By Dr. Jim Dahle, WCI FounderAfter creating a post on Financial Waterfalls for Residents and New Attendings, we received a lot of requests for a waterfall for older docs, particularly pre-retirees and retirees. It turns out that people want to be told exactly what to do—they love step-by-step instructions. While there are many similarities from one financial plan to another, every financial plan is unique. The standardization that is commonly seen in the financial plans of early-career doctors gradually dissipates throughout the career.
By the time a doctor is approaching retirement, there is little standardization left. For example, a doctor with a $500,000 portfolio at 60 is likely to have a dramatically different financial plan than one with $15 million.
What Does a Waterfall Look Like?
The concept of a waterfall is very useful for someone in the accumulation phase, particularly at that stage of life when they have more great uses for cash than they have cash. It helps them to prioritize their uses for cash. As each “pool” is filled, it spills over into the next highest priority pool. When they run out of money, they stop. For example, a waterfall might look like this:
- Get 403(b) match
- Pay off consumer debt
- Health Savings Account
- Roth IRA(s)
- 403(b)
- 457(b)
- Pay extra on student loans
- Invest in taxable
A waterfall usually ends with investing in taxable, since there is no limit to how much can be invested there.
A Waterfall for Retirees?
When it comes to pre-retirees, this process breaks down quite a bit. I mean, it's possible that an investor doesn't even need to put anything toward retirement anymore. Maybe their savings are going straight into a Donor Advised Fund (DAF). An investing waterfall is nonsensical for a retiree with no earned income who may not be saving at all.
However, just because your financial life is now more complicated than that of a new residency graduate, that doesn't mean that we can't help you. I just don't think the right concept for this stage of life is a waterfall. A much more helpful concept is a simple checklist. So, the remainder of this post will explore a checklist that should take you from nearly retired well into retirement.
A Checklist for Those Entering Retirement
As you approach retirement, I suggest you go through this list. There are a few assumptions I'm making here. I assume you've paid off your student loans and consumer debt. I assume you actually saved something for retirement. I assume you have a budget and a written investing plan. If none of this is true, you have a longer checklist because you'll need to include a bunch of items that, frankly, you should have done years ago.
Note that this list is in a specific order that makes sense to me, but you can do most of this in any order you please. If an item doesn't apply to you, just check it off and move on. Some items are cheap, quick, and easy. Others will require time, money, thought, and difficult conversations with your loved ones and professionals. Without further ado, here is the list:
Whew! Long list, huh? Now that you've seen the whole list, let's go through each item individually.
#1 Determine “Enough”
The 4% rule isn't very useful as a withdrawal strategy, but it's quite handy in giving you a general idea of how much you need in retirement. If you reverse-engineer it, you will see that your nest egg needs to be something like 25 times as large as what you spend each year. If you have guaranteed (or even less than guaranteed) income in retirement, you can subtract that from your spending needs before multiplying by 25. Less than guaranteed income should be discounted. I suggest a 25% discount for investment property income. Your formula looks like this:
Needed Nest Egg = (Annual Spending – Guaranteed Income – 75% * Non-Guaranteed Income) * 25
Note that if you are using investment property income in this formula, you should NOT include the value of that property in your nest egg.
More information here:
6 Tips for Those Who Have Enough
#2 Determine Pension Plan
Are you eligible for a pension? Does it give you options such as:
- Taking a lump sum
- Monthly payments until you die
- Monthly payments until you and your spouse die
If so, you'll need to choose what to do with it.
#3 Determine Non-Governmental 457(b) Plan
Governmental 457(b)s can be transferred into IRAs, but non-governmental 457(b)s cannot. You will need to choose from the various distribution options available to you. As a general rule, this is money that should be spent relatively early in retirement.
#4 Determine When to Take Social Security
The right answer most of the time for healthy people and for the higher earner in a couple is to delay Social Security as long as possible, currently to age 70. But there are plenty of exceptions. Consider reading Mike Piper's excellent Social Security Made Simple.
