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I have to wonder if you are asking for advice or bragging about how much money you will have in retirement? If you have accumulated all that wealth and retirement income you probably know more than anyone who would comment. The only advice I would give is on SS. Take it at 62. If you defer it to 67 or later you will get more but it will take 20 years to break even on what you will have lost in annual payments starting at 62.
I have to wonder if you are asking for advice or bragging about how much money you will have in retirement? If you have accumulated all that wealth and retirement income you probably know more than anyone who would comment. The only advice I would give is on SS. Take it at 62. If you defer it to 67 or later you will get more but it will take 20 years to break even on what you will have lost in annual payments starting at 62.
It was not my intent to brag. I'm realitively new here, but I do see when people ask questions without details they are immediately told that no one can answer without details. I regret the posts specifics. -but I appreciate the responses that were helpful and sincere. And thanks for your thought on SS. That is also a timing concern of mine.
Last edited by canoesmith; 09-09-2017 at 04:51 PM..
Agree with what you said. I used to use the bucket approach but came to the conclusion it really only had a psychological benefit in my situation.
But let's not assume selling stocks in a down market is always a bad thing. Down markets are inevitable, and whenever we have one, I always look for an opportunity to harvest capital losses (to offset capital gains, which reduces my taxable income). If you are using index based etfs, it's easy to avoid the wash rule if you want to jump back in, since there are numerous etfs that track each index.
all things being equal i will gladly pay the tax and spare the loss . tax harvesting may accomplish nothing but kicking the tax can down the road . you end up resetting the tax pointer on the next thing you buy with the money .
think of all those who did that and tax harvested instead of paying 15% in capital gains and now are in the 24% capital gains bracket instead of 15 . top rate is now 20% and a 4% surcharge .
as michael kitces points out:
"Executive Summary
Capital loss harvesting has long been a staple of investment tax strategy – so much that the Internal Revenue Code has special “wash sale” rules to ensure that the technique is not overly abused. Fortunately, though, the wash sale rules can be navigated effectively, allowing taxpayers some means to take advantage of available tax losses.
However, while tax loss harvesting remains a viable strategy, it is often greatly overvalued, as the true benefit is not the tax savings from harvesting a loss but merely the benefit of deferring those gains. In the meantime, the strategy has a non-trivial exposure to several risks, including the potential for the alternative investment held during the 30-day wash rule period underperforming the original investment, the possibility of negative tax arbitrage if the investment rebounds in the near term, and the danger that harvesting losses too effectively over time will drive the client’s future capital gains into a higher tax bracket! In addition, the fact remains that capital loss harvesting produces no benefits for clients who are eligible for 0% capital gains tax rates, and in fact potentially harms them; in such scenarios, clients should actually be harvesting gains, not losses!
Ultimately, this doesn’t mean that harvesting capital losses is a bad strategy, but it is a strategy where the risks must be carefully considered, as they can easily outweigh the relatively modest benefits! "
i just wanted to reinforce something that is extremely important to remember about just conventional rebalancing as opposed to buckets ..
in down markets without cash buffers you WOULD NOT BE SELLING STOCKS . natural rebalancing would have you selling bonds which likely went up , taking spending money and BUYING STOCK with what is left . so the process of just rebalancing back to your allocation does the work for you naturally .
key words being "buying stock in down markets , not selling "
odds are bonds are up ,stocks are down so it is the bonds that get sold and if the down market is really down like 40% again , you will likely get your spending money and be buying stocks rebalancing them back up again to your chosen allocation ..
that is in contrast to a bucket system ,where you will not be buying stocks but rather liquidating bonds to refill cash and if anything selling stocks to refill bonds and cash
but most of us will still use the more comforting bucked system ..
i reduced cash this week as rates came down on the fidelity conservative bond fund i was using as a holding place for a lot of the cash . but with rates down again i moved 1/2 to my capital preservation and income model . with my first ss check due next month i no longer need so much cash .
