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Thread: Retirement- What's your plan?

  1. #1
    Featured Member Naida's Avatar
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    Exclamation Retirement- What's your plan?

    While some are more ready to discuss this topic, others don't want to think about the idea because "it's so far away!" Even at 19, I have a head enough on my shoulders to know that, when it comes to saving that dough for your inevitably workless days, it will come alot sooner than you want to think! If you say at 20, "oh, I can wait until I'm 30 to start seriously thinking about that, I mean, it's like 45 years off!", you'll inevitably say at 30, "retiring at 65 still leaves me 35 years, it won't hurt to wait until I'm 40", then one day you are going to wake up in your mid-50s, realizing that you won't have much aside from Social Security Income.
    I'm not saying you can't build a decent retirement savings later in life, but it's also common sense that, the earlier you start, the more you'll have and the larger cushion will be available to you if you can't contribute to your savings that month.

    So what are your plans for retirement? IRAs? 401Ks (I'm not sure how those work, personally >_<)? Any opinions/tips/hints/etc would be greatly appreciated.

    Since I want to open my own retail business after my venture with dancing, I'm thinking of opening a Roth IRA. There's no tax deduction for saving with the account (I don't know much about taxes thought at the moment, so I'm not sure what that's supposed to mean. My best guess is that you can get more back when filing your taxes for saving, but you can't do that with a Roth) but withdrawals you make after, I believe it was, 59.5 years old are not taxable either.
    I did a calculator thing for it the other day, factoring in the maximum anual deposit of $5,000 from age 20 to age 65 (when I hope to retire), and found that I could have a total of roughly $2.25 million for use in retirement with a Roth compared to $1.2 million making the same deposits in a regular savings.
    In a day and age where "million" doesn't seem to be that much anymore, I'd still call that a good end to years of hard work ^_^
    Exotic dancing is like any other job.
    If you work in an office, you wear dress shoes and a suit.
    If you work in a restaraunt, you wear skid resistant shoes and a uniform.
    If you work in a strip club, you wear 7" stilettos and lycra g-strings.

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    God/dess Zofia's Avatar
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    Default Re: Retirement- What's your plan?

    Roth IRA is a good investment for a young person who is normally in a lower tax bracket. You pay taxes on the income when you earn it and get no deduction for putting it in the Roth IRA. But, you pay no taxes when you withdraw the money and this is really big, you pay no taxes on the gains. That is a nice payday!

    HTH
    Z

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    Banned Melonie's Avatar
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    Default Re: Retirement- What's your plan?

    the only caveat to consider with any gov't sanctioned retirement program is that the gov't could decide to 'change the rules' after the game has started ! Of all of the gov't sanctioned retirement programs, the Roth IRA probably has the lowest potential for gov't 'meddling'.

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    Default Re: Retirement- What's your plan?

    Changing laws are a valid concern but there are typically grandfather clauses for such changes...especially in regards to retirement funds.

    Naida, it's pretty cool to hear of someone my age who is thinking that far a head in regards to their future/financial future. If you'd like some clarification as to what the different retirement funds are, I'd be willing to help.

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    Banned Melonie's Avatar
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    Default Re: Retirement- What's your plan?

    Changing laws are a valid concern but there are typically grandfather clauses for such changes...especially in regards to retirement funds.
    While saving for retirement is a fantastic idea, I would again point out that gov't sanctioned retirement accounts are the MOST likely type of personal investment to experience gov't rule changes going forward ! The reason of course is that the gov't is going to run increasingly short of tax revenues and increasingly short of Social Security / medicare trust fund money. Conventional IRA's and Roth IRA's both currently represent gov't sanctioned 'tax avoidance'. They also both currently represent an official record of how much money you have available to fund your own retirement. This could very easily lead to ...

    - means testing of Social Security / medicare benefits. If gov't records show that you have $1 million in retirement savings available, that gov't may decide that you don't need a Social Security check. Thus it's possible that every dollar contributed to an IRA will mean 50 cents in 'lost' gov't benefits when you reach retirement age.

