No. of Recommendations: 7
See that's the problem I've always had with your analysis - you assume everyone's picture looks like yours. ... Unlike you, my assets are roughly divided...

Nobody here knows what my picture looks like, because I've never discussed it in anything other than general terms. People might guess roughly, based on my discussions of take lots of cruises and a few very long cruises. But that's it.
Hell, my wife doesn't even know the details of what our picture looks like, she just knows that she can pretty much spend what she wants to (which is almost exclusively craft hobby stuff and twice a month housecleaning service.)

I try to write and analyze this stuff from the standpoint of an upper-mid income family--- because that's basically the audience here at TMF. Either we here are in that area or are planning to be. And I mostly take a married-filing-joint tax viewpoint, because that's where most people are.

And, sadly, upper-mid income singles take it in the ear on taxes. With the 25% threshold being only $37,950, you are either living in a refrigerator box or being in the 25% (or higher) tax bracket. Just about any significant income will have you well above the 15% bracket.


pre-tax/Roth/taxable at 40%/20%/40%.
An ususual allocation, I believe. From talking to a few FA's right before we retired early, they said that most people had the bulk of their retirement money in 401Ks and IRA, and not all that much in Roths and taxable.

A $2M pre-tax account would imply about $5M in assets; but I'll be retiring long before that happens.
Now it's you that is assuming that everyone's picture looks like yours. ;-)
I bet that 80/10/10 is more typical than your 40/20/40.
There's another frequent poster who also complains about my analyses. IIRC, he is already in the 33% bracket, therefore not in the upper/mid income area that is my focus. You guys just have to realize that your situtations are not the ones I am addressing and they don't apply to you.


And for you, my remarks about not being able to convert significant amounts of money from IRA to Roth apply with a vengeance. Virtually all of a $50K conversion would be solidly in the 25% bracket. Ugh.

Say you have enough assets so that you can safely and comfortably retire early, maybe at 55 or 58. That implies a minimum of somewhere around $1M. Starting from 55, you have 15 years of growth to age 70. At 8% average annual return, your $1M will grow to $3M.
At the unusual ratio of 40/20/40, the IRA/401K will be about $1.2M.
The 1st RMD will be about $44,000. Even if you have NO other taxable income, that right there will put a single filer in the 25% bracket.
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No. of Recommendations: 2
Sounds a lot like a CPA who did my taxes one year. He insisted on needing every last brokerage statement to complete my taxes and made it sound like he spent HOURS running my expenses through various tax scenarios. Of course, when he was done he did no better or worse than my previous accountant (who died suddenly, hence, the search for the new guy). In the end I found a less flashy accountant who asks only for the barest essentials and does a fine job for 1/2 the cost.

Now, financial planners are obviously doing a different line of work, but the principle is the same. I'd keep interviewing folks -- if you believe you need a professional advisor. And avoid those who try to make it look like what they're doing is SO COMPLICATED. A true pro should be able to work within a reasonable time frame.
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No. of Recommendations: 7
Anyway, that's where things stand. Even if we were to pay $200/hr, I was hoping the CFP would be able to look over everything in a few hours and say yes or no to retirement now. Maybe that's not reasonable.

When i retired 14 years ago, we didn't have too much assets. I didn't retire because I had everything all planned. I retired because I was 70 and all worn out. Had no pension or annuities. Had a small portfolio that was invested in a few mutual funds for years- Never made any money over the years. Illnesses along the way kept my income down and in some years I had to withdraw some money from my IRA to make ends meet.
Didn't have money to hire a financial planner, so I decided to try to do it myself.
I needed income and I needed to learn how to make money to pay my bills--both at the same time. I learned and so far all my bills are paid and my portfolio has increased many fold from my initial position on July 1 2003 when I retired

Good luck
b&w
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No. of Recommendations: 18
Can you figure out how much per year you need as income in retirement? Can you multiply by 25? Can you figure out how much money you have now? If that third number is bigger than the second number you are more or less okay to retire. If the third number is twice the second number then you're certainly okay to retire.

You really don't have to pay anybody anything to get a rough idea.

-IGU-
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No. of Recommendations: 3
As a CFP (R), I can tell you that a detailed financial plan can indeed take many hours to complete. I can't speak as to whether or not $200 an hour is reasonable but my guess is that it is probably pretty average.

Visit cfp.net and search for other CFP Professionals in your area to get a second opinion and then compare the fees and the time requirement.
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No. of Recommendations: 12
A CFP might well be worth a couple grand if s/he is a straight shooter and really puts together a good plan and if you really don't have the ability, desire or courage to work your own plan out. I don't know.

But I might be a good one to respond because I am an unskilled investor working my way through the same issues but slightly farther down the path than you.

It took me a couple of years to throw off the shackles of a financial advisor and reach the point that my blunders cost less than the advisor. Even now I often discover that I don't even know what I don't know. Like Donald Rumsfeld I have known unknowns and unknown unknowns.

To top it off, my wife now tells several of her divorced professional friends in their late 50's and 60's to talk to me about retirement planning after she finds out that they are lost and clueless and paying financial advisors management fees in the 1% range and then the managers are just 'reallocating' mutual funds that have hidden costs in the .7-1% range.

The first thing I do is walk them through the Social Security calculators like we do on this board to help them see what their benefits would be at 62 vs. FRA vs. 70. Then we talk about pros and cons with me basically parroting rayvt's arguments on the one side and the 'hang on to it till you are 70' on the other side, and then we run more variations.

Then we look at their 403(b)s and other financial assets, if any. Then I offer up ideas ranging from Vanguard Life Strategy to Vanguard Wellington to a mix of vti and BND (or vwalx if they have large pensions, lots of income and a need for tax exempt income) with percentages that may copy the Vanguard life strategy fund but with slightly lower fees.

I tell them repeatedly that I don't really know what I am talking about but that a similar strategy is producing much better results for me than my financial advisor did.

I refuse to give tax advice even if I think I know the answer.

My vanguard account at the age of 61 is now mostly vti with a slice of vwalx which adds tax exempt income of about 3.8%. My Wells Fargo brokerage account is fee based, no management fees, and has a mix of mostly equities but also some preferred stocks and municipal bond funds (nobody here likes municipal bond funds but tax exempt interest in the 4% range is a nice parking spot for some of my cash at this time).

My best guess is that many people need a simple, "fix it and forget it" plan like Vanguard Life Strategy or Vanguard Wellington or vti with some cash equivalents on the side to help them sleep through stock market corrections.
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No. of Recommendations: 1
IGU wrote:

<<Can you figure out how much per year you need as income in retirement? Can you multiply by 25? Can you figure out how much money you have now? If that third number is bigger than the second number you are more or less okay to retire. If the third number is twice the second number then you're certainly okay to retire.

You really don't have to pay anybody anything to get a rough idea.>>


Thanks for the responses everyone! I know all the numbers, and yes, the third number is bigger than the second, but not by much. And we are just 55 and 60. And I don't want to make a mistake. That's why we are looking for a professional.

Lisa
in MA
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No. of Recommendations: 2

I tell them repeatedly that I don't really know what I am talking about but that a similar strategy is producing much better results for me than my financial advisor did.


One of the pro/cons of using a CFP and/or other professional fiduciary is that they are generally restricted in how they may invest your funds. It isn't necessarily difficult to beat a managed account - but one may take on more risk to do so (not accounting for the fee of course).

My best guess is that many people need a simple, "fix it and forget it" plan like Vanguard Life Strategy or Vanguard Wellington

As you probably know, a financial plan is a lot more than simply picking an asset allocation. A good plan looks at insurance (life, health, home, auto, etc.), estate planning (wills, POAs, trusts, etc.), taxes, cash flow analysis, budgeting, etc.

Picking a good asset allocation is really the easiest part of the plan. All the other stuff is a lot more work and labor intensive.

You should probably start charging your wife's friends an hourly fee. :)
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No. of Recommendations: 2
Post questions here and it's all free and anonymous.

8D
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No. of Recommendations: 2
Post questions here and it's all free and anonymous.

Is the advice worth what you paid for it?

PSU
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No. of Recommendations: 0
Is the advice worth what you paid for it?

PSU


Sometimes not.

CNC
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No. of Recommendations: 10
PSUEngineer asks,

<<Post questions here and it's all free and anonymous.>>

Is the advice worth what you paid for it?


