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Tax motivated retirement
Old 11-24-2017, 09:31 AM   #1
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Tax motivated retirement

Another "nail in the coffin" so to speak motivating me to early retirement is the fact that, based upon my asset level, it i large enough to support our spending goals but small enough that, in retirement based upon my AA, it will throw off not so much income to put is in a higher tax bracket. Said another way, if I work three more years, the incremental income the portfolio will throw off due to a larger portfolio will be taxed at a higher federal and state rate. So why work three more years just to give more taxes in retirement to the beast? Exactly.

Anybody else consider the same thing?
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Old 11-24-2017, 09:56 AM   #2
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I try not to let taxes rule major decisions. I'll optimize my tax situation by taking or avoiding income to level out taxes over time and get subsidies, but taxes themselves aren't enough to take or delay retirement.


Sounds like you have enough now but maybe not quite the buffer you'd like? I'd look at how much you can net and pad your portfolio in the next 3 years and whether it's worth your time. I wouldn't base it on how much taxes I'd be paying. Whether it's less than you think because of taxes or a lowered wage or whatever reason is not important. It's what YOU get out of it, not what you don't get.
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Old 11-24-2017, 10:00 AM   #3
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Thanks runningbum and I agree. To clarify, the benefit of working those theoretical three extra years is diminished because of the higher incremental tax rate on the earnings thrown off from those assets. I'm looking at it from a net of tax incremental benefit in retirement.
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Old 11-24-2017, 11:54 AM   #4
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As long as you have enough today, look at it, instead, from the viewpoint of spending three more years of a finite lifespan at work. You'll find the benefit greatly reduced compare to the loss to taxes.
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Old 11-24-2017, 12:04 PM   #5
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I've been looking at the "value" after taxes. While I'm in a fortunate situation "high income" it's painful. I have considered taking a lower or part time position to coast the final years but I'm targeting age 50, so more is better, right?

I've elected not to purchase more rental properties as the passive income can add more trouble than index funds for my future income, tax situation, ACA, etc.
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Old 11-24-2017, 12:19 PM   #6
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As long as you have enough today, look at it, instead, from the viewpoint of spending three more years of a finite lifespan at work. You'll find the benefit greatly reduced compare to the loss to taxes.
Spot on! Every year gets more valuable.
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Old 11-24-2017, 12:43 PM   #7
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Are your calculations based on actual pro forma tax returns?
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Old 11-24-2017, 08:14 PM   #8
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I try not to let taxes rule major decisions. I'll optimize my tax situation by taking or avoiding income to level out taxes over time and get subsidies, but taxes themselves aren't enough to take or delay retirement.
+1 "...to take or delay retirement..." or anything else.

IMO there's something about "knowing the cost of everything and the value of nothing."
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Old 11-25-2017, 05:18 PM   #9
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Why not change where the extra income is saved (taxable vs. tIRA vs. Roth) to change the tax treatment of "income" (qualified dividends/LT capital gains vs ordinary vs. untaxed) thrown off from those incremental assets?
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Old 11-25-2017, 05:27 PM   #10
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No, I don't think I'd retire for that reason. I had lots of other reasons to retire.

My retirement portfolio grew a lot bigger anyway, so wouldn't have mattered.

Of course I get to keep a lot more of my income in retirement since I don't pay FICA and most of my income is taxed at cap gains rates.
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Old 11-25-2017, 06:21 PM   #11
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In 2014 I had to write a check for my income taxes, after paying quite a bit throughout the year as part of withholding.

I set a date two years out to retire. I did not want to work for half price.
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Old 11-26-2017, 12:03 AM   #12
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Yes, it is another, very heavy straw on this camel's workhorse's back.
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Old 11-26-2017, 01:04 AM   #13
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Originally Posted by Toddtheaccountant View Post
if I work three more years, the incremental income the portfolio will throw off due to a larger portfolio will be taxed at a higher federal and state rate. So why work three more years just to give more taxes in retirement to the beast?
ok, I'm not as smart as others but let me ask a dumb question:
  • If someone's marginal tax rate (taxes paid on the next dollar) increases to 25% or 35%, wouldn't that mean they get to keep 75% or 65% of that next dollar and isn't 75% or 65% better than $0?
I totally get wanting to step out of the rat race but not for what you state.
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Old 11-26-2017, 01:06 AM   #14
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I think that it is worth spending some time modeling your tax situation after retirement. With the right mix of investments and passive income sources, it is surprisingly easy to keep your income tax liability really low -or even nil- even with a multi-million dollar retirement portfolio. Working three more years may not make that much of a difference to your tax liability in retirement.
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Old 11-26-2017, 04:13 AM   #15
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Originally Posted by Toddtheaccountant View Post
Said another way, if I work three more years, the incremental income the portfolio will throw off due to a larger portfolio will be taxed at a higher federal and state rate. So why work three more years just to give more taxes in retirement to the beast?
The other side of the argument is that, unless your marginal tax rate would be 100%, your after-tax income will still increase. So the question reverts back to whether you currently would have enough after-tax income to support your desired lifestyle.
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Old 11-26-2017, 06:58 AM   #16
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As long as you have enough today, look at it, instead, from the viewpoint of spending three more years of a finite lifespan at work. You'll find the benefit greatly reduced compare to the loss to taxes.
I agree. Plus, many retirees I talk to, who were already in good financial shape when they pulled the trigger, have actually seen their "nest egg" increase during retirement. Great stock market? Perhaps. Do retirees spend less? Maybe. But I think part of it is not needing to spend money on "stress relieving" activities all the time (entertainment, eating out regularly) and having the time to actually budget, shop for deals, do fixit projects yourself, prepare meals at home, etc. And no longer needing to contribute to your retirement account certainly helps.
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