    - future tax increases on IRA withdrawls. Tax deferred conventional IRA principal and earnings, as well as Roth IRA earnings, both represent large amounts of money that the gov't knows you have that has not been fully taxed. Conventional IRA withdrawls are already considered to be 'taxable income' in the year that they will be withdrawn ... thus the income tax rate that you avoid having to pay on contributed money this year may or may not actually be lower than the income tax rate that will have to pay when you retire 30 years from now and begin withdrawing that money ! Also, the gov't could very well enact a special tax to attempt to 'recoup' unpaid taxes on the IRA's untaxed compound interest earnings.

    - 'Conversion' of your IRA dollars by the gov't. Legally speaking, Conventional IRA and Roth IRA money are both 'encumbered' by the gov't in exchange for the tax favored status. It's not impossible that at some future point the gov't could change the rules ... and for example require that IRA dollars either be reinvested exclusively in US Treasury Bonds or terminated and withdrawn ( with immediate tax consequences ).

    I don't mean to be paranoid about this subject, but with the massive amount of gov't tax changes, benefit changes etc. which have materialized over just the last few months IMHO it is not reasonable to expect that the gov't won't attempt to 'meddle' with IRA rules in a major way over the next 30 years. That doesn't mean that some portion of retirement savings shouldn't go towards IRA accounts. However, IMHO IRA accounts should never be the ONLY source of retirement savings.

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    Default Re: Retirement- What's your plan?

    a girl i danced with rented a storage unit in her name, and stuck a couch in it.

    then she put all the money she earned dancing in a safe, and stuck it underneath the couch.

    she's ready to retire, tax free, at thirty.

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    Default Re: Retirement- What's your plan?

    Quote Originally Posted by Zofia View Post
    Roth IRA is a good investment for a young person who is normally in a lower tax bracket.
    Pardon me if this is a redundant question in Dollar Den... but can I invest my dancing earnings in a Roth IRA? I've generally heard dancers on here focusing on the SEP IRA. The reason I ask is because I already have a Roth IRA with a sizable amount of money in it from when I worked 'normal' jobs and received paychecks. So can I continue putting money in the Roth IRA, or is the SEP IRA a better choice? I've done a little research on the SEP, but I didn't see how it was superior to the Roth for retirement investment. I know, it's a bit of a broad question, but I hope it helps others as well.

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    Duh Re: Retirement- What's your plan?

    Quote Originally Posted by Surprise View Post
    a girl i danced with rented a storage unit in her name, and stuck a couch in it.

    then she put all the money she earned dancing in a safe, and stuck it underneath the couch.

    she's ready to retire, tax free, at thirty.
    Ok I'm gonna assume this wasn't a joke, incase anyone took it seriously: please do not try this, it is a terrible idea

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    Banned Melonie's Avatar
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    Default Re: Retirement- What's your plan?

    ^^^ not only is it a terrible idea, but one dancer caught by the IRS in circumstances of blatant 'tax fraud' inevitably causes 1000 other dancers to be audited !!!


    but can I invest my dancing earnings in a Roth IRA?
    The simple answer is yes, but ...

    Legally speaking, the question boils down to who is administering your existing Roth IRA, and whether or not they have any of their own 'rules' in regard to allowable sources of contributions. In other words, many 'employer administered' Roth IRA's will only accept contributions where the source was a paycheck from that employer.

    From an IRS standpoint, even if your (previous) employer won't play along, it is 100% legal and proper for you to roll over your Roth IRA into a new Roth IRA under new management (i.e. your stockbroker). Once that is done you can contribute annual moneys up to the IRS limit of $5,000. Also once that is done you can invest the Roth IRA money in pretty much any way you want ( i.e. mutual funds, stock shares, bonds, money market accounts, commodity futures, physical gold, foreign currencies, and probably other stuff I haven't thought of).

    or is the SEP IRA a better choice ?
    This is the classic argument. The primary difference between the two types of IRA's are as follows ...

