|
|
05-21-2013, 06:50 PM
|
#21
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Posts: 11,401
|
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.
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
05-21-2013, 08:12 PM
|
#22
|
Dryer sheet aficionado
Join Date: May 2013
Location: DC
Posts: 31
|
Quote:
Originally Posted by youbet
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
|
|
|
05-21-2013, 08:21 PM
|
#23
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
|
Quote:
Originally Posted by allanlevy
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.
__________________
Numbers is hard
|
|
|
05-22-2013, 07:05 AM
|
#24
|
Dryer sheet aficionado
Join Date: May 2013
Location: DC
Posts: 31
|
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
|
|
|
05-22-2013, 07:08 AM
|
#25
|
Dryer sheet aficionado
Join Date: May 2013
Location: DC
Posts: 31
|
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?
|
|
|
05-22-2013, 07:18 AM
|
#26
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Posts: 11,401
|
Quote:
Originally Posted by allanlevy
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.
|
|
|
05-22-2013, 07:38 AM
|
#27
|
Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,726
|
Quote:
Originally Posted by allanlevy
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.
Quote:
Originally Posted by allanlevy
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.
|
|
|
05-22-2013, 07:41 AM
|
#28
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Posts: 11,401
|
Quote:
Originally Posted by MichaelB
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!
http://www.early-retirement.org/foru...ml#post1322067
|
|
|
05-22-2013, 07:44 AM
|
#29
|
Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,726
|
Quote:
Originally Posted by Meadbh
|
Thanks!
|
|
|
05-22-2013, 11:06 AM
|
#30
|
Full time employment: Posting here.
Join Date: Jan 2011
Posts: 586
|
Quote:
Originally Posted by allanlevy
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.
|
|
|
05-22-2013, 11:52 AM
|
#31
|
Thinks s/he gets paid by the post
Join Date: Apr 2006
Posts: 1,684
|
Quote:
Originally Posted by allanlevy
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 . . .
|
|
|
05-23-2013, 09:45 PM
|
#32
|
Dryer sheet aficionado
Join Date: May 2013
Location: DC
Posts: 31
|
Quote:
Originally Posted by Meadbh
|
Cool--glad you did this!
|
|
|
05-25-2013, 09:09 AM
|
#33
|
Dryer sheet aficionado
Join Date: May 2013
Location: DC
Posts: 31
|
Quote:
Originally Posted by Rustward
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
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|