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Old 12-27-2016, 09:52 AM
 
13,880 posts, read 7,391,112 times
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Quote:
Originally Posted by TuborgP View Post
Ummmm. Ummmmm. Have you noticed the uproar over public govt pensions and the burden of taxpayers. Via their government contributing to them ? The ratio of the employer contribution to the employees varies from plan to plan but certainly is at the core of Most public sector pensions
The problem is that pretty much only public sector workers and a relative handful of union private sector workers have a defined benefit pension these days. Elsewhere in the private sector, defined benefit pensions were long ago replaced by 401(k) plans and most of those have little or no employer match. You have 85% of the country self-funding their retirement. It's pretty easy to work yourself up into a lather about generous public sector pensions when you look at your personal finances and realize you're going to be facing a bleak old age. It's even worse when it's disclosed that many of those public sector pensions are horribly underfunded and state & local taxes are going to soar to pay for a cushy retirement deal none of the rest of us will ever see.

Look at the numbers. Easily 70% of all households in the 55 to 64 age bracket have low or no net worth and no pension coming beyond Social Security. They face daily age discrimination on the job and if they lose their job, the odds of replacing it with another at comparable pay is slim. Unless you're union or public sector, there is no such thing as a job for life.
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Old 12-27-2016, 05:20 PM
 
Location: On the road
5,926 posts, read 2,887,264 times
Reputation: 11341
Quote:
Originally Posted by Perryinva View Post
I would not be in a 401k today if it was about tax deferral. My tax rate will never go down, and when I was younger, my tax rate was always predictably lower.
Your tax rate could be the same or even a bit higher when you retire and you'd still come out ahead tax-wise from having used a 401k. This is because in a given year all the money put into a 401k would have been taxed at your highest bracket, but when you take it out in retirement to be taxed as regular income that same money gets spread among all your tax tiers including $0.
As in:

1995 you put $10,000 in your 401k, would have been income tax at 25% so defer $2,500 in taxes.
1996 you put $10,000 in your 401k, would have been income tax at 25% so defer $2,500 in taxes
1997 you put $10,000 in your 401k, would have been income tax at 25% so defer $2,500 in taxes
1998 you put $10,000 in your 401k, would have been income tax at 25% so defer $2,500 in taxes
1999 you put $10,000 in your 401k, would have been income tax at 25% so defer $2,500 in taxes


2015, now happily retired you withdraw from 401k which is taxed as regular income at a higher 28% since you're living large at Del Boca Vista.

The first $10,300 is taxed at $0 (personal exemption and standard deduction)
The next $9,225 is taxed at 10% = $925
The next $28,225 is taxed at 15% = $4,224
The next 52,550 is taxed at 25% = $13,137

See how that works? That 50k you put in deferring at your max bracket that would have been taxed at $12,500 drops into other tiers so in retirement you only owe about $5,300 on it. Sure there are income situations where having same/higher tax bracket in retirement means 401k is a losing deal tax-wise, but for the majority of people it ain't gonna happen.
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Old 12-27-2016, 06:02 PM
 
Location: Forests of Maine
30,678 posts, read 49,430,310 times
Reputation: 19129
Quote:
Originally Posted by Aqua Blue View Post
Your right, I don't live in a high cost of living and have no desire to. As for nursing home care..because I live in a lower cost of living area currently my social security would pay about 2/3 of the cost(recently had friend in only nursing home within 50 miles and that's what it is costing her). You get the same room, same care in that facility whether you are wealthy ornot. I could pay the difference pretty easily for a long time. I have an underlying condition that makes it unlikely I would last years and years.

For me one of the gifts of not having millions is Ihave decided not to agonize over the what ifs..I did the best I could and what is is. I have wealthier friends and they all seem overly worried about such things. In the end it will be the end no matter how much money we have or even how well we planned, I prefer to enjoy today.
Thank God for low cost-of-living areas
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Old 12-27-2016, 07:01 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,546 posts, read 39,924,861 times
Reputation: 23663
Quote:
Originally Posted by Submariner View Post
Thank God for low cost-of-living areas
And the freedom MOVE, & use opportunities in USA to augment income during retirement. We have it very nice except HC. Left to the Government.... little chance of resolving.
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Old 12-27-2016, 07:08 PM
 
11,975 posts, read 5,111,061 times
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If you didn't need millions to live on before retirement, you're not going to need millions to live on after retirement.
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Old 12-27-2016, 07:43 PM
 
Location: Idaho
1,452 posts, read 1,153,447 times
Reputation: 5482
Quote:
Originally Posted by lieqiang View Post
Your tax rate could be the same or even a bit higher when you retire and you'd still come out ahead tax-wise from having used a 401k.
......

2015, now happily retired you withdraw from 401k which is taxed as regular income at a higher 28% since you're living large at Del Boca Vista.

The first $10,300 is taxed at $0 (personal exemption and standard deduction)
The next $9,225 is taxed at 10% = $925
The next $28,225 is taxed at 15% = $4,224
The next 52,550 is taxed at 25% = $13,137

See how that works? That 50k you put in deferring at your max bracket that would have been taxed at $12,500 drops into other tiers so in retirement you only owe about $5,300 on it.
Lieqiang,

Your excellent analysis lessens my pain of having to write two big income tax checks the last few days ($27K for the Fed and $11K for the State). Our income this year is high mostly because of the IRA to Roth IRA conversion. I tried to take advantage of the 'low income' year before we take SS payments.