    SEP ( or conventional) IRA allows the diversion of 'pre-tax' contribution money. This means that this year's net taxable income is reduced by the amount of the 'pre-tax' contribution, thus the amount of income upon which this year's income taxes are calculated is lower, thus this year's income tax payments will also be lower. In contrast, Roth IRA contribution money does not reduce current year taxable income or current year income taxes.

    On the flip side, withdrawls from a SEP ( or conventional) IRA after age 59 1/2 must be added to any other income that exists in that future year. This will effectively decrease the amount of useful money in a SEP IRA depending on whatever income tax rate will apply in that future year ( in other words, to have $1000 of spendable money you may need to withdraw $1333 from your IRA, with the $333 needed to pay federal and state income taxes). Also, because SEP ( or conventional) IRA withdrawls are considered to be taxable income, this will also raise the tax bracket that applies to otner sources of income in that future year. Also, because SEP ( or conventional) IRA withdrawls are considered to be taxable income, they may raise your total future year income above some future threshold of eligibility for gov't benefits. In contrast, since Roth IRA contributions were taxed in the years they were contributed, withdrawls from a Roth IRA after age 59 1/2 are NOT considered to be additional taxable income, thus will have no effect on future year tax rates, future year benefit eligibility etc.

    There is also a big difference in 'early withdrawl' penalties if you should find it necessary to withdraw money prior to reaching the official retirement age of 59 1/2. Where a SEP ( or conventional ) IRA is concerned, a 10% penalty is assessed on every dollar that is withdrawn early ... IN ADDITION to the 33% (or whatever) federal and state income tax immediately becoming due on the amount that is withdrawn early. In comparison, only the interest earnings of a Roth IRA are subject to the 10% penalty and 33% ( or whatever ) income tax. Since initial Roth IRA contributions were fully taxed in the years they were made, you can withdraw an equal amount early without penalty.

    The decision as to which type of IRA is 'better' depends on a load of variables ...

    - how is your retirement age income level going to compare with your current year income level ?

    - how are the tax rates that are in effect today likely to change when you reach retirement age ?

    - how likely is it that retirement age gov't retirement benefits will be 'means tested' i.e. instead of sending a Social Security check to everyone as is currently the case the gov't could easily set an annual income threshold which would stop Social Security checks for future retirees if their 'earnings level' (including SEP IRA withdrawls) was too high.

    - how likely is it that some circumstance could arise that would force you to make an early withdrawl - particularly a large early withdrawl ? Admittedly there is a list of officially permitted 'reasons' for early withdrawl which escape the 10% penalty, but not every possibility appears on that official list.

    From a personal standpoint, the SEP (or conventional) IRA involves a large number of risks re the 'rules being changed' by the gov't after the game is already underway. The Roth IRA is far less susceptible to these sort of 'rule changes' since the contributed money has already been taxed at already set tax rates, and does not count as additional income when withdrawn.

    There is also another consideration for both these IRA's which is gaining importance of late. While investment 'gains' within the IRA are not taxed, neither can investment 'losses' within the IRA be used to reduce current year net taxable income ( and therefore current year tax liability).
    Last edited by Melonie; 06-25-2009 at 03:08 PM.

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    Default Re: Retirement- What's your plan?

    What is this gals name with the storage unit? W-D 40'ing my bolt cutters.
    XoXo Gia
    Danielle Fishell (the Dish): "If the Super-Star thing doesn't work out, Gia makes a great stripper name"

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    God/dess Zofia's Avatar
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    Default Re: Retirement- What's your plan?

    Quote Originally Posted by NikkaR View Post
    Pardon me if this is a redundant question in Dollar Den... but can I invest my dancing earnings in a Roth IRA?
    Yes.

    I've generally heard dancers on here focusing on the SEP IRA. The reason I ask is because I already have a Roth IRA with a sizable amount of money in it from when I worked 'normal' jobs and received paychecks. So can I continue putting money in the Roth IRA, or is the SEP IRA a better choice?
    The answer is a qualified yes, you can contribute to both. The Roth is for already taxed dollars and a traditional IRA is pre-tax money. The combined limit is $5,000 unless you are over 50, then you can put in $6,000. The lower your tax bracket, the more you want to put in the Roth.