#5 Consider SPIAs
Purchasing a Single Premium Immediate Annuity (SPIA) can be a great way to maximize how much of a nest egg can be safely spent. In essence, you are buying a pension from an insurance company. While not as good a deal as delaying Social Security, this still has a place for those who don't quite have “enough” as they move into retirement.
More information here:
Functional Longevity: What Use Is Retirement If You Can’t Move and Think?
#6 Consider DIAs
A Delayed Income Annuity is “longevity insurance.” It's a fixed-income annuity like a SPIA, but instead of starting payments immediately, your payments may not start for a decade or more. The benefit is that the payments are dramatically higher but only if you live long enough. Like other insurance products (SPIA, permanent life insurance), this can give you psychological “permission to spend” your nest egg because you know that you have something backing you up so you won't be eating Alpo late in retirement.
#7 Decide on Withdrawal Strategy
Now that we've talked about all of your income sources, we're left with your nest egg. Some sort of variable withdrawal strategy (such as the ever-popular “Start at something like 4% and adjust as you go”) is best.
#8 Consider LTCI
Single people and those with small amounts of assets who face a serious long-term care situation can just spend down until they qualify for Medicaid. Married people with a moderately sized nest egg ($300,000-$2 million?) should consider purchasing Long Term Care Insurance (LTCI). Wealthy people can afford to self-insure this risk. If five years in a nursing home costs less than ¼ of your nest egg, you're probably fine self-insuring, but run the numbers for yourself. Don't forget that if you or your spouse is in a nursing home or getting care in your own home, you're probably not out traveling the world so there will be some offset of that LTC expense.
#9 Pay Off Mortgages
Lowering the ratio of fixed expenses to variable expenses adds flexibility to any retirement plan, and one of the best ways to do that is to pay off any debt. Hopefully, the only debt left to be paid off as you approach retirement is a mortgage. Paying off investment property mortgages also improves your cash flow from that property. If paying off a mortgage isn't at least an option, you may not be ready to voluntarily retire.
#10 Upgrade Autos and Buy Toys
I also think it is a good idea to go into retirement without an expectation of major purchases in the next few years, such as autos, boats, airplanes, second homes, ATVs, and more. Buy that stuff before you retire so you don't end up with unexpected purchase or maintenance costs. Pay cash for them. That way if something happens to you financially, that item becomes an asset that you can sell for extra cash rather than a liability requiring a payment every month.
#11 Consider Downsizing
Another way to go from “not enough” to “enough” is to move into a less expensive house in the same area or a cheaper area. At the extremes, this could mean moving to a cheaper country. You take the difference between your current house and your future house and add it to your nest egg.
More information here:
A New Way of Doing Business (and Saving Tons of Money) in My Retirement
#12 Review Estate Plan
Assuming you have an estate plan (you should have had one years ago), it would be a good idea to review it. Now that your children are adults, it probably needs some changes. Look at the will, financial and healthcare power of attorneys, beneficiary designations, living will, and titling of assets. The focus now is much more on where your money and stuff will go when you die than on who will raise your kids. If you are fortunate enough to have an estate tax problem, the sooner you address it the better.
#13 Establish a Revocable Trust
Most WCIers will want a revocable (living) trust in place at death to avoid probate.
#14 Roth Conversions
Many retirees, especially early retirees, and their heirs will benefit from some amount of Roth conversions, particularly when done in the years between an early retirement and taking Social Security. Put a plan in place for how much to convert and when.
#15 Find a Manager for Income Properties
If you are still managing your own short-term and long-term rentals, consider hiring a manager. You will need one eventually if you plan to hold these properties until death for the step up in basis. While lots of retirees still manage their own properties well into their retirement, hiring a manager will make it much easier to do the travel common in the go-go years. If you do not hire a manager, be sure to subtract that cost before calculating the expected income from the properties when determining if you have “enough.”
#16 Transfer Retirement Accounts into IRAs
It generally makes sense to consolidate retirement accounts (including defined benefit/cash balance plans and governmental 457(b)s) as much as possible to minimize costs, decrease hassle, and maximize investment choices. That typically means a traditional and a Roth IRA for each spouse for a total of four accounts plus a Health Savings Account.
