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Old 05-21-2013, 07:50 PM   #21
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Unfortunately death and taxes are always with us, and tax regimes change. I think it is important not to place complete reliance on a single calculator that doesn't account for tax liabilities. I have recently worked with my financial institution on a detailed financial plan for retirement and it has been quite an eye opener with respect to taxes. For example, if I died today, my estate would be liable for over 600K in taxes. If I live to be 90, I will have paid a total $2m in taxes between now and then. When I reach the age of RMDs, I am going to jump to the highest marginal tax bracket. There are strategies I can use to reduce my tax liability, but to assume that taxes must be included in a predetermined "SWR" number does not do justice to the complexity of the situation. For example, I am paying more taxes this year than I anticipated, because my investments have done better than expected. That throws my "SWR" off. When I reach the age of RMDs, my "withdrawal" will increase dramatically without my consent, to pay taxes (although I could reinvest what I don't spend). What I have learnt from this analysis is that when taxes (and debt servicing) are accounted for, lifestyle expenses are best planned and projected as an independent variable. They can then be sensitivity tested and optimized using the software. I was pleased to find that the initial amount I had expected to spend on lifestyle expenses was conservative and that I can safely loosen the pursestrings a little.
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Old 05-21-2013, 09:12 PM   #22
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Taxes are just another expense.
FIRECALC asks for an entry of SS income "precisely as the SS admin" tells you you are likely to get from the SSA. But this amount is pretax.

So if you follow FIRECAL's instructions you enter a pretax SS income. But if you want the tool to be accuaret shouldn't you tax taxes out of that SS income to enter into FIRECAL the post tax SS income.

For example SS stated by SSA * .85 (the amount subject to ordinary income tax * ordinary income tax rates (eg like 45% considering fed and state for the upper tax margins).

You enter the post not pre tax SS income correct? Despite FIRECAL's statement just enter what the SSA estimates for you (ie pretax)?

-Allan
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Old 05-21-2013, 09:21 PM   #23
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You enter the post not pre tax SS income correct?
No, that is incorrect.

As has been previously stated (multiple times), FIRECalc does NOT consider taxes, so ALL your inputs should be pre-tax.
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Old 05-22-2013, 08:05 AM   #24
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you wrote ..."There are strategies I can use to reduce my tax liability" [when you are pulling money out for RMD etc]...I find (forecast) myself to be in the same position, that is paying the highest level of taxes on my taxable earnings...frighteningly sensing I need to pay 39% fed and 7% state and 2% local tax continuously and for the rest of my days and nights. Its enough to make me want to "pass" early. But that seems a poor approach to reducing taxes indeed. So I wonder, what strategies are you / others thinking about to reduce taxes in a situation like this.

The subject is probably worth a thread of its own, its so important. One strategy I know, of course, is to gift to the max to kids (but that reduces estate tax, not ordinary income tax on taxable earnings).

I would be very interested (as I am certain so would be others) on approaches to minimize tax and taxable earnings during retirement please.

-Allan
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Old 05-22-2013, 08:08 AM   #25
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we may be saying the same thing...putting in a pretax ss amount and then taking say 45% of it and placing that as an incremental expense is the same thing as just inputting post tax SS amount. Correct?
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Old 05-22-2013, 08:18 AM   #26
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Originally Posted by allanlevy View Post
you wrote ..."There are strategies I can use to reduce my tax liability" [when you are pulling money out for RMD etc]...I find (forecast) myself to be in the same position, that is paying the highest level of taxes on my taxable earnings...frighteningly sensing I need to pay 39% fed and 7% state and 2% local tax continuously and for the rest of my days and nights. Its enough to make me want to "pass" early. But that seems a poor approach to reducing taxes indeed. So I wonder, what strategies are you / others thinking about to reduce taxes in a situation like this.

The subject is probably worth a thread of its own, its so important. One strategy I know, of course, is to gift to the max to kids (but that reduces estate tax, not ordinary income tax on taxable earnings).

I would be very interested (as I am certain so would be others) on approaches to minimize tax and taxable earnings during retirement please.

-Allan
You were asking....