    With a SEP-IRA, the limit is different. If you are self employeed, the limit is 20% of net earnings. If you are an employee who participates in a SEP-IRA, the limit is 25% of compensation. The employers portion of the contribution is not income to the employee and not taxable, unless they exceed the limit for the year. A SEP is essentially an IRA, so the contributions to the SEP count against the IRA limit. That means if your contributions to the SEP exceed $5,000, you cannot contribute to another IRA, including a Roth. Because the overall limit for a SEP is higher, dancers usually max out their contributions in the SEP and cannot make any contribution to a Roth. However, if they contributed less than $5,000 to the SEP, then they could contribute to the Roth. Or, if the dancer was an employee and the employer made contributions to the SEP, those employer contributions do not count for the limit on contributions to the Roth.

    Here are some examples:
    1. Dancer is an employee. Employer contributes $3,000 and dancer contributes $3,000 to the SEP. Total contribution is $6,000. But, dancer can still put $2,000 in the Roth as the employer's contrbutions do not count against the IRA limit.

    2. Dancer is self employed and she puts in $6,000 to the SEP. Now she cannot contribute to the Roth as she has exceeded her Roth limit. However, if $6,000 is less than 20% of her net earnings, she can continue to contribute to her SEP, up to the 20% limit.

    3. Dancer is an employee covered by a 401K where the company contributes $3,000 and the dancer contributes $3,000 for a total of $6,000. Dancer can still have a Roth and contribute the full amount of $5,000 as both the employee and employer 401K contributions are treated as elective deferrals that do not reduce the IRA contribution limit.

    Hope that's clear, there will by quiz later ;-)

    HTH
    Z

    Disclosure under IRS Circular 230: To insure compliance with recently released Internal Revenue Rules, this communication was not written or intended to be relied on to avoid federal tax related penalties or for promoting, marketing or recommending to any party any tax related matters addressed herein.

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    Default Re: Retirement- What's your plan?

    Melonie and Zofia, thank you so much for your explanations. Everything was so clear I wouldn't mind if there was a quiz

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    Featured Member Naida's Avatar
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    Default Re: Retirement- What's your plan?

    You girls rock! This answered a few of my questions and clued me in to some things I didn't know.

    Sitting down to crunch the numbers myself, the $5,000 limit on a Roth would meet the SEP limit 20-25% of my total income if I was only making $20-25,000 annually. Assuming I took the job seriously and earned more than that annually, an SEP sounds like the best way to go in terms of numbers alone.
    But, when you consider how Melonie pointed out there is a bit more security with a Roth, I'd rather take a somewhat smaller return than take any big risks. After all, with the estimated return as it is, I don't think I'd need much more.
    Exotic dancing is like any other job.
    If you work in an office, you wear dress shoes and a suit.
    If you work in a restaraunt, you wear skid resistant shoes and a uniform.
    If you work in a strip club, you wear 7" stilettos and lycra g-strings.

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    Default Re: Retirement- What's your plan?

    My plan is to build positive cash flow assets to provide passive income.

    I do this using the Iron Condor Option strategy during neutral markets, and Bear call spreads during downtrending markets. Iron condors usually return 9-12% every 6-8 weeks. I use it to pay my car payment.

    Network Marketing has created more millionaires than any other business. I'm involved with Worldventures. I got involved because it offered access to group health insurance which I didn't have as a self -employed person. www.destinationavalon.biz I'm not to the point of passive income yet, but I will be soon. Once you get started it just grows on its own! I just got back from a dreamtrip to jamaica that blew my mind!!!!
    Rebecca Avalon







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    Default Re: Retirement- What's your plan?

    ^^^ Precisely !

    I didn't want to blatantly 'blow off' the virtues of gov't sanctioned 'official' retirement plans, but in point of fact they are not 'necessary' in order to fund a very comfortable retirement. In fact, for all intents and purposes I myself am 'retired' right now, even though I'm closer to college age than the 'official' retirement age ( when money can be withdrawn from gov't sanctioned IRA's without penalty ). As BritneyIreland points out, all that's necessary for retirement is an adequate source of passive income.

