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Hello,

I'm 53 in a high income bracket and getting killed in taxes. Maxing out my 401k and IRA. A financial planner from Fidelity suggested i dump money into a Tax Deferred vaiiable Annuity to decrease my exposure. Fees: 0.25% expense not including Fund I choose. I don't know enough about Annuity's to make a decision here.

Pros and Cons?

Thanks,
Fool on!
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I'm 53 in a high income bracket and getting killed in taxes.

No, you're paying more than you'd like--who isn't?--but you still seem to be able to take nourishment. I comment partly because my SA side wanted out, but primarily to point out that people who are doing well financially display a tendency toward hysterical hyperbole when it comes to taxes. They too often forget the upside of paying a boatload of taxes. You're making good money! Celebrate that now and again.

Maxing out my 401k and IRA.

With today's tax law I'm not nuts about nondeductible traditional IRA contributions unless they can be used for the "back door" way around income limits on Roth contributions. If you include tax-efficient mutual funds or long-term buy & hold stocks that don't throw off dividends in your portfolio, you'd do just about as well with them in a taxable account plus they'd retain their lower tax rate when you did sell down the road. Something to think about.

A financial planner from Fidelity suggested i dump money into a Tax Deferred vaiiable Annuity to decrease my exposure.

Your exposure to what, your hard earned money? I suggest you engage the services of a financial planner who doesn't have anything to sell you except knowledge.

Phil
Rule Your Retirement Home Fool
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There are things worse that paying taxes such as not having the income that causes the high tax rate.
Generally speaking variable annuities are great as a commission generating investment for the broker or salesman.
If you don't understand the investment it generally is not a good idea for you.

Bob
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I'm 53 in a high income bracket and getting killed in taxes.

I recommend you spend some time doing volunteer tax returns with a VITA program. The world looks different after I see people trying to live on a total annual income less than my federal income tax obligation. This doesn't reduce my tax obligation, but it helps me appreciate what I get to keep.

Patzer
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Thanks Phil. Great input.......
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Well said....
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I don't know enough about Annuity's to make a decision here.

Is the 0.25% fee really the only fee?

Variable Annuities are frequently bad. If you don't know enough about them to make a decision, then the best decision is no.

http://usatoday30.usatoday.com/money/perfi/columnist/waggon/...

http://news.morningstar.com/classroom2/course.asp?docId=4514...
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No, you're paying more than you'd like--who isn't?--but you still seem to be able to take nourishment. I comment partly because my SA side wanted out, but primarily to point out that people who are doing well financially display a tendency toward hysterical hyperbole when it comes to taxes.

Spoken by someone who probably isn't making very much money.
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BrianMdavis,

Avoid annuities, whole life, IUL and just about any other "investment" based upon insurance or an expense heavy plan. The expenses are very high, benefiting the policy writers, and in the end you will realize too late, that you would have been happier making money on your investments and paying some taxes instead of giving it away for free to an annuity or insurance company.

I absolutely agree with Phil. Look at using the trad IRA contribution to Roth conversion backdoor. Then add to your taxable account using tax efficient investments.

Gene
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No, you're paying more than you'd like--who isn't?--but you still seem to be able to take nourishment. I comment partly because my SA side wanted out, but primarily to point out that people who are doing well financially display a tendency toward hysterical hyperbole when it comes to taxes. They too often forget the upside of paying a boatload of taxes. You're making good money! Celebrate that now and again.

There is something wrong with your answer.If a customer comes in and says to you that "I paid 100 dollars for x product. But everyone else I talked to paid only 50. Did I pay too much?" You see the product and know you can get it for 33. Do you say: "You got money, don't worry about it?"

I feel that a lot of people who were making money saw how much effort it was taking; saw how much of their hard earn money was being taken for taxes; and decided that their time could be spent doing other things. Thus, they cut back. Reduced thier income, Reduced thier lifestyle. Spent less on consumer goods.

They are now happier. They pay less taxes; have less income; and spend less.
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I feel that a lot of people who were making money saw how much effort it was taking; saw how much of their hard earn money was being taken for taxes; and decided that their time could be spent doing other things. Thus, they cut back. Reduced thier income, Reduced thier lifestyle. Spent less on consumer goods.

They are now happier. They pay less taxes; have less income; and spend less.


And this relates to tax deferred annuities how?
Or even how does it relate to the comment that someone complaining that they're "getting killed in taxes" is hysterical hyperbole?

I have yet to meet someone who will give me $ that they've earned so that they can get a tax break that's 1/3 of that amount. If you want to be the first, I'll be happy to provide you with an address where you can send the check.

Of course I know some people who have decided to decrease how much they work because they don't feel like they need that much income - but really it isn't taxes that's driving that decision, it's that they don't want to work the hours or don't need the income.

And those people who claim that they have a marginal rate of 40% or 50% on state+fed taxes on their income don't get a lot of sympathy from me if they complain about their tax rates. Sure I'd pay less if it was a "flat tax" - but I don't think it's a good idea - I think a progressive tax structure is appropriate, and a regressive tax rate structure is bad for society and bad for business.