Over the years, we pretty much tried to max out all contributions (401K, IRA, Roth IRA) to the allowable limits both before and after taxes. Our Roth portions are only about 5% of our retirement saving and the post-tax IRA contributions are another 5%. So most of our retirement funds will be taxed at the high ordinary income tax rate upon withdrawal for Roth IRA conversion or RMDs.

At times, I had wondered whether we should have contributed only up to the matching limit for 401K and invested the remaining amount in non retirement accounts because of the lower tax rate on LT capital gains.

Of course years ago when we religiously contributed to 401K, we were just trying to sock away as much saving as possible and neither thought nor analyzed of the tax tradeoff before and after retirement. It was much easier to save with automatic payroll deduction. In addition, if the savings were not 'locked in' our retirement funds, we might have also tempted to have a higher standard of living i.e. spending quite a bit of it ;-)

Your analysis and the fact that when were were both working and at our peak earnings, we often had to pay the AMT (alternative minimum tax) made me realize that it was not too foolish of us to max out our 401K contributions.

Bottom line is that I should have rejoiced instead of being in pain while writing these big tax checks!

Thanks.

P.S. After posting this, I realized that we have strayed significantly from the OP of how do people without millions manage to retire!!!

Although we are much better off than many people, I honestly think that we don't need millions to retire. The key is to try to live within your means and be resourceful. Of course it is difficult if you are old, poor and sick. Thank God for the many safety nets that we have in this country. Of course by definition, the nets have holes. I just hope that our politicians are not going to take out their scissors or knives to make the holes so big that some will fall through.

Last edited by BellaDL; 12-27-2016 at 08:01 PM..
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Old 12-27-2016, 07:48 PM
 
Location: Forests of Maine
30,678 posts, read 49,430,310 times
Reputation: 19129
Quote:
Originally Posted by StealthRabbit View Post
And the freedom MOVE, & use opportunities in USA to augment income during retirement. We have it very nice except HC. Left to the Government.... little chance of resolving.
Our nation severely needs some system of Affordable Care. Far too many have been left without proper health care. I do not see how the present administration is so blind to this problem.
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Old 12-27-2016, 08:10 PM
 
Location: Los Angeles area
14,018 posts, read 17,729,443 times
Reputation: 32304
Quote:
Originally Posted by GeoffD View Post
..................... You have 85% of the country self-funding their retirement.............
I am not claiming that figure is wrong - just curious whether there is some solid data to back it up.
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Old 12-27-2016, 09:27 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,546 posts, read 39,924,861 times
Reputation: 23663
Quote:
Originally Posted by Submariner View Post
Our nation severely needs some system of Affordable Care. Far too many have been left without proper health care. I do not see how the present administration is so blind to this problem.
EZ.... congress does not have to use Obamacare.

I find it ironic that Europe, including countries with nationalized care, comprise the vast majority of the 15m people using medical tourism (for the last 50 yrs)

USA needs:

Completely new Healthcare
Completely new EDU system (only in USA can you go to school for 16 - 20 yrs BEFORE you realize there are no jobs in your major, or you don't like / suit your career choice) Most nations are more strategic educators and utilizing the knowledge of their teachers and students.

Tax system that grows the strength of our country and economy (As it did during our manufacturing / economic / wealth growth heyday). My USA business taxes on assets an income, are totally burdensome compared to my friends in countries that encourage jobs, economic, and technical growth.

Basically, our politicians and leaders have completely lost touch. They are just trying to get elected so they can make laws like ACA that apply to everyone EXCEPT themselves)
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Old 12-27-2016, 10:22 PM
 
Location: RVA
2,164 posts, read 1,265,106 times
Reputation: 4451
Liequiang, while not trying to sounding condescending, that is what I meant by me (or anyone else their own) analyzing my retirement situation. That argument was around 40 years ago too, as 401k justification. As was the "SS will likely be tax free" one as well.

In my case, I will have (and for the last 20 years, really knew I would) a healthy pension that entirely fills any lower brackets and automatically put ANY taxed withdrawals at the 25% bracket, and my SS will always be 85% taxed as well. Compared to my current income, it does not take that much to get to that point. My spouse also gets a pension, so we are "stuck" with a tax rate that even MFJ, is solidly in the 25% bracket. I'm not complaining, it will be a good problem to have, but if I had intelligently analyzed this years ago, there were things I could have done that would have allowed a larger percentage of earnings on investments to be LTCGs at 15%. My current Roth is only about 20% of my total IRAs and 401k. As I said in my previous post, I just blindly listened to the "experts" and much of what they said was wrong for ME.

The only real smart advice is to spend down my tIRA in order to delay SS until 70 or thereabouts. I will get the maximum possible for whatever year that is, thanks to having more than 35 years already with an AGI that exceeded the SS salary limits. With the current limits in place, I will simply incrementally increase each year between now and retirement in 3 years, by replacing a past years max that is under the inflation adjusted amount with the current years max. So at least I can substitute some savings withdrawal for a larger, lower taxed SS annuity, as the difference of taking SS early, say $26k with $22,100 taxed ( 85%) and $24k fully taxed, with full $50k SS that will be only have $42,500 taxed, so I will save paying federal taxes on roughly $4k, plus save state taxes on $24k, and reduce my fully taxed RMDs in the process. This will net me about $3k more per year, for the exact same gross income, as well as greatly increase the portion of my income that is eligible for COLA increases.

It's not really complicated but if you don't know all the rules and have realistic estimated amounts, it's pretty hard to make intelligent decisions. Smart planning could have doubled the net gain for the same income, but it's too late now.

Last edited by Perryinva; 12-27-2016 at 10:35 PM..
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