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If the tax cuts on dividends and capital gains are not extended or made permanent, they will expire in 2008. How do you see this affecting your portfolio, retirement or anything else in your life, if at all?

In my own case, we get a substantial part of our income from divs and CGs from taxable accounts. Our taxes would go up enough if the breaks expire to have a significant effect on our lifestyle. We would either have to cut back on stuff or take a higher draw from the portfolio to have the same after-tax income.

Most likely I would shift our holdings away from dividend-paying stocks to those that don't pay them and try for more CGs and less dividends, or something else, I just don't know right now.

If most of your income comes from retirement accounts or pensions, you won't be affected, nor if your income is low enough (15% bracket or lower). But for those who will feel the pinch, are you going to do anything to mitigate it?

--fleg
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fleg,

If most of your income comes from retirement accounts or pensions, you won't be affected, nor if your income is low enough (15% bracket or lower).

I'm not sure why you exclude the 15% bracket people -- on a relative basis, they are hurt the most. On an absolute basis, they are hurt as much as those in the 25% bracket.

For those in the 15% bracket, qualified divs & LTCGs will TRIPLE -- up from 5% to 15% -- a 10% absolute increase. (I'm clearly ignoring the 0% LTCG that will occur in ... '07? '08?)

For those in the 25% bracket, their rate will "only" go up from 15% to 25%, which isn't even a doubling -- though obviously it is the same 10% absolute increase.

Those in higher brackets will be hurt even more, but I wouldn't exclude the 15%'ers from the discussion, either.

Ken
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You must plan for a very high lifestyle in retirement if your taxable income is going to be higher than in the 15% bracket. (Unless I'm just totally in the dark about how much that would be. Which is quite possible.)

AM
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But for those who will feel the pinch, are you going to do anything to mitigate it?

Of course we are going to try to mitigate it.

Several ways:

DW, who is younger, will work longer. We will shift investing priorities as you indicate. We will spend less, less travel, cars will have to last longer.

Somehow I suspect that the changes people collectively make will be worse for the economy than an "benefit" higher taxes bring. It is highly probably that tax revenues will fall, even though the rates are higher.

Of course this will cause liberals to increase taxes -- it is a matter of conviction for those folks.
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You must plan for a very high lifestyle in retirement if your taxable income is going to be higher than in the 15% bracket.

As a matter fo fact, we do plan for a respectable income in retirement. Is something wrong with this?

We have worked, saved and invested all our lives. Why shouldn't we enjoy the fruits of our labor?

I have a strong belief that we saved instead of spending, and should not be penalized for having done this.
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You must plan for a very high lifestyle in retirement if your taxable income is going to be higher than in the 15% bracket.

As a matter fo fact, we do plan for a respectable income in retirement. Is something wrong with this?

We have worked, saved and invested all our lives. Why shouldn't we enjoy the fruits of our labor?

I have a strong belief that we saved instead of spending, and should not be penalized for having done this.




There is nothing wrong with it.
I was just wondering how much you think is a reasonable amount on which to live when you are retired. How much do you expect to live on each year?

Of course you don't have to answer if you don't want to.
I was just wondering... not judging.

AM
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As a matter fo fact, we do plan for a respectable income in retirement. Is something wrong with this?

We have worked, saved and invested all our lives. Why shouldn't we enjoy the fruits of our labor?

I have a strong belief that we saved instead of spending, and should not be penalized for having done this.

I feel I have had a great life and career in this great country. I am happy to pay my share of the tax burden, even in retirement. We will likely be well into the 25% range for the forseeable future. Goodie! We also get to pay CA state income tax. But I stay because it's such a great place to live.

cliff
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For those in the 15% bracket, qualified divs & LTCGs will TRIPLE -- up from 5% to 15% -- a 10% absolute increase.

Duh, my bad. I forgot about that 5% rate that exists now. You are right about the tax on divs--it will triple from 5% to 15%. But not CGs--the two rates will be 10% and 20% as before (or your marginal rate if it's lower than 20%). So for folks in the 15% bracket, some of their CG taxes will be taxed at 10%, a mere doubling from 5%. Did I get that right?

--fleg
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You must plan for a very high lifestyle in retirement if your taxable income is going to be higher than in the 15% bracket.

It seems normal to me.

--fleg
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But not CGs--the two rates will be 10% and 20% as before (or your marginal rate if it's lower than 20%).

Oops, now it's my turn to say "my bad". Yeah, I forgot that LTCGs were tax-favored before (duh). Thanks for the correction, fleg.

I don't think I'd do anything different from what I'm doing now, but it would definitely mean less money in my pocket (or my portfolio, to be more accurate). And it would certainly make rebalancing more painful.

I've been in the 15% tax bracket up until last year (and again this year, I think). It was awfully nice to be taking LTCGs at 5%, let me tell you. 15% LTCGs aren't quite as nice, but still not too bad. Going up to 20% isn't going in the right direction, but it won't make me change anything from an investment standpoint.

I usually don't get much in the way of qualified dividends, something like $5k last year I think, so a 10% hike in that hurts to be sure, but again not enough to change anything I'm doing.

Ken
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I was just wondering how much you think is a reasonable amount on which to live when you are retired. How much do you expect to live on each year?

Of course you don't have to answer if you don't want to.

I was just wondering... not judging.

AM


AM, why a reasonable amount and not an unreasonable amount? I didn't plan my retirement on what I could get away with on a survival level but one that I could do 'things' outside of 'reasonable'. Ain't that better than a 'reasonable' amount?

I know that you love being on your porch watching the boats on Puget Sound. That you can do so is 'unreasonable' to those who don't have the means you do. So where do we define a reasonable amount for retirement when everyone's needs on retirement are different?

I like salmon fishing and can afford it so I do just that. My investments are such that I don't have a mortgage or any debt at all. I fart through silk.

Washington state wines are so of the best available and I am stocking my cellar with them (AM, you must try Columbia Crest) but I buy wines because I can.

What I believe is that retirement should be unreasonable. To have enough in the kitty to do things you couldn't do when you were working, slaving and saving – not continuance.

When I pass on I want my will to read, “Being of sound mind I spent all I could.”

MichaelR


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When I pass on I want my will to read, “Being of sound mind I spent all I could.”

Michael:

I agree with everything else you said, but I would like to leave a financial legacy which can be passed down to future generations, rather than spending it all before I go.

Many companies are no longer offering pensions, and our children may not have the opportunities that DW and I were able to capitaize on.

Plus, I view retirement as no longer working for someone else. While I may not "work" in the traditional sense of 40 hours per week, I fully intend to continue with investing and "positive economic activities" such as small scale real estate development.

I am certain that there are people who feel their retirement is good if they can survive without working and have lots of spare time. I have to be more active and purposeful in my life.

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I think my Dad works harder in retirement volunteering at a local food bank for free than he did when he worked for a salary. He's almost 85 and still going. Hal
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OldOne writes,

Plus, I view retirement as no longer working for someone else. While I may not "work" in the traditional sense of 40 hours per week, I fully intend to continue with investing and "positive economic activities" such as small scale real estate development.

I am certain that there are people who feel their retirement is good if they can survive without working and have lots of spare time. I have to be more active and purposeful in my life.

</snip>


That's my definition of retirement. I spend about 2 hours per month managing my investment portfolio and I'm always looking for more efficient ways to do less.

intercst

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That's my definition of retirement. I spend about 2 hours per month managing my investment portfolio and I'm always looking for more efficient ways to do less.

Vote Democrat, where doing less with more is a rite of passage. <<g>>

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