About 20 years ago Warren Buffet offered this advice on paid financial advisers.

http://www.retireearlyhomepage.com/advise.html

OMAHA, Neb. May 2, 1999 (AP) -- Multibillionaire investor Warren Buffett on Sunday criticized stockbrokers and investment managers who take high fees for their work.

Investment managers add nothing to the value of the businesses they trade stocks in, yet many demand 2 and 3 percent commissions and fees to help their clients invest, Buffett said.

``The average investment manager adds nothing,' Buffett said. `He subtracts something from your investment performance. It's almost unique among professions that I can think of.'

</snip>


intercst
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No. of Recommendations: 1
To shop around for quotes, this website can help locate other planners

https://www.napfa.org/

As far as the estimated time that the planner would require to complete the work - have you organized all your paperwork in a simple manner when you presented it?

I'm sure if a planner just got handed a disorganized, confusing pile of paper he/she would also be charging you hourly for trying to organize it and make sense of it prior to even starting the planning part of their jobs.

nag
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No. of Recommendations: 2
Things I hope to get from a financial advisor, which *doesn't* include "maximize your portfolio's return:
-Best way to structure Social Security withdrawals
-How to do RMDs (might be more straightforward than I fear, but worried there might be wrinkles I don't know about)
-Reasons why / why not to transform IRAs into Roths these last few years of my working career, or the years after retirement but before Medicare eligibility, or between Medicare eligibility and beginning to take SS
-Minefields I'm not even aware of

Example: I went for a free dinner where they try to solicit your business for the price of a meal. A Social Security scenario I had never heard of before was presented, and it would actually improve my cash flow and total money collected (slightly).

Fidelity has given me some of what I'm looking for because I've got some 401k/IRA accounts there. Vanguard keeps offering to do the same. If the local advisor wants too much, see if your fund company will get you some of what you're hoping to find out, and do it for free. (But don't be surprised if one of their suggestions is to consolidate all your money with them.)
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No. of Recommendations: 12
Things I hope to get from a financial advisor, which *doesn't* include "maximize your portfolio's return:
-Best way to structure Social Security withdrawals

This is meaningless. There is no way to "structure" your SS benefits. You take what the SSA gives you, once a month when they deposit it to your checking account. The only choice you have is what age to start receiving the benefit. And that's essentially an empty choice, since the (average) total lifetime benefit will be approximately the same whether you start at 62 or at 70. Less money per month for more years or more money per month for fewer years -- from age of filing to your death.

-How to do RMDs (might be more straightforward than I fear, but worried there might be wrinkles I don't know about)
It is very straightforward. You look at your total IRA balances on Dec 31, and then look up your age in the IRA table and divide the balance by the number in the table. That's how much your RMD is.
There is no "wrinkle". If you only have one IRA account, your broker will even do the math for you and tell you what your RMD is.


-Reasons why / why not to transform IRAs into Roths these last few years of my working career, or the years after retirement but before Medicare eligibility, or between Medicare eligibility and beginning to take SS
There is not much of a financial reason do convert from IRA to Roth. All you are doing is shifting the date of when you have to pay the taxes.
There are a (very) few edge cases where having or not having the IRA conversion may increase your taxable income such that it will cross a threshold and you'll get or lose something - like an Obamacare subsidy or increased amount of the SS benefit that is taxed.

For the first few years after I retired I did heavy conversions. Now I see that all that has happened was that I did the IRA withdrawals *then* instead of *now*. The money moved from IRA to Roth, and then a couple years later got withdrawn from the Roth. So all that happened was the IRA money came out in two steps (IRA->Roth->cash) instead of one step (IRA->cash). B.F.D.
Oh, and I paid the tax several years early.


-Minefields I'm not even aware of
Unlikely. There are no minefields that haven't been throughly discussed in the pop financial magazines/sites and forums like here at TMF and Bogleheads.

Probably the biggest minefields are *avoiding* getting sucked into a stupid investment like Universal Indexed Life policy or similar things. You already know the general rule for avoiding those: Don't invest in anything which you heard about at a free dinner.

...scenario I had never heard of before was presented, and it would actually improve my cash flow and total money collected

You can pretty much guarantee that the outcome of any such scenario is trivial and/or has some negatives that they kinda didn't bother to mention.
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No. of Recommendations: 13
Rayvt,

You wrote, This is meaningless. There is no way to "structure" your SS benefits. You take what the SSA gives you, once a month when they deposit it to your checking account. The only choice you have is what age to start receiving the benefit. And that's essentially an empty choice, since the (average) total lifetime benefit will be approximately the same whether you start at 62 or at 70. Less money per month for more years or more money per month for fewer years -- from age of filing to your death.

This isn't completely true. Or perhaps you are splitting hairs about the term "structure" vs. "strategy" or simply "decision"?

If you are married, you can choose to take SS based on your record or your spouse's. You can also change later in life. Also taking your SS early might have implications for your spouse if you die early and they didn't have much of an record. This isn't complicated, but you can argue that picking your withdrawal dates based on information like this is structuring. Also similar considerations if you have former or deceased spouse.

Also you point toward a contradiction when you point out that payments are from your age of filing to death. To the SSA your decision might be meaningless because it shouldn't change the statistics, but you might be able to make an educated guess based on your family and medical history and the result might be meaningful to you. If you think you will live longer than average, drawing later gets you more money over your lifetime. If you think you have reason to believe you might not make it to the average, drawing at 62 is probably the smarter move.

For me, I have a mixed family and personal medical history - it could go either way, so no help there. But there might be other factors, like whether or not you will have to pay income tax on 85% of your SS for some or all of your draw years. That *might* be a reason to draw earlier, depending on how your finances work out.

And, If you only have one IRA account, your broker will even do the math for you and tell you what your RMD is.

+1.

Actually if you have more than one IRA and want to be especially lazy, you could probably just let every IRA admin tell you the RMD needed for that account and take that. I'm sure there are other permutations of laziness possible here.

Also, There is not much of a financial reason do convert from IRA to Roth. All you are doing is shifting the date of when you have to pay the taxes.
There are a (very) few edge cases where having or not having the IRA conversion may increase your taxable income such that it will cross a threshold and you'll get or lose something - like an Obamacare subsidy or increased amount of the SS benefit that is taxed.


But for some doing conversions earlier on might help avoid paying taxes in a higher bracket sometime after RMDs kick in. Sure that's probably not the common case, but it probably happens a lot more to the readers of this board than in the general population.

- Joel
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No. of Recommendations: 16
Also taking your SS early might have implications for your spouse if you die early and they didn't have much of an record. This isn't complicated, but you can argue that picking your withdrawal dates based on information like this is structuring.

Yes, you could reasonably argue that. I'm not sure that any such optimization would gain you more than you'd have to pay to get that information. If you really want to do it, there are a couple of free web sites that will give you the information. For free.

My usual take is that the decision of when to file for SS primarily changes the *shape* of the money you get but not the total amount. Less per month for more years or more per month for fewer years.


but you might be able to make an educated guess based on your family and medical history and the result might be meaningful to you. If you think you will live longer than average...

Yeah, people say this all the time -- and it is all hooey. Your family history doesn't mean squat when it comes to a drunk driver coming around the bend in your lane at 90 MPH. And just about everybody thinks they will live longer than average. Just like everybody thinks they are an above average driver and above average lover.

In this, as well as in other areas concerning statistics, the best you can do is go by the base rate. People who know they are in bad health can justifiably assume that they won't live longer than average, but aside from that there is little reason to assume that your lifetime will be anything other than average.


But for some doing conversions earlier on might help avoid paying taxes in a higher bracket sometime after RMDs kick in. Sure that's probably not the common case, but it probably happens a lot more to the readers of this board than in the general population.

Yes, certainly. But I think there are actually very few people for whom this is a significant possibility. If you have, say, $2M in your IRA then the RMDs and normal 4% withdrawals are going to be so much money that the delta of optimizing SS date or optimizing the timing of IRA/Roth conversions are not going to make a significant difference in your lifestyle. Eating out 5 times a week instead of merely 4. Ordering the 24 oz. prime rib with or without a side of shrimp.


One problem -- which I am increasingly becoming aware of -- is that if you have a generous amount of retirement income there is not much headroom between your taxable income and the 25% tax bracket. Once you spill into the 25% bracket you have to pay 15% tax on LT capital gains and dividends. Under 25% bracket and the tax is 0%.

