How much $ to retire and how to fund your lifestyle in retirement

[dhanson865]

Playing with Tax Bracket Calculator 2022-2023 | Calculate Your Income Tax Bracket

maxing out my current 12% federal tax bracket happens around $117,100 if I'm retired in 2023 and don't put money into a 401k. And round $126,000 if I'm putting money into my 401k like I was in my last paycheck.

Either of those 2 scenarios has an effective tax rate below 9%

In the retirement scenarios where I drop to $55,000 my effective tax rate is around 5%

And since the difference between the 12% and 22% tax brackets is 10% it's similar in thought to the early withdrawal penalty. If I've got excess retirement funds it's not a big issue, but if I want to try and increase my savings riding that 12%/22% border might help.

 

[lencap]

A few thoughts about retirement assets:

• Reduce spending to a level consistent with your expected retirement income for a few years before you retire. That will help you understand how your lower retirement income will affect the things you do based on higher working income.
• Do not assume that stock market returns will compound at the rate they have over the last 40 years. The sharp drop in interest rates from the Volker years until 2022 will not recur, and that will likely mute future equity returns.
• In 2026 the current tax cuts expire, with marginal rates/brackets returning to rates of 2015. That can and likely will impact disposable income and consumer spending.
• Before retirement eliminate all debt - mortgage, credit cards, loans, etc. In fact, if you have any credit card debt, which now likely has interest rates exceeding 18%, pay those off before making any other investments.

 

[ReddyLeaf]

A few thoughts about retirement assets:

• Reduce spending to a level consistent with your expected retirement income for a few years before you retire. That will help you understand how your lower retirement income will affect the things you do based on higher working income.
• Do not assume that stock market returns will compound at the rate they have over the last 40 years. The sharp drop in interest rates from the Volker years until 2022 will not recur, and that will likely mute future equity returns.
• In 2026 the current tax cuts expire, with marginal rates/brackets returning to rates of 2015. That can and likely will impact disposable income and consumer spending.
• Before retirement eliminate all debt - mortgage, credit cards, loans, etc. In fact, if you have any credit card debt, which now likely has interest rates exceeding 18%, pay those off before making any other investments.

Very helpful advice. I have been doing much of that since I began working, actually even before. My plan has always been to retire early, 40-50, and live until 100 (some precedence in my family). Thus, I never used the classic 4% rule, but instead target 2% (50 year spend down assuming asset growth matches inflation). This might seem impossible to those in HCOL areas, but with no debt, I’ve been able to live quite comfortably on $2000-$3000/mo in a LCOL area. Total assets required are therefore between $1-$2M, assuming no pension, annuity or social security. Furthermore, at those lower spending levels, one can minimize or even eliminate paying income tax (especially 2-5 years of spending in CDs paying less than 5%). Plan for the worst, hope for the best, and be happy with in between.

Two big issues that worry me: healthcare, insurance and buying additional property after retirement. I’m currently on vacation, enjoying the beach, and starting to think about getting another property, which would likely require a mortgage (and therefore an income stream because asset-backed mortgages became very hard to get after the 2008 crash). If retiring early on assets alone and no SS or pension, this could be a concern. I haven’t really investigated it yet because it’s not a high probability, but definitely on my mind.

 

[adiggs]

Two big issues that worry me: healthcare, insurance and buying additional property after retirement. I’m currently on vacation, enjoying the beach, and starting to think about getting another property, which would likely require a mortgage (and therefore an income stream because asset-backed mortgages became very hard to get after the 2008 crash). If retiring early on assets alone and no SS or pension, this could be a concern. I haven’t really investigated it yet because it’s not a high probability, but definitely on my mind.

These are good things to worry and think about ahead of time.

I'm early retired with about a decade between me and Medicare. I've discovered that I can't buy, for any price, health care that matches my employer provided health care. The best I've found costs $1200/month for the 2 of us, and carries a $9k annual deductible for each of us ($18k deductible vs. $7k (ish) previously). It is also strictly in-network, where previous had out-network benefits as well. And this is from the same company, and we didn't move to a new geographical area. I can't remember the monthly premium on the employer provided insurance - something more like $200-500/month; definitely a lot less than we're paying now.