There is something wrong with your answer.If a customer comes in and says to you that "I paid 100 dollars for x product. But everyone else I talked to paid only 50. Did I pay too much?" You see the product and know you can get it for 33. Do you say: "You got money, don't worry about it?"
I assume you're talking about his answer to the question - whether a tax defered annuity is right for the OP. And I think his answer was fairly clear - it's probably not a good choice - its probably a way to separate him from his money - he should find a better advisor.
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They too often forget the upside of paying a boatload of taxes. You're making good money! Celebrate that now and again.

There is something wrong with your answer.If a customer comes in and says to you that "I paid 100 dollars for x product. But everyone else I talked to paid only 50. Did I pay too much?" You see the product and know you can get it for 33. Do you say: "You got money, don't worry about it?"


I'm not sure I understand your point, but I think you're referring to my comment in bold above. If so, you're mixing apples and hand grenades. We're not talking about the purchase of consumer goods, we're talking about paying taxes. True, taxes are partially payment for government services, but they are also part of our social compact, what Justice Holmes called "what we pay for a civilized society."

On strictly a purchase of services look at our system it seems to me that as a general rule the more you pay the less you get. We have a progressive system, so the more you earn the higher percentage of it you pay. But the more you earn the less you need in social services, medical assistance, funding for education, etc.

Government spending and tax policy are certainly fertile grounds for debate, but they have nothing to do with my response to OP, directed to OP's particulars. It's hardly novel. Just a restatement of "Don't forget to stop and smell the roses."

Phil
Rule Your Retirement Home Fool
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There is something wrong with your answer.If a customer comes in and says to you that "I paid 100 dollars for x product. But everyone else I talked to paid only 50. Did I pay too much?" You see the product and know you can get it for 33. Do you say: "You got money, don't worry about it?"

I'm not sure I understand your point, but I think you're referring to my comment in bold above. If so, you're mixing apples and hand grenades. We're not talking about the purchase of consumer goods, we're talking about paying taxes.


I am talking about consumer goods: Retirement plans or packages. If I went to a financial planner and started off the conversation as the OP did and the person responded back with your comment, I would be upset. Then again, maybe I too sensitive to the issue. :)

True, taxes are partially payment for government services, but they are also part of our social compact, what Justice Holmes called "what we pay for a civilized society."


True. But let’s look at it as business transaction. We are paying x for y services. People are looking at the services they are getting and they are not satisfied with them. Plus, they are paying a lot more for those services than someone else. The question comes to their mind is: Am I playing my fair share or am I be taken advantage of?
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I have yet to meet someone who will give me $ that they've earned so that they can get a tax break that's 1/3 of that amount. If you want to be the first, I'll be happy to provide you with an address where you can send the check.

Will you put in 1/2 of the hours I put in?


Of course I know some people who have decided to decrease how much they work because they don't feel like they need that much income - but really it isn't taxes that's driving that decision, it's that they don't want to work the hours or don't need the income


Unfortunately for me it is. I do need the money :), but don’t want to put in the hours any more (60-80 a week)

And those people who claim that they have a marginal rate of 40% or 50% on state+fed taxes on their income don't get a lot of sympathy from me if they complain about their tax rates. Sure I'd pay less if it was a "flat tax" - but I don't think it's a good idea - I think a progressive tax structure is appropriate, and a regressive tax rate structure is bad for society and bad for business.

The way the tax struxture is setup in this country encourges people not to be productive. i.e. To get more services, work less.

he should find a better advisor

Agreed
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The way the tax struxture is setup in this country encourges people not to be productive. i.e. To get more services, work less.

I hear that all the time but until there is a 100% tax, I have not been encouraged yet to be less productive.

PSU
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Spoken by someone who probably isn't making very much money.

Or someone who has seen the results of stupid actions which were suppose to reduce taxes.
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ShouldKnowBetter:

Phil: <<<True, taxes are partially payment for government services, but they are also part of our social compact, what Justice Holmes called "what we pay for a civilized society.">>>

"True. But let’s look at it as business transaction."

It is not a business transaction! I dispute the applicability of the analogy.

"People are looking at the services they are getting and they are not satisfied with them. Plus, they are paying a lot more for those services than someone else. The question comes to their mind is: Am I playing my fair share or am I be taken advantage of?"

Please define "fair share".

According to the Tax Foundation Data, the only groups that routinly pay taxes at a rate disprportionately higher than the share of AGI that they report are the Top 1% and the Next Top 4%. Those in the Next 5% are close, sometimes higher and sometime lower, and the Bottom 90% all pay FIT at a rate lower than the share of AGI they report.

See - http://taxfoundation.org/article/summary-latest-federal-inco...

Are you suggesting that "fair share" should involve raising the taxes of 90% of the filers, keeping them more or less the same for 5% and then reducing them for the Top 5%, with most of that skewed toward the Top 1%?

IF not, then what do you mean?

Furthermore the AGI cut-offs for the Top 1% and Top 5% for 2010 were $369,691 and $161,579, respectively, and had effective tax rates of 23.39% and 20.64%, respectively. Id. Tables 7 and 8.

