Retirement Targets

[Mr.G.Spot]

Raised but not removed, you could also keep it where it is currently at for a business, only the wage earner continues paying. I would also not be opposed to means tests above a certain level, say a next worth of $5 to $10 million dollars. No reason people with that type of money needs SS, even though they have paid in their entire work career.
The biggest problem with the tax code is not the high earners, entertainers, pro athletes and business man getting their wages through a salary, they are paying their share and more. It's the investment class, getting their money through bonuses and stock options, they are paying an average around 8% per year, and some raking in 10s of millions or more. The Trump types going years without paying taxes.

Do you really think bonuses are taxed at 8%? Maybe u meant something else.

 

[Althetuna]

Kind of curious what everyone considers to be a somewhat optimal age to retire. I get the temptation to say as early as possible, but the more I think about it, ai think it’s somewhere between 55 and 60. Old enough to where the retirement account options have started to open up and you’re not the only one of your friends not working….young enough that you’re still hopefully in good health. But what do others think?

I've been thinking about retirement broadly. I tend to think about financial well being as a family unit; wife, kids, and now grandkids. There are a couple ideas that swirl around in my mind about retirement

1. I make good money as an engineer. Not get rich, generational wealth type of money but good enough to know its not easily attained. As someone who thinks in terms of a family unit, what obligations due I have to continue working to help build wealth for my kids and grandkids who may not have the same opportunities?

2. Work is part of who I am. I know retiring is going to take a major shift in my thought process.

Basically, I know, at 53 years old, I want the ability to retire; understanding my mindset might change as I get older or circumstances may force me to retire. Other than that, I'm not sure what I'm going to do yet.

 

[Dopey]

This, 1000%.

Roth should be considered a "tax me now" account, whereas traditional IRA and 401k accounts are "tax me later". I'm talking about initial contributions, and you're making a bet that your personal tax rate will be higher down the road than at the time of the contribution (or conversion, for that matter).

Only the HSA is a "tax me never" account, as long as funds are used for qualified expenses.

And everyone socking money away into a Roth thinking the earnings will NEVER be taxed has a lot more faith in the federal government to not change their mind in the future than I do...

I’m not sure why one wouldn’t tax diversify as well. I fund both Roth and Trad accounts. And pay for medical expenses out of pocket to keep my HSA invested.

 

[CascadeClone]

I think this is somewhat my concern about retiring too early. I thought about going for 49 at first…or maybe 53. I guess we’ll see, but I’m thinking you definitely have to have something your retiring too if you go that early. I fear I would have way too much energy and would just spin my wheels online.

Probably need to find some sort of new passion anyway. Keeping up with kids and just everything is honestly plenty for now…but I imagine it won’t always feel that way.

I should be good at 55 and plan to travel some and run my new granddaughter around to school etc. And keep doing TKD.

 

[Dopey]

I should be good at 55 and plan to travel some and run my new granddaughter around to school etc. And keep doing TKD.

That’s good.

I still struggle though. How many hours per day is that? 30 minutes to & from school? 90 minute TKD class? Add in a round of golf or fishing every GD day, and you still have gobs of time available that you didn’t before.

I’d love to ditch the corporate job in my 50s. But I’m going to need to find another job with a large social factor I enjoy. Or develop a marketable skill I can start a business with, selling the product of something, like woodworking, etc.

 

[BCClone]

I'm about 20 months away from retiring. I'll be 61 at that time and will have been in my current position for 31 years. It's time. A couple of comments:

1) I've maxed out my social security contribution for the year. Sure, I like the extra money for the rest of the year, but I shouldn't get to stop contributing when lower income workers have to pay a higher proportional rate than me. An easy fix for social security would be to remove the social security tax cap so that higher earners pay on their entire salary.

2) I know I'm going to struggle going from "savings" mode to "spending" mode. I have to keep reminding myself that I don't need to factor savings into my post-retirement budget, and that at that point it will be OK to see balances level off or decline (at a nominal rate) vs. contribute/grow.

Per 1, isn’t there a cap on payouts too? Which means if you max out SS tax payments, you also can hit a ceiling on payments to you when you draw.

