How does Retirement work? IRA skimming


When I was little, my neighbors used to get whole milk at the dairy. It would sit in the fridge in glass bottles and in a few hours, the cream would rise to the top. Taking the cream off the top with a spoon to make ice cream or butter was called “skimming”.

I wish someone had told me this concept related to money when I was in my 20s.

Maybe they did but either
1. I didn’t really get it
2. I thought it was my destiny to remain poor
3. I already knew everything
4. I didn’t know the power of giving

Had I known about “skimming” it might have made sense.

In my last post, I described 2 scenarios of a Gen X couple, age 47, about to retire in 15 years “early”” at age 62 by Social Security standards.

What would life be like for them if they began saving and investing now or had done so all along?

SCENARIO 1: “oh crap, we should have saved. Is it too late?”

It’s never too late.

Assume the same incomes as before-avg. household income of $50,000/year.

They work for the next 18 months selling cars they cannot afford, downsizing in house and pay off all debts except the house.

At age 49, they begin to direct 15% of their salaries ($7,500) into one or some of these:

companies offer a 6% match:
401k or 403b-
$6,000/year total goes in
and is matched with $6,000.

plus 2 Roth IRAs $750 each


the company doesn’t offer a match:
2 Roth IRAs.$3,750 each

They keep adding the same amount, get no raises over the next 13 years.
Kids are grown.

The 401k’s with the match are now worth:
$403,000 or more combined


The Roth Ira’s are now worth:
$ 268,000

Here comes the “skimming” part.

They withdraw 8% of this $671,000 each year to add to Social Security.

$53,680 added to $33,000 Social Security is a LOT more comfortable living than just Social Security,~ don’t you think?

Part of the $53,680 will be taxed coming from the 401k but still, living on $60,000 tax free and debt free is a BETTER lifestyle than they had while working.

They might even be able to give to animal shelters, help grandkids through school or help drill water wells in Africa.

What does the budget look like now?

Giving: $500
Utilities: $200
Food:$200 (or more if you don’t spend on cable, cars and mortgage)

You’ve barely spent $1,200 now and have $3,800 left.

Now, giving is possible.
Travel is possible.
Long term care insurance is possible.

It’s not too late.

SCENARIO 2: For grins, what would this look like if they HAD known in their 20s?

And they could retire at 59 and 1/2 without Social Security adding on until 62?

Assume they begin work at age 24.5 and work to age 59.5. 35 years.
Same income.
No raises.
One takes 10 years off for kids

$4M in the 401ks with match
$2M in the 401ks without match.


$626,000 in the Roths TAX FREE

Outrageous giving!
Finding a cure for endo or cancer.
Sending your grandkids to college.
Ending Malaria

It’s not too late!

Ask my grandma. She’s 101.

And drinks buttermilk every day.


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