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Old 05-06-2012, 11:46 PM   #21
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I am 67 and DW is exactly 4 years younger than I am. I have delayed my SS and I am using what is sometime called the 62/66/70 strategy. As I have reached FRA, I can opt to begin my SS benefits or I can apply for DWs benefits (as her spouse) and my account continues to accrue delayed retirement credits of 8% annually until age 70. This is a large part of my plan. When I reach age 70 I will apply for my (now increased by at least 32%) benefits and DW will then file for spousal benefits and cancel her lower SS benefits under her #.

mickeyd, I will explore the strategy of taking spousal benefits next year at 66 since DW started at 62 on her earnings record. It still sounds too good to be true, but I'll check on it.

When we first signed DW up for SS benefits, the "guy" estimated that her "half" of my 70 benefit might be virtually the same as her "continuing" 62 benefit at that time. IOW, her half of my 70 benefit would be significantly reduced (32%??) because she began at 62 and it could end up being within a few dollars. Not that I won't check it at that time. You probably already knew this, but just in case...
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Old 05-07-2012, 12:22 AM   #22
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Not ER, still accumulating for a few more years. I admit I have not spent a lot of time on this topic. Just looking at my %, our assets are spread fairly evenly Taxed Investments 30%, Real Estate Investments 28%, Taxed Advantaged 30%, then personal real estate 12%. It was not intentional, just happened.

For me, a few things come to mind:
- Where’s my $$ and how easy is it to access?
- What are the tax advantages?
- What impact does it have on my estate for my kids, maybe?

When I ER or semi-ER, I will have a few income sources:
- Rentals (covers barebone budget)
- Contract part time work (big maybe or seasonal)
- Taxed Savings/Investments
- Small pension at age 55
- Spouse’s SS at 62
- My SS at 67 – 70
- IRA/401k savings (will consider converting to Roth if it makes sense in the future)

As I get older and no longer can/want to be a landlord, I will sell rentals and consider bonds and/or SPIAs.

I think I listed in order of spend.withdraw to some degree.
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Old 05-07-2012, 05:47 AM   #23
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I've thought a lot about this and I suspect you are correct that VAT will eventually come. It will come in the guise of "lowering" (i.e., revenue neutral) other taxes, e.g, income tax. Of course, it will simply be one more tax that can be "tweeked" upwards as the pols figure new ways to buy votes with tax money. Right now, you actually hear a fair amount of support for some type of VAT tax. However, when the time comes, it's just possible that folks will rethink the idea. Imagine if a new car would suddenly cost 15% more to purchase. Would that, perhaps, slow down all phases of the car business? (The car business used to be 1/7 of the economy.) What about vacations, "luxuries", etc.? Will folks balk at spending for these items? IIRC, the "luxury" tax killed the boat industry for several years.
I was told that its good for everybody when you spread the wealth around. It's patriotic to pay taxes!
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Old 05-07-2012, 08:00 AM   #24
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I see lots of postings about spouse SS benefits for retirement- and we plan the same. But we also have a plan two in case one of us passes, or ends up in long term care. These events can changes SS and taxes. So we took that into account when we chose pension options and will do so when we start to draw from retirement. My mom was thrown off when dad passed and they were down one SS check and taxes went up. They had other assets, so she is fine, but dad's illness had it prolonged, could have had a negative effect on what was left for mom.
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Old 05-07-2012, 08:11 AM   #25
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I wish I could go back and restructure much of my savings planning. I saved a lot, but I would dramatically change the WAY I saved if I had it to do over (example, much less 401(k) and more taxable). YMMV
I am not sure why one would do that.

If a VAT is added on top of the current income tax, what difference would it make? It's simply another tax. The tax defered account maintains its advantages and disadvantages. And, I don't see a difference for not tax advantaged money.

If a VAT is added and the income tax is reduced by the same dollar amount then things get interesting. The tax deffered account starts to look good since, upon withdrawal, one would pay a lower tax rate. Roths may look worse since the taxes on the initial contributions were paid at the earlier, higher rate - but one still has the tax free earnings to offset that. Withdrawals from non-taxed advantaged money would remain the same - no tax since it has already been paid.

