How much do YOU think YOU need to retire? ...and at what age will you (and spouse) retire? (Part 1)

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5761

I have a confession. I really enjoy taxes and would have been a great tax specialist. I actually enjoy reading the regulations and figuring out how to apply them in clever ways to significantly reduce taxes. But, I don’t have the time to actually do returns. They are so complicated at this point – 80 to 100 pages (and I have two corporate returns as well). I’ve got foreign income, real estate, partnerships, a trust, and two company returns. Some forms, like the foreign tax credit, are completely incomprehensible to me – I can’t figure out the formula they are supposed to be applying. With AMT, which I thankfully don’t have to do any more, and foreign tax credits, you have to enter seemingly the same information a number of times. Very confusing.

@HImom and @mcat2, I have also never shared that much information about our assets with our kids. We don’t have enough that once they found out, they would realize they never have to work – they would still have to work. Even if I do succeed in making that much, it would be in a trust and only there for helping, not causing them not to work. We expect to have enough to make life a little easier – e.g., the downpayment on a house when they get there. We have lots of friends who are significantly wealthier than we are, but generally, I wouldn’t want kids to share that information. But, perhaps as they are young adults, I should explain to them what is there. There is the trust that keeps a fair bit of it away from their spouses in a divorce.

I don’t ask my kids to fill theirs out, though I may suggest that pretty soon. In some ways, I have been shielding ShawSon from stuff like this. He is taking a really hard graduate program and working fairly intensely and I don’t have the heart to siphon off his energy on tax forms. He truly throws himself completely at succeeding in whatever his endeavor is – this year it is grad school. Maybe next year when he is in business school. Plus, we have set up a couple of things that make the kids’ forms more complex than just filling out a basic 1040 form. But, we’ll have to get there some day soon.

@Iglooo, I didn’t have any reason to teach FAFSA to the kids or provide the information to them. We wouldn’t qualify for FA so I never filled out FAFSA. A financial advisor suggested I fill it out (can’t remember why) but I found it unclear and confusing given my sources of income. To put this in context, I have a PhD in a quantitative field, taught at a business school, and worked on Wall Street. If I found it confusing, it would be undoable for kids.

@dstark, I think a lot of the tax things make no sense and the tax laws should be greatly simplified. In the meantime (which is probably my whole life expectancy plus some), I will use the dumb laws they set up to my advantage. Lots of them seem silly to me, some in my favor and some not. Plus, I love the puzzle of setting things up to optimize against the rules.

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@notrichenough‌

So long as you lend me your name when I form my pro-bono retirement planning service: Notrichenough & AttorneyMother, P.C. :smiley:

I’ll gladly take on any others who want to join.

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I saw this in the WSJ and the headline is certainly enticing:

http://blogs.wsj.com/experts/2015/03/19/how-to-increase-your-after-tax-wealth-in-retirement/?KEYWORDS=taxes

The author has a website and I see this article:

http://www.advisorperspectives.com/newsletters15/The_Hidden_Peril_in_Sequence_of_Returns_Risk.php

which addresses the topic of in-retirement withdrawal rates. It contains some pretty useful (and encouraging) stats if you read far enough into the article.

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I’m not sure “NotRichEnough” would inspire confidence in a financial services company. Sort of like using the “Bank of No Money” for your savings account. :smiley:

That article on withdrawal rates is interesting, and shows that the 4% rule is still good. It seems to me though, intuitively (which means I am probably wrong) that the first 5 years are the most important. If the market is up after those 5 years, I can increase my withdrawal rate; if it is down I should lower it. It’s hard to quantify that, I guess. It appears from that chart that a 5% withdrawal rate works 75% of the time, and almost half the time a 6% withdrawal rate works (assuming your time horizon is 30 years).

If you retire into a bull market, why not enjoy it?

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At least for me, the article offers one conclusion that isn’t dependent on chance, such as retiring into a bull market. Although I imagine that most people who have a choice (albeit a smaller one because of employment reductions coming in bad economic years) tend to postpone retirement if their portfolios look bad. But, on a first reading, this jumped out:

Figure 2: the green line is above the red line - in other words, sustainable 30-year withdrawal rates (based on historical data, not projections) exceed real portfolio returns based on a 50/50 asset allocation

And this has been true for all periods since 1900 - mid-1980s. I assume there is no more-current data because people who retired in the mid-1980s are just completing their 30-year retirement horizon, so we’ll have to see if the past 30-year period holds to the same pattern.

I need to re-read and unscramble what Figure 3 tells me. Statistics is not my strong suit.

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@AttorneyMother, my takeaway was the the green line represents a SWR if the 30-year returns are smooth (ie, without the impact of sequence of returns). The blue line represents a SWR with the actual volatility of returns during each 30-year period. I might have misunderstood the charts.

