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Old 01-21-2013, 07:56 PM   #41
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Originally Posted by haha
God bless some guy with a $3 or 4mm IRA or 401 K when he has to start withdrawals.
If she saved that much in an IRA/401k, then she was in high tax brackets when she deferred the income. So again, a good problem to have had for many years! You don't read about too many people starving because of being in the high tax brackets!
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Old 01-21-2013, 09:36 PM   #42
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Originally Posted by Lcountz View Post
IF you know your retirement income, try to live on it for two years at least.

You will need to be truthful here-no cheating!!!!!

If you can, you are ready and able to retire.

If not, save more.
Problem in our situation is that we are projecting our expenses to go down about 50% over the next 6 years due to kids getting through college and becoming independent. I have a detailed breakdown of where they are going down, ie. cut food by 50% cut clothing by 50%, eliminate kids sports and allowance. I know 50% is a lot and it makes me uncomfortable without proving we can do it. But if I wait 6 years, we run the risk of ending up with way too much at the end of life. I think a part time job may be in the cards for me :-(
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Old 01-21-2013, 09:44 PM   #43
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All things considered, I would absolutely love to be in the top tax bracket. What a nice problem to have.
Then why did you decide to ER at age 52? Why wasn't it your plan to work full-time until age 80 or 85, thereby increasing the odds of eventually being in the highest tax bracket due to large investment returns and other payments (RMD's, dividends, capital gains, SS, pension, etc)? In reality, being in the top tax bracket may not be what it appears. If it is a nice problem to have, why did you choose ER over complete and total life-long dedication to your career?

While I understand the tongue in cheek humor, I often hear people make similar claims ... "I'd love to be in a high tax bracket" or "I wish I made a lot of money." But these statements are demonstrably false. Most people who ER choose less income and hence lower taxes. They choose ER over the stress, frustration, and pain that comes with additional work and income. What they really mean is, "I'd like to make a lot more money without any additional sacrifice on my part." Who wouldn't?

But there is no free lunch. I'm 53 and hope to ER this year. I currently have a solid income (not in the highest tax bracket) but this comes at a considerable price. I've taken only 12 days of vacation in the last 22 years. I've never taken a sick day. There has been only one day in the last two years when I haven't been in my office or on travel. That includes Christmas, Thanksgiving, and all other holidays. These have been personal decisions so I'm not in a position to complain. But I wouldn't ER if I enjoyed my work or enjoyed paying taxes. And when I ER, my total taxes will go from $65K/yr to under $10K/yr. Clearly, I want to pay less taxes, not more. I do not want to be in a high tax bracket.
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Old 01-21-2013, 11:50 PM   #44
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Any regrets on pulling the trigger too late or too early? This info would be hugely helpful for us trying to decide in the next couple years. Thanks!
From what I have read over the years, most would say the biggest mistake was pulling the trigger too late.....
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Old 01-22-2013, 12:01 AM   #45
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I've taken only 12 days of vacation in the last 22 years. I've never taken a sick day. There has been only one day in the last two years when I haven't been in my office or on travel. That includes Christmas, Thanksgiving, and all other holidays.
Wow, that is quite a record. Would you mind sharing what drove you to take so little time off? Did you own your own business?
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Old 01-22-2013, 10:38 AM   #46
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I've only been retired for about a year now and so far no real surprises "except" that my medical insurance is about 50% higher than I expected. However, as many have said in similar threads, it's not a bad idea to have a good handle on your current spending. Tracking all your spending for a few years before retirement is a good idea but 5 or more years of tracking is probably better. Also, as others have indicated, if you have a lot in tax deferred accounts, you might want what to consider how to handle those accounts while in your 60s before you have to take RMD and be forced into higher tax brackets at 70 1/2. It's a nice problem to have but needs to be considered.
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Old 01-22-2013, 10:41 AM   #47
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Then why did you decide to ER at age 52? Why wasn't it your plan to work full-time until age 80 or 85, thereby increasing the odds of eventually being in the highest tax bracket due to large investment returns and other payments (RMD's, dividends, capital gains, SS, pension, etc)? In reality, being in the top tax bracket may not be what it appears. If it is a nice problem to have, why did you choose ER over complete and total life-long dedication to your career?

While I understand the tongue in cheek humor, I often hear people make similar claims ... "I'd love to be in a high tax bracket" or "I wish I made a lot of money." But these statements are demonstrably false. Most people who ER choose less income and hence lower taxes. They choose ER over the stress, frustration, and pain that comes with additional work and income. What they really mean is, "I'd like to make a lot more money without any additional sacrifice on my part." Who wouldn't?

