Post RE Higher Income Strategies

[Rambler]

Rambler, are you moving to Northern or southern NV?

Sparks area

 

[COcheesehead]

The OP wants to spend now, not to defer anymore.

Too much football today. May have missed that part.

 

[Sunset]

Since OP lives in GA , lets not forget to move to a State with no income taxes vs GA at 6% (over 10K income).

 

[Whisper66]

.....For you higher RE spenders, have you employed any strategies that are helping you keep more of your $?

I suppose we may be "higher spenders". Retired in 2015 so 2016 was our first full year of retirement. Our spending rate will be erratic but planning on ~150k ballpark, could go up to 200k in years of major purchases like cars or major medical issues. This number excludes any Roth conversions we do.

Income is from portfolio assets. Have at least 5 yrs to social security, no annuity pension, no part time jobs. 65% of portfolio is in tax deferred accts, 15% tax exempt, 20% taxable. All moves in the portfolio (selling of old assets or purchase of new assets) is done with tax efficiency of each account in mind. For example, to lower tax impacts in the taxable account, 60% is in tax exempt municipal bonds, rest in index funds with relatively low amount of distributed dividends / capital gains.

Roth conversions are being done using I-ORP as a guide. We do this for multi-generational savings. We hope to minimize taxes over our lifetime but this won't be a huge deal unless tax rates increase. Probably more important is we expect there will be plenty left over for the kids to inherit. So hoping to minimizing taxes in their lifetime also. Also being done to avoid forcing them into RMD's of funds inherited from us.

One other thing about Roth conversions. When we have the opportunity, we will attempt to time conversions when assets are taking a dip in value. For example, we prepared ourselves to make a conversion anytime in 2016. The assets we wanted to convert took a dip in early 2016 so we converted. They have rebounded now and are up 37% from the conversion time. So we paid taxes on a relatively low value and now the funds are forever tax free.

2016 is first full year of retirement, haven't formally done taxes yet so don't know actual effective tax rate. A quick pass with TaxCaster says it may be ~22%.

 

[DawgMan]

Thanks all for the comments.

My conclusion from all of this is I will just have to look at my assets when I hopefully launch in 3 yrs and figure out my best blend withdrawal strategy. As mentioned, while still accumulating and in the highest bracket, I see my best strategy of maxing out any tax differed accts before funding taxable/other. Roth conversion today would be at the top bracket. Some comments to your comments...

- I agree taking a purely "best tax avoidance" strategy only is foolish. I have always looked at my investments on net after tax return basis regardless of fees/taxes and measured the risk/reward. That said, all things being equal paying less taxes is better, ehh!!??

- Admittedly, I have not run the tax return math as things could change in 3 yrs, but if $96K is creates 0 tax liability, then perhaps creating the balance desired won't sting as much in terms of an overall effective tax rate. Part of what I am trying to do is estimate my effective tax rate as that will push my required nut to generate my planned SWR. I have been using 25% to be conservative, but suspect it will be less than that with some level of tax efficiency. A 5% swing in effective tax rate can mean the difference in when I launch.

- Like every who retires, I will have to construct a plan that I am sure will have some Roth conversion and involve a strategy that is very sensitive to RMDs.

- I suppose there could be a place for munis or even annuities, but not really on my radar now. My logic on munis has always been if I can generate a higher net income, even if taxed, on a preferred or similar risk/reward asset, why go munis? Re annuities, I am just wired not mix my insurance with my investments... if you need insurance, buy term. Again, have not studied the overall impact of incorporating these when I RE, so perhaps they will deserve a look.

 

[RAchip]

I spend a lot -- tripple or more what the OP was discussing. My income comes from dividends and a municipal bond portfolio. Dividends are taxed the same as long term capital gains, much lower than regular income. Also, we will be moving to our Florida house as soon as feasible to eliminate state income tax and state inheritance tax. A large stock portfolio is the best way to produce a lot of income if you have a lot of money and need a lot of income.

 

[Danmar]

Early in my retirement I had significant amounts of incentive comp awards cashing out. In order to reduce taxes on this, we moved to a low tax province (Alberta). Still live there 10 years later. Saved a lot of tax but spent most of it on the new house.