Eve after FIT, the Top 1%, on average, still had $286,590 ((1-.2329)*$369,691) and the Top 5% $128,229 (1-0.2064)*161579, which are after tax numbers still higher than the pre-tax AGI of 95% and 90% of the filers, respectively.

I forget which poster wrote about the humbling result of working at VITA and realizing that there are many people who annual income is less than his tax obligation and the perspective that can be gained therefrom.

You are grumbling, BUT WHAT IS YOUR PROPOSAL?

Regards, JAFO
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True, taxes are partially payment for government services, but they are also part of our social compact, what Justice Holmes called "what we pay for a civilized society."

Then we are definitely NOT getting our money's worth.

JLC
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You are grumbling, BUT WHAT IS YOUR PROPOSAL?

KISS (Keep It Simple Stupid). Firs $20k you make (from any and all sources), tax free. Everything else above that 20%. No write offs, no deductions. Would fit on a postcard.

Why should I get to write off a % charitable donation, mortgage interest, IRA contribution, etc.? I can either afford a house or I can't. Its a good cause I want to support or it isn't. I save for retirement/rainy day or I work till I'm dead. I AM PERSONALLY RESPONSIBLE FOR MY OUTCOME, not society nor Uncle Sam.

Something similar could be done for businesses.

The problem is, you get a bunch of jackwagons in Congress fighting/defining what is income. And in a few years you have 73,000+ pages of tax code.

JLC
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Spoken by someone who probably isn't making very much money.

Hope that you didn't hurt yourself jumping to that ridiculous conclusion!

Christina
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I suggest you engage the services of a financial planner who doesn't have anything to sell you except knowledge.

Phil:

This might not be the right place to ask this question but just how does one go about finding such a person whose services are worth what I'm paying them?

For this type of thing, I would usually rely upon recommendations of friends or colleagues whose opinions I trust but thus far I've been unsuccessful in getting any such recommendations.

TIA.

Christina
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JLC:

<<<You are grumbling, BUT WHAT IS YOUR PROPOSAL?>>>

"KISS (Keep It Simple Stupid). Firs $20k you make (from any and all sources), tax free. Everything else above that 20%. No write offs, no deductions. Would fit on a postcard."

Except that most of the Tax code is about defining income.

For a business is the revenue from ggods sold all income that is taxable? IOW, I am asking whether you simple proposal makes costs of goods sold irrelevant?

"Something similar could be done for businesses.

The problem is, you get a bunch of jackwagons in Congress fighting/defining what is income. And in a few years you have 73,000+ pages of tax code."


See prior comment

It would not take years, it would happen immediately before you could even pass such a law.

Regards, JAFO
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Christina,

Check this site for fee-only advisors:

http://garrettplanningnetwork.com/

I use USAA for all my banking, investment accounts and insurance. They have free advisors to talk with for basic planning and fee-based for some higher-level services.

TMFHockeypop uses a free advisor through TIAA-CREF.

Depending on where you keep your investments, you just need to ask around there.

Gene
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The way the tax struxture is setup in this country encourges people not to be productive. i.e. To get more services, work less.
This makes no sense.

If I work 20 hours instead of 80, I don't get any more "services." And yes, I pay less in taxes if I work less, but I also earn a lot less and have less income to save, invest and do things with. On balance I choose to work more to have more options in my life.

Maybe you get these mysterious "services" by working less, but most of us in fact do not.
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Firs $20k you make (from any and all sources), tax free. Everything else above that 20%. No write offs, no deductions. Would fit on a postcard.

We're in substantial agreement. I've argued for 10%, vice 20%, and an exemption equal to half the then-year Federal Poverty Guideline, but at this point we're arguing over parameters, not structure.

Eric Hines
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For a business is the revenue from ggods sold all income that is taxable?

I wouldn't tax business at all. It's the final customer that pays the bulk of this bill, anyway, in the form of higher prices.

Eric Hines
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I wouldn't tax business at all. It's the final customer that pays the bulk of this bill, anyway, in the form of higher prices.

Acknowledging that you weren't the one who raised the issue of fairness, how is it fair that the wage slave pays x% and the self-employed shopkeeper pays bupkes?

This is, BTW, pretty much the scheme they're headed toward in Kansas. Oddly enough, because of the way Koch Industries is structured the Koch brothers won't pay a pittance in state income tax any more.

I'm sure it's just a coincidence.

Phil
Rule Your Retirement Home Fool
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I wouldn't tax business at all. It's the final customer that pays the bulk of this bill, anyway, in the form of higher prices.

That's one thing for C-Corps, but what about pass-thru entities (sole proprietorships, partnerships, S corps, etc.)? If I run a business out of my house, say, how does one determine my income from that? If I have a million bucks in sales, does this mean I report a million bucks in income? I need to deduct SOMETHING from that, right?

-synchronicity
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The way the tax struxture is setup in this country encourges people not to be productive. i.e. To get more services, work less.
...
This makes no sense.