The retiree health care plan is more like $2500/month and has a higher deductible, though not the $9k each. It's also through a company that we've had medical insurance with in the past and will never do business with again unless they are the very last option available to us (then we'll search for an alternative anyway, like self-insuring).


We've looked into asset based mortgages and OMG is there a wide variety of plans and programs. One company sized up the mortgage they would providing using something like 40 or 50 years of monthly payments for a 30 year mortgage. Another company was closer to 50 months. Some had significantly higher interest rates, others had the identical interest rates to a standard / conforming 30 year mortgage.

Some will count retirement assets, some won't - seems like most will count them with some discount.

That being said, I didn't find it particularly difficult to find lenders that would talk to me and even write pre-approval letters, typically for a lot more than we were going to pay. I'm sure the lending standards are higher than the free money oughts, but if you're early retired with the sort of cushion you're talking about, there are lenders that want to talk to you . You know the one - if you don't need a loan then its easy to get one; if you do need a loan then its hard!

We will be continuing to look for another property - that hasn't changed. So we'll be facing this again. Definitely plan to bring 20 or 25% down payment, and closer to 50% will probably open up your range of options by a lot.

 

[tivoboy]

These are good things to worry and think about ahead of time.

I'm early retired with about a decade between me and Medicare. I've discovered that I can't buy, for any price, health care that matches my employer provided health care. The best I've found costs $1200/month for the 2 of us, and carries a $9k annual deductible for each of us ($18k deductible vs. $7k (ish) previously). It is also strictly in-network, where previous had out-network benefits as well. And this is from the same company, and we didn't move to a new geographical area. I can't remember the monthly premium on the employer provided insurance - something more like $200-500/month; definitely a lot less than we're paying now.

I think you might be confusing what your historical employee CONTRIBUTION amount was, and not the full healthcare premium was that ones employer has historically paid between 50-100% of.. For any adult and certainly an EE+1 (with spouse) I can’t imagine an employee monthly full premium having been less than 1000-1500$ for a decent PPO plan. As an EMPLOYEE, you paid a CONTRIBUTION amount, so some portion of that full premium (which is usually opaque to the employee unless the employer likes to put out something called a “total compensation report” that includes things that you are getting from them that isn’t necessarily in the form of PAY or money - like 401K match or something).

IF one retires, and stays with the company PLAN, then yes that FULL premium is what they might charge you. Often ppl figure out what the FULL premium actually was when they leave and take COBRA, which is essentially the FULL premium being paid by the employee, plus some allowable administrative charge of ~4%.

I was going to point out to ReddyLeaf above that thinking about what to do for healthcare when retired and pre medicare is non trivial. It’s VERY expensive in many zip codes and states, and can easily be 2000-3000$ a month PER individual or couple.

I continue to have a IFP (individual and family plan) that I’ve had for years since I’ve been self employed since 2008) with BCBS, which fortunately does STILL offer me any out of network access but yeah, it’s 2K a month. For various medical reasons I know I’m paying probably 8K more a year than were I to have a local state only (exceptions of course one CAN get out of network) BCBS plan, but I’d lose some access for sure, so I’m paying it for peace of mind.

There ARE some options to get into a GROUP plan for certain trades, professional services organizations, legal, consulting, things like that so search that out and see if you can gain access to their more GROUP oriented access, it can certainly be cheaper and sometimes offer better coverages and access than the current mostly ACA plans available for non employer sponsored plans.

 

[juanmedina]

These are good things to worry and think about ahead of time.

I'm early retired with about a decade between me and Medicare. I've discovered that I can't buy, for any price, health care that matches my employer provided health care. The best I've found costs $1200/month for the 2 of us, and carries a $9k annual deductible for each of us ($18k deductible vs. $7k (ish) previously). It is also strictly in-network, where previous had out-network benefits as well. And this is from the same company, and we didn't move to a new geographical area. I can't remember the monthly premium on the employer provided insurance - something more like $200-500/month; definitely a lot less than we're paying now.