There are only three reasons to have more accounts. The first is to avoid the pro-rata rule that occurs when doing a Backdoor Roth IRA each year. The second is for additional asset protection as some states provide more protection for ERISA accounts like 401(k)s than IRAs. Finally, some employer-provided retirement accounts offer “special” investments such as the TSP G Fund that you may wish to continue using. As you move into retirement, you presumably will no longer be making IRA contributions. For most high-income professionals, liability concerns also decrease. The benefits of simplicity may also trump those of “special” investments for you. Note that in some states a “rollover IRA” may preserve those ERISA protections in a bankruptcy situation.
#17 Compare Health Savings Account to Expected Healthcare Spending
Health Savings Accounts (HSAs) make for lousy inheritances, as they are fully taxable to heirs in the year of death. Thus, an HSA should be spent prior to death or left to charity. If you are not planning on leaving that much to charity and you do not expect to spend it all on healthcare (still its best use since that provides the classic “triple-tax-free” benefit), then you can use it as a Stealth IRA after age 65, paying taxes but not penalties on withdrawals.
More information here:
Healthcare in Retirement Could Cost You $500,000; Here’s How to Plan for It
#18 Choose Health Insurance
There are lots of different options for health insurance for retirees including
- Medicare (note that Medicare is not free)
- COBRAing your previous employer's plan
- PPACA exchange plan
- Health sharing ministry
- Buying health insurance on the open market
- Veterans Administration benefits
- Benefits provided by your employer as part of your retirement package
Be sure to decide the best plan for you and budget adequately for it. While paying for healthcare in retirement is no different than paying for groceries, many former employees get sticker shock when they realize how much their employers have been paying for their health insurance all these years. It is not unusual for a plan for an early retiree couple to cost $10,000-$30,000 a year. If you don't have enough money to cover that cost, you may not have enough to retire yet. Going bare isn't wise for a 25-year-old. It's downright stupid for a 55-year-old.
#19 Set Distributions in Taxable Account to Not Reinvest
We never have our mutual fund dividends and LTCG distributions reinvested in our taxable investing account. This becomes more important for a retiree as those are the first funds that should be spent each year since you're paying taxes on them anyway. You may even want them to be automatically paid into your checking account instead of your settlement fund.
#20 Adjust Asset Allocation
Most retirees have a less aggressive asset allocation than they did as accumulators. Asset allocation is very personal, but if you have not been decreasing your stock/bond ratio as you go along, consider making an adjustment now. You want to balance the concept of “When you've won the game, stop playing” with ensuring you still have enough risky assets in the portfolio to allow it to keep up with inflation. The rule of thumb is
Stock Percentage = 100 – Your Age
but lots of people adjust that to as high as
Stock Percentage = 120 – Your Age
That would suggest a stock-to-bond ratio of somewhere 30/70 and 65/35 for retirees. This is particularly important in the last few working years and the first few retiree years since that is when the Sequence Of Returns Risk (SORR) is highest.
More information here:
The Buckets Strategy for Retirement
#21 Change 529 Plan Beneficiaries to Grandkids
Still have leftover 529 money from the education of your children? Change those beneficiaries to the grandkids. You might also consider using some of that money (up to $35,000) to do the new 529 to Roth IRA rollovers.
#22 Plan for Disabled Heirs
If any of your children are disabled, you may need to make special plans for them. This might include determining who will take care of them and their assets. Will they need to be institutionalized when you can no longer provide the care needed? Will they need a bigger chunk of the inheritance than other heirs? Consider the use of ABLE accounts, trusts, and permanent life insurance.
#23 Determine Gifting Strategies
What are your charitable desires? How much will go to heirs? How much will you give with “warm hands” vs. “cold hands”? Consider the use of Donor Advised Funds (DAFs), charitable foundations, charitable annuities, and charitable trusts. Remember that Qualified Charitable Distributions (QCDs) are one of the best ways for older retirees to give to charity.