I understand what he is saying. My brother is the poster child for decreasing his hours to get things like reduced tuition for the private schools his kids went to. And a sister who decided that welfare was the way to go, intentionally choosing to get pregnant (without consulting the guy,) so that she could have an excuse to freeload off the system. After about 20 years of doing this she got tired of being poor and got a nursing degree, but she still games the system with limited hours. Did I mention she has a genius IQ? What a waste. Don't know what they are going to do for retirement.

And DH and I have chosen our own approach by working hard, earning a lot, saving most of it, investing hard, and looking to retire as soon as Youngest gets out of high school, allowing us to move to a much reduced COL. It will be very interesting to see what happens to our expected family contribution to college payments when we quit our day jobs, and focus on having fun. Or we could continue working 12 hour days and pay the $80,000/year in tuition that they expect us to pony up now. Granted the reason colleges cost that much is because all the "aid" out there allows them to do so, so those of us who choose to save and provide for our kids education pay our bill and then some.

Looking forward to no longer bucking the system and take advantage of the perks we get from most of our funds being in retirement accounts. Looking forward to no longer worrying that DH is going to die behind his desk. They say that sitting for long periods of time puts you at risk as much as smoking, and our retirement will be filled with hiking, fishing and kayaking. Looking forward to a 15% tax bracket instead of 33%, with time to actually enjoy a much reduced income.

IP,
front loading all the work and savings, not willing to continue to do so any longer than necessary
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We're in substantial agreement. I've argued for 10%, vice 20%, and an exemption equal to half the then-year Federal Poverty Guideline, but at this point we're arguing over parameters, not structure.

So people like Buffet, Gates, Ellison, etc. get a huge decrease in their taxes, people like me get a small decrease, and the low income folks have to pay more.
If I were only thinking of myself, that'd sound good.
But I don't think it's the right choice for society.
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It will be very interesting to see what happens to our expected family contribution to college payments when we quit our day jobs, and focus on having fun
I suspect they will just expect them or you to take loans to make up the difference. I guess you will see when you get there. Hopefully they will get merit-based scholarships and the point will be moot.

Me, I am very happy my parents paid for my schooling and didn't leave me with debt. It gave me more choices in life.
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Me, I am very happy my parents paid for my schooling and didn't leave me with debt. It gave me more choices in life.

Exactly what we are doing. You appear to assume we will not. We've planned for it, and if we are still cut out of aid, so be it, but it will be interesting to see how our choosing to no longer work impacts our expected contribution. We wouldn't be retiring if we couldn't also pay for their education. Having put myself through school, I understand the benefits of graduating debt free. We've told them our paying for college is their inheritance. There may not be much left when we are done with this life.

IP
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but it will be interesting to see how our choosing to no longer work impacts our expected contribution.

My experience was that it did not affect our EFC at all. I was out of work for 51 weeks, and so there was very little income coming into our house during that time. I figured that the kids would certainly get some financial aid in that situation, but I was mistaken. They got the same that they had gotten in the years that I worked, and that was just the minimum loans that they are entitled to. That's because they do look at your assets as well as your income.

That was my experience, and maybe yours will be different, but at least you can use this as one data point.
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Ok. I misunderstood the intent of your statement.

Choices are good...
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You strike me as a fool, with too much money.

Please buy a boatload of this -- that why you can become that well known fool who has been separated from his money quickly.
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You will need to "retire" the year befor you child graduates from high school. You have to fill out the form in January of the year the child graduates. Thus, the form takes the previous year income and your wealth into consideration. If your child is graduating in 2015, restire this year. Otherwise......
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how is it fair that the wage slave pays x% and the self-employed shopkeeper pays bupkes?

Someone asked in this thread that "fair" be defined. That needs to come first.

As for the self-employed shopkeeper, do his business' profits not generally get passed through to him as income? Even though his business wouldn't pay, he would?

As for the Kochs, assuming a...fair...definition of "fair," why should Koch pay when GE does not, on net?

As for Kansas' revenues (or any state, or the Federal government), the need for the revenues, beyond some minimum threshold for some minimum service, hasn't been established. That needs to come before establishing a (high) tax level.

Finally, no system is perfect. Better is the enemy of good enough, and I suggest a flat tax, with no froo-froo, as JC and I have suggested, is good enough.

Eric Hines
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As for the self-employed shopkeeper, do his business' profits not generally get passed through to him as income? Even though his business wouldn't pay, he would?

Define "profits". That's what we're saying.

"Profit" is income less expense, but in tax parlance, it's gross receipts less DEDUCTIONS.

The tax code defines the items you can deduct in various ways. You may be familiar with differences between "book accounting" and "tax accounting". How you define "profit" is not at all a clear cut, simple calculation for most businesses.

-synchronicity
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True, taxes are partially payment for government services, but they are also part of our social compact, what Justice Holmes called "what we pay for a civilized society."

Then we are definitely NOT getting our money's worth.



Reminds me of the Ghandi quote...

"Mr. Ghandi, what do you think of Western Civilization?"

"I think it would be a good idea."
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You will need to "retire" the year befor you child graduates from high school.

Thank you for thinking about what I posted.