If you have a lot of money/income, no worry--you are in the 25% bracket anyway.
If you don't have a lot of money/income, no worry -- you don't have much income however you optimize it.
It's only the people who fall between these levels that have to worry about it. And there just isn't a lot of headroom.

but it probably happens a lot more to the readers of this board than in the general population.
Yup. And they (we) are more likely to be in that first group. 4% of $2M is $80K. Pretty darn close to the 25% bracket if it's all taxable like IRA/401K withdrawals. You are depending on the deductions to bring your taxable income down below the $75,900 cutoff (MFJ) of the 25% bracket. Add in $2000-$3000 per month in SS and you are toast, solidly in 25%.

As far as Roth conversions, you have a sensitive balancing act to do, trying to shift your taxable income out of the later years into the earlier years, trying to balance things out so that both timeframes you skate just shy of the 25% bracket.

Then you face the problem of having cleverly deferred taking SS until 70 -- and now you suddenly get a whole bunch of additional income that is taxable.

Also, the problem with Roth conversions is that you just can't move a substantial amount of money from the IRA to the Roth, without *that* pushing you into a higher tax bracket. Converting, say, $50K adds $50K to your taxable income _today_, which will undoubtedly push you into the 25% bracket -- where you don't want to be. And if you have $1M in your IRA(s), what the heck does it matter if you reduce it from $1,000,000 to $950,000? It's still a million dollars. Your age 70 RMD will be reduced from $36,500 to $34,700. Big deal. What are the chances that this difference is going to make you cross the threshold of the 25% tax bracket?


All this information from me, Joel, etc. was all free and didn't cost you $200/hr -- and is probably more detailed & nuanced than you could get from a $200/hr guy.
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joelcorley writes,

Also you point toward a contradiction when you point out that payments are from your age of filing to death. To the SSA your decision might be meaningless because it shouldn't change the statistics, but you might be able to make an educated guess based on your family and medical history and the result might be meaningful to you. If you think you will live longer than average, drawing later gets you more money over your lifetime. If you think you have reason to believe you might not make it to the average, drawing at 62 is probably the smarter move.

For me, I have a mixed family and personal medical history - it could go either way, so no help there. But there might be other factors, like whether or not you will have to pay income tax on 85% of your SS for some or all of your draw years. That *might* be a reason to draw earlier, depending on how your finances work out.

</snip>


Same here. In terms of family history I don't have any reason to believe I'll live longer or shorter than average. But one piece of information that has been persuasive is a 2015 Treasury Dept study showing that those in the top 20% of the income distribution live quite a bit longer than average. (5.4 years longer for men (88.8 vs. 83.4 years) For women, the figure is 12.2 years longer for the Top 20% (91.9 vs. 79.7 years)) Five years is enough to get me to delay SS to age 70.

The Growing Gap in Life Expectancy by Income: Implications for Federal Programs and Policy Responses (2015)
https://www.nap.edu/catalog/19015/the-growing-gap-in-life-ex...

</snip>


intercst
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No. of Recommendations: 5
Rayvt,

You wrote, Yup. And they (we) are more likely to be in that first group. 4% of $2M is $80K. Pretty darn close to the 25% bracket if it's all taxable like IRA/401K withdrawals. You are depending on the deductions to bring your taxable income down below the $75,900 cutoff (MFJ) of the 25% bracket. Add in $2000-$3000 per month in SS and you are toast, solidly in 25%.

See that's the problem I've always had with your analysis - you assume everyone's picture looks like yours. My pre-tax account probably won't hit $2M - at least not if I can help it. Unlike you, my assets are roughly divided pre-tax/Roth/taxable at 40%/20%/40%. A $2M pre-tax account would imply about $5M in assets; but I'll be retiring long before that happens.

Also I'm single, not married. For me the 25% bracket starts at $37,950. In my initial years I'll probably fill most of that with interest, dividends and realized capital gains from my taxable accounts.

- Joel
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intercst,

I wrote, Also you point toward a contradiction when you point out that payments are from your age of filing to death. To the SSA your decision might be meaningless because it shouldn't change the statistics, but you might be able to make an educated guess based on your family and medical history and the result might be meaningful to you. If you think you will live longer than average, drawing later gets you more money over your lifetime. If you think you have reason to believe you might not make it to the average, drawing at 62 is probably the smarter move.

For me, I have a mixed family and personal medical history - it could go either way, so no help there. But there might be other factors, like whether or not you will have to pay income tax on 85% of your SS for some or all of your draw years. That *might* be a reason to draw earlier, depending on how your finances work out.


To which you replied, Same here. In terms of family history I don't have any reason to believe I'll live longer or shorter than average. But one piece of information that has been persuasive is a 2015 Treasury Dept study showing that those in the top 20% of the income distribution live quite a bit longer than average. (5.4 years longer for men (88.8 vs. 83.4 years) For women, the figure is 12.2 years longer for the Top 20% (91.9 vs. 79.7 years)) Five years is enough to get me to delay SS to age 70.

Actually for other financial planning purposes, I always assume I will outlive at least 90% of the peers that remain at regular retirement age. It would make sense to apply the same logic to my social security application.

In any case, my decision isn't firm yet. Other factors might apply. For instance RMDs force you to recognize deferred income which can have knock-on effects with taxes on social security. For instance taking social security early (before 70) *might* allow me to take it for some years without paying the 85% tax penalty.

I'm thinking that around the time I retire I will work up a spreadsheet to model different what-if scenarios. That will probably inform my final decision. But right now I certainly have no reason to believe I will need the money at age 62.

- Joel
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Things I hope to get from a financial advisor, which *doesn't* include "maximize your portfolio's return:
-Best way to structure Social Security withdrawals


This is meaningless. There is no way to "structure" your SS benefits. You take what the SSA gives you, once a month when they deposit it to your checking account. The only choice you have is what age to start receiving the benefit. And that's essentially an empty choice, since the (average) total lifetime benefit will be approximately the same whether you start at 62 or at 70. Less money per month for more years or more money per month for fewer years -- from age of filing to your death.


Would "arrange" or "choose" be a more acceptable word to you than "structure?"

Example of how to arrange SS that I think benefits me the most: My wife starts hers at age 67 using her own earnings, then I start at age 70, then my wife starts using the spouse option. That maximizes my own (if I live for a long time), *plus* we get something starting at my wife's age of 67...I wasn't aware of that possibility until this year.


-How to do RMDs (might be more straightforward than I fear, but worried there might be wrinkles I don't know about)

It is very straightforward. You look at your total IRA balances on Dec 31, and then look up your age in the IRA table and divide the balance by the number in the table. That's how much your RMD is.
There is no "wrinkle". If you only have one IRA account, your broker will even do the math for you and tell you what your RMD is.


Here's one wrinkle: You figure out your RMD, then take that amount from any combination of IRAs. However, that *doesn't* include 401ks, and you don't even get to apply the same logic to multiple 401ks.


-Reasons why / why not to transform IRAs into Roths these last few years of my working career, or the years after retirement but before Medicare eligibility, or between Medicare eligibility and beginning to take SS

There is not much of a financial reason do convert from IRA to Roth. All you are doing is shifting the date of when you have to pay the taxes.


One big reason to pay taxes now vs later: Later, you have an RMD that could force your SS into a higher taxed category, or incur higher taxes on Medicare. So, there's more to think about than just "my marginal rate now vs. my anticipated marginal rate later."

There are many reasons to find out "what it is that I don't know, and don't know that I don't know."
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No. of Recommendations: 7
See that's the problem I've always had with your analysis - you assume everyone's picture looks like yours. ... Unlike you, my assets are roughly divided...

Nobody here knows what my picture looks like, because I've never discussed it in anything other than general terms. People might guess roughly, based on my discussions of take lots of cruises and a few very long cruises. But that's it.
Hell, my wife doesn't even know the details of what our picture looks like, she just knows that she can pretty much spend what she wants to (which is almost exclusively craft hobby stuff and twice a month housecleaning service.)

I try to write and analyze this stuff from the standpoint of an upper-mid income family--- because that's basically the audience here at TMF. Either we here are in that area or are planning to be. And I mostly take a married-filing-joint tax viewpoint, because that's where most people are.

And, sadly, upper-mid income singles take it in the ear on taxes. With the 25% threshold being only $37,950, you are either living in a refrigerator box or being in the 25% (or higher) tax bracket. Just about any significant income will have you well above the 15% bracket.


pre-tax/Roth/taxable at 40%/20%/40%.
An ususual allocation, I believe. From talking to a few FA's right before we retired early, they said that most people had the bulk of their retirement money in 401Ks and IRA, and not all that much in Roths and taxable.