#24 Tell Heirs About Estate Plan
I think this is a really important step. It doesn't necessarily have to be done right as you retire, but it should be done long before you lose the capacity to manage your own affairs. If you're taking Required Minimum Distributions (RMDs), it's time that this should be done. Call a family meeting and tell all of your children and other important people what your estate plan is. Opening a will should not be a surprise to anyone. Surprise wills are a great way to cause conflict and resentment. If someone is told by grandpa in front of the rest of the family that they aren't getting an inheritance (or that their older brother is going to be the trustee for their inheritance) because they have a cocaine problem, they are far less likely to contest the will and create drama later.
It's your money and you can do whatever you want with it, but it's a good idea to keep it simple and communicate it well before death and in the actual documents.
More information here:
Is Now a Good Time to Retire? Here’s What Christine Benz Thinks
#25 Take Required Minimum Distributions
One of the worst penalties in the tax code is the failure to take Required Minimum Distributions (RMDs) each year. It used to be 50% of the amount you were supposed to withdraw, but the Secure Act 2.0 reduced that to 25%. It's still a massive penalty. Don't forget the age at which you have to take them currently is 73, but by 2033, it will be the year you turn 75.
There might not be a “waterfall” for pre-retirees and retirees, but there is a checklist you should work your way through. By the way, there is a bit of a waterfall for how to spend your money that varies by your estate plan, but that is the subject of a different post.
Are you saving enough for retirement? Get a personalized answer with this FREE retirement calculator powered by Boldin, formerly known as NewRetirement. Find out how much YOU need, get a “chance of success score,” suggestions to do better, and more.
What do you think? What else should be on this checklist? What shouldn't be there?
Excellent information.
I’m working on the second half of the list and using the 2024 WCI-CON as a primer to help me accomplish this.
Updated will and estate plan
Establishing a revocable trust
Roth Conversion planning
Transferring/consolidating accounts
Health Insurance and HSA optimization
Family Will and Trust meetings
A bit of luck came my way. My half-time employer has offered “contractors” employee status again with health insurance (at notable cost), and even some vacation time. Luckily, I had not transferred the monies from the 401A and 457 and my vesting and matches remain intact. Looks like I’ll have vision and dental insurance again.
The biggest problem with “early retirement” has been the health insurance issue. It is currently solved (for $17K a year) but I think the half time position may be in the mix longer than I planned. I may be working until I am eligible for Medicare, and it still may cost me $120,000 from age 58-65.
If I were to tell younger FIRE folks one thing, it would be to budget correctly for family health insurance costs from retirement age to age 65. It’s not easy to “self-insure” this as a cancer could cost you a million…or more.
Another aspect of the transition is when to get rid of life insurance and disability insurance. My level term life policy will expire at age 62. I kept it as I am still working, although for a funeral and a “modest receptacle”, I am self insured. I’m still paying $2500 per year for disability insurance and will keep this “own occupation” policy I bought initially at age thirty until l stop making a significant income.
Who knew health insurance would be one the biggest expenses from age 58-65? Not me. I budgeted $12K. Surprise! Looks more like $15-30K as you mentioned.
Jim, regarding #19 above, I’m wondering how STCG would factor into it since you didn’t mention them. If I’m a retiree and have STCGs, is there a reason I need to not use those funds, whereas I’d want to spend my LTCGs? I realize they’re taxed as ordinary income. Does that mean it’s wisest to re-invest those, and not withdraw them until those shares/lots begin producing LTCGs instead?
Ideally you avoid realizing STCGs completely. I’m not sure I’ve ever realized one in over 2 decades of investing. If you own an investment or mutual fund that distributes STCGs to you against your will, then you might as well spend them first since you’re paying taxes on them, just like any other distribution. But if you’re just sitting on something with gain that you’ve only owned for 6 months, the general advice would be to hold onto it for at least another six months before selling or giving it away.
