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I thought this was interesting from Thursday's WSJ

http://online.wsj.com/article/SB121495239822321035.html?mod=...

SPEND LESS, INVEST MORE

Just as important as having the right asset allocation is making sure you invest enough. Many big-spending boomers are shocked to learn how little of a portfolio financial advisers say they safely can withdraw in the initial years of retirement to avoid running out of money in old age. Many advisers cite computer modeling showing that retirees under the age of 70 risk depleting their nest eggs if they cash out more than 4% annually -- or $40,000 of a $1 million portfolio.

"Two percent is bulletproof, 3% is probably safe, and 4% is the absolute maximum," says William J. Bernstein, an investment adviser in North Bend, Ore. If the $1 million is in a tax-deferred account, such as an Individual Retirement Account or a 401(k), he notes, "you've got to pay taxes on those assets on the way out." So you have roughly $800,000 to work with -- or $32,000 a year maximum to spend.

</snip>


Dr. Bernstein needs a copy of TurboTax. A married couple taking the standard deduction would only pay $3,365 in Federal taxes assuming the whole $40,000 was taxed as ordinary income. Most retirees would get some of their income from dividends or return of capital that are even taxed at lower rates.

intercst
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Bernstein put together a lot of good financial work in one place in his books, but he does make a fair number of mistakes in his own analysis.
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>> Dr. Bernstein needs a copy of TurboTax. A married couple taking the standard deduction would only pay $3,365 in Federal taxes assuming the whole $40,000 was taxed as ordinary income. Most retirees would get some of their income from dividends or return of capital that are even taxed at lower rates. <<

True. But $40,000 of investment income would also cause their Social Security to be 85% taxable.

#29
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<<SPEND LESS, INVEST MORE

Just as important as having the right asset allocation is making sure you invest enough. Many big-spending boomers are shocked to learn how little of a portfolio financial advisers say they safely can withdraw in the initial years of retirement to avoid running out of money in old age. Many advisers cite computer modeling showing that retirees under the age of 70 risk depleting their nest eggs if they cash out more than 4% annually -- or $40,000 of a $1 million portfolio.

"Two percent is bulletproof, 3% is probably safe, and 4% is the absolute maximum," says William J. Bernstein, an investment adviser in North Bend, Ore. If the $1 million is in a tax-deferred account, such as an Individual Retirement Account or a 401(k), he notes, "you've got to pay taxes on those assets on the way out." So you have roughly $800,000 to work with -- or $32,000 a year maximum to spend.>>

Dr. Bernstein needs a copy of TurboTax. A married couple taking the standard deduction would only pay $3,365 in Federal taxes assuming the whole $40,000 was taxed as ordinary income. Most retirees would get some of their income from dividends or return of capital that are even taxed at lower rates.


Don't be so hard on him, you don't have all the assumptions that he is working with for the example. Please note that he used an average tax rate of 20% which directly implies that he is using some blended group of tax rates as exist in current tax law (other less sophisticated folks often use one of the marginal tax rates instead). While it is true that if a couple has only $40,000 in income from an IRA/401(k) each year that they will pay about $3.3k in income taxes, that is an almost completely unrealistic scenario today. Todays retirees generally have a few forms of income, almost all have some level of social security (and doesn't part of it start to become taxable at relatively low incomes?), some have pensions of varying sizes, many have insurance policies that provide income, and some even have annuities that provide income. And some have taxable investments that have great flexibility regarding when to take gains for the best tax advantage.
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Most retirees would get some of their income from dividends or return of capital that are even taxed at lower rates.

Not all dividends are taxed at "lower rates"-REITs,for instance.

Return of capital is generally not taxed at all either.

Spend less, invest more, & have a reasonable withdrawal rate is the message. And a damn good one.

Mocking Dr. Bernstein is just arrogant.

buzman
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He was just figuring the new tax rates with Obama..

28% on dividends...

A 2% annual wealth tax

And everyone......pays 20-30-40% more in taxes each year......

to pay for those who don't have 'a milion dollars in their retirement account'....

t.
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He was just figuring the new tax rates with Obama..

28% on dividends...

A 2% annual wealth tax

And everyone......pays 20-30-40% more in taxes each year......

to pay for those who don't have 'a milion dollars in their retirement account'....

t.


Go back to sleep, tele.

cliff
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