A $2M pre-tax account would imply about $5M in assets; but I'll be retiring long before that happens.
Now it's you that is assuming that everyone's picture looks like yours. ;-)
I bet that 80/10/10 is more typical than your 40/20/40.
There's another frequent poster who also complains about my analyses. IIRC, he is already in the 33% bracket, therefore not in the upper/mid income area that is my focus. You guys just have to realize that your situtations are not the ones I am addressing and they don't apply to you.


And for you, my remarks about not being able to convert significant amounts of money from IRA to Roth apply with a vengeance. Virtually all of a $50K conversion would be solidly in the 25% bracket. Ugh.

Say you have enough assets so that you can safely and comfortably retire early, maybe at 55 or 58. That implies a minimum of somewhere around $1M. Starting from 55, you have 15 years of growth to age 70. At 8% average annual return, your $1M will grow to $3M.
At the unusual ratio of 40/20/40, the IRA/401K will be about $1.2M.
The 1st RMD will be about $44,000. Even if you have NO other taxable income, that right there will put a single filer in the 25% bracket.
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Vanguard has an RMD estimating tool:
https://personal.vanguard.com/us/insights/retirement/estimat...

Quite an eye opener.
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No. of Recommendations: 5
One big reason to pay taxes now vs later: Later, you have an RMD that could force your SS into a higher taxed category,

Got news for you. (It was news to me, too, when someone mentioned it and then I had to go check it out for myself.)

If you have above-average income --and who here doesn't plan on having above-average retirement income -- the amount of your SS benefit that gets taxed starts off soon and accelerates rapidly.
Even though you are in the 15% bracket, as the amount of your SS that gets taxed increases (due to increased income) your *total* marginal rate is just a tad under 28%. Once the amount of SS subject to tax gets to 85%, your marginal rate drops back to 15% until you hit the 25% bracket.

At $50K ordinary income and $36K SS income, with standard deduction MFJ, the max of 85% of the SS is taxed.
At $70K ordinary and the same $36K SS, you are just in the 25% bracket.

At those income levels, it's easy for your income to jump $20K one year, a large capital gain will do it. Or a small(ish) Roth conversion.


there's more to think about than just "my marginal rate now vs. my anticipated marginal rate later."
Right. As shown above the tax bracket isn't always the the same thing as the marginal rate. Your marginal rate is how much the IRS takes of each additional dollar of income.



or incur higher taxes on Medicare.
But that's a relatively high income. The breakpoints are $85K & $107K for single, $170K and $214K for joint.
The medicare premiums are $134, $188 and $268. Even the highest -- $268/mo -- is much less than we paid before going on Medicare. Ours was about $900/mo. So it's rather a first world problem.


There are many reasons to find out "what it is that I don't know, and don't know that I don't know."
Indeed.
I sometimes wonder how much of these details you would actually get from your $200/hr FA. My experience is that they mostly try to convince you to let them manage your money. For a fee.
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I try to write and analyze this stuff from the standpoint of an upper-mid income family--- because that's basically the audience here at TMF. Either we here are in that area or are planning to be.

Yes, I would agree with that.

And I mostly take a married-filing-joint tax viewpoint, because that's where most people are.

This is what I disagree with. For the filing year 2014 (the most recent year that statistics are available for on this page: https://www.irs.gov/statistics/soi-tax-stats-individual-inco... ) if you look at the filings by status, here is what you get:

All returns	                               148,606,578
Returns of married persons filing jointly 53,924,864
Returns of married persons filing separately 2,949,371
Returns of heads of households 22,077,498
Returns of surviving spouses 75,256
Returns of single persons 69,579,590

As you can see, only about 1/3 of the returns filed were filed as MFJ. Nearly 2/3 were for a different filing status. There were actually more Single returns filed than MFJ returns. Plus, you don't ever seem to consider that it's very likely that one of the people who is currently MFJ is very likely to be single, possibly for a number of years.

And, sadly, upper-mid income singles take it in the ear on taxes. With the 25% threshold being only $37,950, you are either living in a refrigerator box or being in the 25% (or higher) tax bracket. Just about any significant income will have you well above the 15% bracket.

Exactly. Which is why, if you don't consider the Single filers in your scenarios, you should to be explicit about the fact that you are talking about MFJ. Otherwise, you will continue to get arguments from people who don't file MFJ that you scenarios are incorrect.

And for you, my remarks about not being able to convert significant amounts of money from IRA to Roth apply with a vengeance. Virtually all of a $50K conversion would be solidly in the 25% bracket. Ugh.

But if it keeps you from paying taxes on RMDs in a 28% or higher bracket, then it's still a tax savings. And since the 28% bracket for singles starts at $91,901, assuming $25k in taxable income from SS, after accounting for the standard deduction and a personal exemption, the RMDs would only have to be $77,250 to push a single person into the 28% bracket.

The 1st RMD will be about $44,000. Even if you have NO other taxable income, that right there will put a single filer in the 25% bracket.

Well, not exactly. Once you take the personal exemption and standard deduction into account, that will drop the taxable income down to about $33,650 of taxable income, which would still be in the 15% bracket. However, even at that income level, 85% of SS would be taxable, so it's likely that SS + RMD would push into the 25% bracket. And that's why single filers on TMF are more likely to be concerned about being pushed up into the 28% bracket than trying to stay in the 15% bracket. And conversions to a Roth, even while in a 25% bracket, can help with that.

And just remember - it very likely that MFJ filers will end up filing Single at some point. And if the only decrease in income is the deceased spouse's SS going away, the surviving spouse is going to be in a much higher bracket as a Single filer. So, current MFJ filers who truly want to minimize taxes paid across their lifetime need to plan for that scenario.

AJ
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There were actually more Single returns filed than MFJ returns.

Yeah, that doesn't surprise me too much. But.....I wonder how it further breaks down. It's not just the raw number of returns, it would be the returns in the cohort we are interested in. It doesn't matter what is the return distributions of singe & joint for 18 year olds who make under $25K.

It would be the people from maybe age 45 to 65 with AGI maybe $50K to $100K. Oh, hell -- the data's there I might as well add it up.
7,584,398 MFJ
3,818,657 single



Plus, you don't ever seem to consider that it's very likely that one of the people who is currently MFJ is very likely to be single, possibly for a number of years.
Nope, I always keep that in mind. Don't always mention it specifically, because adding all the little caveats make it too complex for people to bother reading. There's a reason that "TL;DR" is a thing.

the surviving spouse is going to be in a much higher bracket as a Single filer. So, current MFJ filers who truly want to minimize taxes paid across their lifetime need to plan for that scenario.
That quickly becomes too deep in the weeds for people to try to plan around.

People mostly focus on the situations they are in and/or expect to be in. And for most married people, that's joint tax status. Sure, most likely right near the end of their life they figure they'll be single for a while, but not for more than another few years before they die themselves. You'd want to spend the bulk of your planning for the joint years, not the single years.


I discuss things for the cohort that I am interested in -- which is mainly married upper-mid level income people who fall in the FIRE (financially independent, retired early) category.
There are lots of other categories, but this is the one I prefer to concentrate on.

**********

"The 1st RMD will be about $44,000. Even if you have NO other taxable income, that right there will put a single filer in the 25% bracket."

Well, not exactly. Once you take the personal exemption and standard deduction into account, that will drop the taxable income down to about $33,650 of taxable income, which would still be in the 15% bracket. However, even at that income level, 85% of SS would be taxable, so it's likely that SS + RMD would push into the 25% bracket.

Right there--that's the level of details the make people's eyes glaze over. After tossing in all the details and caveats, you came to the same general conclusion that I did.
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Rayvt: And, sadly, upper-mid income singles take it in the ear on taxes. With the 25% threshold being only $37,950, you are either living in a refrigerator box or being in the 25% (or higher) tax bracket. Just about any significant income will have you well above the 15% bracket.

What is the cutoff for for 25% for married filing jointly? My tax person tends to shepherd us too much, so I don't know the details.

CNC
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Vanguard has an RMD estimating tool:
https://personal.vanguard.com/us/insights/retirement/estimat......

Quite an eye opener.


I have a spreadsheet I use to track our investments. I added a table giving the percentages for RMD. Must be pretty simple if an old dotard such as myself can program it.

