Poll: How much income do you need to retire?

[Moemg]

I don't need $200,000 but I would enjoy having the option for a year or two !

 

[wingfooted]

often people have little to no understanding how drastically taxes can be reduced in retirement. .

I took this point on and ran a 'simulation' via 2013 turbo tax for a hypothetical couple with a $5MM after tax portfolio generating 5% capital gains per year, $22,000 property tax and state income tax (Oregon, admittedly a high tax rate). 'Schedule A' deductions are the real estate tax plus standard deduction. No other income or SS or pensions.

$5MM x 5% = $250000 per year gains.

I dont think it is fair to say that you can tax loss your way out of capital gains as eventually the tax man will have his due, either that or you are not growing your net worth to offset inflation and withdrawals.

Tax Simulation Results

If 100% long term gains (low case) State Tax $20475 Federal Tax $20269 Total Tax $40744

If 100% short term gains (high case) State Tax $20475 Federal Tax $44873 Total tax $65142


Still a hefty amount.

 

[2017ish]

The main point of my question is not to criticize the spending--but criticize the calculation..with no major debt, I have to wonder if the math is wrong. often people have little to no understanding how drastically taxes can be reduced in retirement. Or they include school tuition as an ongoing expense instead of the limited obligation it represents. Without details it is impossible to know if $200k is the right amount--right in the sense of correct- not morally. This is why I asked for details. As you pointed out, by showing more details we can all learn more about what it will be like for us, boosting spending in some areas over what others might spend, and eliminating or drastically reducing spending in other specific areas.

Wow, this thread continues! After mulling it over a bit, I can answer how one couple is planning to spend 200K+ in early retirement years, with a slight backoff as we age. And I have no illusions at all regarding taxes, which will be amazingly less in retirement, as that item presently is the majority of all our spending. (not just the biggest item, but the majority).

Here are the pieces of the budget after several OMYs to safeguard a 45yr retirement plan.

1. Well less than 50K on baseline spending. Driving our existing old hondas, continue shopping Target, WMT, and Goodwill for Clothes; paid off house/land; low cost of living; prop. taxes of 1800; de minimis taxes at this level. Healthcare is the wildcard here, but if we both remain competent/healthy, we would be good with this amount to sit on our deck, read our books, and drink down our wine cellar (replacing each bottle with a less expensive number as we go, if need be).

2. Travel. Budget line is our spending less baseline spending and taxes (see below). Costs add up fast. DW's arthritis doesn't like international flights in coach. Live aboard diveboats run 6000-14000 per couple for a 7-10 day trip. Probably limit to 6 or less a year? Other than diving, we've never been overseas. A whole world awaits. And after 15 years of adventure traveling (or so), both North America and Australia are begging us to hit the road for long RV trips. Something tells me that we'll have no difficulty in spending this part of the budget.

3. Taxes on TIRAs. Ouch. DW has an IRA that is in the range of those "exposed" in some of the "eat the rich" polemics. Many years of maximizing both employee and employer contributions, and aggressive investing in equities. A good problem to have, but it needs to be reckoned with.

 

[urn2bfree]

I took this point on and ran a 'simulation' via 2013 turbo tax for a hypothetical couple with a $5MM after tax portfolio generating 5% capital gains per year, $22,000 property tax and state income tax (Oregon, admittedly a high tax rate). 'Schedule A' deductions are the real estate tax plus standard deduction. No other income or SS or pensions.

$5MM x 5% = $250000 per year gains.

I dont think it is fair to say that you can tax loss your way out of capital gains as eventually the tax man will have his due, either that or you are not growing your net worth to offset inflation and withdrawals.

Tax Simulation Results

If 100% long term gains (low case) State Tax $20475 Federal Tax $20269 Total Tax $40744

If 100% short term gains (high case) State Tax $20475 Federal Tax $44873 Total tax $65142


Still a hefty amount.

Wrong.
Your calculation makes a fatal error assuming you are cashing out capital gains all the time. There is no reason for that and you should still have an appreciating portfolio to offset inflation.
Let's assume they have no capital losses to offset the gains.
Let's assume the portfolio grows by 5% -2% of that is by dividends ($100,000) which must be taxed but the rest -the other 3%- by Capital Appreciation($150,000) which you decide when they become "gains" and are taxed by when and what you sell. Now if your mutual funds are throwing off 3% capital gains every year, of course you do have to pay taxes on it, but you need to get into different mutual funds if that is the problem...and then that ignores the other appreciation you should be enjoying from the unclaimed capital gains of the appreciating value of your assets...so that would assume a higher portfolio growth then we are talking about here. Then you could easily afford a better financial advisor who would put you in good low cost funds that do not throw off huge capital gains every year on which you owe taxes. A good mutual fund has low costs, meaning low trading, which means few capital gains, and the well run funds offset those gains with losses such that your portfolio value increases but your year end capital gains are low.

