with, they could go up.

As for a potato farmer and what happens during a bad season: well if he sells nothing, than he has no income to be taxed, thus he pays no income taxes. As for property taxes, well at $1 an acre, if he has 500 acres, then he pays $500.

I have a building on a 1/4 acre lot down in Ct that costs me $3500/year property taxes. $500 is very low.

Your other example, well when you live in the big city, that is just "life in the big city." You chose to live high on the hog, and you get to pay for it.

A good point.

Each form of investment vehicle has it's advantages.

As I have stated many times, when you can invest usign other folk's money that is much better than having to use your own money.

Most employer match is a small fraction of the money you put it. Most are around 10%. For every dollar you put in they match it with ten cents. The match is usually equivlent to the amount of money they would save in SS/Medicare taxes since businesses must match your SS and Medicare contributions.

Also businesses attach a catch, such as you need to remain with the firm for a decade in order for the match to be fully invested.

However there are now 401K roth plans, where the taxes are paid at the current tax rates and your employeer can still contribute a match to this plan. IMHO, this would be your best option if its available from your employer.

Well, its not really someone else money, its actually the companies savings from your SS and Medicare contributions. For every taxable dollar you earn, you contribute 6.2% in SS + 1.45% in medicare. By law, employers match this amount. Now when you put money it a 401K its deduced from your taxes, and your SS+medicare contributions fall. So does your employer. Some employers use their contributions to SS + medicare as a match towards your 401K.

Since your monthly SS income is tied to your contributions (based upon the last seven years (IIRC)) your reduced contributions might reduce SS checks when you retire. This is where a good financial planner comes in handy, since SS payouts are usually far more larged than the sum of your contributions. It may be wise to check to make sure your reduced SS contributions (becase of your 401K/IRA/Roth contributions) reduces your SS paycheck when your retire.

That said, I believe that SS will be insolvant in less than a decade. Medicare is already insolvant because outlays exceed revenues and the gap is made up by the current SS revenue surplus. Starting in 2008, the SS revenue surplus begins to decline as the first batch of boomers are elegable for retirement. Every year beyond 2007 the surplus shrinks and sometime between 2012 and 2014 it goes into deficit spending because the outlays will exceed revenues. On top of that the gov't will face some steep finance challeges as the current SS surplus supports Medicare as well as general gov't expenses. When the surplus starts to decline, budget deficits start to rise again. So the gov't faces a two edge sword, one edge is the increasing entitlement outlays and the other edge is the declining revenues to fund non-entitlement programs. Whether or not the gov't continues to fully fund SS and medicare in a decade from now is a gamble.

A few months ago one of the fed governors (I think Don Kohn) released a report on future US gov't finances and stated the US will be bankrupt in a few years unless radical changes were made soon. David Walker, the US Comptroller also went on a US speaking tour to try to drum up support for changes (namely increasing the minimum retirement to about 72). I don't see that happening since not a single policitian is going to discuss them until the after the crisis begins. They all know about the issues, and choose to ignore them in order to avoid public backlash so they don't get booted out of office or worse.

Ouch, I was not aware of that.



So you are back to planning time.

‘pay’ taxes now: either pay the taxes on it or have some other tax-shelter which will cover it and allow you to go tax-free.

Or

‘pay’ taxes later, hoping that either tax brackets will be lower, or that your tax situation will be better, or that at that time you will have sufficient sheltering to fully shelter that income from taxes.



Folks often assume that their tax situation will be better once they are on pension. Which is a rather passive approach, I hope it works.



I found that when I retired, my salary certainly dropped. But so did many of my business expenses, which I had been using, to keep most of my taxable income sheltered.

The rest of my sheltering is still in place, so my pension does fit underneath it nicely.

Today in my retirement, if I suddenly had greater taxable income, I would likely today be paying taxes.

Not all 401k match money requires a vesting period but yes some do, mine is 5 years to get it all. The reducing your income with the pre tax deduction of the 401k is correct but SS has now adopted a bigger picture than 7 or 10 last years of your working, They now look at 25 or 30 years in the formula, can't remember but we've discussed it before and it's on the SS site. I don't put all of mine in my 401k, I use a Roth IRA to have already taxed money put away, probaly should look at Roth 401k. The less tax with lower income can possibly be a flasehood as tax rates will rise and when you're retired your deductions will drop.

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"Education is the ability to listen to almost anything without losing your temper or your self confidence"
Robert Frost

I just applied for social security and the man told me they figure your amount based on the highest 35 years that you worked.
I believe you still have to work a minimum of 10 years (40 quarters) to qualify.

Another point: When you get social security, there is an automatic $93 deduction for part B of Medicare. On top of that you will probably want supplemental insurance because Medicare is covering less and less. That will cost a minimum of about $200, but probably more. So we are already taking $300 off the top of social security. Not a pretty picture.

Thats true. Although since the taxes are deferred, there is nothing to stop washington from changing the rules. Consider the dire straits federal finances are today, I can't see how they won't change the rules.

It would be a lot harder for washington to change the rules with a Roth, since you already paid taxes on your savings.




It Certaintly works great if you are already retired. However when the masses of boomer start to retire it will be a completely different game with different rules.

I believe its possible to roll over 401K and tax-deferred IRAs into a Roth if your income is below ($75K I think) without a penalty. This might be a option for some folks, Perhaps converting just a portion of thier retirement savings into a Roth. I would recommend discussing this with an accountant or financial planner.


FWIW: I stopped funding my retirement plans back in 2001, when Federal taxes dropped to 30+ year lows. I still save money, but I pay the taxes upfront. I would invest in Roth, except that the current rules prevent me from saving in a Roth (my age and income bracket). I really don't think its worth saving money for retirement since their are too many pending issues that make long term investments a complete gamble. I now perfer to invest in nice piece of rural property and work towards self-sufficiency.

Techguy- I am really at the tail end of the boomers. I was born in '59.

In previous discussion on this topic I believe most came up with a figure of $250 per person for medicare,prescription drug plan and supplemental insurance.

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"Education is the ability to listen to almost anything without losing your temper or your self confidence"
Robert Frost

You are not getting it. I said taxes WERE low. They did go up. People are lost. Listen to the news.... Mainers seem to be unable of taking care of themselves....at least the ones on the news. Every increase is death to them. Of course, if we did not have unlimited welfare everyones taxes would be lower.
More when I have had some sleep.

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A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.
Ralph Waldo Emerson (1803–1882)