The retiree health care plan is more like $2500/month and has a higher deductible, though not the $9k each. It's also through a company that we've had medical insurance with in the past and will never do business with again unless they are the very last option available to us (then we'll search for an alternative anyway, like self-insuring).


We've looked into asset based mortgages and OMG is there a wide variety of plans and programs. One company sized up the mortgage they would providing using something like 40 or 50 years of monthly payments for a 30 year mortgage. Another company was closer to 50 months. Some had significantly higher interest rates, others had the identical interest rates to a standard / conforming 30 year mortgage.

Some will count retirement assets, some won't - seems like most will count them with some discount.

That being said, I didn't find it particularly difficult to find lenders that would talk to me and even write pre-approval letters, typically for a lot more than we were going to pay. I'm sure the lending standards are higher than the free money oughts, but if you're early retired with the sort of cushion you're talking about, there are lenders that want to talk to you . You know the one - if you don't need a loan then its easy to get one; if you do need a loan then its hard!

We will be continuing to look for another property - that hasn't changed. So we'll be facing this again. Definitely plan to bring 20 or 25% down payment, and closer to 50% will probably open up your range of options by a lot.

Move to Spain. I got a quote for the 4 of us and with zero copay for private insurance comes out to 350 euros for a month. I am considering moving a broad because retiring in the USA is ridiculously expensive for a not so great quality of life. I am still in my 30's and I am planning a 3.3-3% withdrawal and see what happens but I can always go back to work if I need to. Now I just need Tesla stock to go back up.

 

[ReddyLeaf]

Move to Spain. I got a quote for the 4 of us and with zero copay for private insurance comes out to 350 euros for a month. I am considering moving a broad because retiring in the USA is ridiculously expensive for a not so great quality of life. I am still in my 30's and I am planning a 3.3-3% withdrawal and see what happens but I can always go back to work if I need to. Now I just need Tesla stock to go back up.

Now that’s retirement! I don’t speak Spanish, but moderately versed in German and Italian, and have traveled to both areas. I would love to be able to do that. FYI , I have friends who retired to Mexico, and wanted a small summer house near Seattle (near kids). They have complained about their inability to buy anything near Seattle that is even remotely close to their current home in Mexico. This is one problem with moving to a LCOL area; returning to a HCOL area is nearly impossible. I’m definitely seeing that in my search for places near the ocean beaches. Sticker shock: Here a 2 BD, 0.1 acre fixer upper can cost 2x-5x my 1/2 acre “mansion”. Needs vs wants.

 

[tivoboy]

Move to Spain. I got a quote for the 4 of us and with zero copay for private insurance comes out to 350 euros for a month. I am considering moving a broad because retiring in the USA is ridiculously expensive for a not so great quality of life. I am still in my 30's and I am planning a 3.3-3% withdrawal and see what happens but I can always go back to work if I need to. Now I just need Tesla stock to go back up.

Or better yet, move to Portugal, buy a 400K property and get a Golden EU passport, plus all the LCOL..although, Portuguese is MUCH harder than Spanish. ;-)

 

[adiggs]

I think you might be confusing what your historical employee CONTRIBUTION amount was, and not the full healthcare premium was that ones employer has historically paid between 50-100% of.. For any adult and certainly an EE+1 (with spouse) I can’t imagine an employee monthly full premium having been less than 1000-1500$ for a decent PPO plan. As an EMPLOYEE, you paid a CONTRIBUTION amount, so some portion of that full premium (which is usually opaque to the employee unless the employer likes to put out something called a “total compensation report” that includes things that you are getting from them that isn’t necessarily in the form of PAY or money - like 401K match or something).

IF one retires, and stays with the company PLAN, then yes that FULL premium is what they might charge you. Often ppl figure out what the FULL premium actually was when they leave and take COBRA, which is essentially the FULL premium being paid by the employee, plus some allowable administrative charge of ~4%.