But there is no free lunch. I'm 53 and hope to ER this year. I currently have a solid income (not in the highest tax bracket) but this comes at a considerable price. I've taken only 12 days of vacation in the last 22 years. I've never taken a sick day. There has been only one day in the last two years when I haven't been in my office or on travel. That includes Christmas, Thanksgiving, and all other holidays. These have been personal decisions so I'm not in a position to complain. But I wouldn't ER if I enjoyed my work or enjoyed paying taxes. And when I ER, my total taxes will go from $65K/yr to under $10K/yr. Clearly, I want to pay less taxes, not more. I do not want to be in a high tax bracket.
As you pointed out, my reply was tongue in cheek and mostly directed at some comments re hatting to pay taxes. As to my decision to ER at 52, best decision I ever made. I took a year's sabbatical at age 40 to try to decide what to do with the rest of my working career, which I assumed then would be to age 65. What I discovered during my sabbatical is that I absolutely loved being in a sabbatical and doing my own thing without megacorp telling me what to do. I then redirected all my efforts to ER as soon as possible with enough to be comfortable. More money certainly would not have kept me working at megacorp any longer than I absolutely had to.

To be honest, I did not think much about taxes prior to ER (or after for that matter). I invested in something if I thought it made sense from an AA standpoint but did not time investments in the sense of trying to forecast what the tax rates will be in the future. I don't have a clue what the tax treatment of various investments will be 30 years from now (If I'm still around) for all I know we'll have a VAT in place of the income tax and then all current planning will be moot.
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Old 01-22-2013, 09:52 PM   #48
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I retired 3/31/07. I guess my biggest mistake was my asset allocation. Although conservative by most people's standard here, it didn't pass the sleep test when the market crashed in early 2009. Luckily I did hang in there and made a few equity tweaks that enabled me to recoup my losses and then some. I have adjusted my AA over the last couple of years to allow me to sleep better but also have exposure to the market.

As far as retirement goes, no regrets what so ever. Hard to believe that my 6th year retirement anniversary date is fast approaching. Might have to drink an extra med or two to celebrate.
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Old 01-22-2013, 11:49 PM   #49
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My main mistake has been working too hard most of my life. I have not had the time to enjoy my life.

Financially speaking, although I like my condo, buying it at the peak in 2008 was not my best move ever.

Quote:
Originally Posted by cinman2000 View Post
As a potential member of the class of 2014, I have a question for those of you well into your FIRE. What mistakes (if any) did you make in your planning the last couple years before FIRE? Any regrets on pulling the trigger too late or too early? This info would be hugely helpful for us trying to decide in the next couple years. Thanks!
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Old 01-23-2013, 12:06 AM   #50
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At times I kinda wish I had stayed in my rental apartment for one more year (1989). The real estate market took a dive in the next 12-18 months so I would have been able to buy a bigger apartment for the same money and would have saved up more in those 12 months to make the purchase easier.

In the early 2000s, I lost out on some of the skyrocketing company stock value by divesting myself of some of the shares when we were given permission to. At that time, my ER plans had not yet begun to gel. Also, at the time, we had some big companies such as Enron going bankrupt and taking their employees down with them who were heavilyinvested in company stock. So I wanted to diversify a bit more. The bond fund I put it into did not grow as fast as the compny stock did, costing me about $60k (before taxes) but that $60k is part of my IRA which mitigates the loss somewhat.
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Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

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Old 01-23-2013, 07:17 AM   #51
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This puzzles me. By definition, income in a taxable account is taxable. Consequently, how can you throw off tax free income in a taxable account?

The only way I can think is that if one's income is low enough, some of this taxable income may not be taxed, as total reportable income is below the taxation threshold. Which is pretty low income, I would think too low to afford the kinds of lifestyles, homes, and travel and recreation that many here write about.

Ha
Ha....I was mainly thinking tax free muni bonds".

As an alternate, MLP's while not really tax free since they reduce your basis...they sort of are if you hold until your death in which case your beneficiaries get the step up.
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Old 01-23-2013, 08:05 AM   #52
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This puzzles me. By definition, income in a taxable account is taxable. Consequently, how can you throw off tax free income in a taxable account?

The only way I can think is that if one's income is low enough, some of this taxable income may not be taxed, as total reportable income is below the taxation threshold. Which is pretty low income, I would think too low to afford the kinds of lifestyles, homes, and travel and recreation that many here write about.

Ha
As sheehs1 pointed out, muni bond income in a taxable account will exempt from federal (and in some cases, state) income taxes. Also, if you are in the 0% bracket for qualified dividends and LTCG, then your income won't be taxed at the federal level. And that 0% bracket is pretty high, extending up to the top of the 15% tax bracket for regular income.

Between these two things, I have 38% of my 2012 income subject to a 0% tax rate at the federal income.

