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Many of you just don't seem to understand this issue. At first glance taxes on RMDs seems reasonable. After all the money was not taxed at the time it was earned. You need to take a look at your taxes to understand why this seems so unfair and has such an impact. Perryinva explained the basics. I had a relative who tried to explain this to me years ago. He said that taxes were taking half his RMDs and in effect he lost half the value of the portfolio that was to cover expenses as he aged. Now I finally understand. For the first 6 years of my retirement I paid almost no income taxes. Now that RMDs have started, my tax bracket has jumped to become very significant. Those taxes don't just fall on my RMDs. The tax bracket now applies to my SS, to dividends and to any other source of retirement income.
Financial advisors don't seem to get this either. At least that has been the case with my advisors. In the past they just advised for substantial retirement investments without any consideration of taxes. Now they don't seem to understand or have any advice.
We need to remember the wide range of working and retirement income in the forum. Some are focused on one income range and others another. If in the 25th marginal tax rate while working some might consider being there in retirement not do bad. Remember the surveys about income in here and how high they were. Couples each with pensions often start out knowing when claiming SS they would be fully taxed and are glad to have that problem. As I said to MJ that train was never in the station and what is done is done so reaching the next bracket is a goal. For some and not for others so that's the way we roll.
Jack Bogle said that when starting out as a youn investor you want a thirty year best market.
When you retire you want a thirty year bull market. Your money both taxable and after tax have a lot of years to roll up returns and move you into higher brackets. Add to that pension And SS COLA. Note how often posters say they will be reinvesting their RMD's. How many years to recover that tax bite while the remaining tax sheltered funds continue to grow. Remember folks for a variety of reasons a number of retirees remain 60-70 percent in equities
Their own future income tax picture has more variables up and down
Many of you just don't seem to understand this issue. At first glance taxes on RMDs seems reasonable. After all the money was not taxed at the time it was earned. You need to take a look at your taxes to understand why this seems so unfair and has such an impact. Perryinva explained the basics. I had a relative who tried to explain this to me years ago. He said that taxes were taking half his RMDs and in effect he lost half the value of the portfolio that was to cover expenses as he aged. Now I finally understand. For the first 6 years of my retirement I paid almost no income taxes. Now that RMDs have started, my tax bracket has jumped to become very significant. Those taxes don't just fall on my RMDs. The tax bracket now applies to my SS, to dividends and to any other source of retirement income.
Financial advisors don't seem to get this either. At least that has been the case with my advisors. In the past they just advised for substantial retirement investments without any consideration of taxes. Now they don't seem to understand or have any advice.
this is why I always say most planners suck at the 2nd half of the game and why I can't emphasis enough that good retirement planning and strategy is far more than buy voo and agi and have a nice life .
so much is linked and intertwined and the building blocks have to be put in place early on . I blew it , thinking I knew all I needed to because I could build portfolio models .
I also have found most fee only guys are the most far behind knowledge wise in the 2nd half of the game . many fee only are fee only because they lack a lot of training and certification in more modern day planning techniques , or they would not still be fee only .
Unfortunately by the time we read about these issues on the Retirement Forum, it is a bit late to do the necessary planning. Even in my early retirement years I could have pulled a bit out of qualified accounts with little additional taxes. Instead I pulled from my non-qualified accounts and my advisors never brought this up.
yep , this is why when people here go we don't need to pay a planner , we just can buy voo and agi and we know it all , they are so short sighted .
we all blew it because now we learned how much is linked to our income in retirement . all the talk about how we will be in lower brackets at retirement likely panned out not to be true if you saved up some assets and made decent money working . there is so much other stuff involved
I will never understand why folks invest in a tax deferred account like a 401K, then complain when the taxes become due?
You thought you'd get a free ride forever? As a taxpayer myself, let me object.
Yes, the creeping taxation (creeping depending on income) has some perversities, such as marginal tax rates higher than expected, but this can only fall in a narrow range. I pay a higher marginal rate now, for instance, than when I worked, but not by much. Such is life.
The biggest risk in long term tax avoidance strategies, IMHO, is that the law can change. And it will. For instance, if promised tax cuts go into effect, I'll be waay ahead of those that invested in Roths, expecially in today's rather low return environment (unless you are heavy in equities, but that's another story. Just remember 2008).
Doesn't all of this apply to pension benefits and the decision to take a reduced payout for spousal benefits? The The reduction may not be as great if it keeps you out of a higher tax bracket? would you take spousal just for tax purposes?
I will never understand why folks invest in a tax deferred account like a 401K, then complain when the taxes become due?
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Before I faced taxes because of RMDs, I would have agreed. Now ask yourself what level of taxation seems fair. Should you have to pay 15 or 20 or 25% of your withdrawals in taxes. Maybe that would be fair. The problem is that the RMD withdrawals bump you up in tax brackets and you can easily pay 50% of your withdrawals to cover the taxes. Most of us did not get that big of a benefit on the other end. When I was contributing my taxes were high. The 6% of so I contributed did not have any significant effect in lowering my overall income taxes, nor did it somehow lower my tax bracket. But on the backend moving way up in tax brackets is exactly what is likely to happen.
The cool thing is I am doing all of this posting sitting on the beach in between admiring the scenery
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