Taxes when retired.

[wnytaxman]

Not meaning to knock my own profession, but the tax planner is just one of the professionals with whom to confer. The decision on when to draw SS and even when to retire is a very complex decision. Added to the complexity we have a tax code that is very likely to change dramatically within the next few years and we have a stock market that is at historic highs which distorts the future outlook.



Financial planners use a tool called a Monte Carlo calculation which is supposed to model how much money you will need for retirement. There is a lot to this calculation and it will take into account your current expenses, potential future expenses, and potential market changes. Going through this exercise can be very helpful in your determination of what is the best course of action.

[RVPioneer]

To the original question, yes, $7500 seems to be a ballpark estimate of Federal tax liability for a married couple with a $90K income. Back of the napkin calculations:
90,000-24,000 (standard deductions) = 66,000
66,000 is taxed at 10-12%, let’s use 11% = 7260.

One item mentioned briefly is medical coverage from a retirement age of 60/62 until age 65 when Medicare becomes mandatory. Will you have coverage? If not, have you factored in this cost?

Another topic discussed several times is the ever changing tax laws. What hasn’t been mentioned is the possibility of a change in SS benefits over time. It is likely that SS benefits will, in one way or another, be reduced. How? Who knows?

Full retirement age increased to 68. Early retirement age increased to 63, 64, 65.
Benefit reduced 10%, 20% for those not currently receiving benefits. Will the benefit remain unchanged for those currently receiving them? Will the promised benefit at age 67 or 70 still be the same when you reach that age?

Like death, it’s coming. We just don’t know when or how.

For some SS will be all they have for retirement income. They may find it necessary to work until 70 before collecting. For others, SS is just a little gravy. For many, SS is part of a retirement income portfolio that should be built based on each individual situation.

We are fortunate to both have pensions, lifetime medical, which is primary from 60/62 until 65, then becomes secondary and investment income. Everything is paid for, so we’ve both opted for SS at 62.

I do work with a CFP/Fiduciary, and while he originally suggested waiting to collect SS, he now nods in agreement with our decision.

[vincee]

This is a very timely thread as I am planning to retire in July at 65. I too have heard many opinions from many sources regarding taking SS at 62. But I would guess for many who haven't like me it often came down to the added healthcare cost burden of paying out of pocket until 65 and going on Medicare.

I met with a financial expert through my work place who manages our 403B program. He laid out a plan based on my DW and I living until 90, which I thought was ridicules. I had asked him to give me a 10-12 year plan, 65 to mid 70's and I got this "what are you talking about" look from him. Our thoughts are if we are lucky enough to live into our 80's, our financial needs then will nowhere be as high as our now, our early retirement years hoping to have as many enjoyable years as possible enjoying the RV lifestyle, not FT.

Although the guy I met through work is a nice enough guy, and his company is one of the largest in the country managing pensions, they manage all of Erie County, NY's government pensions and investments, I got the feeling that part of the strategy laid out for us was as much to benefit him by fees and commissions as it was for my DW and my retirement years.

[twogypsies]

Originally Posted by vincee

I met with a financial expert through my work place who manages our 403B program. He laid out a plan based on my DW and I living until 90, which I thought was ridicules. I had asked him to give me a 10-12 year plan, 65 to mid 70's and I got this "what are you talking about" look from him. Our thoughts are if we are lucky enough to live into our 80's, our financial needs then will nowhere be as high as our now, our early retirement years hoping to have as many enjoyable years as possible enjoying the RV lifestyle, not FT.

Do you have long-term insurance? If not, then, yes, your financial needs will be much, much higher if you can't stay in your home; assuming your home is paid for.

[jacwjames]

RVPioneer>>> thanks for confirming tax burdern



Over the last 40 years I have had company provided health insurance for about 22 years, the rest of the time I have had to source/purchase my own. I currently do have health insurance and am using a 15% inflationary factor in my model.

Once I hit 65 I've estimated for a supplemental plan while carrying my wife on a separate insurance policy.


Long term insurance is something we currently don have, I guess it is something I need to check on. I believe that I have enough of a cushion to absorb the costs of having some sort of assisted care. I know that it cost a retired couple +~$300K in health costs after retirement, a scary thought.



Another forward looking question.
How do RMD's impact SS taxes, I know that they count as income, how do they impact taxes on the SS benefit??

[PandS]

To the OP,
Secure the services of a Wealth Management Professional and work with them to formulate a plan.


Internet advice is worth what you pay for it.


Having a certified Fiduciary in your corner will help you to make the right decisions for YOU. It sounds like you 'won the race'. Now, don't drop the trophy!


Good luck planning your future! -Paul

[bigchick]

we went through all these decisions when we were contemplating retirement. the topic of medical coverage was probably the most compelling factor. as such we waited until after age 65 so that we could convert to medicare when we retired.

on the lighter side, i remember getting at least three invitations each week receive a free lunch if i attended a 'information session' for:
retirement planning
estate planning
long term care
medicare advantage
etc.

but if you attended one of these could you imagine the numbers of phone calls you would then get?

in your planning don't underestimate future medical expenses. as for how long to plan for we opted for about a 25 year planning horizon without touching the equity in the house. if after 25 years (say age 90) we had consumed our resources we figured we still had the equity in the house and a reverse mortgage could be used. there are many free planning tools out on the internet. and excell can be very useful also. the monte carlo simulations can be helpful but understand the assumptions and methodology behind them so you understand what they try to say. they can be misleading if not understood. don't let some adviser try to wow you with them. in the end, it is you that needs to be responsible!

as far as the future off social security who knows? i suspect they will eventually implement a 'needs based' payment method where if you have other assets they will decrease your social security benefits. but that is just my personal thoughts. who knows?

