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Always refining that magic number!
Old 10-10-2011, 03:51 PM   #1
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Always refining that magic number!

Reading all the wisdom here pretty much scares me. I think we have more than enough to last forever, but I keep tweaking it.

The latest tweak last weekend was to look at income sources over the next 30 years and to try to estimate taxes based on the 2011 tax tables. It gets tricky because we're paying the mortgage off faster than the scheduled payments. Those deductions will go down rapidly and be gone in maybe 5 years. Probably our level of charitable giving will go down a bit when I'm not working. Overall, I just tried to SWAG it, but I think it's reasonable.

Some of our income for the next 7 or so years is sheltered as a return of investment on an installment sale. Some of it taxable over the same period as interest, although the interest goes down every year. This deal is well collateralized. Some of our income is tax free anyway and I'm hoping that grows some.

It's amazing how much of my working income goes to taxes right now. Even next year, when I intend to work part time, taxes are pretty major; if it weren't for health insurance and some vehicle benefits, I probably wouldn't want to even work part time next year. It's also pretty amazing how much the tax bite goes down when you don't have much earned income.

A big question I have is Social Security. I just turned 62 and plan on delaying SS until the payments on the installment sale run out or maybe even until age 70. For my SWAG on taxes, I presumed 100% of SS will get taxed as ordinary income. I know it isn't really 100%, but it seemed safer to assume 100%.

It still appears to work just fine. In 2.5 years, our last child will be out of college and we've got a college savings plan with 1 year's worth of money left in it. Between 5 and 6 years, the mortgage will be gone. By the time our installment sale payments stop, our expenses from just college and mortgage will go down by around $40,000 a year.

I guess 62 doesn't really qualify as retiring early around here, but without a pension, it feels pretty good to know that I'm pretty much working as a hobby right now. If part time doesn't feel good next year, I'll just quit.

There is a real wealth of information on this site. It should be mandatory reading for everyone at every age, but certainly for people who want to retire someday. Things like looking at expenses in retirement rather than a % of pre-retirement income are simple, but true genius.

Let me know what you folks think about assuming 100% of SS will be taxable.
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Old 10-10-2011, 03:59 PM   #2
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It's amazing how much of my working income goes to taxes right now. Even next year, when I intend to work part time, taxes are pretty major; if it weren't for health insurance and some vehicle benefits, I probably wouldn't want to even work part time next year. It's also pretty amazing how much the tax bite goes down when you don't have much earned income.
This does create the disincentive to work.

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Old 10-10-2011, 04:01 PM   #3
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Let me know what you folks think about assuming 100% of SS will be taxable.
I think that is a good assumption. It will be appealing, since we do need reforms in SS, and this particular one will minimize the impact on low income elderly.
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Old 10-10-2011, 04:46 PM   #4
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I made the same safe assumption about SS taxes.

However, the bigger question is what SS inflation rate to assume.
For my planning I went with 1% average SS increase and a 3% personal inflation rate.

Since Im 57 I'm assuming SS doesnt get trashed too badly for me.
Most of the politicians are talking about significant changes for the folks under 40 only.
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Old 10-10-2011, 05:22 PM   #5
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Let me know what you folks think about assuming 100% of SS will be taxable.
Beyond my generally being a fan of erring on the side of being too conservative, it seems like this could be ultimately one of those little "stealth means testing" tweaks that are an ultimate part of shoring it up, sure. And unless you're going to be a low tax bracket, you'll probably wind up with 85% taxable under the current law, so it's really not that much different.
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Old 10-10-2011, 05:37 PM   #6
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I have already factored 100% of SS being taxable in my spreadsheet (I am 46).
Quote:
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Let me know what you folks think about assuming 100% of SS will be taxable.
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The stealth tax
Old 10-10-2011, 05:44 PM   #7
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The stealth tax

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Originally Posted by ziggy29 View Post
Beyond my generally being a fan of erring on the side of being too conservative, it seems like this could be ultimately one of those little "stealth means testing" tweaks that are an ultimate part of shoring it up, sure. And unless you're going to be a low tax bracket, you'll probably wind up with 85% taxable under the current law, so it's really not that much different.
And, as you know... The income floor levels that set the 50 % or 85% of SS income that gets taxed are NOT indexed to inflation. So as inflation rolls on, the real floor for these taxes keeps getting lower. Essentially SS will be taxed more and have a lower (real) benefit as inflation kicks in over the years.

Means testing Stealth Tax

It doesn't seem quite right or quite fair does it ?
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Old 10-11-2011, 10:26 AM   #8
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I did not factor in any COLA on the SS payments. I just used what it would be at full retirement and then increased it by appropriate percentage, which I think is 8% per year, until 70.

Do ya'll figure in a COLA? That would make the numbers even better.