If I am wrong or have left something out, please let me know.
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Old 05-07-2012, 09:32 AM   #26
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I am not sure why one would do that.

If a VAT is added on top of the current income tax, what difference would it make? It's simply another tax. The tax defered account maintains its advantages and disadvantages. And, I don't see a difference for not tax advantaged money.

If a VAT is added and the income tax is reduced by the same dollar amount then things get interesting. The tax deffered account starts to look good since, upon withdrawal, one would pay a lower tax rate. Roths may look worse since the taxes on the initial contributions were paid at the earlier, higher rate - but one still has the tax free earnings to offset that. Withdrawals from non-taxed advantaged money would remain the same - no tax since it has already been paid.

If I am wrong or have left something out, please let me know.
Additions to taxable accounts instead of a 401K would make sense if the current tax structure of significantly lower tax rates for Capital Gains and Dividends is maintained indefinitely.

As to VAT, i suspect that I would be much easier to sell politically if it is presented as a replacement for our current income tax. The government would have several incentives for going this way

1) Easier to collect and enforce
2) 401 k, IRA, Roth don't matter anymore Gov still collects tax revenue
3) Probably can be sold to the public as a "fair" tax everybody pays
4) Most people won't have to worry about tax preparation headaches
5) Economic distortions and complexity from current tax system and tax credits and tax exempt entities will diminish.
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Old 05-07-2012, 01:26 PM   #27
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Originally Posted by Chuckanut View Post
I am not sure why one would do that.

If a VAT is added on top of the current income tax, what difference would it make? It's simply another tax. The tax defered account maintains its advantages and disadvantages. And, I don't see a difference for not tax advantaged money.

If a VAT is added and the income tax is reduced by the same dollar amount then things get interesting. The tax deffered account starts to look good since, upon withdrawal, one would pay a lower tax rate. Roths may look worse since the taxes on the initial contributions were paid at the earlier, higher rate - but one still has the tax free earnings to offset that. Withdrawals from non-taxed advantaged money would remain the same - no tax since it has already been paid.

If I am wrong or have left something out, please let me know.
In my case, it wasn't the VAT potential that I referred to. VAT isn't even a reality yet. I was simply pointing out that I had not left myself with as flexible a set of income sources as I believe I should have. I simply ended up with way too much tax-deferred money and too little taxable money. SO, now, whenever I need an infusion of cash, I MUST take it from deferred money and pay the tax (up to 25%). IOW, I gave up flexibility to save taxes all those years ago. Now that I am older (wiser) I can see the advantages of having more already-taxed money to blend with deferred money. I can see how anyone else might disagree with this. It shows the issues of the capricious nature of the tax code AND the capricious nature of those who tax us. Not whining (well, maybe just a little) just recognizing reality for my own situation. Yours may be different because YMMV.
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Old 05-07-2012, 06:44 PM   #28
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I was simply pointing out that I had not left myself with as flexible a set of income sources as I believe I should have. I simply ended up with way too much tax-deferred money and too little taxable money. SO, now, whenever I need an infusion of cash, I MUST take it from deferred money and pay the tax (up to 25%). IOW, I gave up flexibility to save taxes all those years ago. Now that I am older (wiser) I can see the advantages of having more already-taxed money to blend with deferred money. .
I'm in a similar boat; waaay too much in the IRA and only a little (15%) in the taxable.

IF (big if) a VAT did come our way and they reduced the regular income tax, we could come out ahead...but...y'know what?? They'd say, that it wasn't 'fair' and any IRA w/drawals would be taxed at the old amount.

Seriously, if I had to do it all over again, I'd find a way to hide ALL the cash and get on the gov't dole.

Here in Mass, your EBT delivers an amazingly disturbing array of stuff...and, as one of our pols commented yesterday "Hey, it's the EBT recipients money...they can use it as they wish!"

