Generation-X' Journal

Where are you and where are you going?
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jennypenny
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Location: Stepford USA

Re: Generation-X' Journal

Postby jennypenny » Tue Aug 16, 2016 4:38 am

Generation-X wrote:But if you think about this, by having the basic necessities taken care of, the green paper becomes obsolete: Food, Clothing, Shelter, Healthcare and Utilities.

I always love reading when someone else gets that ERE isn't all about the money.


4.011 years isn't long at all :)

Generation-X
Posts: 66
Joined: Mon May 06, 2013 4:43 am

Re: Generation-X' Journal

Postby Generation-X » Mon Nov 14, 2016 1:07 am

Thanks. :) There will always be details to work out but I'm happy to report that it's now down to 3.72 years.

Generation-X
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Re: Generation-X' Journal

Postby Generation-X » Mon Nov 14, 2016 1:50 am

Fox in the henhouse

Will the greed of the rich ever desist? After taking the American public to the cleaners with 2008 housing crisis and trading their own debt for riches with public money, now they're scheming tax cuts to add more riches to themselves by taking money away from medicare and social security, few services that actually benefit the public, and not just seniors.

" Trump has proposed a $6.2 trillion tax cut, according to my colleagues at the Tax Policy Center. That’s bigger than any tax cut in modern US history, expect for Ronald Reagan’s 1981 cuts. Including added interest expense, that plan would increase the national debt by $7 trillion over the next decade. A GOP –controlled Congress will almost surely approve a very large tax cut next year and while it won’t be as big as what Trump has proposed, it will be very large. The question is: How will they pay for it? "

http://www.forbes.com/sites/howardgleck ... ce18d367cb

"He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity..."

Generation-X
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Joined: Mon May 06, 2013 4:43 am

Re: Generation-X' Journal

Postby Generation-X » Sun Nov 27, 2016 4:43 am

Update 11/27/16

A blessing and a curse of retirement income

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It appears that future of Obamacare remains uncertain. I've decided to take healthcare in retirement, which will provide healthcare until Medicare.

Fortunately and unfortunately, this means electing to receive pension income in retirement.

Until now, as with most other middle class faithfuls, I've been socking diligently away into tax deferred accounts as much as I was able.

First, it provides pretty rock solid asset protection, especially in 401k (ERISA https://en.wikipedia.org/wiki/Employee_ ... curity_Act), and second, it immediately lowers income and therefore tax.

One of the benefits of retiring early is one's ability to control annual income and tax. In conjunction, Roth conversion ladder would allow transfer of assets from tax deferred accounts such as 401k to tax-free accounts such as Roth IRA at low tax bracket and allow having an annual income without incurring additional tax.

A steady pension income erodes all these benefits. Some flexibility remain if you're married, but it turns into a nightmare if you're single.

Per 2017 tax table, a single individual would have $6350 standard deduction and $4050 personal exemption, so when using standard deduction, first $10,400 of yearly income would be tax free.

This means that for 15% bracket, single individual would pay $5226.25 of tax on $48350 ($37950 (15%) + $10400 (std. deduction + personal exemption) of income. Provided that there is no income for the year, or all income for the year comes from 5+ year old Roth IRA account under basis, $43123.75 of tax deferred funds can be transferred to Roth IRA account on a distribution of $48350 for about $5000 tax - not bad!

Married filing jointly would pay $10452.50 of tax on $96700 ($75900 (15%) + $12700 (std. deduction) + $4050 (personal exemption) + $4050 (personal exemption)) of income. In contrast, a single individual would pay $17313.75 ($5226.25 (15%) + ($96700-$10400)-($37950) (25%)) of tax on $96700 income, almost $7000 more for the same income.

So the rule of thumb is, when there is no income for the year, a single individual would be able distribute roughly about $50,000 and married filing jointly about $100,000, both paying about 10% tax on the distribution, from tax deferred account to tax-free account each year under standard deduction.

However, when single individual doubles the amount of distribution to $100000, the same amount of distribution as married filing jointly each year, single individual pays $17313.75 or almost 3.3x and not $10452.50 or 2x of tax as one would expect. Not good. This means that a single individual would take twice as many years to transfer assets from tax deferred account to tax-free account as married filing jointly while paying the same amount of tax before Required Minimum Distribution (RMD) kicks in at age 70 and 1/2.

Situation become even more dire with addition of pension income. Since pension income is ordinary income that is not earned income, it only reduces the amount of distribution per year while still paying the same amount of tax.

For example, at the earliest retirement, around 350k of deferred savings along with about 31k or yearly gross retirement income is projected (see first graph above). That means only about 17k can be transferred from deferred to tax-free each year while tax ($5226.25 (15%)) is being paid out of retirement income, further reducing net income. Having state income tax would reduce this even further - which is why many Californians move to Nevada after retirement, a state without income tax (and pretty good asset protection laws).