With one foot out the door for a few years now, this is something I’ve thought about a lot. A couple things to add:
*Consider timing of retirement (if an option). It could be good to have some income in the year that you leave. While it will barely move the needle, it is another non-zero social security year and another year you can do a BDR. Depending on the RVUs you generate, you may even be able to fund another whole year of 401k/PS/CBP by staying on til the weather warms up. Personally, I’m half-time now and my plan would be to quit in the late spring. This will let me do a BDR and also put away 25-30k into my 401k; and income will be in the 22% bracket (!). I’m also trying to figure out how to push getting my buy-out (essentially my AR) to the following calendar year, so another year of BDR and income at 22% tax.
*If you have an HSA plan, be sure to pay attention to the rules. If you fully funded the HSA on Jan 2, you will need to COBRA til the end of the year (or get another HSA plan upon separation–I don’t know how hard that is).
*Consider job perks. For me, I can reimburse myself (basically a discount equal to my marginal tax rate) for licenses and business expenses. If practicing medicine is at all on the agenda in retirement, such as volunteer gig, or you want to have the safety net of un-retiring: renew DEA/state licenses and accelerate board certification. Also, it would be a good time to upgrade computer, phone, and home internet.
*See if hospital has an emeritus status. Mine does. This gets you a badge that lets you get into the doctors lounge for breakfast/lunch and go to conferences. While I have no intention of being one of those retirees who has no social life outside of the hospital, I appreciate the fact that I once loved medicine and actually enjoyed going to grand rounds. Maybe I would enjoy attending again? Also, before the hospital blamed the staff for 8 digit operating losses year after year, they threw parties that were worthy of attendance. Finally, the badge is helpful when friends or family are patients–a key to hospital care, both literally and figuratively.
What else has anybody thought about when you have the option of selecting a retirement date?!
Your comment about the doctors lounge access shows the importance of developing other interests and friends before retirement. This might be a bigger problems for physicians who spend a lot of time / emotional ties at work. Work can crowd out other activities.
Absolutely. Before COVID, there were always half a dozen old-timers in there (they never returned when things re-opened). On the one hand, it was neat that they had friends they could shoot the breeze with. On the other, I can think of about 99 other places I’d rather be chatting with my buddies before the doctors lounge!
Yea, seems weird to me. But I also don’t go to the lounge now except to get food and I’m usually the only one there at those hours. The vast majority of my friends aren’t docs.
Good point. I’ve often thought it smarter to retire at mid year than year end, but there can be a benefit to staying until the end of the year if the bonus in your salary contract is set up that way.
I do not plan to roll over employer retirement plans into IRAs. My employer plan has a brokerage window, free, and I can buy whatever I want. I also have a choice of excellent low cost mutual funds. Participants are charged nothing beyond the, near zero, expense ratios.
In my state, the asset protection difference is significant. There is also a long statute of limitations for malpractice suits. One’s exposure does not end the day of retirement.
We are reinvesting dividends in taxable. Our plans call for living on RMDs alone. Social Security will be saved after tax. We do not anticipate spending any of our taxable account in retirement, so heirs will benefit from the stepped up basis. Even if the tax law changes and the stepped up basis were to go away, we would have no reason to stop dividend reinvestment. That is a core part of maintaining an indexed portfolio.
One never knows what the future will bring but it is highly likely that we will enter retirement still holding a low interest mortgage. I do not see the logic in reducing assets now to pay the mortgage when I have the alternative of investing that money at a higher after tax rate.
By the same token, if one buys extra stuff now, as opposed to after retirement, the money comes from the same place. Reducing savings now means one will have less money in retirement at the time when one might have wanted to make the purchases.
This is a great list, and as I am a recent retiree, thanks especially for timely information.
I thought I was fairly on top of things, but it is great to have such a detailed list, which includes provisions for a disabled family member.
One quick note: I live in California and my health insurance with one disabled child is $4400 a month. I was surprised because our paychecks are all on the net and without a paper copy it became easy to overlook the details as long as the right amount dropped into the bank account.
Granted it is a PPO, but the HMO rates are not very far behind. Be sure to check your local rates insurance before retiring.
Wow. That’s terrible. Yet another reason to leave Cali….
