Best Advice to Those Starting LATE on the FIRE path??

[bow-tie]

Sounds like a fine plan: Simple enough to do; strong enough to work.

Agreed. And makes all of those excuses we hear about how "we just can't do it right now" hold even less water...

For the vast majority - - - - Where there's a will, there's a way.

 

[deserat]

"Thanks Bosco. I agree that the concern is valid. However, there's another side of the story. During their LONG working life, the non-LBYMers, pay a substantial portion of their total income into the system, while the LBYMers find way to avoid taxes. By not spending, LBYMers effectively dodge tax. By spending, the non-LBYMers keep the economy humming. All things taken together, I believe the spenders are bad to themselves, but good for the nation."

Huh? During my working life, at my present salary, I pay a lot of taxes - in the US most of our taxes are not the consumption type as you are alluding to - (like VAT as in Europe) - so my taxes are actually mostly based on my income - and how that income is derived, whether 'earned' or non-earned (convenient term for me to mean capital gains/etc). For many ERs there is the balance or optimization point at which they can have income, fuel their desired lifestyle and minimize the tax burden - however, many of them still pay taxes.

I do have a concern over the taxation policy going to a consumption or net worth or 'take-back' on the Roth - that could markedly increase the amount of savings one would need for lifestyle sustenance as an ER.

I agree, for the most part, that spenders can be bad for themselves, but good for the nation...however, I don't agree that we 'dodge' taxes. I'd be willing to hazard a guess that even in ER, many of our ilk still pay quite a bit in taxes---i.e. we arepart of the giving pool vice the receiving pool for the wealth redstribution aspect of our federal tax.

Deserat

 

[FinanceDude]

I wouldn't worry too much.......even if they did, there would be a long grandfather clause built in.............

But, if the federal deficit doubles in the next 10 years, who knows??

 

[Sam]

I agree, for the most part, that spenders can be bad for themselves, but good for the nation...however, I don't agree that we 'dodge' taxes. I'd be willing to hazard a guess that even in ER, many of our ilk still pay quite a bit in taxes---i.e. we arepart of the giving pool vice the receiving pool for the wealth redstribution aspect of our federal tax.

If "dodge" is the problem, how about "minimize". Neither one is illegal nor unethical in my view. Consider this: 2 families making the same salary, say 100K annually.

The LBYM-family puts away 20K in 401K, and 8K in IRA. The family taxable income is reduced to 72K. At the 25% marginal tax rate, this family just saves 7K in federal tax.
This family also save an additional 10K after tax. Since this 10K is not spent, they just saved an additional 750 in sale tax. Total tax saving = $7,750.

The spender-family saves nothing, spends all, therefore pays at least twice as much in tax.

 

[JustCurious]

If "dodge" is the problem, how about "minimize". Neither one is illegal nor unethical in my view. Consider this: 2 families making the same salary, say 100K annually.

The LBYM-family puts away 20K in 401K, and 8K in IRA. The family taxable income is reduced to 72K. At the 25% marginal tax rate, this family just saves 7K in federal tax.
This family also save an additional 10K after tax. Since this 10K is not spent, they just saved an additional 750 in sale tax. Total tax saving = $7,750.

The spender-family saves nothing, spends all, therefore pays at least twice as much in tax.

Sam, your point is valid, but your math is wrong. A family making 100k a year cannot deduct IRA contributions because their income is too high.

 

[Sam]

You might be right. I don't have an IRA account, so yes, I was speculating. May be Justin can help clarify this.

Anyway, assuming I'm wrong, the LBYM-family save 5K in federal tax instead of 7K.

 

[JustCurious]

No need to ask Justin, I already told you. If you don't believe me, see this link.


http://www.quicken.com/cms/viewers/article/taxes/25850

 

[Sam]

Thanks for the link, JustCurious.

If I read it correctly, the IRA can still be fully deductible if the 100K couple somehow manages to bring their AGI down to 52K, right? I do realize that 52K is a long way from 100K.

 

[JustCurious]

Sam, you are correct, but it would be extremely unlikely for that to happen. Few things are impossible, but that is extremely improbable.

 

[mjarzoms]

So, maybe increase the SWR to say 4.3 or 4.4%?

This guy has his own business. He has the opportunity to expand the business in the next year or two. He has children, but it doesn't appear college plans are in their future. The house is paid off.

Here's a big WOW factor for you...he has no health coverage for himself/family. Pays out of pocket. Financial disaster waiting to happen, in a big way. Of course I will be advising him that getting coverage should be the priority, but he's gotta already know that.

I may start a new topic on this, but your comment on college plans not being in the future for the children got me thinking how important education is becoming in order to make a decent living wage.
Here is a link to an article in the Nation on this subject for information.
http://www.thenation.com/doc/20070205/madrick

 

[Dog]

I hardly think that taking advantage of a 401k plan and/or IRA is dodging income taxes. We are already hearing politicians floating their ideas for taxing folks on their assets rather than income - and it may appeal to the masses based on how it is "packaged".