 

[BCClone]

Where did that starter Roth money come from? It is after tax earned income, right? To keep things simple lets say you have a 10% marginal rate. For traditional you can take 10 dollars and invest it without any initial taxes. For Roth you have to use after tax money so that $10 becomes $9 and you invest that. The $9 grows tax free and the $10 has 10% tax at the end, but the net result is exactly the same . You can continue to believe whatever you want but the absolute mathematical fact is time in the market doesn't matter.

If your tax bracket happens to stay identical (meaning they don’t put the 12 back to 15%), then short term the traditional would be better since Iowa doesn’t tax retirement funds but the Roth would have paid taxes going in.

 

[BCClone]

Yeah this is true. We all assume that you'll be taking like $50k a year and paying 15% tops, but you can absolutely have problems with this if done wrong.

I have a good chunk in a trad rollover ira, as well as some other TOD stuff. I figured "take the IRA stuff first so you don't pay cap gains etc on the other stuff" but every planner I interviewed said do the opposite. Counterintuitive.

What's weird is they all say convert to Roth even if it costs a metric ton in tax now. Again, seems counterintuitive, I will have to do the math to understand it when the time comes.

One question, are the traditional funds currently with that investment advisor…….?

 

[cyphoon]

Where did that starter Roth money come from?

Those are contributions, and I stated that roth contributions are taxed.

Put $10,000 in a roth when you are 30. Yes, you paid tax on whatever income produced that $10,000 contribution. Now let it sit there and double 4 times to $160,000 when you turn 65. The $150,000 that you earned will never be taxed when you take it out.

Yeah, you paid $2000 or so in taxes on the original $10,000 you put in. Big f'in whoop. Your marginal tax rate at the start is totally irrelevant when discussing the $150,000 in earnings that accrued inside the roth account. And your marginal tax rate at the end doesn't matter because it is a roth.

The true power of a roth is the fact that earnings are not taxed, and earnings require time.

H

 

[BCClone]

Raised but not removed, you could also keep it where it is currently at for a business, only the wage earner continues paying. I would also not be opposed to means tests above a certain level, say a next worth of $5 to $10 million dollars. No reason people with that type of money needs SS, even though they have paid in their entire work career.
The biggest problem with the tax code is not the high earners, entertainers, pro athletes and business man getting their wages through a salary, they are paying their share and more. It's the investment class, getting their money through bonuses and stock options, they are paying an average around 8% per year, and some raking in 10s of millions or more. The Trump types going years without paying taxes.

So….if a farmer owns 320 acres and had no cash or investments, sold his last crop and equipment to pay off land debt; he doesn’t deserve any SS?

 

[1SEIACLONE]

Do you really think bonuses are taxed at 8%? Maybe u meant something else.

No, I think the investment class is only paying 8% tax overall. Look at people like Warren Buffet and others that have come out and stated they pay very little federal tax under our system. Between buy, borrow and die and shell companies to hide their assets, the investment group at the top of the mountain are not paying taxes at nearly the rate they should be. Bonuses are taxed at a lower rate than general income.

 

[clonechemist]

I've been thinking about retirement broadly. I tend to think about financial well being as a family unit; wife, kids, and now grandkids. There are a couple ideas that swirl around in my mind about retirement

1. I make good money as an engineer. Not get rich, generational wealth type of money but good enough to know its not easily attained. As someone who thinks in terms of a family unit, what obligations due I have to continue working to help build wealth for my kids and grandkids who may not have the same opportunities?

2. Work is part of who I am. I know retiring is going to take a major shift in my thought process.

Basically, I know, at 53 years old, I want the ability to retire; understanding my mindset might change as I get older or circumstances may force me to retire. Other than that, I'm not sure what I'm going to do yet.

Similar vibes for me. I’m a scientist, making good money to do work that I find deeply gratifying overall.

There are many aspects of my daily work that feel like a frustrating administrative/paperwork grind….

I’m hopeful that, if career progresses as hoped, I’ll have enough political capital (and grant funding) to do less and less of that work from age 60-70, and be able to spend more time focusing on the satisfying parts of my job, while still feeling enough flexibility to spend time with family (by that age, my kids would be hitting ages where they might be starting families too). If I hit 65 and work still feels like an unsustainable grind that takes too much time away from family, I should be able to walk away with no financial concerns

 

[cydsho]

Do you really think bonuses are taxed at 8%? Maybe u meant something else.

