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07-25-2019, 04:53 PM
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#61
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Recycles dryer sheets
Join Date: Sep 2006
Location: clearwater
Posts: 439
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Quote:
Originally Posted by UnrealizedPotential
So when income is higher during working years, he will benefit from getting a tax credit. But during retirement when we believe his income will be lower he will benefit because he pays lower or no taxes because of the lower income. Am I understanding the basic idea? Anyone can answer this. I am just trying to increase my knowledge.
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It is not a tax credit - It is a deduction from income - He will pay taxes on less income -
At retirement social security income is taxed differently than earned income , and when it is stand only, or the main part of income there is no tax on income at all.
So given he has no savings now, it is unlikely that he will be paying any taxes in retirement. He takes the tax break now and saves money on both federal and state tax returns.
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07-25-2019, 05:17 PM
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#62
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Thinks s/he gets paid by the post
Join Date: Jul 2014
Location: Undisclosed
Posts: 1,239
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Quote:
Originally Posted by UnrealizedPotential
Thanks. I looked up the difference between a tax credit and deduction of income. One is a direct reduction of taxes owed {tax credit} and the other is a reduction of income to be taxed {deduction of income}. Correct?
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Yes, this is correct. A minor nit, but if the 50 y.o. income is high enough to owe taxes after the IRA deduction but low enough to qualify for the "Savers Credit", then the IRA contribution could result in both a tax credit and a deduction of income.
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07-25-2019, 05:41 PM
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#63
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Recycles dryer sheets
Join Date: Sep 2006
Location: clearwater
Posts: 439
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Correct: So in that case it is double benefit to use it. - The Roth would also generate a savers credit if applicable.
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07-25-2019, 10:20 PM
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#64
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Recycles dryer sheets
Join Date: Feb 2016
Posts: 158
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What do you all think about encouraging him to buy a small condo if he is in a low cost of living area? It seems like at least, he would be building some equity and possibly pay it off over the next 20 years
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07-26-2019, 07:27 AM
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#65
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Thinks s/he gets paid by the post
Join Date: May 2016
Location: Mid-Atlantic
Posts: 2,676
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Quote:
Originally Posted by TrophyWife
What do you all think about encouraging him to buy a small condo if he is in a low cost of living area? It seems like at least, he would be building some equity and possibly pay it off over the next 20 years
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My two cents: even 10 years ago I'd say yes, but now it feels like it's asking a bit too much of him, and he'd still have to sell it to live off of the proceeds. I mean, maybe, because it is forced savings in a way, and he does sound like that discipline is the biggest issue for him, but at least if he fails at saving he's no worse off. He can get himself into a lot more trouble with a condo.
__________________
-Looking to FIRE in the mid-2020s, which would be our mid-50s.
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07-26-2019, 07:33 PM
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#66
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Thinks s/he gets paid by the post
Join Date: May 2014
Posts: 1,390
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Quote:
Originally Posted by TrophyWife
What do you all think about encouraging him to buy a small condo if he is in a low cost of living area? It seems like at least, he would be building some equity and possibly pay it off over the next 20 years
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I thought about that, but feared he may at some point try to use it as a bank. He never mentioned debt and he might see the equity he builds up as a bank account he can use as an ATM.
I mean, a reverse mortgage might be good for him, maybe, but I don't think he would make it that far before he takes out what equity he should be building up. He could go into debt borrowing.
__________________
Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. Charlie Munger
The first rule of compounding: Never interupt it unnecessarily. Charlie Munger
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07-26-2019, 07:57 PM
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#67
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Thinks s/he gets paid by the post
Join Date: May 2014
Posts: 1,390
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Quote:
Originally Posted by Filetmerlot
Is the small business worth anything? Would he be able to monetize the business when he wants to retire?
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Great question. I don't know. I am not close to him personally, so there is no way to find out. I feel I already went beyond my comfort zone to help the man and I am not eager for more.
