In my situation I learned over time how to manage my finances. A few years back I decided 2 metrics are essential, annual cashflow and net assets. The purpose of cashflow is to make sure income exceeds expenses. The purpose of net assets is to make sure I am making long term progress. In retirement checking net assets is to make sure I don't run out of money. This enabled me to stop chasing income and return percent. Instead I focus on how much I invest and how long I stay invested without interrupting the compound interest effect. I enjoy spreadsheets so I use them to manually calculate both net assets and annual cashflow. It's good for my brain. I tend to calculate net assets when the market is up and not when the market is down except I also always calculate my net assets on December 31. I have records going back to 1999. If circumstances are good I spend more and if not, then I spend less.
For most of my career I contributed to a traditional 401(k). Roth 401(k)s were not available. I did some Roth IRA contributions but that was small compared to my 401(k) plus match. In addition, conventional wisdom says your tax rate will be lower in retirement. A couple of things happened. In the 2010's bull market my account balance grew much larger than I anticipated. With RMDs combined with social security and pension my retirement income will exceed my pre-retirement income (yes I know, first world problem). I realized I needed to reduce my RMDs so I started Roth conversions. The other issue is the "widows tax penalty ". We currently enjoy the marriage filing jointly tax rates. For the survivor the tax liabilities increase significantly rendering the issue of tax rate arbitrage mute. For the above reasons I am a fan of Roth accounts. I currently use them for very long term money.
In my experience compound interest and opportunity cost are difficult concepts to understand conceptually. Somehow I understood the importance of saving and investing but it wasn't until at age 66 in which I had my first $1m year that I really understood how powerful it is. That was a eureka moment for me (visualize jumping out of the bath and running down the street - or not). Wow compound interest is more powerful than you can imagine which should motivate. I have universally failed to communicate this power. It generally requires delayed gratification and working longer which does not appeal to most people. I hear slight variations of the same story over and over again on HD. Thanks for sharing. It helps keep me on track.
In this case your friend's wife should apply for social security at her FRA. Then when your friend applies at 70, she can apply for a spousal benefit. Social Security will update her benefit at that time. She will receive her full spousal benefit going forward.
Interesting thought process. Thanks for sharing. Being able to stay on the same financial page with your significant other is definitely crucial for harmony and worth the effort. Of course it's easier if you both have a similar mindset. In my case when I was working, I used a top down approach to budgeting. We set goals for investing and saving for each paycheck with the balance going to spending. We could spend on anything out of this spending account until it was gone. This method avoided small dollar spending negotiations. Retirement is different. Our baseline is to limit our spending to our monthly pension and social security Income. Spending from investments requires planning and negotiation.
There is a benefit to paying off your mortgage that I don't hear discussed. By carrying a mortgage you have increased your overall risk which requires you to offset with additional reserves. This reduces the amount of your risk assets and their corresponding return.
Comments:
In my situation I learned over time how to manage my finances. A few years back I decided 2 metrics are essential, annual cashflow and net assets. The purpose of cashflow is to make sure income exceeds expenses. The purpose of net assets is to make sure I am making long term progress. In retirement checking net assets is to make sure I don't run out of money. This enabled me to stop chasing income and return percent. Instead I focus on how much I invest and how long I stay invested without interrupting the compound interest effect. I enjoy spreadsheets so I use them to manually calculate both net assets and annual cashflow. It's good for my brain. I tend to calculate net assets when the market is up and not when the market is down except I also always calculate my net assets on December 31. I have records going back to 1999. If circumstances are good I spend more and if not, then I spend less.
Post: How Often Do You Calculate Your Net Worth And Why
Link to comment from December 1, 2024
For most of my career I contributed to a traditional 401(k). Roth 401(k)s were not available. I did some Roth IRA contributions but that was small compared to my 401(k) plus match. In addition, conventional wisdom says your tax rate will be lower in retirement. A couple of things happened. In the 2010's bull market my account balance grew much larger than I anticipated. With RMDs combined with social security and pension my retirement income will exceed my pre-retirement income (yes I know, first world problem). I realized I needed to reduce my RMDs so I started Roth conversions. The other issue is the "widows tax penalty ". We currently enjoy the marriage filing jointly tax rates. For the survivor the tax liabilities increase significantly rendering the issue of tax rate arbitrage mute. For the above reasons I am a fan of Roth accounts. I currently use them for very long term money.
Post: Do you favor Roth or traditional retirement accounts, and why?
Link to comment from May 22, 2024
In my experience compound interest and opportunity cost are difficult concepts to understand conceptually. Somehow I understood the importance of saving and investing but it wasn't until at age 66 in which I had my first $1m year that I really understood how powerful it is. That was a eureka moment for me (visualize jumping out of the bath and running down the street - or not). Wow compound interest is more powerful than you can imagine which should motivate. I have universally failed to communicate this power. It generally requires delayed gratification and working longer which does not appeal to most people. I hear slight variations of the same story over and over again on HD. Thanks for sharing. It helps keep me on track.
Post: All About the Quest
Link to comment from April 21, 2024
In this case your friend's wife should apply for social security at her FRA. Then when your friend applies at 70, she can apply for a spousal benefit. Social Security will update her benefit at that time. She will receive her full spousal benefit going forward.
Post: Don’t Delay
Link to comment from April 18, 2024
I have had too little. I prefer to deal with the challenges of too much.
Post: Is it possible to have too much money?
Link to comment from April 11, 2024
Interesting thought process. Thanks for sharing. Being able to stay on the same financial page with your significant other is definitely crucial for harmony and worth the effort. Of course it's easier if you both have a similar mindset. In my case when I was working, I used a top down approach to budgeting. We set goals for investing and saving for each paycheck with the balance going to spending. We could spend on anything out of this spending account until it was gone. This method avoided small dollar spending negotiations. Retirement is different. Our baseline is to limit our spending to our monthly pension and social security Income. Spending from investments requires planning and negotiation.
Post: My Two Cents
Link to comment from November 12, 2023
There is a benefit to paying off your mortgage that I don't hear discussed. By carrying a mortgage you have increased your overall risk which requires you to offset with additional reserves. This reduces the amount of your risk assets and their corresponding return.
Post: What Drives Us
Link to comment from July 19, 2023