I was going to point out to ReddyLeaf above that thinking about what to do for healthcare when retired and pre medicare is non trivial. It’s VERY expensive in many zip codes and states, and can easily be 2000-3000$ a month PER individual or couple.

I continue to have a IFP (individual and family plan) that I’ve had for years since I’ve been self employed since 2008) with BCBS, which fortunately does STILL offer me any out of network access but yeah, it’s 2K a month. For various medical reasons I know I’m paying probably 8K more a year than were I to have a local state only (exceptions of course one CAN get out of network) BCBS plan, but I’d lose some access for sure, so I’m paying it for peace of mind.

There ARE some options to get into a GROUP plan for certain trades, professional services organizations, legal, consulting, things like that so search that out and see if you can gain access to their more GROUP oriented access, it can certainly be cheaper and sometimes offer better coverages and access than the current mostly ACA plans available for non employer sponsored plans.

Not confused on this point, but the clarification is well worthwhile.

I know that my employer was forking over a bunch of money to provide me with the health care benefit. FWIW I did the 18 months of COBRA and that was more like $1100/month. I was frankly surprised that it was so low . All things considered I was expecting the COBRA monthly premium to be that $2500 of the retiree medical plan (I.e. I'm paying the whole thing).

Yes - health insurance is much more than one might interpret from my post. All my numbers in that post were my own direct out of pocket numbers - which is what I deal with in retirement, and what I need to know when doing my budgeting. Using my monthly contribution while working as a baseline for what I'll be spending on health insurance in retirement is not a good plan, assuming that one retires before Medicare becomes available.

 

[SageBrush]

Using my monthly contribution while working as a baseline for what I'll be spending on health insurance in retirement is not a good plan, assuming that one retires before Medicare becomes available.

Why are you not buying an ACA ('Obamacare') plan ?

 

[SageBrush]

I'll turn 65 in December, and have been mulling over the question of when to start SS. I don't need the money now. My knee-jerk answer is ~ FRA, but the looming depletion of SS reserves, and the ~ 20% shortfall between inputs and outputs makes me wonder if a bird in the hand is the right move.

One article I read yesterday pointed out that in previous cases of shortfall the politicians chose to burden the younger classes and to tax SS benefits rather than straight up cut benefits. Hmmm. My choice would be easier if I was not also trying to consider the spousal benefit.

 

[tivoboy]

I'll turn 65 in December, and have been mulling over the question of when to start SS. I don't need the money now. My knee-jerk answer is ~ FRA, but the looming depletion of SS reserves, and the ~ 20% shortfall between inputs and outputs makes me wonder if a bird in the hand is the right move.

One article I read yesterday pointed out that in previous cases of shortfall the politicians chose to burden the younger classes and to tax SS benefits rather than straight up cut benefits. Hmmm. My choice would be easier if I was not also trying to consider the spousal benefit.

Wait till 70 if you don’t need it you’ll get 32%-40% more.. nothing anyone does in congress is going to affect anyone 65+ or even probably 55+

 

[CHGolferJim]

Wait till 70 if you don’t need it you’ll get 32%-40% more.. nothing anyone does in congress is going to affect anyone 65+ or even probably 55+

……..and the breakeven on the decision is approx. age 85 — all other factors being equal, you have to live longer for delay to be beneficial, and possibly by then it won’t matter much. Optimal strategy could be to take early, and buy TSLA shares

 

[dhanson865]

Does taking the SS funds affect my federal return or does my high income affect taking the SS funds? Or is it purely unaffected both ways?

 

[CHGolferJim]

Does taking the SS funds affect my federal return or does my high income affect taking the SS funds? Or is it purely unaffected both ways?

Request to withhold taxes

Submit a request to pay taxes on your Social Security benefit throughout the year instead of paying a big bill at tax time.

www.ssa.gov

 

[dhanson865]

Request to withhold taxes

Submit a request to pay taxes on your Social Security benefit throughout the year instead of paying a big bill at tax time.

www.ssa.gov

So I'll get a form and it'll count as income but won't be much different than dealing with W2s/W4s from the employed days.