Haha yeah no way. My bonuses are great but taxed so freaking high. You can get around taxes with stock options but not bonuses. That is a salary and taxed, heavily.

 

[1SEIACLONE]

So….if a farmer owns 320 acres and had no cash or investments, sold his last crop and equipment to pay off land debt; he doesn’t deserve any SS?

You would have to look at a case by case basis, just like you would any other business. I am not suggesting that a small businesses owner or small farmer not get it. But larger farms or business owners, no it should be means tested.
This is the biggest problem we have with taxes, deciding who really needs a program like SS and those that do not. I get the idea that if you pay in you should get money back, then set a limit. Taylor Swift should not be getting a half a million a year from SS when she can start pulling it out, even though she has paid say a million a year for decades. Say 8 grand a month and that is it. Not sure why we have people lining up taking the side of the wealthy at their own expense, but it's common now.

 

[cyphoon]

If you paid 25% on that $5,000 initially, that’s $1,250 you ever had to pay on $40-50k if it’s a Roth IRA. But if it was a traditional IRA, you saved that $1,250 back then, but even if you’re only in a 12% bracket when you take the money out, you’re still paying around $5k in taxes.

Exactly. The roth vs traditional debate requires that we define and treat contributed dollars separately from earned dollars. Contributed dollars are always taxed at some point. For a roth, that is up front when the money goes in. For traditional, contributed dollars are taxed at the end when you withdraw.

Earned dollars are also taxed at the end in a traditional. But for a roth, they are simply never taxed .... ever.

My nest egg is at a point where it earns more per year than I do when the market is behaving somewhat normalish. If my entire nest egg was roth, imagine how powerful it would be to have a six figure income that is completely free of taxation forever. Alas, most of my nest egg is traditional money.

And for those of you who don't want to think of contribution money separate from earned money, try making a roth withdrawal before you are 59. The IRS will be very interested in whether you withdrew contribution money or earned.

Lastly, for an absurd example of the power of time+earnings in a roth, google "Peter Thiel roth".

H

 

[clonechemist]

So….if a farmer owns 320 acres and had no cash or investments, sold his last crop and equipment to pay off land debt; he doesn’t deserve any SS?

Why should farmland be valued any different than any other asset when it comes to means testing?

Google suggests that land would be worth around 3.5 million.

If SS means testing rules are passed that strip SS benefits from anyone with a net worth over 3.5 million, do you think farmers are entitled to some special exemption from that rule?

 

[cyphoon]

Only the HSA is a "tax me never" account...

And everyone socking money away into a Roth thinking the earnings will NEVER be taxed has a lot more faith in the federal government to not change their mind in the future than I do...

If you don't trust the government with roth earnings, why would you trust them with HSA withdrawals?

H

 

[BCClone]

No, I think the investment class is only paying 8% tax overall. Look at people like Warren Buffet and others that have come out and stated they pay very little federal tax under our system. Between buy, borrow and die and shell companies to hide their assets, the investment group at the top of the mountain are not paying taxes at nearly the rate they should be. Bonuses are taxed at a lower rate than general income.

Wait…….huh??…….where are you getting that? You saying maybe what gets withheld originally?

 

[1SEIACLONE]

Why should farmland be valued any different than any other asset when it comes to means testing?

Google suggests that land would be worth around 3.5 million.

If SS means testing rules are passed that strip SS benefits from anyone with a net worth over 3.5 million, do you think farmers are entitled to some special exemption from that rule?

3.5 million would be low for phasing them out, but set the bar at 10 million in assets, and it would still allow 98% of Americans to get SS.

 

[BCClone]

Why should farmland be valued any different than any other asset when it comes to means testing?

Google suggests that land would be worth around 3.5 million.

If SS means testing rules are passed that strip SS benefits from anyone with a net worth over 3.5 million, do you think farmers are entitled to some special exemption from that rule?

Before the last drop land in this area was selling for $13-18k per acre. 5MM is hit at 15.625k

They aren’t selling the land because they figured that was their retirement base. 300 rent minus 40 acre prop tax leaves them right at 80k on 310 tillable.