The Fafsa form that gets filled out for financial aid can be amended for change of circumstances, though there is a good chance aid will be gone by then. And it gets filed every year, so if we miss a year of decreased costs, no big deal. The potential for decreased college costs is more of an intellectual study on how the system works, hopefully with a payoff for our efforts, than how we need to approach paying for college, or even a motivation for retirement. It's more important to us to take the time to see how Obamacare impacts us, and give the company time to react and pull early retiree health care if that is their plan.

IP,
with one in college already
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My experience was that it did not affect our EFC at all. I was out of work for 51 weeks, and so there was very little income coming into our house during that time. I figured that the kids would certainly get some financial aid in that situation, but I was mistaken. They got the same that they had gotten in the years that I worked, and that was just the minimum loans that they are entitled to. That's because they do look at your assets as well as your income.

Thanks 2Gifts. When we filed Fafsa for Eldest they allocated 5% of our qualified assets and 20% of Eldests. Non qualified assets include retirement funds, your primary home, and business assets. YMMV for private school financial aid aps, which often include these in their calculation. We are pretty heavy on retirement funds and business assets.

Even qualifying for deferred interest loans would be of value. The only thing we were offered were loans that were higher interest than I could go get on the open market, payable from day one.

IP
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Even qualifying for deferred interest loans would be of value.

Sure, but that's probably not what they will offer you. My kids did not qualify for the subsidized loans even with no income coming into the house. They still were only offered the unsubsidized loans that you can already get anywhere.

I had one child at a private school that looked at the CSS Profile as well as the FAFSA, and one at a private school that only used FAFSA. The results for both were the same.

I did not do the FAFSA for this year, which is their senior year because there was no point since they weren't going to get any aid as I had returned to work. However, first I called DS's school to make sure that his merit aid, which was a pittance, would not be affected.

Pretty much the only reason I had filled it out previously was because if we had a change in situation, I could go back and amend, but if I had not filed it at all, there was no chance at that. Once I found out that for us,it still didn't matter, I stopped doing the FAFSA, but I did it the first 3 years.

My kids are graduating in 3 weeks, so my knowledge in this area is about to become dated, and perhaps others can give you better/more recent experience as you get closer to when this might affect you.
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My kids are graduating in 3 weeks, so my knowledge in this area is about to become dated, and perhaps others can give you better/more recent experience as you get closer to when this might affect you.

CONGRATS!

I'm OK going into this blind. Our retirement is not contingent on getting financial aid, nor is it a motivator to retire. Getting DH to work hard at play is. As I said, seeing what we get for free with lower income is more of an intellectual curiosity.

What is very real however goes back to the sentiments I originally replied to. The rate of taxation is such that it acts as a deterrent to continuing to work. When you are getting taxed 33% Federal, plus state, SS and other misc taxes, that really good gross paycheck becomes a net mediocre motivator. And maybe that's because we've seen too many friends die behind their desks in their 40's. I guess we are lucky that money for money's sake, and all the trappings it can bring, were never all that important to us. Heck, we haven't raised our standard of living in 20+ years, and while our cost of living will decrease significantly in retirement, I expect our standard of living, according to our standards, will skyrocket.

IP
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When you are getting taxed 33% Federal, plus state, SS and other misc taxes, that really good gross paycheck becomes a net mediocre motivator.

Congrats! That income rate puts you above $217K in income. When considering deductions and exemptions, you're probably make over $250K which likely puts you in the top 3% based on income.

And maybe that's because we've seen too many friends die behind their desks in their 40's. I guess we are lucky that money for money's sake, and all the trappings it can bring, were never all that important to us.

Sure, you have trappings. You have a 2nd home next to a river. How many average people have that? You'll also retire before social security age. Early retirement seems important to you so you'd have to say money is important to you.

Heck, we haven't raised our standard of living in 20+ years

I hear that all the time but what I think many people imply is that they didn't buy McMansions and luxury cars. But I would guess that your standard of living did change. I'm guessing over the 20+ years you may have bought cell phones, internet service, one or more computers or other stuff that is in the many average homes that was there 20+ years ago.

The rate of taxation is such that it acts as a deterrent to continuing to work.

Let's see. You have a riverside vacation home. You are retiring before the median income family ever hopes they could. If there was a time machine where you could go back to your 20s and take lower paying less stressful jobs, earn median family income, not have a vacation home and rental properties, and work until 67 for full SS, would you take that trip? Would you give up your early retirement and dream retirement home so that your kids would have qualified for college financial aid? I'm guessing no but you'll have to answer that. When I see someone say income taxes is a deterrent from continuing work, it is usually someone who is well-off financially and doesn't understand retiring in their 50s is a huge luxury. They're just disappointed that high taxes kept them from retiring in their 40s.

I'll just say what I said earlier - until there is a 100% tax, I have not been encouraged yet to be less productive.
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The rate of taxation is such that it acts as a deterrent to continuing to work.

. . .

I'll just say what I said earlier - until there is a 100% tax, I have not been encouraged yet to be less productive.


Yeah, I have a hard time buying that taxation "cause" too. Maybe it's because I remember when the top rate was more than double what it is today, and somehow people found the motivation to press on.