CNC
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AJ, one obvious question is what the numbers look like for people approaching or in retirement, versus all returns overall. All returns is going to include a lot of young people who may not have formed attachments yet.
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People mostly focus on the situations they are in and/or expect to be in. And for most married people, that's joint tax status. Sure, most likely right near the end of their life they figure they'll be single for a while, but not for more than another few years before they die themselves. You'd want to spend the bulk of your planning for the joint years, not the single years.

Fine, if you identify that in your posts. But you appear to be trying to apply your hand=waving pronouncements to everyone. Saying things like Actually, the only reason do do conversions is if you are in a lower tax bracket now than you will be later. Which if you are retired, is rarely the case. may actually be harmful when it is the case. And I'd say it's the case more often than you think it is, especially for those who didn't manage their income to avoid higher taxes when RMDs and SS hit.

Right there--that's the level of details the make people's eyes glaze over. After tossing in all the details and caveats, you came to the same general conclusion that I did.

Sorry to bore you. But the difference in having SS income vs. having NO other income is a large detail, even if you claim that the general conclusion is the same.

AJ
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It would be the people from maybe age 45 to 65 with AGI maybe $50K to $100K. Oh, hell -- the data's there I might as well add it up.
7,584,398 MFJ
3,818,657 single


Again - those details. Comparing returns with the same amount of income for Singles vs. MFJ is pointless, since Singles are taxed at higher rates for the same income than MFJ. After adjusting for 2014 standard deduction of $6200 for Single and $12,400 for MFJ, and personal exemption of $3950 (1 for Single and 2 for MFJ), the marginal rates at the breakpoints for the data would be:

Single MFJ
$20k 10% 0%
$25k 15% 10%
$30k 15% 15%
$40k 15% 15%
$50k 25% 15%
$75k 25% 15%
$100k 28% 25%
$200k 28% 28%

So, to be more comparative, if you want to look at MFJ making $50k - $100k, you should look at Single filers making $30k - $75k:

MFJ 45 - 65, $50k - $100k: 7,584,398
Single 45 - 65, $30k - $75k: 6,548,131

Yes - more MFJ, but not nearly as many more as your estimates. And then when you throw in the 1.778MM HoH status from $40k to $75k, there are more non MFJ returns than MFJ returns.

AJ
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All returns 148,606,578
Returns of married persons filing jointly 53,924,864
Returns of married persons filing separately 2,949,371
Returns of heads of households 22,077,498
Returns of surviving spouses 75,256
Returns of single persons 69,579,590


70M returns of single persons filed = 70M people.
54M returns of MFJ = 108M people.

While about one-third of all returns are MFJ, over half of all filers file as MFJ
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While about one-third of all returns are MFJ, over half of all filers file as MFJ

Tax returns represent a single household, and per Rayvt, most people filing MFJ expect to stay married and continue filing MFJ. That means that with respect to tax planning in retirement, they need to plan as a household. So, for the purpose of retirement planning, it's most appropriate to use the number of households, rather than the number of individuals.

AJ
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While about one-third of all returns are MFJ, over half of all filers file as MFJ

Tax returns represent a single household, and per Rayvt, most people filing MFJ expect to stay married and continue filing MFJ.


Stay married ? Stay alive ? Stay married to the same person ?

I'm not sure how we got to here but it's not a bad idea to plan for retirement - married to the current spouse, divorced and as the survivor of a couple. It's not all that difficult and it can serve as a good reminder of number of other things to have considered.
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Stay married ? Stay alive ? Stay married to the same person ?

I'm not sure how we got to here but it's not a bad idea to plan for retirement - married to the current spouse, divorced and as the survivor of a couple. It's not all that difficult and it can serve as a good reminder of number of other things to have considered.


I don't disagree - not sure what Ray meant, but this is what Ray said, when I pointed out that planning just for MFJ was a bad idea:

People mostly focus on the situations they are in and/or expect to be in. And for most married people, that's joint tax status. Sure, most likely right near the end of their life they figure they'll be single for a while, but not for more than another few years before they die themselves. You'd want to spend the bulk of your planning for the joint years, not the single years.

AJ
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So, for the purpose of retirement planning, it's most appropriate to use the number of households, rather than the number of individuals.

Why?

Are you giving advice to tax returns or to people? Your advice can be targeted for 70M people or 108M people. Why does the number of tax returns each group files make any difference?


Obviously, retirement planning advice needs to be different for Single and MJF. Both groups are plenty large enough to demand separate advice. But in the true spirit of TMF, we're going to argue over inconsequential detail.
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Ha! I got proof last night that I don't know sxxt.

We sold our car to our son because his old one was falling apart. The A/C didn't work, one door would not open, the radio speakers were shot, the headliner was falling down, the brakes were mushy and had to be pumped to work, the interior looked like it has been used as a hobo campsite, the odometer said 205,000 miles...on and on and on.

I estimated his old car's value at ... whatever he'd have to pay a junkyard to tow it away, plus the value of how much gas was in the tank.

Boy was I wrong. He put an ad on craigslist and sold it 2 hours later for $1000.

He told me, "Dad, I remembered what you told me a long time ago --- take the first offer that's acceptable and get on with my life. So that's what I did."
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Vanguard has an RMD estimating tool:
https://personal.vanguard.com/us/insights/retirement/estimat......

Quite an eye opener.


Eye opener? My eyes just about bugged out of my head! My RMD will equal my current income. Without even including SS.

I'm in deep doo-doo.
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My RMD will equal my current income. Without even including SS...
I'm in deep doo-doo.


I think millions of Americans would like to be in your place, so inhale deeply!

Pete
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Some Poster mentioned this "Again - those details. Comparing returns with the same amount of income for Singles vs. MFJ is pointless, since Singles are taxed at higher rates for the same income than MFJ. After adjusting for 2014 standard deduction of $6200 for Single and $12,400 for MFJ, and personal exemption of $3950 (1 for Single and 2 for MFJ), the marginal rates at the breakpoints for the data would be:"

Well, If Trump gets his way and it actually somehow gets approved in Congress...we are supposedly looking at 12K for singles and 24K for married. Now won't that be fun! Bring it on.
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branmin,

You wrote, Well, If Trump gets his way and it actually somehow gets approved in Congress...we are supposedly looking at 12K for singles and 24K for married. Now won't that be fun! Bring it on.

Yeah. Great fun.

The proposal completely eliminates the "Taxes you paid" section of the Schedule A. In 2016 I claimed $15,273 on my Schedule A. Based on the new rules I'd get to claim $9,136 - well under the new standard deduction of $12,000. Net result would be a loss of $3,273 in deductions. Or an increase of $818.25 in taxes just to get started.

I make a good deal more than the median income in the USA, but you can hardly say I'm rich based solely on my income. I am arguably upper middle class since I make a very comfortable living as a programmer, but it's nothing like what a doctor or lawyer makes.

All I can evaluate closely here is my own situation. And for me, I'm kind of skeptical that this does anything more than move the chairs around the deck. It might make the paperwork simpler, but I'd be shocked if it works out to save *me* any money.

In fact, I think it won't save most TMFers any either - certainly not if you're a homeowner with a decent income that has been filing a Schedule A...

On the other hand, this might actually let some people "near the bottom" avoid federal income taxes completely. Those would probably be renters that would never have itemized anyway. But whether most low income wage earners pay more or less would probably depends on whether the 25% starting point goes up or down.

My gut says they'll go for a more or less neutral result on average for personal income taxes because this "reform" is mostly about lower business taxes. I think these other changes to the personal tax code are largely a political bone Trump is throwing to his supporters with the claim that "it will help most of you" ... even though it probably won't.

- Joel
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Eye opener? My eyes just about bugged out of my head! My RMD will equal my current income. Without even including SS.

I'm in deep doo-doo.


I actually really surprised you've never done this. I used the IRS tables to calculate it at various times.

What it may mean is that it's time to weigh whether or not deferring taxes on any additional income is a good idea or not. If you pay taxes now and put money in a taxable account, you may save more in taxes overall because of the reduced taxes on capital gains. But I am pretty sure you also know this.

I got flamed for it on this board but I found it interesting that my SWR would probably be close to my RMDs.
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I learn a lot from this board but I also assumed that anybody reading it could look at the tables and apply them to their personal situation(s). Who cares if rayvt's general advice is aimed at married couples filing jointly with mostly deferred income? Just following him and others down the path of working it out enables each of us to run our own numbers based on our personal situations.

On the one hand, jgspouse and I are in the MFJ camp - so I look at the MFJ tax tables.

