Need advice! Want to RE, but not sure if I can!

[pb4uski]

Maybe, maybe not.... however, the crisis will peak politically long before 2034, probably around 2025.

[pb4uski]

Quote:

Originally Posted by Doc0 ....I would find out how to accumulate some LT Cap loss to pair against your post tax capital appreciation in your retirement and have a good understanding of things like RMD at age 70 and what it will do to your tax picture. The same is true of 1099 work you may think you made $1000 but by the time you pay taxes double SS and medicare it's more like $700 in your pocket and that $300 estimated tax is due quarterly. Some of that is overcome by making your 1099 wage high enough but you need to know the numbers to get someone to pay you 30% more. ....

Most of us believe it preferable to accumulate long-term capital gains rather than long-term capital losses.... if I have a $100 gain and pay $15 in tax then I am ahead by $85... if you have a $100 loss and save $15 or even $25 in tax then you are $75 to $85 worse off.

Thanks for the advice, but I'll accumulate gains rather than losses.

[Doc0]

If we invest $100 let's say in S&P, and it goes up to $150 and the market drops in half, I now have $75 and a $25 dollar loss, so I sell the S&P at $75, book the $25 loss and reinvest in something with a similar but not the same market segment exposure and growth. Let's say you just ride it out in the S&P. The return will be about the same in either investment but I have $25 of capital loss to use when needed. To get back to $150 takes the same 100% growth in either fund and about the same amount of time since their returns are similar. Lets say both funds grow to $200 and we want to re-balance. So we sell let's say 50% or $100 keep $100 of principal invested. Let's say our tax bracket is 25%. Cap gains are 15%. You pay $15 per hundred, I pay (100-25)*15% or $11.25 per hundred, a net saving of $3.75 which I have to reinvest and you do not.

Imagine you play this scenario with $1 mil investment (as in 2008-2009 or 2000) instead of $100. Imagine you play the scenario many smaller times over the course of 30 year market drops because LT capital loss is accumulative. You wind up with similar 30 year portfolio values but with the benefit of what I consider a separate asset class of capital loss which you can pair against cap gains. You have to understand the IRS rules.

I just sold $600,000 of appreciated stock last month to stick in a home brew annuity to live on for the next 5 years. I have an accumulated LT cap loss of about 500K. Your tax bill on the 600K of appreciated stock with your method is $90K The tax bill with my method is $0 and I still have 410K of capital loss to apply against my next sale.

Best

[Doc0]

https://www.fidelity.com/viewpoints/...oss-harvesting

[retired1]

Quote:

Originally Posted by Erbragg1 Bradaz, Thanks for your honest input. How much of a "buffer" do you think I should have to protect against something going south? I can reduce my expenses in ER. The $115k number includes $10k in travel/vacations and $5k for entertainment. If things were not going well, I could certainly cut way back on those areas. However, the whole reason I want to retire early is to be able to travel while we are young enough and healthy enough to do it. If the numbers do not work, I think I would rather work a couple more years than to risk having to scrimp...

Is it possible to share a copy of the "Budget Plan" template? After reading this post, I feel my budget plan has lot of holes

[pb4uski]

Quote:

Originally Posted by Doc0 If we invest $100 let's say in S&P, and it goes up to $150 and the market drops in half, I now have $75 and a $25 dollar loss, so I sell the S&P at $75, book the $25 loss and reinvest in something with a similar but not the same market segment exposure and growth. Let's say you just ride it out in the S&P. The return will be about the same in either investment but I have $25 of capital loss to use when needed. To get back to $150 takes the same 100% growth in either fund and about the same amount of time since their returns are similar. Lets say both funds grow to $200 and we want to re-balance. So we sell let's say 50% or $100 keep $100 of principal invested. Let's say our tax bracket is 25%. Cap gains are 15%. You pay $15 per hundred, I pay (100-25)*15% or $11.25 per hundred, a net saving of $3.75 which I have to reinvest and you do not. Imagine you play this scenario with $1 mil investment (as in 2008-2009 or 2000) instead of $100. Imagine you play the scenario many smaller times over the course of 30 year market drops because LT capital loss is accumulative. You wind up with similar 30 year portfolio values but with the benefit of what I consider a separate asset class of capital loss which you can pair against cap gains. You have to understand the IRS rules. I just sold $600,000 of appreciated stock last month to stick in a home brew annuity to live on for the next 5 years. I have an accumulated LT cap loss of about 500K. Your tax bill on the 600K of appreciated stock with your method is $90K The tax bill with my method is $0 and I still have 410K of capital loss to apply against my next sale. Best

Ok, let say after those positions recover to $200 and that we each sell half of our positions as you suggest.