I think the motivation for cutting back is usually "I have enough." Each of us has a unique definition of enough, and it includes a lot of things besides assets.
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The topic of always wanting more has long intrigued me. Of course advertising is at getting us to always want more. You can make yourself sick by always wanting more. I have expressed my thoughts on wanting more in a couple of places in 2011: http://stopcontinentaldrift.blogspot.com/2011/07/our-consume...
http://stopcontinentaldrift.blogspot.com/2011/08/more.html

brucedoe
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Sure, you have trappings. You have a 2nd home next to a river. How many average people have that? You'll also retire before social security age. Early retirement seems important to you so you'd have to say money is important to you.

I don't consider ER a thing, but OK. The riverhouse is our retirement home, which was bought out of pre-foreclosure for a song, and are fixing up. Sure, we bought three years early, but only after looking for a place for 11 years. What can I say...I'm a planner!

And on top of that, I have had two properties at three different times in my life, starting at 25 when I moved up from my starter home before I could sell it, and again when I married DH who had a house of his own. I've never let existing real estate stand in my way of moving up to what I want, even when the goal is to sell the property I left behind later. I am getting our primary residence ready for sale now, albeit slowly. So having a second house now is the same lifestyle I had decades ago. We've also been "homeless," living in corporate housing. We are flexible

I hear that all the time but what I think many people imply is that they didn't buy McMansions and luxury cars. But I would guess that your standard of living did change. I'm guessing over the 20+ years you may have bought cell phones, internet service, one or more computers or other stuff that is in the many average homes that was there 20+ years ago.

I read the above, and thought "that sounds reasonable," but I had a few hours to think about it as I power washed the patio. Technology does change, and we have evolved with it, though the cost of such technology often is lower than what came before it. Sure we have cell phones now, but when is the last time you tried to find a pay phone? And I did have work related car phones in the mid 80's, so no, that didn't change for me other than I'm now paying for some of our cells instead of work, and no longer paying for a land line. Work again required we get the internet, and provided my first laptop as I worked from Dr mandated total bed rest in my last trimester of pregnancy rather than take full pay disability. These days good luck raising a kid without the internet. The schools are constantly giving them homework on line. And what kind of professional work does not require constant access to you? It's a different world than 20 years ago, but I can say with confidence that with the exclusion of college costs, I'm not paying more for it now than I did then.

If there was a time machine where you could go back to your 20s and take lower paying less stressful jobs, earn median family income, not have a vacation home and rental properties, and work until 67 for full SS, would you take that trip?

Lol. Never claimed to advocate such a thing, though I did personally quit the rat race about 6 months after Eldest was born, and have since been enabling DH to be his workaholic self by taking responsibility for almost all but bringing home the paycheck. Had some brief forays back into the work world, including teaching middle school math, but each time the family discussion was the same...not worth the net paycheck.

Hate to burst your bubble, but I realize that ER is a "luxury," and frankly it's one that we've earned by hard work and long term planning. Throw in a bit of luck there that we've had no debilitating illnesses or significant tragedy.

...until there is a 100% tax, I have not been encouraged yet to be less productive.

Heh. Maybe you just don't have enough imagination, but it is evident that you are good at exaggeration. ;-)

IP,
more than happy you desire to work and pay taxes endlessly
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I wouldn't tax business at all. It's the final customer that pays the bulk of this bill, anyway, in the form of higher prices.

Acknowledging that you weren't the one who raised the issue of fairness, how is it fair that the wage slave pays x% and the self-employed shopkeeper pays bupkes?


You could take one of two attitudes.

One, the self-employed paying bupkis is the benefit of taking the risk of starting, running, and keeping a business.

Two, if you do away with business "tax write offs" (similar to personal tax write offs) like depreciation, charitable donations, health insurance, cars for the CEO, etc., whatever, sooner or later the self-employed will have to pay himself. Now whether he does it like Warren Buffet and hardly takes anything or if they actually pay themselves what they are worth, it is up to the business owner.

JLC
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Yeah, I have a hard time buying that taxation "cause" too. Maybe it's because I remember when the top rate was more than double what it is today, and somehow people found the motivation to press on.

I think the motivation for cutting back is usually "I have enough." Each of us has a unique definition of enough, and it includes a lot of things besides assets.


I think some people love to work so taxes are not a motivation to stop. Others would rather not work so taxes is not actual cause for them to retire.

My FIL is still going to work even though he isn't being paid to do it. It's a head scratcher to me because I wouldn't work for free.

PSU
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My FIL is still going to work even though he isn't being paid to do it. It's a head scratcher to me because I wouldn't work for free.

Different strokes for different folks, I guess.

