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11-24-2017, 08:31 AM
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#1
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Recycles dryer sheets
Join Date: Jul 2017
Location: Southern California Area
Posts: 99
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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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11-24-2017, 08:56 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
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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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11-24-2017, 09:00 AM
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#3
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Recycles dryer sheets
Join Date: Jul 2017
Location: Southern California Area
Posts: 99
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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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11-24-2017, 10:54 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Location: Denver
Posts: 3,519
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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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11-24-2017, 11:04 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Dec 2010
Location: USA
Posts: 1,050
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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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11-24-2017, 11:19 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Sep 2002
Posts: 1,178
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Spot on! Every year gets more valuable.
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11-24-2017, 11:43 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,370
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Are your calculations based on actual pro forma tax returns?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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11-24-2017, 07:14 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2011
Posts: 8,417
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Quote:
Originally Posted by RunningBum
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.
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+1 "...to take or delay retirement..." or anything else.
IMO there's something about "knowing the cost of everything and the value of nothing."
__________________
Living well is the best revenge!
Retired @ 52 in 2005
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11-25-2017, 04:18 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Jun 2017
Location: Western NC
Posts: 4,633
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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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11-25-2017, 04:27 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,145
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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.
__________________
Retired since summer 1999.
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11-25-2017, 05:21 PM
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#11
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Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
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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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11-25-2017, 11:03 PM
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#12
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Moderator
Join Date: Jul 2017
Posts: 5,774
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Yes, it is another, very heavy straw on this camel's workhorse's back.
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11-26-2017, 12:04 AM
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#13
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Thinks s/he gets paid by the post
Join Date: Jun 2004
Location: Diablo Valley (SF Bay Area)
Posts: 2,705
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Quote:
Originally Posted by Toddtheaccountant
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?
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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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11-26-2017, 12:06 AM
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#14
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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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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11-26-2017, 03:13 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Aug 2006
Posts: 2,433
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Quote:
Originally Posted by Toddtheaccountant
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?
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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.
__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
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11-26-2017, 05:58 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Dec 2010
Location: Midwest
Posts: 1,795
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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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