It would take about 20.58 years (350k / 17k) to move all assets to tax-free as single individual while staying in 15% tax bracket. In contrast, it would only take 5.32 years (350k / (96.7k-31k)) for married filing jointly. The price of having same advantage is to pay about 70% more tax each year.

Tax paid by married filing jointly after 5 years: $52262.50
Tax paid by single to convert the same amount as married filing jointly after 5 years: $86568.75

The solution is obvious - get married. It's clearly encouraged by the tax code. It's probably best to stop here for the purposes of retirement. (Tax code also encourages havings kids, with $1000 tax credit for each child and various additional deductions, but the cost of raising kids outweigh tax benefits rather quickly).

But marriage isn't for everybody. The next best step is to find ways to reduce ordinary income. At the risk of increasing chances of an IRS audit, having a legitimate home based small business generating sufficient earned income and operating costs may be the best option.

More thoughts to come.

Cornerman
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Re: Generation-X' Journal

Postby Cornerman » Sun Nov 27, 2016 6:00 am

Insightful update , thanks.

Changing politics can have severe consequences on planning for ERE, it also seems unfair, if you have "modest" savings compared to the ultra rich. You will be taxed for it. But it's also the group of people the government can skim the most out of, since they are the largest group.

If the money went to free healthcare and free education one could live with it, I could at least. Or at the very least sharply reduced costs. But it's going to things where society as a whole gains nothing. For the most part anyway, like spending more than half of every tax dollar on the military, and tax cuts for the ultra rich.

You're journal is inspiring , which I could maintain a pace like this. Good luck on the rest of the journey!

Generation-X
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Joined: Mon May 06, 2013 4:43 am

Re: Generation-X' Journal

Postby Generation-X » Sat Dec 10, 2016 6:29 am

Cornerman wrote:Insightful update , thanks.

Changing politics can have severe consequences on planning for ERE, it also seems unfair, if you have "modest" savings compared to the ultra rich. You will be taxed for it. But it's also the group of people the government can skim the most out of, since they are the largest group.

If the money went to free healthcare and free education one could live with it, I could at least. Or at the very least sharply reduced costs. But it's going to things where society as a whole gains nothing. For the most part anyway, like spending more than half of every tax dollar on the military, and tax cuts for the ultra rich.

You're journal is inspiring , which I could maintain a pace like this. Good luck on the rest of the journey!


Thanks! And to you as well! I couldn't agree more about federal spending and tax cuts.

I suppose as more of us (ERE class?) become self-sufficient, the problem will lessen because more of us will be able to focus our skills and experiences for betterment of our families and communities, without the worry of time, unlike average worker bees of today.

It's a formula that seemed to have worked for generations, when there was time for family leisure, people and communities.

Generation-X
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Joined: Mon May 06, 2013 4:43 am

Re: Generation-X' Journal

Postby Generation-X » Sat Jan 07, 2017 6:20 am

Update 1/7/17

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Back in August of 2013, I had pondered a question, was 250k net worth enough or should I wait?

Now in January of 2017, glad I waited. What changes those 3 years have brought!

Added about 150k or so, mostly by savings.

I'm no longer fixated on finances as a mechanism for survival but rather as a challenge for an achievement - a game, if you will. Because I *know* everything will likely be okay.

Entering year 2 of projected net worth.

I've accelerated the savings. Plan is to sock away about 4k per month, pre-tax, for the next couple of years.

Will be on the look out for housing, bonds and stock markets to tumble.

If not, will continue on working and saving and collect interest, to stay ahead of inflation and to slowly increase net worth.

Be the tortoise.

Generation-X
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Joined: Mon May 06, 2013 4:43 am

Re: Generation-X' Journal

Postby Generation-X » Thu Mar 09, 2017 6:00 am

Update 3/9/17

Entered the second phase of retirement savings, and I've begun socking away around $4000/mo. since January.

I've already exceeded 2017 year end savings target. My immediate goal is to reach 500k in savings, hopefully by early next year.

The earliest retirement date is now 3.4 years.

Enrolled in a course at a local university and is currently engaged in a research project using various value investing approaches. (it helps that the professor was a student of Graham)

The knowledge gained here will be applied toward selection of companies to be purchased, hopefully, after a market crash. But this 0% environment definitely has legs as it affects valuation of companies quite a bit.

Another interesting discovery - a realistic inflation rate in the United States is about 5% per year. This really changes things.

Also may have found a way to retire from the system and delay the pension while maintaining healthcare. It will require changing jobs and looking into details and impacts to determine if it's viable.

MDFIRE2024
Posts: 36
Joined: Fri Jan 06, 2017 5:09 pm

Re: Generation-X' Journal

Postby MDFIRE2024 » Thu Mar 09, 2017 8:44 am

Generation-X wrote:Update 3/9/17
Another interesting discovery - a realistic inflation rate in the United States is about 5% per year. This really changes things.


Hi Generation-X. Interesting journal. I'm also a GenX. A late one, I guess. Born in 1982.

Why do you think, that the realistic inflation rate is 5% per year? It's an interesting point. I would really like to know where you have read it, because it influences the retirement plans.


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