[USER]

I’m 48 yo and very behind in retirement after starting over at 40. My salary is 78k. I’ll have a pension of about 4k/month.

I have approximately 30k in a 457b and 30k in a Roth IRA.

I had to stop investing the last few years, but I’ve made room in my budget to start back.

Should I prioritize investing in the 457b or the Roth IRA?

[Ron]

I’m not familiar with 457b, but I’d do traditional IRA over Roth and make sure to calculate and invest the tax savings.

When you fill out a return, put $4K in Roth first, look at the bottom line tax, then switch it to traditional, and take the difference between that figure and the first.

Invest that savings whatever way you can (increasing your tIRA investment, taxable brokerage, etc.).

[Zane]

4k per month in retirement is way better than a lot of people. Cant beat a 457, true cheat code in life.

No tax in, no fees to withdraw

[Brad]

With a $4k pension and then social security you’re not likely behind by much if at all.

[Justin]

IMO- Roth IRA. With your salary… if you’re single you’re in the 22% tax bracket… which isn’t terrible.

And looking towards retirement… the pension will be taxable… so I’d take pay the taxes now and do Roth IRA.

[Joel]

You are living off of $70K/year before taxes and savings contributions. You already have $48K/year of your retirement covered. If you can make an additional $1,000/month in retirement you would have $60K/year.

That likely covers your current living expenses given you won’t be doing any more saving and you won’t have to make certain tax or retirement plan contributions at work. Anything else is gravy.

To cover an extra $12K/year, you need about $300K in other retirement savings. That should be your minimum goal.

Alternately if you could get Social Security to pitch in by working some odd jobs, that would further reduce your retirement needs.

By the way, if your pension has no inflation adjustment, you may need more in retirement savings that what I predicted.

That’s because the cost of everything typically doubles (or more) over the course of a person’s retirement.

That means your $4K/month will probably only be worth about $2K/month in today’s dollars by the time you die.

This will force you to lean more heavily on retirement savings in your later years, assuming you have them available.

Finally you might be able to mitigate some of your savings needs by purchasing a SPIA after you retire.

That’s because a SPIA purchased late in life tends to provide a slightly higher payout ratio that’s higher than you can safely withdraw from a balanced portfolio.

Of course any SPIA that maximizes your payout ratios does so by sacrificing what the beneficiaries of your estate receives.

Finally, 𝑺𝒉𝒐𝒖𝒍𝒅 𝑰 𝒑𝒓𝒊𝒐𝒓𝒊𝒕𝒊𝒛𝒆 𝒊𝒏𝒗𝒆𝒔𝒕𝒊𝒏𝒈 𝒊𝒏 𝒕𝒉𝒆 457𝒃 𝒐𝒓 𝒕𝒉𝒆 𝑹𝒐𝒕𝒉 𝑰𝑹𝑨?

That depends on the costs and investment options in the 457(b). Also can you make both Pre-tax and Roth to the 457(b)? Also are you working for a government employer? Or is this a commercial entity or a charity?

Without those details, it’s really a tough call.

A 457(b) has the advantage that there are no early withdrawal penalties. But for non-government employers, the 457(b) can be seized by creditors.

That makes the 457(b) a great option for government employees, but a lot more sketchy for other private sector employees.

Finally, your income should put you in the lower end of the 22% bracket. But it seems likely that you will have a significant source of pre-tax income in retirement – your pension.

This makes whether to contribute Pre-tax (Traditional) or Roth to retirement accounts a bit of a coin toss.

If you contribute pre-tax, you can save 22 cents on every dollar, but only on the first $8,250 you contribute.

After that you are in the 12% bracket and at that point it’s almost always preferrable to make Roth contributions.

[Prasad]

What’s your average annual expense? That’s an important detail you have missed.

[Author]

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