Hi guys and happy Friday!
One of my favorite sources of knowledge has become the reader comments in reaction to some of my posts. Here are a few that stood out.
More reasons why renting can have benefits over buying a house
On my post last week, “‘Renting is just throwing money away!’ A personal finance truism that may not apply for millennials,” I explained why renting made sense for me. Homebuyer Nation agreed and brought it back to an even more fundamental question:
I couldn’t agree more. On the debate of whether renting is bad and homeownership is good; the answer is always “It depends”. It depends on your situation. I’ve found so many first-time homebuyers fail to answer the most fundamental question: WHY do you want to buy your own place? And the freedom to move is becoming more and more important in this new economy.
More information on his blog here.
That sounds like great advice. Your “why” should be about you; not some artificial goal other people set.
Don’t only put money in a Roth IRA
I posted recently about, “Roth vs. traditional IRA — the top one reason to pick one over the other.” In there I mentioned that the one reason I choose to invest in a Roth vs. traditional IRA is that I expect my marginal tax bracket to be higher in retirement than it is now. To this, Rory & Robin replied:
I have a different take. For middle class people who plan to retire and live frugally (either by choice or necessity) the traditional IRA is much better than the Roth IRA. The reason is that while still working and saving for retirement, most of us are either paying a 15% marginal tax rate or a 25% rate. If you are choosing to do a Roth-IRA IRA before a Traditional IRA/401(k), you are choosing to pay either the 15% or 25% tax today so that you can avoid taxes upon later.
So please pardon my language if I tell you that that’s a stupid choice for middle class people. The quick reason is that when you withdraw the money either in ‘early-retirement’ (say 45) or ‘real retirement (after 59.5) you’ll likely pay far less than 15% or 25%.
I can be confident of this based on the tax code. As long as people plan to live on less than around $42,000 per year in retirement (or pre-tirement), they will literally pay $0 as tax on the 401(k) and Traditional IRA withdraws. If you live on slightly more you’ll only pay taxes in the 10% marginal bracket.
I have some tax charts I could submit to substantiate this. Long story short, for middle class people Roth IRAs are probably a stupid choice.
He goes into further detail on his blog here.
Makes sense. I think what I fail to show are:
- The 401(K) contributions I make before Roth IRA contributions
- The whole-life profile of saving. Over the course of 30 years of contributions, I’ll switch from all Roth IRA to all traditional IRA contributions
- The spending profile I’m planning for in retirement
I think I’ll do more posts on retirement to fill these gaps. Thanks!
I may be no good at dating
I relayed a story about a dating experience of my own in, “Dating while deep in student loan debt — paying for that first date” of a date that I actually thought went pretty well.
Tonya and Michelle from It Started With Lip Gloss had a different read. They said that I made several mistakes and promise to go through them on their blog.
And that’s that! Thanks again for all the comments and keep them coming. Enjoy your weekend!