My gain is $50 ($100 sales proceeds - $50 basis) and my tax is $7.50.

Your gain is $62.50 ($100 sales proceeds - $37.50 basis) and you can deduct the $25 loss carryforward so your net gain is $37.50 and your tax is $5.62.

However, let's say things go sideways and 6 months later we both sell our remaining positions for $100... my gain is $50 and tax is $7.50.... your gain is $62.50 and your tax is $9.38.

In the end, we both have $100 of net gains and pay $15 in tax.... so what is your point?

Math is hard? It's all just timing.

I'm well aware of loss carryforwards, and have harvested loss carryforwards in the past.

[Doc0]

since things went sideways, in the mean time in another part of my portfolio my gold dipped into loss so I sold some, and I accumulated another $25 cap loss, I waited a month, and bought gold miners instead, to cover the wash sale rule. Gold miners are little more volatile but essentially occupies the same spot that asset allocation category and when gold turns up miners will tend to make back my money faster. in your scenario my gain is $62.50, my tax is $0 and I still have $15 cap loss to use in the future on some other trade. In the mean time you make $50 and pay $7.50 tax 3 years later my gold + miners has recovered and then some and I am still carrying forward $15 LT cap loss.

The benefit is not endless, if you are fortunate eventually every thing in the portfolio is deeply profitable and you run out of opportunity to harvest the loss, and it will run out, and it only works in taxable accounts but I have found it very useful to minimize taxes especially when re balancing. I consider moving some stocks into muni's a re-balance.

Part of the reason it works because during the portfolio accumulation phase you are constantly adding new money (new tax lots) to the portfolio, which haven't yet had time to become deeply profitable and the new money is often subject to loss in a downturn, even though the old money is profitable Since you can choose which lots to sell, sell the losers book the loss and repurchase something similar but not the same. The overall quality of he portfolio remains about the same. You have to pay attention to when the new lots become long term otherwise you will accumulate short term loss which generally is not as useful. Unless you're a trader.

I use 3 popular brokers to house my portfolio and they allow for tracking basis and choosing tax lots when selling. I'm sure most all of them do these days.

I use DFA funds through an adviser which are very cheap, very efficient, and has a wide variety of funds with similar returns and asset mixes that are different enough to avoid wash sale issues. My adviser has software that keeps close track of tax consequences for me. Every time I trade I am clear on my tax consequence. Vanguard has enough fund variety to get the job done as well, but not as good as DFA. I manage my daughters portfolio with Vanguard funds.

That's my point.

Let me post another couple links which explains the utility of this approach. I'm not sure why people would keep writing articles on this technique if it wasn't useful? Maybe they do not understand the math either. I think the horse has been pretty much beat to death so I'll let him RIP. You pays your money and takes your choices. If you need to have the last word be my guest.

Tax-Loss Harvesting: Reduce Investment Losses

Using Tax Lots: A Way To Minimize Taxes

Best

[pb4uski]

I guess that I just invest differently from you Doc, as I rarely have significant losses to harvest. As a former CPA who worked in finance I fully understand the benefit and on those rare occasions that I have had significant losses I took full advantage of harvesting losses.

You think losses and loss carryforwards are the cat's meow.... I think it is just a timing thing and a useful tool but that it is better to avoid losses in the first place. I guess that we'll agree to disagree and leave it at that.

[Erbragg1]

Quote:

Originally Posted by retired1 Is it possible to share a copy of the "Budget Plan" template? After reading this post, I feel my budget plan has lot of holes

Are you asking to see the details of my planned expenses?

[Doc0]

I invest using a more or less standard "modern portfolio theory" portfolio using low cost funds and ETF's and a few stocks like BRK.B. I'm split about 70% post tax and 30% pre tax, and historically 70% equities / 30% bond or bond equivalents since I am investing in alternatives which are bond equivalent in the bond aspect of my portfolio. Presently I'm 58:42. The equivalents have a higher return but similar correlation to bonds. I use a program called QPP from Quantext to try and adjust volatility but that program is no longer available. I try for best tax efficiency in post tax equities. Also GLD and REIT exposure, and something close to 50:50 foreign:USA in both stocks and bonds with a bias toward USA, aka standard format

I agree it's best to not loose money, but sometimes the market doesn't agree. Whoda thunk GE would be $59 in Sep 2000 and $26 3 years later? Whoda thunk S&P would be 1500 in 2007 and 700 in 2009? Prime times to harvest some loss and reinvest. I'm not hung up on tax loss harvesting but neither am I going to look a gift horse in the mouth.

I get the best of both worlds, I get to consider your wisdom, and I mean that seriously and I get to eat a ham sammich funded by the tax money I saved.