I live in Canada, so YMMV. Two potential strategies for me would be:

1. Purchase a whole life insurance policy through my professional corporation. This would reduce tax liability of the corporation at death and allow investments within the corporation to accumulate in a tax advantaged manner. I do not know all the pros and cons yet but will investigate. Here is a link with some information that applies to my situation:

https://mdm.ca/wealth-management/ins...tion/index.asp

2. Consider inter vivos charitable giving beginning at the time my RMDs kick in. Let's say for simplicity that my marginal tax rate was 50% and I made a charitable donation of $100K. I would receive a tax credit of $50K, effectively reducing the true cost of the donation to $50K. Of course I would have to make the donation to get the tax credit, but the point is that I will not be making any significant donations until it is advantageous for me to do so.

This is probably worth a thread of its own. I will start one.
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Old 05-22-2013, 08:38 AM   #27
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Originally Posted by allanlevy View Post
The subject is probably worth a thread of its own, its so important. One strategy I know, of course, is to gift to the max to kids (but that reduces estate tax, not ordinary income tax on taxable earnings).

I would be very interested (as I am certain so would be others) on approaches to minimize tax and taxable earnings during retirement please.

-Allan
You will probably get more discussion on this if you post in the Fire and Money forum.

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Originally Posted by allanlevy View Post
we may be saying the same thing...putting in a pretax ss amount and then taking say 45% of it and placing that as an incremental expense is the same thing as just inputting post tax SS amount. Correct?
Possibly, but your approach seems overly complicated. Easier to look at total portfolio, gross income, and total spending, including taxes.
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Old 05-22-2013, 08:41 AM   #28
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You will probably get more discussion on this if you post in the Fire and Money forum.
I have started a new thread in the Fire and Money Forum. See you there!

Tax reduction strategies in ER
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Old 05-22-2013, 08:44 AM   #29
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I have started a new thread in the Fire and Money Forum. See you there!

Tax reduction strategies in ER
Thanks!
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Old 05-22-2013, 12:06 PM   #30
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I am frankly quite disturbed by FIRECALC's ignoring taxes. Other than this it would be a great tool. But to ignore taxes and leave it to a user to estimate taxes as part of expenses is pretty bad.?
Tax code changes every year. I don't think it is fair to expect Firecalc to estimate taxes.
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Old 05-22-2013, 12:52 PM   #31
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I am frankly quite disturbed by FIRECALC's ignoring taxes. Other than this it would be a great tool. But to ignore taxes and leave it to a user to estimate taxes as part of expenses is pretty bad. The reason it is bad is you can't estimate taxes for each of the approx 100 scenarios FIRECALC runs, and the tax will be a function of the scenario. That is each 30 year period has substantially different income streams. Each therefore would have different tax expenses. You can just estimate a single tax expense, and apply it, but then that doesn't differentiate all the scenarios FIRECALC calculates. But I guess there is no real alternative. Any thoughts?
I bet if you ask the owner of FireCalc to refund the purchase price he will happily oblige.

When it comes to software, sometimes the simpler it is, the better. Once the developer starts adding all kinds of whizbang functionality, the likelihood of introducing bugs (or things that different people believe should work differently) increases dramatically. Try to imagine something like Turbo Tax (with multiyear projections) embedded into FireCalc . . .
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Old 05-23-2013, 10:45 PM   #32
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I have started a new thread in the Fire and Money Forum. See you there!

Tax reduction strategies in ER
Cool--glad you did this!
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Old 05-25-2013, 10:09 AM   #33
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I bet if you ask the owner of FireCalc to refund the purchase price he will happily oblige.

When it comes to software, sometimes the simpler it is, the better. Once the developer starts adding all kinds of whizbang functionality, the likelihood of introducing bugs (or things that different people believe should work differently) increases dramatically. Try to imagine something like Turbo Tax (with multiyear projections) embedded into FireCalc . . .
you know I had a new insight, determined a hybrid solution to adjust for FIRECALC exclusion of tax assumptions and my inept ability to estimate taxes with accuracy -- one can use Fidelity's RIP to estimate taxes in retirement, and then lift that tax estimate for your personal situation and add it to your spending levels in FIRECALC
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