Yes, thank you for the analysis. I tend to agree with you as I have never enjoyed holding much cash unless it is for the present year. I Would rather have as you suggest just two buckets. One years expenses in a savings account for easy tapping. And, then a standby one year CD to place in the savings account at the end of the year. Wash and repeat. During the 2009 downturn, I was not pleased with some of my negative returns but as they were good solid choices I let them ride and they appreciated back to their pre-debacle level in a quicker time then I thought possible.
I still have a difficult time setting money in Bonds as the returns are so minimal.
And, yes a SS check moderates the ebb and flow of the stock market nicely!
all things being equal i will gladly pay the tax and spare the loss . tax harvesting may accomplish nothing but kicking the tax can down the road . you end up resetting the tax pointer on the next thing you buy with the money .
think of all those who did that and tax harvested instead of paying 15% in capital gains and now are in the 24% capital gains bracket instead of 15 . top rate is now 20% and a 4% surcharge .
as michael kitces points out:
"Executive Summary
Capital loss harvesting has long been a staple of investment tax strategy – so much that the Internal Revenue Code has special “wash sale” rules to ensure that the technique is not overly abused. Fortunately, though, the wash sale rules can be navigated effectively, allowing taxpayers some means to take advantage of available tax losses.
However, while tax loss harvesting remains a viable strategy, it is often greatly overvalued, as the true benefit is not the tax savings from harvesting a loss but merely the benefit of deferring those gains. In the meantime, the strategy has a non-trivial exposure to several risks, including the potential for the alternative investment held during the 30-day wash rule period underperforming the original investment, the possibility of negative tax arbitrage if the investment rebounds in the near term, and the danger that harvesting losses too effectively over time will drive the client’s future capital gains into a higher tax bracket! In addition, the fact remains that capital loss harvesting produces no benefits for clients who are eligible for 0% capital gains tax rates, and in fact potentially harms them; in such scenarios, clients should actually be harvesting gains, not losses!
Ultimately, this doesn’t mean that harvesting capital losses is a bad strategy, but it is a strategy where the risks must be carefully considered, as they can easily outweigh the relatively modest benefits! "
Didn't say I was rooting for a down market, just saying they present opportunities. And the tax code change could have gone the other way. If only we all had a crystal ball. I harvest gains too. Generally speaking, the longer you can keep your money away from the taxman, the better.
i agree , the longer you keep it away tax wise the better but there can be big ramifications and you end up with a tax torpedo .
our family LLC was partners in some commercial lease rights for many years . we had all kinds of offers from investor groups to sell them . we held off .
well in 2014 we finally sold them in one of nyc's biggest lease right sales .
well timing could not have been worse .
capital gains jumped from 15% to 24% on the sale as tax laws changed and we now owed a whole lot more than we ever imagined . but to make delaying the sale even worse ,it was 2 years before my wife went on medicare .
well that sale also triggered an additional 600 per month in premiums for a couple because they go back 2 years to set the years premium .
so delaying the tax man was sooooooooooo not worth it .
keep in mind any changes in portfolio strategy pre retiring can be very nasty tax wise with index funds and etf's .
selling to change your plan and owing decades of pent up taxes on your capital gains can very nasty .
i made changes in 2007 when i thought i would retire early . so we went from our hardcore growth model we used for decades to a more balanced model .
luckily they were open ended funds and i paid some tax along the way . tax wise i was able to make the changes in one tax year .
had these been etf's or index funds i would not have made all the changes because it would have created a tax torpedo . so i would have had to wait , and i would have run in to 2008's collapse .
so while i agree about delaying taxes , in practice it isn't all good that comes out of it many times in the real world because those gains interface with so much other crap as well as tax changes . you can actually end up being tax torpedoed when not figured in isolation by themselves .
many things can always look a whole lot better when you isolate them from the bigger picture and all the things they interface with .
Last edited by mathjak107; 09-10-2017 at 03:46 AM..
Yes, thank you for the analysis. I tend to agree with you as I have never enjoyed holding much cash unless it is for the present year. I Would rather have as you suggest just two buckets. One years expenses in a savings account for easy tapping. And, then a standby one year CD to place in the savings account at the end of the year. Wash and repeat. During the 2009 downturn, I was not pleased with some of my negative returns but as they were good solid choices I let them ride and they appreciated back to their pre-debacle level in a quicker time then I thought possible.