Believe me, I have thought about leaving Cal again and again. But all our relatives are here except one son. Plus the weather. I’ve been here all my 68 years and despite the problems, home is home.
At least Medicare is way cheaper!!
Thanks again for this list. The wisdom contained is actually quite deep.
Good discussion with some great ideas. In my experience people don’t think much about distribution of assets when they are still accumulating for retirement, and when they retire, they are hit with a few surprises. For those who retire before 59 1/2 they forgot about the 10% the IRS will take. For those retiring at normal ages, managing your adjusted gross income (AGI) in retirement is important as it has an impact on how social security is taxed, how much you pay for Medicare etc.
I didn’t go through your webinar, but the 10% penalty is obviously easy to avoid. I haven’t figured out a plan for avoiding the IRMAA cliffs or navigating SS taxation, other than noting neither is really going to be a game changer for retirement. I hope/feel like this current generation of financially informed docs will add to the collective knowledge base as they start to retire!
If you really think you can pay taxes on anything less than 85% of your Social Security income I feel like a failure as a blogger. That threshhold is awfully low. IRMAA could grab a few docs though. More on that here:
https://www.whitecoatinvestor.com/irmaa/
As regards #9, “Pay off mortgages”, I agree this is usually good advice. However, many of us have very low mortgages compared to current interest rates. For example, I took out a $770K 30-year mortgage a few years ago at 2.5%. The current balance is $720K. With the Vanguard Federal Money Market Fund, I can get a current interest rate of 5.27%. So, the difference per year in not paying off the mortgage is about $20K ($720K * 2.77%) extra.
Also, all of my assets are in pensions and other tax-sheltered vehicles IRAs, 401ks, etc. If I withdrew money to pay off the entire mortgage all at once I would be in a much higher tax bracket assuming I did not use funds from my Roth IRA.
I plan to keep funds equivalent to my mortgage balance in my IRA invested in money market funds until (if ever) the interest rate drops below 2.5%.
I can’t argue with the math. I can argue with the behavior though. Few people will actually invest what would have gone toward paying off the mortgage. They spend it instead. Obviously they don’t come out ahead doing that.
At any rate, even with the arbitrage, there is still the cash flow issue to consider. Paying off a mortgage can free up in cash flow far more than 4% of what you used to pay it off.
At any rate, by the time you get to retirement, I hope that mortgage is so small compared to your nest egg that arbitraging it is just as silly as getting a 0% car loan in order to arbitrage that. Keeping a $250K mortgage with a $10 million portfolio doesn’t move the needle.
As a fan of debt/leverage, you might like this piece:
https://www.whitecoatinvestor.com/how-to-think-about-debt/
I agree that those who cannot control their spending may benefit from strategies that place money out of reach. Logically, of course one could pay off the mortgage, retire, then take out home equity debt. Doing so puts one right back in the position of having a mortgage in retirement. Perhaps those sorts of people are more likely to overspend while working than to take on more debt once retired. I don’t know.
But if one is using assets to pay bills in retirement keeping the mortgage means having more assets from which to draw. I do not see how, absent behavioral overspending, one is better off paying the mortgage while working. It should not make any difference.
The fun thing about life is you get to make your own decisions and live with the consequences.
I can tell you this though, the people I see in retirement who don’t still have mortgages seem to be enjoying themselves a whole lot more than those who do. Probably because those who pay off debt are the same people who save and invest. Behavior matters and we’re not all coldly logical Spocks. Someone who struggles with their spending reads the words of someone like you who maybe doesn’t and says, “That sounds smart, I’ll do that.” So they don’t pay off their 4% mortgage and they don’t save and invest the difference. The consequences of their actions eventually show up.
There is one more reason to pay off a mortgage if you can: you can’t be foreclosed upon.
I had heard of an acquaintance who managed all the family’s finances, suffered a serious health issue including hospitalizations and skipped two payments while seriously ill. Then foreclosure proceedings were begun. I don’t know what ultimately happened but that sounds like a nightmare. I don’t think there is any other “payment” circumstance where you can have your home taken from you other than missed mortgage payments
Try not paying your property taxes, although to be fair it will likely take you a couple of years not a couple of months to lose your house due to non payment of property taxes.
