So as I get closer to hopefully launching at the end of 2019 (age 55), I am starting to dive into the minutia of my withdrawal strategy specifics. Up until this point, I have used Firecalc to basically monitor my target and have made conservative assumptions (i.e. 25% effective tax rate, no SS). As I get closer, I am starting to dig in deeper and have run basic I-Orp to get a sense of how to minimize my tax burden. In my case, my investments will fund 100% of my income and at this point, I have settled in on being a "total return" investor (as opposed to a dividend investor) with a planned AA through RE of 60/40, doing a once a year rebalance. I am also roughly 50/50 invested in tax differed & taxable accounts. My plan is to have 3 budgets (which include taxes)... 1) ideal "fat" living, 2) good living, and 3) oh $hit, the market tanked, its movie night! My target is for budget 1) which is based on the 4% rule and so budgets 2) & 3) dip below 4%. For now, let's call budget 1) +/- $300K which means taxes are in play.
Questions...
- Naturally, my taxable accounts will produce income from interest and dividends. Currently, they get reinvested. It appears most people have this income go directly into a cash account as spendable income #1. As a total return investor, any logic to keeping this income reinvested and then settling my overall spending income for the year when I rebalance?
- I-Orp shows my income coming from taxable accounts until 59 (expected) and then nothing coming out of taxable accounts for 4 years (other than any income produced), and then a blend thereafter. Interestingly, the years prior to 59 1/2 show an effective tax rate as low as 4% and the highest rate was about 23% in later years (not surprising later years are higher, just that I don't hit 25%... at least before adding state taxes). Is I-Orp the best tool for forecasting these taxes/account withdrawal strategies or do most of you just run a mock return each year? Any other good tax tools?
I suppose the good news is I used conservative assumptions as I set my RE target nut, but obviously being tax smart with a withdrawal strategy can add up to some real spendable $$ in RE. I have not played around with Roth conversions (my current tax bracket is too high to consider now), but perhaps that exercise is warranted during the years prior to 59 1/2? Aside from managing your capital gains/losses to minimize taxes, any other tools to further maximize your net available spendable $?
Questions...
- Naturally, my taxable accounts will produce income from interest and dividends. Currently, they get reinvested. It appears most people have this income go directly into a cash account as spendable income #1. As a total return investor, any logic to keeping this income reinvested and then settling my overall spending income for the year when I rebalance?
- I-Orp shows my income coming from taxable accounts until 59 (expected) and then nothing coming out of taxable accounts for 4 years (other than any income produced), and then a blend thereafter. Interestingly, the years prior to 59 1/2 show an effective tax rate as low as 4% and the highest rate was about 23% in later years (not surprising later years are higher, just that I don't hit 25%... at least before adding state taxes). Is I-Orp the best tool for forecasting these taxes/account withdrawal strategies or do most of you just run a mock return each year? Any other good tax tools?
I suppose the good news is I used conservative assumptions as I set my RE target nut, but obviously being tax smart with a withdrawal strategy can add up to some real spendable $$ in RE. I have not played around with Roth conversions (my current tax bracket is too high to consider now), but perhaps that exercise is warranted during the years prior to 59 1/2? Aside from managing your capital gains/losses to minimize taxes, any other tools to further maximize your net available spendable $?