__________________
Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. Charlie Munger
The first rule of compounding: Never interupt it unnecessarily. Charlie Munger
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07-26-2019, 08:40 PM
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#68
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2010
Posts: 5,911
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I do not think that this is an exception. I have a few inlaws who are ten years older or more but in the same boat. But they keep spending, spending, spending.
I really think that the very best advice you can give him is to seek out the help of a good fee for service financial advisor. Someone who will work with him and his wife or family on an entire financial plan that encompasses income, investments, tax, when to take SS, etc. and perhaps help valuate the business or refer him to a professional in business valuation.
He needs to get this right. Now. You cannot do this for him/them.
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07-26-2019, 08:44 PM
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#69
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gone traveling
Join Date: Jan 2019
Location: NW Ohio
Posts: 1,156
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We can postulate over the possabilities forever, but the motivation to start savings lies at his feet, and advice won't be taken if it is too complex. Most folks don't understand the financial ins/outs of what is being discussed on this forum, and they generally avoid what makes them uncomfortable. This is exactly how he, (and many others) have found themselves in similar situations.
At a point, embarrassment sets in, and they won't ask for help, or resignation sets in, and the kick the can down the road.
I like what BRETT ^^^ has to say also !
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07-27-2019, 07:27 PM
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#70
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Moderator
Join Date: Jul 2017
Posts: 5,762
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Quote:
Originally Posted by pb4uski
It all depends on what his non-discretionary expenses are. As you probably know, SS retirement benefits replace more income for low income retirees than it does for higher income retirees... roughly 55% for lower income retirees.
My grandmother lived pretty well on nothing else other than SS... in fact, she actually saved money while on SS because she lived frugally and her low income qualified her for subsidized senior housing (which was quite nice by the way).
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Sounds like my grandmother, except she qualified for a rent controlled apartment in NYC.
__________________
Use it up, wear it out, make it do or do without.
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07-27-2019, 07:53 PM
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#71
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Full time employment: Posting here.
Join Date: Jun 2018
Location: Brisbane
Posts: 855
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Quote:
Originally Posted by UnrealizedPotential
I ran across a man recently that like the title says is 50 years old. He has no savings of any kind. He is married. He has no clue how to get started or what to do. All he will have is Social Security. I feel bad for him, and his wife.
So he asked me for advice. This man clearly needs help. So I gave him the best advice I knew how. I asked him if he is willing to work until 70. He told me he has already resigned himself to the fact that he has no choice .
So I gave him the name of a broker he can use. I'm not promoting the broker so don't want to say. I told him to open up a Roth Ira. Put whatever money you can in the SP 500 index fund. I drove the point home that withdrawals are tax free. I told him try to hold off on SS until age 70. Then at the same time he can take withdrawals from his Roth Ira.
I try not to give advice. But at 50 years old I felt this man didn't have time to get educated. I told him what to ask for help with and tried my best to steer him in the right direction. My thought was with the Roth Ira and SS he will struggle at age 70 financially , but at least he has some sort of a plan. I hope I did the right thing for him as it looked like he didn't know who to turn to , and really it was just blind luck I happened to see him . I do not know him very well.
I had no idea this would happen. Any thoughts are appreciated.
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i am not saying you were wrong
but since the market is in a mature bull run , i would have steered him towards investor education first ( unpaid stuff first , so he will know good advice when presented to him , or when 'to go it alone ' )
unless the man is already ill , he still has time ( but must understand the urgency needed when the GO button is pushed )
i decided to start planning very late 2010 , and despite being forced to stop work in 2017 , i probably had 'done enough ' to give me a narrow comfort buffer ( which i am still trying to improve and tweak )
now the yield curve inversions hint of a major event next year , being educated and some cash reserves might be all the edge he needs to grab that narrow comfort buffer
i would also suggest he bring his family into the loop in investing research and decisions multiple eyes and minds can sometimes give good insight ( to small opportunities , the broker needs big investment niches to say put in $200,000 on behalf of clients to make it profitable )
__________________
i hold the Australian listed versions of AU ( Anglo Ashanti ) , BHP , and JHG .