Jgcspouse and I happen to fit the Joelcorley cohort in terms of having about 45% of our saved money in taxable accounts.

But Mary's co-workers have almost all of their income in their deferred accounts because they are upper middle class divorced or single females with low six-figure salaries and a relatively solid 403(b) program. It's the simplest way for them to augment their pensions while focusing on work and family.

I have a little higher percentage of my savings in my taxable accounts for *good* and *bad* reasons. I started saving furiously outside of my IRA because it was professionally managed by a company recommended by a friend and had subpar returns partly due to excessive fees. There was no way to retire well on my IRA.

In hindsight, saving outside the IRA will give me some flexibility in retirement. Too bad I was forced into it because of my poor management of my own IRA.
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Who cares if rayvt's general advice is aimed at married couples filing jointly with mostly deferred income?

I think this would be easier for a lot of folks to accept if it were characterized as "aimed at married couples" instead of explicitly or implicitly characterized as universally applicable. It might be even more acceptable if it were characterized as "for my personal situation and people situated like me;" but of course we don't know whether that is the case because none of us have any idea what rayvt's personal situation is. We only know that he doesn't seem to think that any case not fitting the mold of married filing joint with not much room before the 25% tax bracket is significant enough to discuss.
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joelcorley:


branmin wrote: <<<Well, If Trump gets his way and it actually somehow gets approved in Congress...we are supposedly looking at 12K for singles and 24K for married. Now won't that be fun! Bring it on.>>>

"Yeah. Great fun.

The proposal completely eliminates the "Taxes you paid" section of the Schedule A.

. . .

On the other hand, this might actually let some people "near the bottom" avoid federal income taxes completely."


Which will only increase the drumbeat about the large percentage of people who pay no federal income tax.

Furthermore, raising the standard deduction will make it more difficult/expensive to itemize (while abolishing personal exemptions may well increase the tax bill for those who formerly itemized but can no longer and may also well increase the tax bill for those with two ore more children, though there is no way to know until the child tax credit amount is disclosed, and that is one [among others] of important details missing from the plan.

My best guess that the plan is mostly neutral (or small benefit to low and middle income families) but raises the deficit tremendously with its cuts for the high income (top 1% to perhaps top 5%), and with the abolishment of the estate tax, leads to dynastic wealth that further unbalances the distribution.

Regards, JAFO
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Eye opener? My eyes just about bugged out of my head! My RMD will equal my current income. Without even including SS.

I was surprised how much we'll have to take. Then there's SS and Mrs.C's pension.

https://www.youtube.com/watch?v=rAlTOfl9F2w

70 seemed so far away that it never occurred to me till now to even look at RMDs. That SEPP might be looking good.
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CNC,
This might give you the info you are looking for
www.cffpinfo.com/annual-limits/

Erik
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Per Erik: www.cffpinfo.com/annual-limits/

So the chart shows income up to $75,900 is taxed at 15%. (and we are in no danger of getting above the 25% bracket.)

CNC
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Eye opener? My eyes just about bugged out of my head! My RMD will equal my current income. Without even including SS. I'm in deep doo-doo.
==================================
If you think that's deep doo-doo, you need to get out more and enjoy yourself. It sounds like you can afford it.

If your RMDs are going to give you more income at age 70.5 than you want - which is a better way of putting it - then I'd suggest the things to focus on are minimizing the effective tax rate on your personal (non-retirement) investment income. You can't do anything about the retirement funds or Soc. Security income, which will be taxed at your marginal rate.

This means acting in advance so that your non-retirement accounts are invested in stocks, that pay qualified dividends, which will be taxed at a maximum rate of 15%. Or maybe some in municipal bonds. And leave things like (nonqualified) preferred stocks, REITS, REMICS in the IRAs and other retirement funds.

And consider whether it makes sense to do partial Roth conversions between now and then, to reduce the future IRA/plan balances and thus the future RMDs. This requires some thoughtful analysis. It may be counter-productive.

Bill
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<<<Well, If Trump gets his way and it actually somehow gets approved in Congress...we are supposedly looking at 12K for singles and 24K for married. Now won't that be fun! Bring it on.>>>

One thing I have learned over the years is to not give a whole lot of credence to tax proposals. They either never come out of the "wouldn't it be nice" stage, or what finally makes it through the sausage grinder of the legislature looks very different than the original proposal.
So don't get excited until something passes Congress and lands on the President's desk.



and with the abolishment of the estate tax, leads to dynastic wealth that further unbalances the distribution.
Huh? The very rich use all kinds of legal schemes to avoid getting nailed by the estate tax. The group who get hurt by it are the simply well-to-do upper middle class, who have a handsome chunk of money/assets but not enough to pay the top-tier estate-planning laywers.



**and that's enough politics for me, right now**
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I think this would be easier for a lot of folks to accept if it were characterized as "aimed at married couples" instead of explicitly or implicitly characterized as universally applicable. It might be even more acceptable if it were characterized as "for my personal situation and people situated like me;" but of course we don't know whether that is the case because none of us have any idea what rayvt's personal situation is. We only know that he doesn't seem to think that any case not fitting the mold of married filing joint with not much room before the 25% tax bracket is significant enough to discuss.

For some reason, this youtube clip came to mind: https://youtu.be/DTtETj3MtzA?t=69

Heh, I write what *I* decide to write about. There are a zillion different possible viewpoints. Consider posts from a particular viewpoint as analogous to the Rifleman's Creed: "There are many like it, but this one is mine."

Only rarely have I asked what other people would like me to write about. In general I don't accept writing assignments--but have been know to accept commissions. ;-)

TMF is an open forum, study what interests you and write up what you want based on your own preferred viewpoint.


Jeesh.
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Ah, dang... hit Submit too soon.

One of the main reasons I bother to write any of the stuff I write, or post any of the studies and spreadsheet I make, is to expose my thinking to other people who know different things than I do --- and will give me feedback like, "No, what you said is wrong, you said it works *this* way, but it really works *that* way."

That's valuable. One time a few years ago I was expounding on a tax situation in a TMF post, and somebody replied that I had it wrong. When I dug into it further, yup I had interpreted a tax situation wrong and was getting ready to make a huge mistake. A mistake that would would have cost me $50,000.

Urk!! Some people don't make $50,000 in a whole year.

Does that give you an idea of why I focus on financial situations that affect me, and not focus so much on situations that don't affect me?
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One time a few years ago I was expounding on a tax situation in a TMF post, and somebody replied that I had it wrong. When I dug into it further, yup I had interpreted a tax situation wrong and was getting ready to make a huge mistake. A mistake that would would have cost me $50,000.

Those pesky details having to do with taxes.....

AJ
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70 seemed so far away that it never occurred to me till now to even look at RMDs.

Ditto. I'm only 52, figured I had almost two decades left to worry about it, I've always just been focused on having "enough". I'm an engineer married to an engineer, so....I've been dollar-cost-averaging and feeding that beast for 25+ years. Husband feeds it too. It grew. Now we could probably not feed it anymore and it'd still grow like some Sci-Fi space monster, but we need the deductions and it's become....a habit? What would I do with the extra money anyway? There's truly nothing I want.

I drank the Kool-Aid at a fairly young age of 27 and talked DH into it too. That's really all there was to it. Been reading the Fool for that long, too, and with a degree in math I LOVE numbers, and money, and it's like...a Monopoly game. It's not real, it's just a game I've been playing for all these years. When the line moves up, you're winning, and you dance, and when it goes down you keep playing till it goes up again, then dance. I slept like a baby in 2009. Why wouldn't I? I was BUYING CHEAP! And the game wasn't over yet.

I'm probably just nuts.

But I like the game.
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Rayvt:

<<<and with the abolishment of the estate tax, leads to dynastic wealth that further unbalances the distribution.>>>

"Huh? The very rich use all kinds of legal schemes to avoid getting nailed by the estate tax. The group who get hurt by it are the simply well-to-do upper middle class, who have a handsome chunk of money/assets but not enough to pay the top-tier estate-planning laywers."

The estate tax exclusion amount is $5,490,000, double that for married couples. Some couple with an estate greater than $11M is not "simply well-to-do upper middle class" couple.

"But for net worth, the 1 percent threshold for net worth in the Fed data was nearly $8.4 million, or 69 times the median household’s net holdings of $121,000."

https://economix.blogs.nytimes.com/2012/01/17/measuring-the-...
2012 article using 2007 data (so before last crash).