You are correct, but it depends on the county in California.
In ours, the limit is 5 years of non-payment and they can sell your house.
in some southern counties, I believe they just place a tax lien and you cannot sell it or pass it to heirs without clearing it. and they add interest.
Whether 2, 5, or until you sell, it’s dramatically different from a mortgage where foreclosure will usually be complete within 6 months of non payment.
I agree with you that for society in general people tend to spend what they have access to. However, I suspect that readers of this site are far more financially savvy than average and most would be responsible with money that wasn’t going towards extra mortgage payments. I feel a little poorer because I have debt which compels me to make mortgage payments and is a form of forced saving. This stops me from spending an excessive amount of money.
Regarding cash flow, it is clear to me that I have an extra $20K per annum by not paying off the mortgage. Also, a little of the mortgage interest can be written off every year considering charitable deductions, etc. The other benefit of not paying off the mortgage is the security of having funds that are easily accessible and are not tied up in the house. An unexpected major expense could occur or I might choose to help out a child with a house deposit. Sure, I could get a HELOC but the interest rates are currently about 8%.
Thanks for referring me to the interesting article. I had read it before but I still found it enjoyable to view again. Your site is by far the most comprehensive, interesting, and educational financial website ever built and I very much appreciate it.
That’s a big assumption. I wouldn’t make it. Maybe you’re an exception to the general rule, but I think the general rule is exactly what you led with: people spend what they have access to. That includes doctors, including many who read this site. Now the more financially educated and disciplined you get the more you can fight against this tendency, but since I’ve noticed it in myself (one reason we paid off our mortgage years ago), I have little hope that most WCIers can avoid it.
You could be right.
Someone with a 10.5M portfolio and a 500k mortgage has the same net worth as a person with 10M portfolio and no debt. If one of them feels wealthier and spends more freely, it is not based on logic. The person with no debt is not better off because they have no mortgage. They did not get that free cash for free. The one with the mortgage is not better off because they have more assets. They also have more debt.
Frightening if you are right that some people think this way.
I tend to look at my net worth, rather than cash flow. Assets can generate cash flow. In the amounts needed, at the times needed.
I’m surprised you didn’t mention the 4th reason to keep an employer plan in retirement.
If you are an early retiree separating from service between 55 and 59, you can get penalty free access to those funds (Rule of 55). Admittedly, it’s only in specific circumstances and for a limited time (you can roll to the IRA as soon as the penalty ends), but it’s still a good source of possible liquidity for the group it applies to.
An excellent point.
This is great! A couple of things I’d adjust or add, which mostly ties into the “leaving your job” part of retiring so common also with other scenarios and might feel too tactical, but I’ve found critical to have checklist as I’m dealing with it myself currently:
– Similar to the buy new auto category, make sure you are on top of and max out health benefits – go to the dentist, eye doctor, etc and make sure all problems taken care of, new glasses/contacts to use up benefit, (lp)fsa used up, etc. If you’ve been thinking of optional procedures (for example LASIK) do them now.
– Explore benefits and make sure you’ve used them to the max before you go – if your employer offers donation or volunteer matching, accelerate any yearly gifting so you can still double your impact
– Change 401k / 403b to max for year before you leave
– Save personal info you may have hanging out in employer email – for example, photos shared by coworkers
Another reason to leave money in old employer 401k is if funds are better – mine offers better than institutional shares (their “trusts”) at vanguard, so would be losing exceptional expense ratios if moved into my own IRA
Another reason to keep the funds in a 401k that was mentioned above is the ERISA protection. 401k’s are protected from liability judgments including malpractice and personal liability and landlord issues if you own real estate.
Lots of good information on this website, but this is one of the best posts in the last few years.
Great article and comments. I
Reading this on Doximity website. No “shareable” or “print” options. I’d like to send to my hubby.
We used to have those options but removed them just to clean up the page. Sorry! Probably easiest to copy the link and text it or email it to your hubby. We’ll reconsider with the next redesign.