Math Problem. Help!

[marko]

Friends, I've often mentioned that 'numbers is hard' for me but this is not a calculation problem as much as a math logic problem, which often is my greater challenge.

I'm trying to understand how much I'll have left at the end of 2023 but I'm getting a migraine over this.

Here's the numbers (fake numbers for simplicity and privacy; forget about taxes for now)

Total spending available: dividend bank 70K plus SS 30K=100K

Expected spending: 60K

Need to withdraw from dividend bank: 30K (60K minus 30K from SS)

So, is my surplus 40K? (70 dividends minus 30 withdrawn) or, because SS is part of the 100K is my surplus 70K (100 minus 30 withdrawn)?

Per usual, I'm sure I'm missing something and yes, I'm an idiot on these things; not sure how I managed to FI so well sometimes. (audreyh1 where are you?)

 

[Lagniappe]

$30K.

 

[DJRR]

Assuming your "dividend bank" is your savings/investment for the future think of it this way:

Spending - Social Security = money I need from savings.

Current Dividend Bank - money I need from savings = Final Dividend Bank

So you have $60k - $30k = $30k needed from savings

$70k - $30k = $40k left over after all spending is met

If you are trying to get another number then we can do that too.

 

[audreyh1]

If you have (or will have) $100K and you expect to spend $60K, then you will have $40k left over.

 

[marko]

Assuming your "dividend bank" is your savings/investment for the future think of it this way:

Spending - Social Security = money I need from savings.

Current Dividend Bank - money I need from savings = Final Dividend Bank

So you have $60k - $30k = $30k needed from savings

$70k - $30k = $40k left over after all spending is met

If you are trying to get another number then we can do that too.

Thanks for the breakdown! Sometimes I can't see the forest for the trees.

If you have (or will have) $100K and you expect to spend $60K, then you will have $40k left over.

It really is that simple isn't it! Thanks

 

[TheWizard]

I'm not sure what dividend bank means.
But assuming you get $70k of dividends in your settlement fund (not reinvested) and then withdraw $30k of that to spend along with your SS, then you have $40k of dividends remaining to reinvest.

Very little logic involved...

 

[COcheesehead]

You can build a super simple spreadsheet, add the formulas in onetime and never have to calculate ending balances ever again. I am being serious too. I built a spreadsheet with all kinds of fun calculations while my mind is still good. Only requires one input - total portfolio value. In later years I hope to depend on it more so I don’t have to worry about the math.

 

[audreyh1]

Mine is easy. Total portfolio value on Dec 31. Once I get that straight in Quicken (all these year end distributions) then my following year income is 3% of that value.

Yes, I also have a spreadsheet. The complicated math comes in to play to rebalance the portfolio after I take my annual withdrawal.

Then there is estimating remaining and new year income taxes arrrgh! But I do this so that I can set funds aside from the withdrawal for taxes. What’s left over I can spend!

 

[marko]

Very little logic involved...

Maybe for you! I'm not a Wizard.

 

[Letj]

Very little logic involved...

That may be true for you. There are many people in this world (regardless of how smart they otherwise are) who have difficulty with simple math. It’s not even an education thing. It’s just that their brains aren’t programmed/doesn’t operate that way. I have a very intelligent daughter (college educated) for whom Math is like a foreign language. She uses a calculator even for simple calculations and struggled with math in college. I had to send her to do her math at a community college because she got more hands on help.

 

[Bamaman]

Sounds as if you need to go into a computer tax preparation software and setup a "what if" so it could figure your applicable taxes, etc.

It'll give you a more accurate number. Then you can later go back and change the numbers to your actual income to do your final 2022 income taxes.

Income taxes are substantial and not likely to go down with recent changes.

 

[marko]

That may be true for you. There are many people in this world (regardless of how smart they otherwise are) who have difficulty with simple math. It’s not even an education thing. It’s just that their brains aren’t programmed/doesn’t operate that way. I have a very intelligent daughter (college educated) for whom Math is like a foreign language. She uses a calculator even for simple calculations and struggled with math in college. I had to send her to do her math at a community college because she got more hands on help.

+1. That's me!! I was a senior executive at a large corporation and they had to assign 2
accountants to me just to help with what we called "my blind spot" and keep me in line.

 

[audreyh1]

Sounds as if you need to go into a computer tax preparation software and setup a "what if" so it could figure your applicable taxes, etc.

It'll give you a more accurate number. Then you can later go back and change the numbers to your actual income to do your final 2022 income taxes.

Income taxes are substantial and not likely to go down with recent changes.

Was that in response to my post about setting aside funds to cover income taxes?

I pay estimated income taxes and over the years have built up spreadsheets that do a pretty good job of estimating taxes due using the annualized income method as well as the easier safe harbor shortcuts. I don’t have all the details by Jan 15, but enough to set aside a close amount. This is reconciled when we file our taxes by. April 15. In Jan I also set aside the other estimated taxes due for the first three quarters of the new year based on prior year safe harbor.

I also have tax preparation software, but they have never handled the annualized income method for paying quarterly estimated taxes.