I do distinguish between a taxable account and taxable income. A taxable account is one in which income could be taxable, depending on what it is and how much of it there is. In a taxable account I receive 1099 forms but in my tax-deferred account (TIRA) I do not, as all income within the IRA account is not subject to any taxes.
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Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

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Old 01-23-2013, 09:09 PM   #53
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Also, if you are in the 0% bracket for qualified dividends and LTCG, then your income won't be taxed at the federal level. And that 0% bracket is pretty high, extending up to the top of the 15% tax bracket for regular income.
I have been learning alot about this 0% capital gains tax in the last couple days. It made me realize where my tax assumptions were too conservative. At this point it looks like I will leave my high paying megacorp job in the Fall of 2013 and look for something less stressful/parttime. Focus on keeping the taxable income at 15% or less and selling stocks with high capital gains to cover the rest of living expenses. It's starting to feel real
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Old 02-02-2013, 08:07 PM   #54
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Many logical people here strongly suggest getting a heloc in place while you can still show regular income from a job, even if you never plan to use it. Same for refinancing an existing mortgage to a lower rate, giving you more flexibility in paying it off.

Not being logical we did neither, but both would be important considerations while they are still relatively easy to do.
Piggybacking on this thought for a moment. Elsewhere in the forum I have relayed how difficult it was to take out an unplanned mortgage 5 years into retirement. We wanted to "switch houses" (buy a "new" one - sell the old one). To accomplish this, we needed a mortgage to cover the time between purchase of the new place (plus a few months of rehab) before selling the old place. Long story short, we would NOT have qualified (even though we had assets in excess of the mortgage) had it not been for the fact that we had converted tIRAs to Roth IRAs and paid the taxes. Oddly, the bank considered these transactions as "income". I don't have a suggestion for the OP, but that was a mistake we made (but Providence or luck protected us, I suppose). YMMV
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Old 02-02-2013, 08:37 PM   #55
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Piggybacking on this thought for a moment. Elsewhere in the forum I have relayed how difficult it was to take out an unplanned mortgage 5 years into retirement. We wanted to "switch houses" (buy a "new" one - sell the old one). To accomplish this, we needed a mortgage to cover the time between purchase of the new place (plus a few months of rehab) before selling the old place. Long story short, we would NOT have qualified (even though we had assets in excess of the mortgage) had it not been for the fact that we had converted tIRAs to Roth IRAs and paid the taxes. Oddly, the bank considered these transactions as "income". I don't have a suggestion for the OP, but that was a mistake we made (but Providence or luck protected us, I suppose). YMMV
So if I ever decide to buy move and buy with a mortgage, will my dividends and interest count as income? (From taxable acct).

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Old 02-02-2013, 09:24 PM   #56
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So if I ever decide to buy move and buy with a mortgage, will my dividends and interest count as income? (From taxable acct).

R
Why wouldn't they count as income? Reasonably predictable inflow and is income for tax purposes.
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Old 02-02-2013, 09:30 PM   #57
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I'm not ER'ed yet, but we're approaching it.

One mistake, mentioned by others, was putting as much as we did into IRAs rather than keeping it in taxable accounts. Of course, I couldn't have known that this 0% LTCG rate (through the top of the 15% tax bracket) would come along, or that it would be made permanent. It's not a huge issue for us, and if we get pushed into a much higher tax rate by RMDs it will only happen many years down the road. If that occurs it will be because the nest egg will be pretty big and the remaining days relatively short, so giving up some more to Uncle Sam probably won't be a big problem. . . It'll be easy to be magnanimous in victory.

We'll do what we can to whittle down the IRS/401Ks through Roth conversions and 72(t) withdrawals. And, with tax rules as variable as they are maybe there will be another change in the rules that will make us glad the dough is in them.
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Old 02-06-2013, 03:45 PM   #58
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Another mistake, while we're baring our souls, here: I was very low in equities in my 401(k) and taxable accounts all through my w*rking years. However, my company match was all in company stock. While the stock did "okay" all along, there was a 10 year period in which it fairly "exploded" - leaving me with perhaps 70+% of my nest egg in company stock. TOO CONCENTRATED IN ONE STOCK!! But, again, luck or providence shown down on me. I sold the company stock - pretty much "just in time" - and the gains were what allowed me to ER.

As always, YMMV.
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Old 02-06-2013, 06:37 PM   #59
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More precisely, he rebuked a secretary’s query of “Don’t you hate to pay taxes?” with “No, young fellow, I like paying taxes, with them I buy civilization."


U.S. Supreme Court Justice Oliver Wendell Holmes

(as reported by Justice Felix Frankfurter in Mr. Justice Holmes and the Supreme Court, Harvard University Press, 1961, page 71)
Collecting more taxes than is absolutely necessary is legalized robbery. President Calvin Coolidge

The taxpayer - that's someone who works for the federal government but doesn't have to take the civil service examination. President Ronald Reagan
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Old 02-06-2013, 07:30 PM   #60
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One miistake I made was not practicing how to respond when asked, "What do you do?". This can be awkward depending on the setting or the audience. Let's face it, a hard working person that is barely making ends meet really doesn't need to hear that I retired at 41.
This has gotten simpler since I created my small LLC. That makes it easier for me to sound like I still work when more appropriate. It is true too, even if I have only worked 48 hours out of the last six months.
To be honest, I am still not sure how to best respond if not for my LLC. Any suggestions?
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