You must learn from the mistakes of others. You can't possibly live long enough to make them all yourself.
Samuel Levenson
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07-28-2019, 04:32 PM
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#72
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2010
Posts: 5,911
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So often it comes down to the ability to discern between wants and needs and having the personal discipline and basic smarts not to pay for wants with consumer credit or loans.
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07-28-2019, 05:03 PM
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#73
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Dryer sheet aficionado
Join Date: Apr 2019
Posts: 38
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I think I would steer someone in this situation towards Dave Ramsey. While I certainly don’t agree with all of his philosophy, I think he’s a pretty good resource for someone who’s literally starting at square one. The broker/IRA seems more like step 5 or 6, when he really needs to start at step one.
However, please don’t take this as a criticism of your actions, which were very kind. Most would simply respond with something like, “spend less than you make” or “get a better job.”
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07-28-2019, 05:21 PM
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#74
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Moderator
Join Date: Jul 2017
Posts: 5,762
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Quote:
Originally Posted by rothlev
The other thing that is scary about his situation is if he is a small businessperson, he may not be declaring all his income. This saves money today, but at retirement he may be in for a surprise at how low his social security benefit is if this is the case. Hopefully he has been paying into social security.
It happens a lot. I see lots of UBEER drivers for example, after they write off the mileage there is basically no taxable income left.
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You have a point. There is a tremendous underground economy without a large number of people paying no tax on their income or declaring much less than they actually earn.
__________________
Use it up, wear it out, make it do or do without.
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07-28-2019, 05:21 PM
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#75
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
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Quote:
Originally Posted by pb4uski
If he saves $100/month from now until he is 70 in 20 years and it earns 6%/year then he'll have $46,205 at age 70.
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Those might turn out to be some fairly optimistic assumptions, but not impossible. Anyway, painting a gloomy picture probably won't help his motivation.
Quote:
Originally Posted by pb4uski
. . . he'll have $46,205 at age 70.... at a 4% WR that would be $154/month.
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This might be a case where an annuity makes sense. Today a 70 YO can use $46K to buy a lifetime check of $288/mo. Sure, it will lose value to inflation, but it still starts at nearly twice the monthly check that a 4% WR would provide. Anyway, at the time, it could be worth looking at an SPIA and even SPIAs with a CPI adjustment.
Yes, waiting to take SS will be a big help.
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07-28-2019, 06:18 PM
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#76
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Thinks s/he gets paid by the post
Join Date: May 2014
Posts: 1,390
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Quote:
Originally Posted by Ducati52
I think I would steer someone in this situation towards Dave Ramsey. While I certainly don’t agree with all of his philosophy, I think he’s a pretty good resource for someone who’s literally starting at square one. The broker/IRA seems more like step 5 or 6, when he really needs to start at step one.
However, please don’t take this as a criticism of your actions, which were very kind. Most would simply respond with something like, “spend less than you make” or “get a better job.”
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It's just a very difficult situation in which to try and help someone who is really behind the 8 ball. My impression talking with him was he probably wouldn't have done anything even if I gave him the name of a financial adviser. I don't know of any I would trust in the area.
Someone would have to do everything for him to get him started. I mean everything. I wrote down some steps he could take. It's up to him. Like others said, I can't do it for him. Pointing out the obvious like get a better job or spend less isn't really helpful to him. I'm afraid he's gone as far in life career wise as he is capable.
Spend less he already knows. He doesn't know how to invest what he could save, and he could save very little is my feeling. Almost an impossible situation, but I tried. I wish him luck.
Dave Ramsey I don't care for. So I never thought of him. It's hard for me to understand procrastinators as I am not one. However that doesn't mean I can't sympathize with his situation. I feel for him. I just didn't know how he could go on in a good way without trying to just lay it out for him and he can go straight to the source. He didn't seem like the type to me that had enough interest or willpower to listen to a Dave Ramsey.
