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IMHO if your combined SS and all other forms of income are so low that you owe no tax? IMHO your life is going to be skrimping and saving just to get by every day you live.. what a pleasent thought... I am fine with paying taxes and am in the 2nd highest tax tier.. If you want to never pay taxes go live in a 3rd world country and tell us later how that worked for you BTDT it sucks after a while..
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Originally Posted by Escort Rider
I do understand that SS can be tax-free under certain circumstances, but I have never heard of pension income which is tax-free at the federal level. Please explain.
Starting two years ago, I was getting ready to turn 65, we estimated what our total retirement income would be, not counting on any withdrawals from any savings, should be at my FRA a little more than one year in the distance. We had social security for me along with two small pensions that totaled $3,367 and it was around this amount we modeled our retirement upon.
We could do it and live comfortably enough making all our bills but there wasn't a whole lot left once we set aside the $600 every month we would spend total on Medicare Part B, Supplements and Part D Pharmacy. We had worked "moving down" cutting the size of our house by half and having only one car. Well, one car and an electric golf cart which is street legal where we live.
We did OK on $2,767 which represented what we would be left with after Medicare. After paying property tax, property insurance, auto insurance, cost of driving 100 miles/week, internet, phones, cable television and household utilities we ended up with about $1,600 for food, entertainment and unforeseen expenses and repairs. I even had monthly pest exterminators and annual termite inspections in the budget and in the end we had $375/week set aside for food, clothing and entertainment.
We could have lived comfortably enough if we were homebodies but a homebody is something I never was. We had everything we needed but an annual trip to Vegas or a week long cruise in the Bahamas didn't happen and I want that too. Just because I am retired doesn't mean I am dead.
Part of what was hurting us at my FRA is my wife was a year and a half away from her FRA and I couldn't have her draw her ss early, just could not let that happen so I decided to work an extra year and a half at the end of which two things would happen; her social security would kick in allowing us an extra $900/month and by waiting my benefit would increase by $300/month giving us an extra $1,200/month bring our total retirement income to $3,967 after paying all our Medicare expenses.
At this point we would enjoy a $650/week set aside for food, clothing, entertainment and after livign the budget I am convinced we can live very well and do just about anything we want to do. $650/week gives us plenty $15,000/year to spend on things like vacations, cruises and trips to Vegas or wherever.
Now what I would like to do is work another year which would give me an extra $100/month... just in case.
What we have in savings we will withdraw and save the minimum when we have to leaving it for the surviving spouse.
Oh, and Medicare? I love it, we got Plan G and with that there isn't any surprises.
i agree with the no surprise protection you get from plans F AND G .
with advantage plans you never know what is lurking as nothing is ever a problem until it is a problem.
they are to open ended with exposure especially out patiant drugs. my co-worker used to brag about how little his advantage plan cost him until this year. now his wife needs chemo and each treatment as an out patient is 4500.00 bucks.
that deal he had for years evaporated with a single event down the road.
playing the 2nd half of the game when we spend down has it's own rules , formulas and taxes which are very different than the first 1/2 when we accumulate money.
for those who count on their own portfolio's to support them to have that money stand a good chance of lasting 30 plus years takes an awful lot of assumptions.
the variables are your age and how long you will live ,the sequence of the gains and losses , market returns , interest rates and inflation.
juggling all of the above to get a ball park plan in place can be like putting a puzzle together.
i just find it easier to start at the spending level and work outward.
how much you need to have will depend entirely on how high of a success rate you want that income stream to have if you desired no spending changes.
medical bills are not on the income side. they are expenses like rent ,food and healthcare.
at this point we are only talking the variables of income creation. where and how you spend that money is a different issue .
what i listed directly effects the creation of your income stream .those who will dependent on their own pile of money to develop a safe , secure , consistent income stream have to in effect their own pension. the variables i listed will determine how successful that income stream will be.
what your expenses are and whether discretionary or not are on the opposite side of the equation . you have to plan that side out before you plan the income side.
kind of like , okay ,this is what i will need to pay for and i need to include emergency and unexpected expenses in that figure , now how do i develop the income stream to support that income and what will vary that income stream ?
see the difference and why medical expenses are not a variable on the income side?
Last edited by mathjak107; 05-23-2015 at 04:48 AM..
i agree with the no surprise protection you get from plans F AND G .
with advantage plans you never know what is lurking as nothing is ever a problem until it is a problem.
they are to open ended with exposure especially out patiant drugs. my co-worker used to brag about how little his advantage plan cost him until this year. now his wife needs chemo and each treatment as an out patient is 4500.00 bucks.
that deal he had for years evaporated with a single event down the road.
My first supplement was the Plan F and it was great. $141/month and my wallet never, ever left my pocket leaving a clinic, doctors office or hospital. It made me feel European!
But when renewal came my rate jumped up by nearly $20/month to $160 and having noticed the only difference between Plan F and Plan G was that I would be responsible for the $147 co-pay and that was it. Now common sense would dictate the Plan F would be no more than $12.25/month ($12.25*12=$147) but as I discovered it was not so.