[wnytaxman]

To answer your question, your RMD’s do not have any effect on how much social security you will draw, but they may add to your tax burden by making more of your social security taxable. If you take early retirement, before your full retirement age, you are limited as how much EARNED income you can receive. Traditionally earned income is wages, self employment income, and sometimes partnership or S corporation income. Once you reach your full retirement age there is no limit to the amount of earned income you can receive.

[jacwjames]

In the past I had met with 2 money managers. In both cases both asked me who I had used before because I was sitting in a pretty good position. When I told them I did it all my own they seemed impressed and offered no real advise.

I spend a lot of time reading and understanding financial markets and issues both in the USA and Globally.

I have an engineering degree, Masters in Industrial engineering and Master in Business Administration. I found finance and stock valuations interesting and the abide by the concept of investing in funds to reduce risk ( think Warren Buffett).

I invest strictly in funds to help diversify and spread my risk. In all I probably have 30 different funds with about 40% in bonds. The rest are spread across different sectors and internationally. My 3 retirement accounts have done well ( as with the rest of the market). My largest account is with Vanguard, which is known to be a low cost reputable fund manager. I also have ~30% of my money in higher yield saving accounts.

I also have no debt and just built a house that could easily fund a long term medical issue although I doubt I'd go the reverse mortgage route.



Thanks for everyone's replies. Although I know I can't take all the comments and advise as gospel there have been enough useful comments to make this thread beneficial to me & I hope others.

[RVPioneer]

Originally Posted by PandS

To the OP,
Secure the services of a Wealth Management Professional and work with them to formulate a plan.


Internet advice is worth what you pay for it.


Having a certified Fiduciary in your corner will help you to make the right decisions for YOU. It sounds like you 'won the race'. Now, don't drop the trophy!


Good luck planning your future! -Paul

Would that be considered “internet advice”?

[vincee]

I have never been of a big believer in having numerous level of life type insurances. Back when my mom was in her sixties there was a family debate whether or not to have her townhouse and worldly possessions signed over to me and my two brothers. So, to solve the deadlock we enlisted the help of mom's attorney with an assist from a financial expert from her firm.

What Barb the attorney laid out for us was a plan that would use mom's townhouse, which was paid off, as her "long term care" fund. That rationale was based on the quality of nursing home care mom would receive should she live long enough to require it. Her analysis showed if mom went into a nursing home and switching from Medicare to Medicaid for payment, mom would get at best the first bed available in a D or if lucky C rated home. However, with her townhouse as collateral, she should to be able to self pay for at least two years of care at a facility of her/our choosing That is exactly how things played out for mom, living to 86 and spending that last two and a half years of her life in the only 5 star rated nursing home in Western New York which also happened to be one block from my house

This will be the playbook, should it be needed, for me or my wife's long term care insurance too.

[TheLuvShack]

Originally Posted by vincee

I have never been of a big believer in having numerous level of life type insurances. Back when my mom was in her sixties there was a family debate whether or not to have her townhouse and worldly possessions signed over to me and my two brothers. So, to solve the deadlock we enlisted the help of mom's attorney with an assist from a financial expert from her firm.

What Barb the attorney laid out for us was a plan that would use mom's townhouse, which was paid off, as her "long term care" fund. That rationale was based on the quality of nursing home care mom would receive should she live long enough to require it. Her analysis showed if mom went into a nursing home and switching from Medicare to Medicaid for payment, mom would get at best the first bed available in a D or if lucky C rated home. However, with her townhouse as collateral, she should to be able to self pay for at least two years of care at a facility of her/our choosing That is exactly how things played out for mom, living to 86 and spending that last two and a half years of her life in the only 5 star rated nursing home in Western New York which also happened to be one block from my house

This will be the playbook, should it be needed, for me or my wife's long term care insurance too.

Here's some real numbers for my MIL long term care for the past 10.5 years. She is a resident of Indiana.
From age 87-97 she was a resident in a nice Assisted Living facility. Average cost of $3,500 per month equals $420,000 spent in 10 years. Now she has a private room in a nice Skilled Nursing facility (Nursing Home). Cost is $300 per day. $109,500 per year. Cost of Skilled Nursing care is a medical tax deduction when it exceeds 7.5% of her adjusted gross. That helps a little.

Retirement planning would be easy if we all knew just three things. No one I've ever met has the answers to these questions.
1. How long will you and your spouse live?
2. How much will we need to spend on medical care?
3. What will your tax obligation be. This is a constantly moving target.

The best financial advice I ever received was "Life is short, but it's also long."
What this means to me is you need to spend some of your money to enjoy life now, but you also need to prepare for the future.

Make a plan you are comfortable with now. Retire. Enjoy life. Review annually.

[jacwjames]

Originally Posted by TheLuvShack

Retirement planning would be easy if we all knew just three things. No one I've ever met has the answers to these questions.
1. How long will you and your spouse live?
2. How much will we need to spend on medical care?
3. What will your tax obligation be. This is a constantly moving target.

I was working (mining a low value commodity) I had a number of young engineers that I would mentor. The first thing I would tell them was "If it was easy everyone would do it"

I'm starting to realize that it's about the same thing with planning for retirement. You can stick your head in the sand and hope everything works out or you can take the bull by the horns and control your destiny.

I choose to control my destiny.

[dix39]

Originally Posted by jacwjames

I choose to control my destiny.

I, for one, think you have done well at it, just continue. Congratulations!!

Steve