I still have a difficult time setting money in Bonds as the returns are so minimal.
And, yes a SS check moderates the ebb and flow of the stock market nicely!
minimal returns in bonds ? certainly total returns are not minimal and have not been for years .
TLT which holds long term treasuries is up more than 10% ytd . my fidelity total bond is up almost 5% . my fidelity strategic income is up almost 8% , fidelity new market income is up almost 11% ytd ,that is international bonds , fidelity high yield is up almost 7% ytd .
so just about all bond market segments have produced very nice returns compared to cash . this has been going on for many many years .
this is why heavy cash positions are a weight .
with those returns beating cash for decades you can fall quite a bit if bond rates rise and be no where near what you gave up being in cash positions .
Last edited by mathjak107; 09-10-2017 at 03:47 AM..
of course one could actually use 100% equities through retirement but in practice that did not do as well as 50/50 or 60/40 success rate wise over 30 years .
but for longer retirements 100% equities did do the best when you stress test them against the worst of the past .
i don't think many of us retired people could stand the volatility of 100% equities if it was not mostly legacy money and our income was heavily dependent on it .
i agree , the longer you keep it away tax wise the better but there can be big ramifications and you end up with a tax torpedo .
our family LLC was partners in some commercial lease rights for many years . we had all kinds of offers from investor groups to sell them . we held off .
well in 2014 we finally sold them in one of nyc's biggest lease right sales .
well timing could not have been worse .
capital gains jumped from 15% to 24% on the sale as tax laws changed and we now owed a whole lot more than we ever imagined . but to make delaying the sale even worse ,it was 2 years before my wife went on medicare .
well that sale also triggered an additional 600 per month in premiums for a couple because they go back 2 years to set the years premium .
so delaying the tax man was sooooooooooo not worth it .
keep in mind any changes in portfolio strategy pre retiring can be very nasty tax wise with index funds and etf's .
selling to change your plan and owing decades of pent up taxes on your capital gains can very nasty .
i made changes in 2007 when i thought i would retire early . so we went from our hardcore growth model we used for decades to a more balanced model .
luckily they were open ended funds and i paid some tax along the way . tax wise i was able to make the changes in one tax year .
had these been etf's or index funds i would not have made all the changes because it would have created a tax torpedo . so i would have had to wait , and i would have run in to 2008's collapse .
so while i agree about delaying taxes , in practice it isn't all good that comes out of it many times in the real world because those gains interface with so much other crap as well as tax changes . you can actually end up being tax torpedoed when not figured in isolation by themselves .
many things can always look a whole lot better when you isolate them from the bigger picture and all the things they interface with .
Oh yeah, you always have to keep your head up. Sorry to hear about your tax torpedo. I got hit with one when I left Apple, but that's a story for another day.
I like to keep the moving parts to a minimum. I do actively harvest gains and losses every year in an effort to "pull out" as much unrealized capital gains as possible. I always know what my unrealized capital gain number is and look for opportunities to take "free" profits whenever some other position tanks. Don't get the idea I'm a day trader or such....I made 4 trades last year.
The cornerstone to my retirement planning has been to reduce cash flow, because the more that cash is flowing around, the more likely to get "torpedoed". I've managed to very legally pay virtually no income taxes in the 13 years I've been retired. If I were moving things all over the place, no doubt I'd have cornered myself into a bad spot by now.
When I finally start having an income stream when I take SS at 62, also long as the unrealized capital gain number is a small percentage of my whole stache , I should be okay. But, yeah, always have to be aware and manage forward.
of course one could actually use 100% equities through retirement but in practice that did not do as well as 50/50 or 60/40 success rate wise over 30 years .
but for longer retirements 100% equities did do the best when you stress test them against the worst of the past .
i don't think many of us retired people could stand the volatility of 100% equities if it was not mostly legacy money and our income was heavily dependent on it .
Bingo. The longer your retirement, the more likely equities are your game. I retired at 42 in large part because I have the stomach for them, and in large part because I am single and childless...it's okay to spend my last dime and take my last breath.
No one way to skin this cat retirement planning cat.
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