He needed help and he needed it now. He knew he was in trouble and he reached out for help.
__________________
Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. Charlie Munger
The first rule of compounding: Never interupt it unnecessarily. Charlie Munger
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07-28-2019, 06:49 PM
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#77
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Full time employment: Posting here.
Join Date: Apr 2009
Posts: 939
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I have friends who have no savings and are retired. They get excited if they have $5K (or less) in a bank account. I also have friends who haven’t a clue about investing and really find math bewildering. I don’t think they can learn to invest at this age. The OPs idea is straightforward. Put money away and don’t touch it. So many people blithely think they’ll live on SS and be just fine... it’s scary.
__________________
I used to be “Thinker25” here. Retired at 62, now 73 (in 2021), no regrets & single again. I love it. I’m in RI.
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07-28-2019, 07:43 PM
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#78
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Dryer sheet aficionado
Join Date: Jan 2013
Location: Alexandria
Posts: 31
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No sympathy for him. The stupid shall be punished. Give him the story of the grasshopper and the ant.
__________________
Dave in Virginia
"Fortune favors the Brave"
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07-29-2019, 07:37 AM
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#79
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Recycles dryer sheets
Join Date: Sep 2006
Location: clearwater
Posts: 439
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many of not the majority of Americans retire with little or no savings. There is plenty of government assistance . Extra help (medicare) pays insurance premiums, section 8 housing provides low cost housing, ( 30% of income ), food stamps .... etc... while this is probably not what he envisions for his retirement, his worse case scenerio is not horrible.
He is starting to ask questions and if he wants to can start to make some headway.
If I were helping him , I would have him research his likely social security benefit amounts, and work from there, start a tax deferred savings for both of them in a simple balanced fund with Vanguard.
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07-29-2019, 01:27 PM
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#80
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Recycles dryer sheets
Join Date: Jun 2018
Location: Spring
Posts: 306
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You did the best you could under the circumstances. Maybe he'll take some initiative. It's NEVER too late to get started. Although I was always a saver, after my divorce at 40 I had 20 k left in my retirement plan and very little liquidity after paying to rid myself of a spendthrift. I had also been recently laid off, taking a 15k cut with my new job working for a lunatic at that. That company had no retirement plan.
I continued to look for better conditions & after a year I replaced my old income/ benes at the company where I happened to meet my thrifty now husband. We never carried any debt (fortunately he owned his home outright), saved like squirrels and still led a very enjoyable life. I expected to be weeded out in my 50s sometime, having seen it happen to many before me at various jobs and especially at my last one. Every raise went into my 401k and after maxing that out I dumped money for the rest into IRAs @ max & savings. At 56 I'd had enough of my company, and was being moved to a part of the company being sold (never good news). I saw my future contributions to my pension walking away, so put in for immediate early retirement. I do have 50/50 HC so I pay $600 and they do too. Also I had a small pension (80k) that I immediately annuitized $900/mo. My IRA is only 450k now but I won't be accessing it for a long time as we have a nice cash hedge. So, in 16 years we'd saved enough together to retire comfortably- and both early (him @ 62 now 72 and me at @56 now 59). Over that time neither of us were bringing in salaries higher than 80k, so I'm thinking I'm in the lower end of the financial spectrum in this forum. I am no master investor compared to many, but even during just 16 years the constant investing at all prices in all markets paid off. I did of course benefit greatly from the good market over the past 10 years. We didn't retire wealthy, but we are doing fine. 3 years in I see no problems coming our way.
There are so many who won't, don't or can't plan for the future- many due to their line of work. My sister is in that situation, of course as a result of her own choices (bee keeper/ remover) . All you can do is hope to be able to help. (not being judgy- I should have attended college but didn't have any interest at the time- not my best decision)
I guess it is in my favor that I'm a born fretter, so always looked for jobs that came with good benes & worked very hard to move up as much as possible. I always had to know where my money was going to come from- and still do.
__________________
In the business of isness >^..^<
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