Jus' sayin'
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Old 05-07-2012, 07:36 PM   #29
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I can't imagine that the politicians would be able to implement a VAT and reduce income taxes after a large contingent of intelligent, informed, and financially savvy, voting citizens had paid taxes to convert from pre-tax to Roths over a number of years (decade or more), without having to have a deduction on the income tax forms to counter the monies drawn from a Roth. Talk about political suicide! If a VAT does get implemented I suspect it will have to be done in our (US) standard way of tying on so many exceptions, exemptions, and loopholes that it doesn't significantly change the game plan. And truly (and this comes from a dyed in the wool anti-tax libertarian) if they were to completely dump the old tax system and implement a new and fairer one I don't think I'd mind if I got hit a little harder in the process. Just being proven wrong about the government's ability to do something right would be worth the extra money. I'd probably keel over from the surprise and my SWR wouldn't matter anymore.
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Old 05-07-2012, 08:38 PM   #30
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I can't imagine that the politicians would be able to implement a VAT and reduce income taxes after a large contingent of intelligent, informed, and financially savvy, voting citizens had paid taxes to convert from pre-tax to Roths over a number of years (decade or more), without having to have a deduction on the income tax forms to counter the monies drawn from a Roth. Talk about political suicide! If a VAT does get implemented I suspect it will have to be done in our (US) standard way of tying on so many exceptions, exemptions, and loopholes that it doesn't significantly change the game plan. And truly (and this comes from a dyed in the wool anti-tax libertarian) if they were to completely dump the old tax system and implement a new and fairer one I don't think I'd mind if I got hit a little harder in the process. Just being proven wrong about the government's ability to do something right would be worth the extra money. I'd probably keel over from the surprise and my SWR wouldn't matter anymore.
I'm having a hard time finding reliable statistics (surprise!) but the best I can find i s that 14.5% of the tax paying population contributed to an IRA (Roth and Regular IRA) in 2006. I don't know what percentage is Roth vs Regular IRA but I suspect it can't be better than 50% for ROTH (Wild ass guess on my part) if so, 7% or so of the contributors are Roth aficionados. If 7.5% of the IRA contributing population is in fact willing to vote based on a single issue and Roths are the deciding factor it doesn't sound like political suicide to me but I'm willing to be edumacated. As to your statement that "Just being proven wrong about the government's ability to do something right would be worth the extra money. I'd probably keel over from the surprise" I tend to agree.
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Old 05-07-2012, 10:53 PM   #31
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I'm having a hard time finding reliable statistics (surprise!) but the best I can find i s that 14.5% of the tax paying population contributed to an IRA (Roth and Regular IRA) in 2006. I don't know what percentage is Roth vs Regular IRA but I suspect it can't be better than 50% for ROTH (Wild ass guess on my part) if so, 7% or so of the contributors are Roth aficionados. If 7.5% of the IRA contributing population is in fact willing to vote based on a single issue and Roths are the deciding factor it doesn't sound like political suicide to me but I'm willing to be edumacated. As to your statement that "Just being proven wrong about the government's ability to do something right would be worth the extra money. I'd probably keel over from the surprise" I tend to agree.
Don't forget, only about 20% of the population actually votes. I think that 7.5% (or whatever) number are a group that are likely to be voters, especially if their pockets are being picked. It makes for a pretty significant chunk of the voting population. The people that make the noise seldom actually show up at the booths. I'll be curious to see how it plays out over time.
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Old 05-09-2012, 07:21 PM   #32
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mickeyd, I will explore the strategy of taking spousal benefits next year at 66 since DW started at 62 on her earnings record. It still sounds too good to be true, but I'll check on it.

When we first signed DW up for SS benefits, the "guy" estimated that her "half" of my 70 benefit might be virtually the same as her "continuing" 62 benefit at that time. IOW, her half of my 70 benefit would be significantly reduced (32%??) because she began at 62 and it could end up being within a few dollars. Not that I won't check it at that time. You probably already knew this, but just in case...
I don't know much about anything, but what I do know is that this strategy happens to work to a "T" for several reasons for us~ I am FRA; DW is exactly 4 years younger and has earned much less than I have; we do not need current SS to live on (but are happy to receive the current reduced amounts anyway); we are in good health and BOTH have a family health history that indicates that we may be part of the superannuated at some time in the future.

It's all a matter of doing the math and deciding if you are favored.
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