It depends on the competitive environment. A competitive marketplace (for services or products) will not simply absorb price increases, regardless of the reason for the increase.
3 Likes
der the following conclusions from the studies:
5
Our central estimate is that 61% of any additional [corporate] tax is passed on
in lower wages in the short run and around 100% in the long run.
(Arulampalam, Devereux, and Maffini, abstract)
Using cross-country panel data from the Luxembourg Income Study, I
estimate that a ten percentage point increase in the corporate tax rate decreases
annual gross wages by seven percent. Using U.S. data on corporate tax
revenues and total wages, these estimates predict that laborās burden is more
than four times the magnitude of the corporate tax revenue collected in the
U.S. (Felix, p. 3)
The results in this paper suggest that corporate tax rates affect wage levels
across countries. Higher corporate taxes lead to lower wages. A 1 percent
increase in corporate tax rates is associated with nearly a 1 percent drop in
wage rates. (Hassett and Mathur, p. 25)
I donāt think you fully understand how corporations work. All corporations are not the same. I own a corporation, I donāt pass my costs along to anyone. There are no other shareholders other than me and my living trust. I donāt charge my clients more money to raise revenue to pay taxes. Theyāve paid the same thing since 1998 when the corporation was formed. If I raised their rate, they would go elsewhere. Costs increase, thatās just the way it is. The corporation pays the tax and/or I pay the tax, no one is paying it and Iām not passing it off to anyone else.
You should also read up on the difference between an S Corp and C Corp.
1 Like
So sorry to hear you had Covid. I think your spouse might be thinking that there isnāt a big difference between original plan of next year and being āretiredā now. Or he might still be thinking about something that happened at work and not want to work right now.
While my spouse and I are closely aligned financially our timing has often been off in terms of what choices to make and when to make them.
Sounds like you need to get more detail from him about what he is thinking and share your concerns. You might/might not get him to buy into the idea of your long sacrifice. But I think itās definitely worth sharing.
Again, hope you are feeling better!!!
4 Likes
Saving 30-50% definitely can be done with some luck. I plan on retiring around 50ish and do save around 30%, which will substantially increase once my DD (only child - college senior) is fully launched. I live in a low cost of living area with no state income tax, have modest student loans, live in a modest (but nice and well furnished) house, and have always driven a modest car (always 0% interest loan). My DD attends college on full scholarship, but I have gifted her the tuition savings. I spend on experiences but not things and always search for great deals on anything I buy and on vacations. We have lived quite comfortably, but not in luxury. I have friends who wonāt retire early but also aggressively save by living way below their means.
So your anecdotal evidence trumps the Fed Reserve research on the subject?
Iād argue that you are the one who doesn;t fully understand how corporations work.
Itās an accepted fact of economics, that corporate taxes somewhat fall on labor
Economists quibble about how much. I suggest you google ācorporate tax incidenceā
Your wacky S corp that incurs no cost and can randomly absorb hits to the bottom line notwithstanding.
Well, Iād be the second anecdotal note. Only weāve had many corporations over the years and none of them passes additional costs along to the clients.
I donāt know why you seem to be so angry @Billb7581 about people who actually own corporations talking about their real experiences with taxation. I could prove it to you mathematically and via econometrics why your premise doesnāt work but thatās a lot of math for a forum. Basically it comes down to the items being unrelated.
3 Likes
DH has for years been very annoying when we meet with our financial guy and asks ācan I retire yet?ā DH only slowly was grasping how our finances all were working. When his job stress was growing in 2019, I thought seeing the rise in our retirement funds would help him see through to the goal, while he saw it as a way out. I could tell the stress was building up on his job/career. However the stress turned a lot on me, and I was glad I could pick up health insurance at my work place. At this point he thinks it is all OK for him to putter while I continue on over the next 9/10 months as I have over Nov and Dec. He just is not absorbing how important it is for him making some money over the next 9 months instead of his current attitude. And then his suggestion that I stop my income and then paying out over $9K with paying COBRA - that is just so financially irresponsible.
Many men are willing to be in there right along with their wives on making sacrifices and being a strong family unit. Many other men just are not as willing. Oh he enjoys family time - but I am the one doing all the preparations and all the work. I made all the efforts with the kids growing up except if the kids can benefit from stuff he is interested in (which is so much like his own dad). I was the one focused on the kids and planning for the opportunities they had. I helped the kids with their ACT testing to get excellent scholarships; I was the one who set up their prepaid college tuition program and funded it; I invested the two small life insurance proceeds they received from my motherās death which helped them with getting through college with no debt. They had foreign student travel opportunities during elementary/HS.