A neighbor retired last year when she hit 62 and took SS. Her husband was already retired and gets a nice pension. The neighbor was floored when she asked me why I didn't take SS immediately upon turning 62 and I told her how much it would be if I waited until somewhere between age 66 and 70. I'm floored well educated people don't get this. My sister did the same thing when she turned 62, but I think she probably needed it more than the neighbor.
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Old 10-11-2011, 10:32 AM   #9
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I figure in a COLA in projecting SS payments.
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Old 10-11-2011, 11:23 AM   #10
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I'm floored well educated people don't get this.
Education, and the well educated is not equal to common sense, IMHO.
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Old 10-11-2011, 11:27 AM   #11
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A neighbor retired last year when she hit 62 and took SS. Her husband was already retired and gets a nice pension. The neighbor was floored when she asked me why I didn't take SS immediately upon turning 62 and I told her how much it would be if I waited until somewhere between age 66 and 70. I'm floored well educated people don't get this. My sister did the same thing when she turned 62, but I think she probably needed it more than the neighbor.
Actually, delaying SS may or may not turn out to be financially advantageous. We've discussed this on numerous threads here. There are assumptions to be made in either case which won't be verified until the years pass.

Additionally, couples where one is subject to WEP and GPO have a completely different scenario to deal with which clearly favors the SS eligilble person starting SS early.

It's not as clear cut as your post makes it sound and a thinking person considers his/her personal scenario carefully when making the decision.
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Old 10-11-2011, 11:42 AM   #12
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I have spoken to a number of people who plan on taking it at 62. The consensus is... That since SS is going broke they have to get everything they can now... Before it's too late.
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Old 10-11-2011, 06:49 PM   #13
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Additionally, couples where one is subject to WEP and GPO have a completely different scenario to deal with which clearly favors the SS eligilble person starting SS early.

It's not as clear cut as your post makes it sound and a thinking person considers his/her personal scenario carefully when making the decision.
Can you tell me more about the WEP GPO related issues to taking SS? Can't find useful information on the web. DW retired as a teacher with a modest pension, I am a Federal (CSRS) retiree. DW will get something like $100 to $200 a month from SS since she had ten years teaching in parochial schools years ago where they paid into SS. She is of the opinion that its always better to wait for SS and fortunately we do not need it for survival so I don't argue but I would like to understand the situation better.
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Old 10-11-2011, 07:21 PM   #14
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The latest tweak last weekend was to look at income sources over the next 30 years and to try to estimate taxes based on the 2011 tax tables.
When I was planning my retirement I decided that I really couldn't plan more than 10 yrs out. That's when I plan to start dipping into my retirement accounts (I'm on a pension right now). It's hard for me to see what the world will be like 20-30 yrs from now. I just want to time to adapt as I go.
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Old 10-11-2011, 07:24 PM   #15
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Let me know what you folks think about assuming 100% of SS will be taxable.
I have assumed this in my calculations since I began them, back in 2000. I also assumed a tax rate of about twice what my tax rate as a retiree turned out to be. Like Ziggy29, I tend to be pretty conservative about such things. Anyway, I don't see anything wrong with making the assumption that 100% of SS will be taxable and I'd recommend such an assumption. Probably a good idea.
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Old 10-11-2011, 07:34 PM   #16
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Can you tell me more about the WEP GPO related issues to taking SS? Can't find useful information on the web. DW retired as a teacher with a modest pension, I am a Federal (CSRS) retiree. DW will get something like $100 to $200 a month from SS since she had ten years teaching in parochial schools years ago where they paid into SS. She is of the opinion that its always better to wait for SS and fortunately we do not need it for survival so I don't argue but I would like to understand the situation better.
The take SS early crowd falls into three groups

group 1) If you plan on dying young, then take SS early. Don't wait.

group 2) If you can take those payments at 62, invest in "the sure thing" to make boatloads of money, then you could (perhaps) come out ahead.

group 3) If you believe SS is financially doomed and the payments will stop any day now, then you better start early and get whatever you can while you can.

For what it's worth though, SS by design is actuarily balanced so that you, the average person, (alone) will get about the same amount of total dollars no matter when you retire. Your milage may vary though. However, when you include spousal and survivors benefits into the mix, depending on your circumstances, waiting just may be in your family interest.
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Old 10-12-2011, 04:33 PM   #17
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...how much it would be if I waited... I'm floored well educated people don't get this.
Really? I'm floored when well educated people don't get the concept of Present Value and the time-value-of-money. Also bemused by people who don't understand what it means when the SSA itself says the payments are actuarially identical, whether you start at 62 or at 70.

The best retirement income advice I ever heard was this:
Investments, IRAs, and 401(k) to live on;
Company pension for trips to Europe or Bahamas;
Social Security for lap dances.
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Old 10-12-2011, 07:33 PM   #18
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For what its worth, I'm 40 years old and I assume there won't be social security when I retire. I plan on receiving zero. (Though I agree that won't be the case for people 50+.)

Overly conservative perhaps but there is such radical surgery required to the federal budget that I think you need to assume you're on your own.
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Old 10-12-2011, 08:39 PM   #19
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I'm also 40, and also assuming 0 social security. I hope the assumption is wrong, but I feel more comfortable planning to live only off my portfolio.
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Old 10-12-2011, 10:22 PM   #20
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I'm also 40, and also assuming 0 social security. I hope the assumption is wrong, but I feel more comfortable planning to live only off my portfolio.
When I was 40 I said the same thing about SS - that it wouldn't be there for me. I'm 55 now and believe it will be there for me eventually, albeit with modifications to today's formula's. I am sure the same will be true for today's younger workers when they get to the age of eligibility - whenever that is.
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