Assuming it's around in the 2030s/2040s and TSLA isn't a 5 figure stock by then (or split another time or two) then it might help stretch my 401k leftovers.

 

[tivoboy]

Does taking the SS funds affect my federal return or does my high income affect taking the SS funds? Or is it purely unaffected both ways?

Well, it’s income it’s just a question of how much if any is TAXED… if your income is high enough, and it doesn’t really have to be that high to qualify for this, then UP TO 85% of the SS income benefits could be taxed and flow into regular income. For ppl who ONLY have SS income or not much more than that, then it’s not taxed and basically free income. But ones income has to be pretty low.

 

[dhanson865]

Well, it’s income it’s just a question of how much if any is TAXED… if your income is high enough, and it doesn’t really have to be that high to qualify for this, then UP TO 85% of the SS income benefits could be taxed and flow into regular income. For ppl who ONLY have SS income or not much more than that, then it’s not taxed and basically free income. But ones income has to be pretty low.

well as an example take this scenario

Pulling 401k funds out that are long term capital gains and staying below the next tax bracket makes them 0% tax.

I guess getting funds from SS that are taxable would move us to the 2nd scenario below (for early retirement SS) and only triggers a couple hundred dollars in tax. Which is worth paying since you get to hold more shares of TSLA.

and the 3rd scenario for regular retirement SS.

https://engaging-data.com/tax-brackets/?fs=1&reg=0&cg=115000&yr=2023

https://engaging-data.com/tax-brackets/?fs=1&reg=30000&cg=85000&yr=2023

https://engaging-data.com/tax-brackets/?fs=1&reg=43000&cg=72000&yr=2023

 

[tivoboy]

……..and the breakeven on the decision is approx. age 85 — all other factors being equal, you have to live longer for delay to be beneficial, and possibly by then it won’t matter much. Optimal strategy could be to take early, and buy TSLA shares

Approx 85, I really don’t think it’s that high. Most “breakeven“ models I’ve looked out in the past couples years seem to indicate something closer to 77, or MAYBE 80 is a breakeven age level before it’s detrimental to claim LATE. Do you have some data or a calculator that would indicate where the breakeven intersection is? And is that assuming some invested amount of return on the SS income (net of taxes or not) of what, 8%, 10%?

If one thinks they aren’t going to live too long, past 75 say (USA males life expectancy is 77, skewed from so many covid deaths and covid period deaths) then taking things early is probably best… but if you have family and expectations as such to live to 80, 85, 90, then the monies from waiting 5 years, getting 32% more in pay for those years going forward mathematically seems to be beneficial.

 

[tivoboy]

F

well as an example take this scenario

Pulling 401k funds out that are long term capital gains and staying below the next tax bracket makes them 0% tax.

I guess getting funds from SS that are taxable would move us to the 2nd scenario below and only triggers a couple hundred dollars in tax. Which is worth paying since you get to hold more shares of TSLA.

Understanding Tax Brackets: Interactive Income Tax Visualization and Calculator - Engaging Data

This interactive, visualization shows you how your income is split into the various tax brackets for both regular and capital gains taxes.

engaging-data.com

Understanding Tax Brackets: Interactive Income Tax Visualization and Calculator - Engaging Data

This interactive, visualization shows you how your income is split into the various tax brackets for both regular and capital gains taxes.

engaging-data.com

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First of all, I LOVE engaging-data. I’ve been sending ppl there for nearly seven years now. MAYBE you saw most posts here, but regardless it’s a GREAT bookmark for ppl to have.

But sadly, 2nd, sadly income like cap gains doesn’t stay in its own silo. Were it only that simple. So, IF one has CAP GAINs up to into the 0% tax bracket, and THEN interest payments (which hopefully, we ALL have now in bulk) AND dividends, possibly income, etc. then sadly the cap gains don’t just remain in their own category and stay totally “untaxed”. I’m going to do a model of this to see how much gets taxed and what amount one can consider a taxable event. When/if there are say 50-100K in additional income flows.