However DH had his family influences along with his own personality. He just doesnāt āsee itā. He enjoys seeing the kids/Gkids doing well but had very little effort put into it except continuing his job over the years. Very clueless in many ways with the family. We at least moved many states away for our first after college jobs to keep away from either family influencing us other than pressure for almost all vacation time being sucked up traveling to them over the first 16 years of our marriage. DH wanted to take a pay cut and move to a company plant closer to his family which would have been not only financially but in all other ways devastating to the kids and to me; he couldnāt get it worked out. That is how clueless he can be.
I make it clear to DDs that it is great to see them but use their time to do the things they want to do. They donāt live far and we see them often enough.
I go back to work tomorrow. IDK if I will have any long term effects from Covid.
Tmobile will let you add a 3rd line through the end of the year for $20 to the 55+ āseniorā plan. Their coverage has improved a lot, and now is better in terms of data speed than Verizon and AT&T in some rural areas . They also have an $50 unlimited data home internet plan for rural areas, a real boon while we wait and wait for fiber or cable. Our retirement home has both available but cable wonāt trench it in until spring (May) and the fiber provider has run a conduit but not installed it. Crossing my fingers. Itās very hard to work on cellular internet because of the terrible upload speeds, usually 1 Mb upload.
1 Like
I suggest you also google āCorporate Tax Incidenceā
Capital will flow to where it gets the highest after-tax returns.
The corporate income tax raises the cost of capital and reduces after-tax returns for Corporations.
I used to have Sprint well before they merged with T-mobile but often had service issues in certain areas and didnāt like that I couldnāt use the internet at the same time as I could be on a call or get texts if I was just waiting to pick up my kids which became an issue when I would sit in the carpool line. T-mobile has been great and we have unlimited data also. If thereās a limit, weāve never had an issue. We also get free international texting and we were able to make calls for free last year on vacation out of the country, but also get 1 hour of free messaging on airplanes which is also a nice feature. Although other than flying back from dropping my daughter at college in NY after a wonderful 2 week quarantine I havenāt flown anywhere since a college visit with my hs senior last February. 
@Happytimes2001 , do you have any advice on questions to ask your Financial advisor? We are meeting with our Fidelity provided advisor in a few weeks. My wife is retiring in a few days (Dec 31) and I have a decade or so to work, so we donāt have a lot of immediate need to tap into our retirement funds.
My questions are pretty basic, and perhaps you covered them with your advisor:
- When do you+spouse plan to take social security, and why that age?
- What mix did you decide on of annuities (e.g. TIAA), 401k/403b/IRA regular, and Roth403b/IRA? How are you accounting for RMDās?
- How did you decide how much money you will take yearly? Is it an expense up calculation or a percentage of assets, or some other calculation? Please donāt give a figure, just a why or percentage.
- Did you base your withdrawal rate on average life expectancy, joint life expectancy or some other expectation (like 95 or 100)?
- What extra expenses do you anticipate in retirement - like a long term care policy, significant medical/dental/optical/hearing , that are not truly options (like the 2 week family vacation to Patagonia)?
- If you receive a pension or annuity, did you base the withdrawal rate on single or joint life expectancy?
- How do you plan to account for inflation, apart from inflation adjusted streams like social security?
- And the truly important questionā¦do you have a bucket list and how much of your retirement assets will be used to check the items off?
Anyone please feel free to chime in on thisā¦
- List item
1 Like
Seems like this is actually two questions:
- How much do you need, based on your (projected) spending (which can be informed to a large degree by past yearsā spending, accounting irregular large expenses, changes in spending based on losing employment benefits and employment-related costs, and increased medical costs at older ages)?
- How much can you take out every year, based on your asset amounts, your life expectancy, and your risk tolerance (for things like early market downturns, longer term downturns or stagnation, pension or annuity fund failure, political risks of Medicare or Social Security cuts)?
Basically, if (1) < (2) above, you are in a better position than if (1) > (2).
I will assume that there will be no further posts telling users to google something.
I love math. So I need to see lots of what if scenarios. Thereās the Monte Carlo ( will I run out of money models) and lots of other things. The basic premise is you can take 4%. Basically, we are on track to retire. Hereās what I always focus on:
How am I doing in the present ( last 3 months, we meet quarterly and Iāll call before that if I need to). What is working and what isnāt. What should we sell? Why? Is there something I am missing in a stock thatās not doing great?
We are primarily stock investors who have amounts in bonds Normally our mix is 70-80% stocks. This year we got really conservative and went into some funds and bonds. Our results were good 19%.
So how is everything doing is my #1, I donāt watch day to day or week to week ( my portfolio) but I do watch the market and I watch the econ and politics so if something in the world concerns me weāll talk about it.