If your post was in reference to “forget about the taxes for now” in the OP, then yes, look ahead in TurboTax 2021 for 2022 should be pretty close, and also give an idea for estimated taxes for 2023 if you know how to calculate them based on safe harbor rules.

 

[donheff]

+1. That's me!! I was a senior executive at a large corporation and they had to assign 2
accountants to me just to help with what we called "my blind spot" and keep me in line.

That's strange Marko since the underlying logic of the question you posed can't be much different than needed to solve lots of non-math questions in your day to day responsibilities as an executive. Did some sort of trauma or other issue cause you to doubt your math capabilities as a kid? DW is a very smart lawyer but has extreme difficulties with math. She traces it back to lack of confidence instilled by a black hearted nun in freshman year of HS. DW was in advanced placement algebra (or some such course) and mentioned to the imposing teacher/nun that she wanted to be a math major in college. The nun told her "you are too stupid to be a math major." DW was crushed and never regained confidence in math.

 

[marko]

That's strange Marko since the underlying logic of the question you posed can't be much different than needed to solve lots of non-math questions in your day to day responsibilities as an executive. Did some sort of trauma or other issue cause you to doubt your math capabilities as a kid?.

Nah! More laziness than anything. Math just never was my thing. More into words and languages. Both mom and grandad were Mensa members and grandad could do compound interest in his head, so I must've been a disappointment! Early on, I was tested as very high IQ but spent many summer-school days in remedial math. Let's not even get into high school algebra!!

Thank God for the arrival of calculators and Excel!

On second thought, from about 4th through 7th grade, my school system went through a disastrous and poorly executed excursion into "new math". Nobody knew what was going on and the whole idea of fractions, decimals, multiplication and very basic arithmetic was never covered. Just never could wrap my head around "x=n+1" as a 10 year old.

 

[target2019]

Nah! More laziness than anything. Math just never was my thing. More into words and languages. Both mom and grandad were Mensa members and grandad could do compound interest in his head, so I must've been a disappointment! Early on, I was tested as very high IQ but spent many summer-school days in remedial math. Let's not even get into high school algebra!!

Thank God for the arrival of calculators and Excel!

On second thought, from about 4th through 7th grade, my school system went through a disastrous and poorly executed excursion into "new math". Nobody knew what was going on and the whole idea of fractions, decimals, multiplication and very basic arithmetic was never covered. Just never could wrap my head around "x=n+1" as a 10 year old.

This is not a perfect answer, but see the chart below. I used moneychimp to calculate the taxes.

I am confused by your Dividend Bank concept. Is it accumulated dividends? When did you earn the dividends? That makes a difference. If you're not earning 30K dividends per year, then my chart is off. I am assuming the 30K in dividends is earned this year, so they are taxed.

I had to make assumptions, so forgive me if I am wrong. You will pay taxes somehow, and that has to come from somewhere. If you have witholding from the SS check than my guess there is wrong. Given what you've posted, and my assumptions, you'll need to extract $33K approximately (includes add'l tax), and your Div Bank at end of year will hold ~ $34000.

 

[marko]

This is not a perfect answer, but see the chart below. I used moneychimp to calculate the taxes.

I am confused by your Dividend Bank concept. Is it accumulated dividends? When did you earn the dividends? That makes a difference. If you're not earning 30K dividends per year, then my chart is off. I am assuming the 30K in dividends is earned this year, so they are taxed.

I had to make assumptions, so forgive me if I am wrong. You will pay taxes somehow, and that has to come from somewhere. If you have witholding from the SS check than my guess there is wrong. Given what you've posted, and my assumptions, you'll need to extract $33K approximately (includes add'l tax), and your Div Bank at end of year will hold ~ $34000.

Thanks, but at the OP I stated that these are fake numbers. I was more interested in where my logic was flawed. Thanks anyway. Sorry that you went through all that work!

 

[target2019]

Thanks, but at the OP I stated that these are fake numbers. I was more interested in where my logic was flawed. Thanks anyway.

As the chart shows, your logic does not account for taxes.

 

[MarieIG]

Figuring out how to manage dividends to cover the correct portion of expenses (mostly taxes) is going to be a project for next near. I will want a portion of the dividends for expenses, and a portion to reinvest. I will probably let "everybody" reinvest for the first quarter (with the exception of a larger holding which is currently held by an agent and withholds taxes - which I want); and then start taking dividends after the first quarter. I'm thinking about taking 1/3 and reinvesting the rest. We'll see.

 

[marko]

Off topic, but hey! I started the thread.

Re: My "dividend bank". It's no big mystery. When my after tax dividends come in, I send them to my checking account automatically. I'm paying taxes on them that year regardless.

My pre-tax dividends and MF cap gains are sent to a separate account (money market) within my IRA. When my checking account gets low, I manually withdraw from those "banked" dividends to pay the bills. They're much larger than my after tax ones and I can control my income and taxes that way.

Dividends, MF cap gains and SS cover all of our expenses and many years we have a surplus which helps in years where cap gains are lean.