Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Old 03-09-2012, 12:33 PM   #41
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,056
Quote:
Originally Posted by Koolau View Post
RE: Danmar's way of looking at taxes - I've chosen to look at taxes as an expense because taxes ARE (to some extent) manageable. Also, tax rates are not guaranteed, so may be higher in the future (meaning, more planning for that potential expense NOW).

Finally, the OP needs to be aware of the tax implications of having tax deferred money in retirement funds. Managing these funds is important to limit the tax impact.
Making Roth conversions in retirement is an obvious example of managing taxes. When I make conversions (2 so far) I pay the taxes out of my savings and treat that withdrawal as an expense just like all other withdrawals, and if that tax payment was going to cause me to exceed my target SWR of 3% I don't believe I would do it.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-09-2012, 01:30 PM   #42
Thinks s/he gets paid by the post
Finance Dave's Avatar
 
Join Date: Mar 2007
Posts: 1,854
Good article, but a bit misleading as it implies you need to save $2M by the time you're 50 ($3.5M - $1.5M already spent). Obviously each year you are earning more (even if only through investments), and using that to pay current expenses.

Reminds me of the study that said Americans will spend on average $xx on medical care during retirement. Same problem...implies you need that much all at once.
__________________
"Live every day as if it were your last, and one day you'll be right" - unknown
Finance Dave is offline   Reply With Quote
Old 03-10-2012, 07:19 AM   #43
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,393
@ Koolau. Yes I agree that taxes must be actively managed and can change ovr time. But if I viewed them as expenses they would move my total spend all over the map. i feek it is the discretionary consumption type expenses like travel, autos, entertainment that I need to manage. The tax expenses will be directly related to decisions I take on my income.
Danmar is offline   Reply With Quote
Old 03-10-2012, 09:25 AM   #44
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,794
Quote:
Originally Posted by Danmar View Post
@ Koolau. Yes I agree that taxes must be actively managed and can change ovr time. But if I viewed them as expenses they would move my total spend all over the map. i feek it is the discretionary consumption type expenses like travel, autos, entertainment that I need to manage. The tax expenses will be directly related to decisions I take on my income.
Quote:
Originally Posted by Alan View Post
Making Roth conversions in retirement is an obvious example of managing taxes. When I make conversions (2 so far) I pay the taxes out of my savings and treat that withdrawal as an expense just like all other withdrawals, and if that tax payment was going to cause me to exceed my target SWR of 3% I don't believe I would do it.
Obviously, both methods are acceptable and working for both of you (Yeah!!). Your two replies in close proximity got me rethinking my Roth conversions. I still consider the taxes I pay on DW's SS and my pension as "expenses" - IOW, I'll never get that money back. But now I'm wondering if the tax to cover conversions should be considered an expense to count "against" SWR (as Alan does). IOW Roth conversions COULD be looked at as a recognition of the lower value of deferred money. Converted properly (accounting for tax brackets, etc.) the actual value of one's total ER savings doesn't really change - only the numerical values change.

Bah!! Humbug!! I gotta quit thinking so much. That's the danger of learning too much on this forum! But, thanks for both replies.

Returning you now to OP's original question. YMMV
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 03-10-2012, 09:33 AM   #45
Thinks s/he gets paid by the post
 
Join Date: Dec 2010
Location: USA
Posts: 1,050
Quote:
Originally Posted by Koolau View Post
....Bah!! Humbug!! I gotta quit thinking so much. That's the danger of learning too much on this forum! ...
Thinking too much and crunching numbers is impacting my sleep. I rather consider scenarios than sleep =(
Aiming_4_55 is offline   Reply With Quote
Old 03-10-2012, 10:20 AM   #46
Thinks s/he gets paid by the post
Huston55's Avatar
 
Join Date: Jul 2011
Location: The Bay Area
Posts: 2,736
Quote:
Originally Posted by pb4uski View Post
It depends on one's situation. The "80%" that you frequently hear quoted and other rules of thumb commonly assume that you spend your entire take home check, which may be valid for most people, but is definitely not valid for many on these boards.

The best thing to do is to analyze what you spent for the two years before retirement and then make adjustments to that spending for things you think will change.

For us, I think our spending will be about the same as it was prior to retirement (after adjusting for now having only one house rather than two houses).
Quote:
Originally Posted by nun View Post
To early retire you have to be able to save a large portion of your income, 20, 30, 40 or even 50%. So many people on here already live on a small percentage of their income. Then take off all the retirement savings like no mortgage etc and you can get down to really small numbers. I'm looking at needing 30% of my gross income in retirement. Medical costs might go up, that obviously depends on your insurance policy and health, but your retirement plan should account for that increased cost.
OP-

I think these two posts contains contain excellent advice, and when read together, point out an important mechanism that is often overlooked when discussing comparisons of retirement budget versus working income. That mechanism is the often significant income increases one experiences late in a working career. When that occurs, the "replacement rate" method of determining retirement budget becomes even more useless.

Our personal experience is that we currently save a lot more and pay much more (too damn much) in taxes than we did 10 even 5 yrs ago. But, we also "spend" only about 30-35% of our gross annual income.

So, I think PB4's and Nun's advice is good.

1. Calculate spending using a bottoms up method and do a reality check by comparing your recent actual spending history.
2. Save, save, save; and you will get to the point where you're spending a small % of gross income each year.
__________________
You may be whatever you resolve to be.
100% x 10% > 10% x 100%
Small pensions & SS cover essentials
Huston55 is offline   Reply With Quote
Old 03-10-2012, 10:28 AM   #47
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,264
You make a good point Huston55 in that if I look at my annual spending in relation to my income during the years just prior to retirement, it was about 30% as well.

Taxes and saving (and some discretionary spending) were making up the difference.
pb4uski is offline   Reply With Quote
Old 03-10-2012, 11:31 AM   #48
Thinks s/he gets paid by the post
Huston55's Avatar
 
Join Date: Jul 2011
Location: The Bay Area
Posts: 2,736
Quote:
Originally Posted by pb4uski View Post
You make a good point Huston55 in that if I look at my annual spending in relation to my income during the years just prior to retirement, it was about 30% as well.

Taxes and saving (and some discretionary spending) were making up the difference.
Same for us now: saving, taxes & spending are the three big categories of where the $$$ go.
__________________
You may be whatever you resolve to be.
100% x 10% > 10% x 100%
Small pensions & SS cover essentials
Huston55 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Why I prefer Cuba to Mexico or Dominican Republic as a holiday destination Frugalityisthenewblack Travel Information 35 03-27-2012 08:53 AM
Has anyone signed up to be a member of Fidelity's Greenline Forum? dessert FIRE and Money 18 03-09-2012 10:56 AM
Trick for Getting Through to a Person TromboneAl Other topics 24 03-08-2012 11:44 AM
Poll: Did you ever own/wear a leisure suit (be honest)? Midpack Other topics 67 03-07-2012 06:12 PM

» Quick Links

 
All times are GMT -6. The time now is 01:22 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.