I worked for free at a small start-up company for four years. No one there got any pay, even the CEO. It was very interesting work. We were all professionals in computer hardware and software, had all worked for one or more big companies where we were never allowed to do the job right. So this time we could and did. Unfortunately, none of us had any marketing experience, and many of us had worked for AT&T, so we were less qualified than average at marketing. So a little while later, we ran out of capital for rent, telephone bills, etc., and had to close down. But it was worth it to be able to do good work for a change.
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I worked for free at a small start-up company for four years. No one there got any pay, even the CEO. It was very interesting work. We were all professionals in computer hardware and software, had all worked for one or more big companies where we were never allowed to do the job right. So this time we could and did. Unfortunately, none of us had any marketing experience, and many of us had worked for AT&T, so we were less qualified than average at marketing. So a little while later, we ran out of capital for rent, telephone bills, etc., and had to close down. But it was worth it to be able to do good work for a change.

That's different because you were probably hoping the company would be successful and there was a pot of gold in the end.
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you were probably hoping the company would be successful and there was a pot of gold in the end.

You're projecting, again. You really can't conceive of the possibility that others might have different imperatives than you, can you?

Eric Hines
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" you were probably hoping the company would be successful and there was a pot of gold in the end."

You're projecting, again.

I'd say he's stating an obvious truth - most people who work "for free" for a startup are actually putting in sweat-equity that they hope will result in real money.
At least that's my observation from a limited set of datapoints.

I don't think it's suprising that usually people expect that if the company does succeed and they contributed "for free", they'll get some significant compensation (ex: if an engineer spends 1000s of hours of work on a project, then it succeeds wildly generating $Ms of income for the company and all he gets is an invitation to a party and a piece of cake, rather than some part of those $Ms, most *probably* he/she is going to be unhappy about it.)
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As for Kansas' revenues (or any state, or the Federal government), the need for the revenues, beyond some minimum threshold for some minimum service, hasn't been established.

In spite of what the voters say each and every election.

That needs to come before establishing a (high) tax level.

Taxes in the US are lower than nearly any other developed country. They are not "high" by any objective standard during the modern era.
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No. of Recommendations: 31
in a high income bracket and getting killed in taxes

Crap. Have I been doing it wrong? I have always aspired to the highest tax bracket. My goal has always been to take every legal deduction I can find and still remain in the highest tax bracket.

Gonna go rethink and see where I went wrong.

tsimi
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The rate of taxation is such that it acts as a deterrent to continuing to work. When you are getting taxed 33% Federal, plus state, SS and other misc taxes, that really good gross paycheck becomes a net mediocre motivator
Honestly - I still don't get this. It isn't at all any kind of demotivator to me, and I live in CA so have very high taxes. I am not unmotivated to work because of taxes. Having more money (i.e. working more) is better, even with some of it going to taxes. Seems simple. The way to get more money? Work more.

And maybe that's because we've seen too many friends die behind their desks in their 40's.
Now THIS may be a motivator. If you are burnt out, by all means, work less.
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PSUEngineer writes,

I'll just say what I said earlier - until there is a 100% tax, I have not been encouraged yet to be less productive.

I'd suggest it's not the tax rate, but your utility for more income.

If I can spend 2 hours a month managing my investments and generate more than enough income to live on, I really don't have much motivation to spend 3 hours a month on my investments.

intercst
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Maybe it's because I remember when the top rate was more than double what it is today, and somehow people found the motivation to press on

Did you know this year is the 100th year of taxes? Back in 1913 the rates were from 1% to a high rate of 7%. You will be in the 1% bracket if you made under 464,000. To be in the top rate, you had to make over 11 million. Of course these numbers are adjusted for inflation, but I really wish I was in the 1% range :)

Let's all enjoy the century mark of paying taxes!

http://taxfoundation.org/article/us-federal-individual-incom...
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Hello,

I'm 53 in a high income bracket and getting killed in taxes. Maxing out my 401k and IRA. A financial planner from Fidelity suggested i dump money into a Tax Deferred vaiiable Annuity to decrease my exposure. Fees: 0.25% expense not including Fund I choose. I don't know enough about Annuity's to make a decision here.

Pros and Cons?

Thanks,
Fool on!


Beware of the statist mentality at TMF, which is sad. Statists love to hang out at TMF and pretend to know something about something while they garner huge recs in their guilty white "you SHOULD do this and that" posts. When people tell you that you should be happy paying taxes and spend more time in charitable pursuits, they are the statist wolves in sheep's clothing who look to devour your earnings (through the benevolent state) and make you feel guilty that you don't agree with their BS. Some even have the TMF in front of their name.

Learn to discern those kinds of highly-rec'd posts. They are harmful to your financial health and well-being and their idea of charity is to have their god the state pick you pocket in huge amounts on a consistent basis as part of their social contract (on you) of a civilized society.
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I enjoyed your two short blog posts, Bruce Doe. Just letting you know there is a bit Humprhey Bogart Festival down here in the Upper Keys, May 2-5, 2013:

http://www.fla-keys.com/news/news.cfm?sid=8507

KEY LARGO, Florida Keys — Legendary film icon Humphrey Bogart is to be celebrated May 2-5, 2013, in the setting of one of his most famous movies.

The inaugural Humphrey Bogart Film Festival is to mark 65 years since the premiere of the movie "Key Largo," starring Bogart and his wife Lauren Bacall, which was partially filmed on the island at the top of the Florida Keys archipelago.