Unless you’re cutting it really close (in which case the beneficial longevity pooling found in annuities should be considered), you probably can match your spending to how your portfolio is doing. And don’t forget the value of bonds as a stabilizing factor in a portfolio.

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Shawbridge, I understand. I just have a problem with people complaining about other people’s benefits and tax breaks when they also receive benefits and tax breaks. I have a problem when people don’t acknowledge their own tax breaks and subsidies. I am not saying you are doing this and these are my problems.

I don’t have a problem with people taking advantage of the tax breaks that exist. People act in their own self interests.

Hey! The name of the firm Peter Thiel uses is in the link I posted for you. The firm should be able to answer your questions about the tax breaks you mentioned.

Shawbridge, are you a fund to funds guy? You remind me of somebody. You aren’t him, but you remind me of a fund to funds guy I know.

Resding some of the posts on CC blows my mind. Everybody has their own realities. I don’t understand some of the posters’ realities. The defintion of what a good income or wealth is on CC is foreign to me. :slight_smile:

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AttorneyMother, thanks for the link.

I have talked about the 4 percent rule. I am tired of it.

Notrichenough, your turn.

Notrichenough, how does the second link show the 4 percent rule still works?

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@Shawbridge, we did apply for financial aid when we had both kids in private school and were told we could pay way more than we thought we could (full tuition for two kids), and still pay our bills for mortgage, utilities and other essentials. I did try doing a FAFSA calculator which showed that we’d get $0, so didn’t bother doing the actual form. We had our S get good merit awards and that was very helpful. Someday, I may play at doing my taxes, but for now, we’re happy with the CPA doing it. I do D’s return, just to carry forward her capital losses, as she is a dependent with $0 income.

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I interpreted it more as showing the magnifying effect that volatility in the first few years has. In year 30, whether the market goes up or down 30% doesn’t have nearly the impact if that happens in year 1 and the market takes 5 years to cover.

In chart 3 the empirical data for a hundred years shows that the safe withdrawal rate for a thirty year period only dropped below 4% once, and that year it was 3.95%, which is pretty darn close.

Yes I know, past history is no guarantee of future results. And you have to die after 30 years. But you have to start somewhere.

Yes I know today rates are very low, but it’s been a bull market for a while. If you are 50/50, you would probably be ok. Although we won’t know for 30 years.

Weathly = you have $1 more than me.
Poor= I have $1 less than you

Good income = you make $1 more than me
Bad income = i make $1 less than you

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Also note that in that link, inflation isn’t stated to be factored in. So if you want 4% plus inflation protection, that is a different ball of wax.

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Notrichenough, ok. :slight_smile:

I like your definitions too. :slight_smile:

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I’m sure somebody here can help with this. I sold company stock options that I was granted. It shows up on my w2 and I received a 1099. Any ideas as to how to handle this in my taxes? I use turbo tax.

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I don’t care if the wealthy buy these cars. I just don’t want to read that the buyers of these cars are middle class. :wink:

http://finance.yahoo.com/news/self-driving-cars-are-almost-here—but-only-for-1-percenters-175042304.html

Fully functional self driving cars are aways off.

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@notrichenough‌

Thank you for the read. It saves a few of my brain cells.

But if the graphs reflect real returns, why would we still have to adjust for inflation? Or do you mean adjusting the withdrawn amount downward to account for inflation.

I do like the implied conclusions. They suggest that if one plans for 3-3.5% SWR, it’s pretty darn safe, based on historical data that encompasses most of the 20th century, which saw some hairy times.

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@DocT - what kind of options? What kind of 1099? What specifically is on the w2?

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@dstark‌

I don’t anyone would disagree with you! :slight_smile: I also think that the advent of targeted advertising has distorted what reaches our eyeballs, so that makes aspirational consumption much, much worse. But that’s another topic.

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@AttorneyMother‌ - those are real returns?

Huh, it doesn’t say "real " anywhere in the text, only on the graph titles, which I glossed over and didn’t really read. Well, if those are inflation-adjusted, even better. Although I wish the text was specific.

5779

I’m sure this has been mentioned in here before, but I don’t remember by whom so I can’t give proper credit. :wink:

But if you like playing around with these kinds of scenarios, try Firecalc ([FIRECalc: A different kind of retirement calculator](www.firecalc.com)).

It lets you construct detailed scenarios of what your income will be, asset mixes, projected returns, different spending models, inflation, etc, and then runs it through every period starting in 1871, and tells you in how many of those periods you would have run out of money.

For example, the base scenario - $750K to start, $30K income per year for 30 years that grows with the CPI, with a 75/25% asset mix, succeeds 94.7% of the time, where success means not running out of money.

There’s an amazing number of knobs to twiddle, it’s very interesting.

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RSU, ISO, or NQSO? Tax treatment might depend on how and when you exercised and when you sold them.

This is a good source of information on stock option taxation:
http://fairmark.com/books-fairmark-press/consider-your-options/

There is a message board that you can find by clicking on the tab at the top.