Please share your mistakes

[sheehs1]

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.

 

[scrabbler1]

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.

 

[cinman2000]

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

 

[Koolau]

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

 

[Rambler]

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).

R

 

[pb4uski]

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.

 

[samclem]

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.

 

[Koolau]

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.

 

[ERhoosier]

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

 

[ICNTR]

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?

 

[Moemg]

The one mistake I made was to buy a large house in my 50's.Financially it has been a good decision since I bought before the huge run up . The problem is that now I am in my mid sixties and the thought of fixing up & packing a large house is daunting .

 

[HFWR]

Please share your mistakes...

Give me a forum...

 

[Donzo]

I have been quite lucky - I stayed the course during the 08-09 market drop and even threw money in on the way down.
I would say my biggest mistake was changing my AA early. As soon as I was back to where I was pre-crash I went to a more conservative allocation and I missed some upside movement. I again changed my AA when we were at 13,800 DOW...again to soon....But, of course had the market tanked after the AA changes I would have felt pretty good about myself .I am at about 50/50 now and plan to stay at this allocation. I don't want the dark days of 08-09 ever again - I like another poster here would require copious amounts of "meds".

As far as tax deferred vs taxable accounts: I am about 55 deferred and 45 taxable. I plan to start drawing from IRAs and 401Ks at 59 1/2. I will take out as much as I can w/o tripping a large tax bite and use taxable for the rest of my expenses. I will pay my dues to the tax man at age 70 and up when the 10% draw comes into play. I have enjoyed having the deferred money grow freely and being able to move it around w/o tax hits over the decades so I am comfortable with paying up when the time comes.....sort of

 

[LitGal]

Have arrived to the discussion late, but do appreciate the question.

DH and I retired as soon as we were convinced it was financially feasible, with guaranteed retiree health care. What also helped financially was that my husband immediately qualified for SS Disability, eventhough he was only 62. (SSDI increased his monthly SS check.)

While hindsight is 20/20, we now wish we could have ER'd sooner. We both love to travel; but due to his health, travel is now too difficult for him. He has serious physical limitations due to his disability; so he regrets the last 3-5 years when he and I were working long hours with little free time to enjoy life.

If we could have taken the time during those years to find a website like this (and learn that we could retire sooner than anticipated), maybe he could have retired when he still had the physical capacity to travel and pursue more of his favorite hobbies.

But we just didn't have the time to pursue more retirement planning, beyond what we were doing then. Work just ate up too many hours and so much energy.

So, yes, there is wisdom in the advice, "Retire when you can still enjoy it!"

Despite this regret, ER is still a great joy.

So, I guess the mistake to avoid is this: if your SO or spouse is ill or has a chronic condition, take that into account very seriously in your planning. The sooner you can quite work, the more time you will have fun with that person you love.

 

[LitGal]

Oops!

Please make that "quit work," not "quite work"!

Sorry....

 

[cinman2000]

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

Quoting myself here just to give an update. I bagged the part time idea, just don't like the idea of being on someone else's schedule. The window now is Jan 2014 to August 2015.
I had not visited this thread in quite a while. Thanks to everyone for sharing these are really helpful!

 

[gerrym51]

my biggest regret is not convincing DW i could do this 2 years ago when she turned 65(me 60). my goal was always to get her to medicare then i would only have to get myself covered. under Romneycare(like it or not) which i have now i could have easily done it.

 

[ER Eddie]

I used a financial planner to help me invest a large chunk of money. In retrospect, it probably would've been better to have educated myself about investing and then put the money into a Vanguard account. As it was, I was charged a 5% "buy in" fee and pay about 2% a year in annual fees. I had no clue about investing and needed some help, so I consider it a lesson learned. And to be fair, she was no shark -- she never pressured me to invest, and her returns have outperformed my own investment in Vanguard funds, even with the fees. She has also been good about providing references for educating myself about investing (including books that warned specifically about being involved with financial planners). I'm sticking with her for the time being.