Celebrating the life and films of the man the American Film Institute named "America's greatest male screen legend," the festival is the only event of its kind to be backed by the Bogart Estate, which is producing the event in partnership with the Key Largo Chamber of Commerce.

"We have long been looking for a natural home for a family-backed Bogie film fest, and we believe there is no better place than Key Largo," said Stephen Humphrey Bogart, son of the iconic performer.

"My father and mother starred in 'Key Largo' and the actual boat from 'The African Queen' is here in Key Largo," Bogart said. "It just feels right to honor my father and his movies in this beautiful place, which has such an organic connection to his legacy."

(more at link above)

Also, if any of you film buffs make it to Key Largo (about 110 minutes North of Key West) you may as well drive down to "Bone Island" itself and see Florida's Number One Rated Cinema, the Tropic Cinema:


http://www.tropiccinema.com/main.html


P.S. Rude patrons don't exist in this place because the whole community supports a "real" communal experience when watching film together. No one talks out loud. No cellphones on. No drunks. Etc. Oh yeah, and no teenagers or kids allowed in there, unless it is a school outing during the day. It is heaven.
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Honestly - I still don't get this. It isn't at all any kind of demotivator to me, and I live in CA so have very high taxes. I am not unmotivated to work because of taxes.

And that is just fine. I didn't state my opinion to change yours. In fact it works much better for me if you don't buy into my opinions and continue to pay taxes. But I am curious as to why you and others who say how much you love to work post on Retire Early Camp Fire, particularly when it actually was about early retirement rather than politics?

Taxes are not our only motivator to exit the rat race, but they do make it a lot less tempting to stay in. As with many things there is rarely just one motive, with some being stronger than others. And the primary motive for my leaving the work force after Eldest was born was understanding what it meant to have a kid, realizing that we didn't want strangers raising them, but when you added all the costs of continuing to work with a baby at home, taxes included, it was a no brainer to quit. My time at home, making it easier for DH to put the hours in that he is naturally programmed to do, learning how to invest the money he brought home, was worth significantly more than the net paycheck after taxes and things like daycare. Heck, there were years I made more than his paycheck from the investments I made, blessedly tax free in Roths. Time is money.

The way to get more money? Work more.

Or spend less, which is exactly why we have the options we do. There are still only 24 hours a day, so there are limits to how much one can work and not have it affect your health. We have worked hard for decades to save a significant amount of money. Earning more money is not a motivator in and of itself. Joining the grasshopper population is, while you ants keep paying taxes.

It takes hard work and planning to retire early and most won't be able to do it. There is a real question as to how easily my generation is going to retire at any age. But again it looks as though the rules are going to change to remove benefits from those who have provided well, saved hard. Part of long range planning is to adjust when things change, so it is time to stop saving, start spending.

It has been somewhat frustrating to pay the large amount of taxes every year, contributing more and more to the gov't when the portion of the gov't we use has not gone up. This year we got hit by AMT, and were denied thousands of dollars in common deductions like mortgage interest and real estate/state taxes. We are not hedge fund managers, not high rollers able to pay 15% tax, just a taxpayer who made a boatload of money for the company he works for and for once was recognized for doing so. Because we don't live large, the AMT impact was not huge, but it is hard not to feel it is a punitive strike against us for doing well.

So yes, we have identified our concerns with the way things work, and know that we cannot change the system, that it will most likely get worse because our gov't does not encourage our saver way of life. We have also identified our solution. YMMV.

IP,
who has this year's taxes to thank as the tipping point for convincing DH to exit the working world 3 years earlier than he had planned
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Intercst,

Our TMF path has not crossed in quite some time. I was a frequent poster on Retire Early Home Page, and thank you for putting that board together. While I had the desire to RE from a young age, and a loose plan of how to accomplish that, your board helped me to formalize that plan and help me to realize that RE was not such an offbeat idea.

I appreciate your efforts to educate.

IP
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Intercst,

Our TMF path has not crossed in quite some time. I was a frequent poster on Retire Early Home Page, and thank you for putting that board together. While I had the desire to RE from a young age, and a loose plan of how to accomplish that, your board helped me to formalize that plan and help me to realize that RE was not such an offbeat idea.

I appreciate your efforts to educate.

IP


I'll second that. I retired at 56, mostly due to what I learned on the Retire Early and Mechanical Investing boards. Thanks!

Earble
(My wife going back to work helped, too)
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Earble
(My wife going back to work helped, too)


Heh, and my not working outside the home allowed me to work at home, learning Mechanical Investing. More than doubled our nest egg.

IP
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Frankly, if you don't know enough about something then you should not be making the decision. You should find a fee-only financial planner and just do what he says. (Not a commission planner as he has the conflict of interest that he wants more commissions.)

As for "getting killed in taxes", I don't know enough to comment (snide or otherwise...for all I know you're self-employed and having to do both sides of SS plus self-employment tax and maybe some other stuff). But if you have a good accountant he/she should be helping you maximize your deductions and minimize your tax liability. That's the most anyone can (legitimately) do.

1poorguy
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Interesting group. Thanks for the feedback.

Fool on!
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