"The Fed's most recent survey shows that the top 10% of Americans have a median and average net worth (assets minus liabilities) of $1.87 million and $4.03 million, respectively."

https://www.fool.com/investing/general/2016/01/24/how-does-y...
2016 article

So if top 10% have a median of $1.87 million, then less than 5% have a net worth above $2, and I strongly suspect that the percentage with a net worth in excess of $11M is still essentially the top 1% (more or less).


"Until recently, most studies just broke out the top 1% as a group. Data on net worth distributions within the top 1% indicate that one enters the top 0.5% with about $1.8M, the top 0.25% with $3.1M, the top 0.10% with $5.5M and the top 0.01% with $24.4M."

http://www2.ucsc.edu/whorulesamerica/power/investment_manage...
2011 data


"The top 1% had an average investment net worth somewhere around $3 million at the end of 2013 based on IRS numbers, and $6 million based on Federal Reserve numbers."

http://www2.ucsc.edu/whorulesamerica/power/investment_manage...
2014 article

You can look for more data if you wish, but I still strongly assert that a couple with an $11M net worth (or more) is not "simply [a] well-to-do upper middle class" couple.

Regards, JAFO
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Rayvt: "Does that give you an idea of why I focus on financial situations that affect me, and not focus so much on situations that don't affect me?"

I doubt that anyone objects that you focus on situations that affect you. The objection is that you write in a manner that suggests your answers are universal and apply to all persons, and not simply to people in situations similar to yours. You too get testy if others write as universal truth information that was really only applicable to a subset of people in a particular situation.

Regards, JAFO
(who generally likes your posts)
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No. of Recommendations: 8
JAFO writes,

You can look for more data if you wish, but I still strongly assert that a couple with an $11M net worth (or more) is not "simply [a] well-to-do upper middle class" couple.

</snip>


For 2015, only 4,918 people out of the 2.5 million who died that year paid any Federal Estate tax. Either $11 million is a fortune rarely attained, or an awful lot of well-to-do people seem to be able to afford the kind of sophisticated estate planning services Rayvt believes is beyond his means.

http://www.factcheck.org/2017/09/death-tax-talking-point-won...

The tax, which can be as high as 40 percent, is only liable when the assets of an estate are more than $5.49 million (nearly $11 million for a couple), so only a small number of the very wealthiest multimillionaires pay it.

In 2015, roughly 2.5 million people died, and just 4,918 people had to pay an estate tax, according to IRS data. That’s about one out of every 500 deaths resulting in any estate tax liability.

The numbers are even smaller for farm operators. Only 639 estates that listed any farm assets had to pay the estate tax (and 122 of them had assets of $20 million or more).

A study published last year and updated in March by the Economic Research Service of the U.S. Department of Agriculture estimated that 38,328 farms would become part of estates in 2016, of which only 0.42 percent — 161 estates — would owe any estate tax at all.

Separate research by the nonpartisan Tax Policy Center puts the number even lower. TPC estimates that only 50 farms and closely held businesses will pay any estate tax in 2017.

Part of the reason the numbers are so low is that there are exemptions for farmers and small businesses written into the estate tax code that allow most farmers — with a bit of estate planning — to avoid the estate tax altogether.

</snip>


America really takes care of its wealthy "welfare" farmers who are likely getting multi-million dollar agricultural subsidies in addition to the special estate tax break under current law.

intercst
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I'm only 52, figured I had almost two decades left to worry about it, I've always just been focused on having "enough". I'm an engineer married to an engineer, so....I've been dollar-cost-averaging and feeding that beast for 25+ years. Husband feeds it too. It grew. Now we could probably not feed it anymore and it'd still grow like some Sci-Fi space monster, but we need the deductions and it's become....a habit? What would I do with the extra money anyway? There's truly nothing I want.

Very similar here, except I'm about FIRE, have been FI-semi-RE for a couple years, and don't intend to keep feeding the beast. The beast is going to feed us, hopefully.

Our AGI is going to plummet when we start living off our taxable investments. Should have some space for partial Roth conversions.
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If your RMDs are going to give you more income at age 70.5 than you want - which is a better way of putting it - then I'd suggest the things to focus on are minimizing the effective tax rate on your personal (non-retirement) investment income. You can't do anything about the retirement funds or Soc. Security income, which will be taxed at your marginal rate.

There are some things you can do, IMO.
For example, you can minimize the future gains in your IRA, thus somewhat reducing the future RMD.
How and why would you do this?
Put the safer, lower yielding portion of your assets into the IRA and the higher risk higher yielding portion into a Roth IRA (if you have one) or into a taxable account in assets that don't pay dividends, such as BRK or ETFs.

If your IRA RMDs continue to increase and are a "problem" then that's a nice problem to have -- conservative investments give you too much money. You can always donate to charity. You can setup a way to donate all or some of your RMD directly as well.

Mike
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StockGoddess,

You wrote, Ditto. I'm only 52, figured I had almost two decades left to worry about it, I've always just been focused on having "enough". I'm an engineer married to an engineer, so....I've been dollar-cost-averaging and feeding that beast for 25+ years. Husband feeds it too. It grew. Now we could probably not feed it anymore and it'd still grow like some Sci-Fi space monster, but we need the deductions and it's become....a habit? What would I do with the extra money anyway? There's truly nothing I want.

Hey! We're about the same age!

Even so, there's probably no need to keep feeding that RMD monster if you really have that much.

Also, I drank the Kool-Aid at a fairly young age of 27 and talked DH into it too. That's really all there was to it. Been reading the Fool for that long, too, and with a degree in math I LOVE numbers, and money, and it's like...a Monopoly game. It's not real, it's just a game I've been playing for all these years. When the line moves up, you're winning, and you dance, and when it goes down you keep playing till it goes up again, then dance. I slept like a baby in 2009. Why wouldn't I? I was BUYING CHEAP! And the game wasn't over yet.

Wow! You started reading the Fool a year before they were founded! Amazing! ;-)

As for those contributions. Keep making them, but consider transitioning over to Roth contributions. It's always good to shelter money from the tax man when you can and Roth IRAs aren't subject to RMDs. And even if you wind up making Roth 401(k) contributions now, you can roll the Roth portion into a Roth IRA to avoid the RMD monster.

You might need to start paying more in taxes now, but at least any new money can grow tax-free, you can avoid the tax issues for your heirs and the government won't be able to force you to withdraw it.

Side notes: TMF first published in 1994 on AOL. Pretty certain they didn't start hosting their own website for at least a couple of years. I didn't read my first Foolish article until maybe 1996 or 1997 after they were outside AOL. I didn't join the boards until 2000 after I thought I had a handle my debt and felt free to talk about it. I was also after my ex and I separated.

- Joel
PS: aj485 retired yesterday!!!
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TMF first published in 1994 on AOL.

Actually, they started their print newsletter about a year before they went digital on AOL.
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Side notes: TMF first published in 1994 on AOL. Pretty certain they didn't start hosting their own website for at least a couple of years..

Well, you get to be MY age and the mind starts to go. 8D Doesn't my login say I've been here since '66? ;->

I graduated college in 88. My company brought in the Fidelity rep in about 92. The pretty colored graphs made me invest and also piqued my interest in stocks. I remember briefly subscribing to Investors Business Daily and buying stocks with a discount broker at a 2% commission, taking investing classes at the local community college. I was on message boards as early as 89 - USENET we called it back then. Early on we shared programming ideas but it quickly devolved into discussions about politics and religion and money and all the things you shouldn't discuss at work. We came up with anonymous handles and flamed each other well.

It was a lot like this.
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No. of Recommendations: 3
intercst:

[JAFO wrote:

You can look for more data if you wish, but I still strongly assert that a couple with an $11M net worth (or more) is not "simply [a] well-to-do upper middle class" couple.]

</snip>

"For 2015, only 4,918 people out of the 2.5 million who died that year paid any Federal Estate tax. Either $11 million is a fortune rarely attained, or an awful lot of well-to-do people seem to be able to afford the kind of sophisticated estate planning services Rayvt believes is beyond his means.

http://www.factcheck.org/2017/09/death-tax-talking-point-won...... "


You did not include the revenue raised.

"In 2014, the estate tax raised $19.3 billion according to the OMB . . ."
https://taxfoundation.org/estate-tax-provides-less-one-perce...