    In a sense, I organized my own 'ExPatriate' retirement plan ! I get to compound all of my passive investment earnings free of US taxes ( up to $90k per year). I can contribute any amount of 'new' money that I want. I also get to 'withdraw' any amount of money at any time without penalty. The only drawback is being forced to live near a James Bond movie beach 48 weeks per year ! Actually, I'm free to travel anywhere I want to EXCEPT returning to the USA, because the IRS 'expatriate' foreign income exclusion limits total annual time within the USA to 36 days per year.

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    Featured Member Naida's Avatar
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    Default Re: Retirement- What's your plan?

    Wow. I could never do something like that, Melonie, simply because of the inability to come back to the States. I do want to settle down in my hometown some day! lol

    But in terms of finances- Wooooow *drool* I have ALOT to learn.
    Exotic dancing is like any other job.
    If you work in an office, you wear dress shoes and a suit.
    If you work in a restaraunt, you wear skid resistant shoes and a uniform.
    If you work in a strip club, you wear 7" stilettos and lycra g-strings.

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    Banned Melonie's Avatar
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    Default Re: Retirement- What's your plan?

    simply because of the inability to come back to the States
    Actually I can come back to the states any time I want to in the future ... I just give up the $90k annual 'foreign income exclusion' and have to pay US income taxes from 'dollar one' if I spend more than 35 days of a year within US borders.

    Perhaps you are confusing my 330 day per year 'foreign residence' with full-on 'expatriate' status. For the former I retain my US citizenship and US passport, I have to report all income from both US and foreign sources, but the first $90k in annual income is exempt from US taxes due to the exclusion. In the latter, the true 'ex-pat' renounces his US citizenship, surrenders his US passport, and as a result is no longer liable for US taxes on any amount of foreign income. Obviously the latter doesn't hold any real value unless the person's income greatly exceeds the legal $90k annual exclusion. Also, most true 'ex-pats' usually wind up leaving under less than ideal circumstances where the IRS is concerned, which makes them vulnerable to potential arrest the minute they ever set foot on US soil again !

    And even if I was earning way more than $90k per year, I wasn't prepared to take as extreme of a step as renouncing my US citizenship, because I do have family in the states that I want to be able to visit at least a few weeks per year. I also have not sold my house in the Adirondacks, and plan on moving back if and when the world economy and/or US tax policy regains sanity once again ... ir when I'm eligible for Social Security if financial sanity never does return ! In the meantime, some of the younger family members now have a 'free' place to live ... in exchange for keeping my house in a decent state of repair !

    Circling back on topic, planning and saving for retirement do not have to involve an IRA of any type. Yes the gov't sanctioned IRA's do offer a tax advantage versus money saved / invested outside of an IRA umbrella. However, the IRA's involve trade-offs as described above. Once you 'sign on', you come onto the gov't's 'radar screen' for the rest of your life. And much like a variable rate mortgage loan of a few years back, today's economic and tax conditions make IRA's APPEAR to be a good deal. However, like recent real estate devaluations and rising interest rates ruining the apparent virtues of variable rate mortgages, other changes in future economic conditions ( or rule changes by the gov't) could similarly ruin the apparent virtues of an IRA ( and particularly a SEP / conventional IRA).

    IMHO the only time that a conventional IRA should be considered is if it comes with an employer plan of matching contributions ... i.e. 'free money'. A Roth IRA has less downside risk going forward, but also has less apparent tax advantage. And if your primary interest is slow but steady growth with tax advantages, IMHO you can do every bit as well by investing in California / New York etc. tax free muni bonds ( certain examples of which now pay 7% tax free interest) !

    ~
    Last edited by Melonie; 06-30-2009 at 06:59 PM.

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    God/dess britneyireland's Avatar
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    Default Re: Retirement- What's your plan?

    I have an IRA, I contribute to it to lower my taxes.

    I trade options and futures inside it at thinkorswim.com
    Rebecca Avalon







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