- Weāre in our 50s so havenāt figured out when to start SS> Will figure it out once we get closer. We have figured out that our allocations in taxable investments is larger than our non tax. We never had access to Roths. Our FA told us to save more outside 401Ks/IRAS. That way we can optimize taxes.
- We then talk about our expenditures. We made more or less this year.
We plan to take a vacation or start a business or send kids to private school or to college those type of things. BIg expenditures. Then how do we pay for them. Weāve gotten creative over the years, borrowing against owned stock is my favorite. No capital gains and itās easy to pay yourself back. - How much to take yearly? I think Iād take 4%. Would have to be paid into our account based on actual results otherwise theyād be scope creep.
- Life Expectancy: I put 100. Have family on both sides who have lives to 99 and 102.
- Medical: Weāre very healthy but who knows. This is the one where I think we could fall down a lot. Would go with $500-1K month for prescriptions. Long term medical too expensive for value. Would plan to have $500 month for someone to help me out ( hang the Xmas lights, come in once a week that kind of thing), maybe cleaning too.
- No pension, no annuties. Donāt think weāll go down that path.
- Inflation: I think 3-4%.
- Bucket List: I think most of the money coming from our retirement will give us annual income. From that weāll be doing our bucket items.
Also, I like the idea of a pretty significant amount of $ in an emergency and left to grow.
I feel good when Iāve left the FA and have a couple of things to look into. I also would NEVER buy an annuity from a financial services firm. Iād do my homework and then ask my FA about it. My FA isnāt compensated on selling things (which I love). We bought our life insurance from a well known company and a small cheap company. They are large policies that we no longer really need. (Purchased primarily to ensure our kids made it to 18 and had enough to pay for college). We have the policies inside a trust so that they are non-taxable in case the worse happens. Weāll likely let them lapse after kids have graduated college).
1 Like
@Happytimes2001 , great input. This is what we are thinking so far. My wife has her University retiree health policy which covers most everything for around $150 /mo, except long term care, with It would cost me around $300/mo to get on the same plan. We are mostly covered except for hearing aids and dental work. So the relative cost of health care would be
- Social security - Since I plan to work until around 70, we plan on waiting to get the maximum inflation indexed amount when we each turn 70. Iām thinking with all of the deficits the government will start to monetize the debt beyond the current āquantitative easingā, it remains to be seen if the inflation adjustment will live on.
- We are thinking about moving a large portion of our current regular funds to Rothās to avoid the high RMDās when we are in our 80ās. I think tax rates will continue to rise and the higher Medicare part B costs and tax (3.8%) could be avoided with the conversion. We have 8-10 years to do it before taking SS so we can keep our income tax rates below the higher brackets with a phased conversion.
3&4. No idea on this one. I was thinking more like 3.5% for a 30 yr retirement of 70-100, indexed to inflation. That would mean that our investments would need to return a few percent over inflation to account for #5 - Again, a complete unknown. WIth nursing homes costing $75-$100K/yr, a long term illness like dementia would cause a real issue for the non-ill spouse. We donāt have any history of it except with my wifeās aunt, who had dementia at around 90. Chances are something like 40% of getting something. Staying active and engaged seems to be the only recourse. I suppose we will take our chances and count on luck.
- I like the idea of monthly income, but only as a stopgap to a guaranteed stream like SS. We are probably going to use a joint life expectancy. I really donāt see how this is different than an fund of dividend paying stocks. TIAA would take 10 years to get out of but it carry us through until RMDās start to kick in. It isnāt a huge proportion of our retirement assets but it could help pay the taxes for Roth conversions. The real question is when to startā¦ 65, 70? Later?
- I agree with you on this long term. I think we are going to be in for some rough times of substantially more that 3-4%. I really donāt know what we can do except go heavy on consumer and commodity oriented stocks.
- I have to make my list first, something more that āthat sounds interestingā It seems to be evolving a lot as we get older.
I like your thinking. One thing I love esp as we get older, dividend stocks. Helps with inflation if needed.
1 Like
There is actually a third question: how much must you take out every year? You may only need x to live comfortably, but the feds say you must take out x+ (and pay taxes accordingly).
Protip: consider Roth conversions before SS kicks in.
2 Likes
That is what we were thinking. If , say $1 million in regular retirement account assets at age 50 double each decade, that is close to $4.5 million when RMDās begin at 72.5 By your late 80ās the accounts are not appreciating any more due but the distributions become quite large, well into the territory where you are starting to go into some very high tax brackets, especially if you live in a state that taxes those distributions on top of the Federal tax.
All of that could be avoided with Roths.