Another article about the challenges of saving despite high income

[Austin704]

Give this couple’s occupations, they could live pretty much anywhere. They should dump the expensive house while the market is good, sell the rental property, and use the proceeds from both to liquidate the debts and still have money left over for a down payment on a home in a lower cost state. They can start over. They’re young enough.

I realize the Pacific Northwest is beautiful and the thought of living in “flyover country” doesn’t sound appealing, but there are plenty of beautiful places in low cost states. In the end, it’s about priorities.

 

[Lukeee]

For what it's worth, the $850k house is where they lose me. DW and I combined make double what they make and live in a fairly HCOL (for the Midwest) and wouldn't think of buying a house that expensive, even though we can afford it.

For a person (me) that never focused on FIRE till more recently, I will say it’s easy to fall into the ‘I want to upgrade my home’ sickness. There was a point when DW and I were seriously considering ‘upgrading’ 10+ years ago but decided to put the cost of moving and commissions into renovating the home. It’s only now that i dig deeper into some costs that offset profit that I’m glad I didn’t upgrade.
Using a $850K home as the example
- property tax (probably $10K a year...$50K for 5 years).
- bigger interest payments ($500K loan at 3.25%) of $77K in interest payments for the first 5 years.
- moving in future is probably $20K in commission / moving and furnishing new home.

 

[Independent]

It is more obvious, if you do your own tax. I use TurboTax, I just add SS, no tax at first, the minute I add other income, 85% of SS is taxed. If that’s not means testing, what is ?

Did not know it worked that way. Bummer. Is that Fed tax or state or both?

It's not quite as extreme as "the minute".

If a couple has $40,000 of combined SS benefits, they can have another $12,000 of regular income and none of their social security benefit will be taxable. That means they have $52,000 of income and pay no FIT because $12,000 is less than the $24,000 standard deduction.

At $20,000 of other income, for a total of $60,000, they include $4,000 of their SS benefits in taxable income, but still pay no tax.

But, then it grows quickly.

When they get to $40,500 of other income, for a total gross of $80,500, about half the SS will be taxable. So they will be taxed like people who have $60,500 of income.

And, when they get up to $57,000 of other income, for a total of $97,000, 85% of the SS will be taxed. So they will be taxed like other people who have $91,000 of income.

I agree with FedUp that this amounts to a means test on SS benefits. But note that it is not an extra tax on SS, just a loss of the preferential SS treatment.

37 states do not tax SS benefits. That includes 9 that have no state income tax. https://www.kiplinger.com/slideshow...don-t-tax-social-security-benefits/index.html

 

[redduck]

I'm pretty sure their problems are due to the vanity license plates.

IMO that is a symptom of the problem, which is poor judgment on spending.

Hey, hey, OldShooter, I have vanity license plates. Worth whatever I pay for them every year (or every two years, I forget which).