"Among the few estates nationwide that owe any estate tax in 2017, the effective tax rate — that is, the share of the estate’s value paid in taxes — is just 17 percent, on average, according to the Tax Policy Center (TPC).[6] That is far below the top statutory rate of 40 percent."

http://boards.fool.com/Post.aspx?mid=32848584&reply=true...

"The Largest Estates Consist Mostly of “Unrealized” Capital Gains That Have Never Been Taxed."
Id.

"Repealing the estate tax would cost $269 billion over a decade, the Joint Committee on Taxation estimates, before counting the interest costs of adding to the debt."
Id.

According to the IRS 34,000 estate tax returns were filed in 2014 and 36,000 in 2015.
https://www.irs.gov/pub/irs-soi/15databk.pdf Table 2

And in fiscal year 2015, the estate tax generated 17.952 billion dollars.
Id. Table 5

Call it $18 billion to make the math easier, and at an 17% effective rate, than means almost 5x passed on to heirs (approximately $90B); IOW, at least $85 Billion passed to heirs after estate tax, from the 5,000 people per intercst's data (more than $17M per deceased) or from 36,000 per the IRS (at least $2.36M per return).

Regards, JAFO
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No. of Recommendations: 1
"For 2015, only 4,918 people out of the 2.5 million who died that year paid any Federal Estate tax.

And that illustrates my major complaint about the Certified Financial Planner (TM) program. So much of it was directed at planning for people subject to estate taxes.

It convinced me that I have no desire to work in that niche market.
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No. of Recommendations: 16
From a recent e-mail I received.

Wealth Percentile How Many?
$1,000,000.00 88.24% 14,814,453
$2,000,000.00 93.93% 7,647,278
$3,000,000.00 96.30% 4,665,039
$4,000,000.00 97.20% 3,527,878
$5,000,000.00 97.71% 2,888,408
$10,000,000.00 98.93% 1,347,336 - 1.07% of households (or as previously swagged, net worth in excess of $11M is essentially the top 1% [or less])
$50,000,000.00 99.93% 83,620
$100,000,000.00 99.97% 36,202


Notes - we are only discussing household data; additionally, all data includes the value of any primary home. From 2016 Survey of Consumer Finances.

IOW, 99% of households have no need to worry about estate tax. Abolishing estate tax benefits ONLY the top 1% in net worth.

Regards, JAFO
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Can you help us slow students understand your post?

CNC
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No. of Recommendations: 6
Can you help us slow students understand your post?

Well, not my post, but here's my understanding of it, and a reformatting of the table to make it more readable:

The "Wealth" column shows household net worth; the "Percentile" column shows which percentile that net worth puts the household in, for example, $1MM in net worth puts you in the 88.24 percentile, which means that household has a net worth that is greater than 88.24% of the households; the "How Many?" column shows how many households have at least that net worth.

     Wealth           Percentile        How Many?
$ 1,000,000.00 88.24% 14,814,453
$ 2,000,000.00 93.93% 7,647,278
$ 3,000,000.00 96.30% 4,665,039
$ 4,000,000.00 97.20% 3,527,878
$ 5,000,000.00 97.71% 2,888,408
$ 10,000,000.00 98.93% 1,347,336*
$ 50,000,000.00 99.93% 83,620
$100,000,000.00 99.97% 36,202

*1.07% of households (or as previously swagged, net worth in excess of $11M is essentially the top 1% [or less])


AJ
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Thank you very kindly, aj. Illustrates what I have been saying, which is that a million ain't what it used to be.

CNC
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Thank you very kindly, aj. Illustrates what I have been saying, which is that a million ain't what it used to be.

CNC


http://www.visualcapitalist.com/1-million-isnt-worth-used/

From the link:

The “millionaire” case is a stark example of the erosion of a dollar’s purchasing power over time. To get a full sense, take a look at some historical numbers:

•To have the purchasing power of a millionaire from the 1900s, you would need to have nearly $30 million in today’s dollars.

•To have the same impact or influence on the economy as a millionaire from the 1900s, you’d need closer to $100 million in today’s dollars.
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Illustrates what I have been saying, which is that a million ain't what it used to be.

No, it's not. But, especially if you get SS in addition to money from your investments, $1MM is still probably enough for a lot of people to retire on:

$15k in SS plus $40k (4% of $1MM) = $55k. Considering that the median income in the US was $59,039 in 2016, and if that income came from a job, OASDI would take $4,516 off the top, for a net of $54,523.

AJ
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But, especially if you get SS in addition to money from your investments, $1MM is still probably enough for a lot of people to retire on:

$15k in SS plus $40k (4% of $1MM) = $55k. Considering that the median income in the US was $59,039 in 2016, and if that income came from a job, OASDI would take $4,516 off the top, for a net of $54,523.


Does this median income include benefits? I think not.

Add $5K/person for medical. Now our family of 5 is at $80K.
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But, especially if you get SS in addition to money from your investments, $1MM is still probably enough for a lot of people to retire on:

$15k in SS plus $40k (4% of $1MM) = $55k. Considering that the median income in the US was $59,039 in 2016, and if that income came from a job, OASDI would take $4,516 off the top, for a net of $54,523.


Does this median income include benefits? I think not.

Add $5K/person for medical. Now our family of 5 is at $80K.


What is the source for your $5k per person annual benefit? I'll go with this assumption for now, but unless you can provide a source showing this benefit, I'm skeptical of the amount provided, especially given that many people are now covered by HDHP plans that have high deductibles where they have to pay most costs before actually receiving any benefits other than things like an annual physical.

In order to add the $5k benefit per person to the median household income, you must be assuming that the person is getting their medical coverage through employment, correct? Does the $5k benefit also consider that only 55.7% of people under 65 receive medical coverage through employment? https://www.census.gov/library/publications/2017/demo/p60-26... I think not, so I will correct for that.

Do a lot of people retiring with SS benefits have a family of 5? Given that the overall average household size in the US is only 2.54, using an estimate of 2 for someone who is retiring with SS benefits is more appropriate.

Will the typical person retiring with SS benefits be already covered by Medicare benefits, or covered within, at most, 3 years? I think so. So, we'll assume a 3 year gap that needs to be covered.

So, if your estimate of $5k per person is correct, adjusting to the 55.7% employment coverage rate, a 2 person household and a 3 year gap in coverage that needs to be covered by something other than Medicare, the household would need $16,710. Subtracting the $16,710 from the $1MM in retirement assets would leave $983,290 that could be withdrawn from. At a 4% withdrawal rate, that's $39,332. Adding in $15k of SS benefits, that's $54,332.

I stand by my statement that, if receiving SS benefits, $1MM is still probably enough for a lot of people to retire on.

AJ
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I stand by my statement that, if receiving SS benefits, $1MM is still probably enough for a lot of people to retire on.

Sure. Never said it wasn't.

But if the median income doesn't include the value of benefits, then it's not a valid comparison to retirement, is it?

We will spend $25K on medical this year. If I was working for Megacorp they'd be picking up a good part of that tab. But I'm FIRE, so I'll stick with my $80K minimum budget.
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But if the median income doesn't include the value of benefits, then it's not a valid comparison to retirement, is it?

Retirement when receiving SS, which you can only start receiving at 62, and you will have access to Medicare at 65? Yes, I think it's still a valid comparison, except for the 3 year gap. And when accounting for that 3 year gap, it doesn't change the equation much, as already demonstrated.

We will spend $25K on medical this year. If I was working for Megacorp they'd be picking up a good part of that tab. But I'm FIRE, so I'll stick with my $80K minimum budget.

Are you receiving SS retirement benefits? If not, that seems like the invalid comparison to me.

AJ
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AJ, we're talking past each other. No point to it. You win.
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aj: "Retirement when receiving SS, which you can only start receiving at 62, and you will have access to Medicare at 65? Yes, I think it's still a valid comparison, except for the 3 year gap. And when accounting for that 3 year gap, it doesn't change the equation much, as already demonstrated."

We are looking at that right now. Jgcspouse has her insurance through the Commonwealth of VA and it is a full coverage policy that is no longer offered but she was 'grandfathered' in and allowed to keep it. Full coverage of our annual doctor's (whom we chose), small copays for her blood pressure medicine and other drugs, extensive annual physicals, etc.

But if she retires next September at age 63 our monthly premium rises from about $300/month each to $700/month each. $16,800 is a lot of money, especially since I am one year younger and would still be 3 years out, but she wants to keep her premium coverage because everybody she knows who gave it up wanted it back when they realized they could no longer pick their doctors and got nickel and dimed every time they needed medical care.
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