There are way too many variables to only have one answer, but here is one example-
So let's say I actually want to withdraw the same $250,000 every year as implied:

$100,000 --ALL of it the dividends thrown off leaves me needing $150,000 more. so I sell $150,000 worth of stock. Now my total money to spend is the same $250,000 you reported BUT- and this is the big BUT so to speak- only part of that $150,000 will be capital gain...some of it HAS to be return of principle. You cannot sell only your capital gain...it is impossible. If you have been a good investor and only have winners and no losers to sell, and you doubled your money ONLY half of it will be capital gains. Again, if you only have assets that have doubled in value your portfolio is probably growing so fast (probably more than 5% a year) that taxes are probably not a big deal to you. But let's assume we are that good for now

So you would have to run your simulation on capital gains of $75,000. (Half of the $150,000 worth of stock you sold) So the couple would get $250,000 to spend but their income is $175,000. (Lower if they owe taxes on much of it). Even so, a couple with taxable income under $175,000 a year (and it will be reduced by itemizing deductions, exemptions etc) is NOT paying 25% taxes on their dividends and capital gains.

Depending on how they have their $5,000,000 invested, I can easily envision a couple having a decent $150,000 withdrawal some years and not owning a single solitary penny in Federal taxes whatsoever. $250,000 is harder to get into those lower tax brackets with zero cap,gains. Unless you have a poorly appreciating lump of cash as your portfolio, but proper portfolio construction should allow people to take out very sizable piles of money every year at very low tax rates compared to what an equal working person's income would require if he were making the money working rather than the investments doing it.

I suspect many make the same error when estimating how much money they might have to pay in post retirement taxes


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[Texan1636]

Wow, this thread continues! After mulling it over a bit, I can answer how one couple is planning to spend 200K+ in early retirement years, with a slight backoff as we age. And I have no illusions at all regarding taxes, which will be amazingly less in retirement, as that item presently is the majority of all our spending. (not just the biggest item, but the majority).

I agree on the tax front. I got criticized by a few here when I first posted months ago, because I indicated that I hoped to spend $320k per year off an $8 million asset base. I realize that's a lot of spending, but $80k of the budget is allocated to big travel and $32k for charitable contributions (and that still leaves a lot of flexibility to reduce spending if needed based on market performance). With about $7 million of the assets in taxable (accumulated mainly over past 10 years), there is a lot of tax basis to use - my estimate is that federal income tax will be less than $20k in first few years (actually even less than that right at first, due to tax loss harvesting that we did in 2008 and 2009). I don't feel badly about prospectively paying so little in taxes, given the staggering amount of taxes we have paid over the past 10 years.

 

[Fred123]

I agree on the tax front. I got criticized by a few here when I first posted months ago, because I indicated that I hoped to spend $320k per year off an $8 million asset base. I realize that's a lot of spending, but $80k of the budget is allocated to big travel and $32k for charitable contributions (and that still leaves a lot of flexibility to reduce spending if needed based on market performance). With about $7 million of the assets in taxable (accumulated mainly over past 10 years), there is a lot of tax basis to use - my estimate is that federal income tax will be less than $20k in first few years (actually even less than that right at first, due to tax loss harvesting that we did in 2008 and 2009). I don't feel badly about prospectively paying so little in taxes, given the staggering amount of taxes we have paid over the past 10 years.

Well, your taxes couldn't have been that staggering -- you still managed to accumulate $8 million, which puts you in the top 1% of net worth.

 

[wingfooted]

Wrong.
Your calculation makes a fatal error assuming you are cashing out capital gains all the time. There is no reason for that and you should still have an appreciating portfolio to offset inflation.

Thanks for your feedback and I am making some simulation runs on excel to look at different tax scenarios. Important topic for me as I am not a 'tax efficient ETF investor' - more of a trader and harvesting short and long term capital gains/losses on a very regular basis. Let you knew when done.

 

[Amethyst]

We admire large, extravagant homes, assuming the owners spent as much on a good architect/landscape designer as they did on size alone. Unless the house is just a big ugly eyesore, the most "critical" thing we might say would be, "Wow, must take a full-time staff to keep up that place!"

Amethyst

If I mean to slam a house for being excessively huge or extravagant, I don't call it a McMansion; I call it "A Monument to Oneself". Sometimes when we are on pleasure drives through the neighborhoods, one or the other of us might point and say, "OMG, look at that! What a monument to oneself!!!"

 

[albundyz]

just a note regarding the poll, I don't know "where" most responders live, but the cost of living in certain areas is very high, much higher than others. We live in So California and our 2015 budget is $80K and there ain't much left over after paying the reasonable bills........ nevertheless, people from many parts of the country would think $80K was excessive.