The difference between my Plan F and Plan G was actually $20/month meaning I would pay $240 more every year with the maximum benefit I could possibly receive is the Plan F would pay the $147. Duh? This is exactly like insuring your car for $1,000/year and paying a $1,600 premium! Duh again?
If the premium had been exactly $147 more for the Plan F I would have taken it because for the time I did have the Plan F I just loved never having to figure any medical expenses in the budget. Regardless of the doctor I went to I never paid anything. But for $100/year (nice dinner out with my wife) I went with the Plan G so I got to figure $147/year medical in my budget now.
My wife and I are probably different from most in that she does have an advantage plan that came *free* as part of her state government retirement package.
So when I budget I still budget $600 every month for medical premiums recognizing the reality of it is we really only spend $300 every month and that is all for me. The other $300.... well... if I figure the expense and don't have the expense I'm ahead, right?
The flaw in my budget is I know I am budgeting to much money for things that will never happen. I have moments like this and it becomes crystal clear I have plenty to retire right now and if I retired today I wouldn't miss the paycheck one bit so why does the thought of not having a pay check come my way scare the hell out of me? Come on, with the exception of one week I've had a paycheck every week my entire adult life from the time I was 17 years old and after 50 years I'm just supposed to give it up? Fear, that is my hangup.
Cost of work? I have no doubt I spend $100/week just to be able to work.
There must be differences in advantage plans because her advantage plan pays for everything so far even a course of mind numbing expensive drugs that had me very, very concerned but she got the drugs and he plan paid for it.
But back to advantage plans, I think a state government can negotiate a pretty good package when they represent several hundred thousand employees and the state is paying the premiums every month. And it is free... sometimes free isn't really free but so far it sure looks like it is.
I agree that you need to be careful about the Medicare Advantage plans.
My Dad was pleased that his (State pays for retiree...) Medicare Advantage plan has these cute perks like paying for him to join his local YMCA (he never goes) and a $75 gift card for getting his yearly physical before June. BUT THEN he got hospitalized with a bad infection. He is already disabled severely after being hit by a car (more bad luck) so with the infection he spiraled down. It was recommended that he go to inpatient rehab after the hospitalization to get back his strength because it wasn't safe for him to go home. But his insurance flat out denied it. You can appeal these denials, and often win in the end.... but it takes days to weeks and the insurance companies know that you can't do it in a timely fashion. They are great denying things initially, and dragging the fight out hoping that you will give up. Meanwhile the hospitals threaten to kick you out and/or bill you personally for the hospital charges during the appeal. It is all done quietly, but firmly.
So it is the big things that the Advantage plans like to deny, when you are often in your most desperate and vulnerable positions. You will only discover this when you are in a tough situation, unfortunately....
Just because you are healthy today, doesn't mean you will be tomorrow. Many of the catastrophic diagnoses hit you suddenly. A trip and fall leading to head injury or a hip fracture, a cancer diagnosis, being hit by a car etc... It doesn't matter how healthy you are now. Genetics and bad luck can get you at any time.
So always choose the best medical insurance plan you can with the most coverage. It is so worth it.
My first supplement was the Plan F and it was great. $141/month and my wallet never, ever left my pocket leaving a clinic, doctors office or hospital. It made me feel European!
But when renewal came my rate jumped up by nearly $20/month to $160 and having noticed the only difference between Plan F and Plan G was that I would be responsible for the $147 co-pay and that was it. Now common sense would dictate the Plan F would be no more than $12.25/month ($12.25*12=$147) but as I discovered it was not so.
The difference between my Plan F and Plan G was actually $20/month meaning I would pay $240 more every year with the maximum benefit I could possibly receive is the Plan F would pay the $147. Duh? This is exactly like insuring your car for $1,000/year and paying a $1,600 premium! Duh again?
If the premium had been exactly $147 more for the Plan F I would have taken it because for the time I did have the Plan F I just loved never having to figure any medical expenses in the budget. Regardless of the doctor I went to I never paid anything. But for $100/year (nice dinner out with my wife) I went with the Plan G so I got to figure $147/year medical in my budget now.
My wife and I are probably different from most in that she does have an advantage plan that came *free* as part of her state government retirement package.
So when I budget I still budget $600 every month for medical premiums recognizing the reality of it is we really only spend $300 every month and that is all for me. The other $300.... well... if I figure the expense and don't have the expense I'm ahead, right?
The flaw in my budget is I know I am budgeting to much money for things that will never happen. I have moments like this and it becomes crystal clear I have plenty to retire right now and if I retired today I wouldn't miss the paycheck one bit so why does the thought of not having a pay check come my way scare the hell out of me? Come on, with the exception of one week I've had a paycheck every week my entire adult life from the time I was 17 years old and after 50 years I'm just supposed to give it up? Fear, that is my hangup.
Cost of work? I have no doubt I spend $100/week just to be able to work.
There must be differences in advantage plans because her advantage plan pays for everything so far even a course of mind numbing expensive drugs that had me very, very concerned but she got the drugs and he plan paid for it.
But back to advantage plans, I think a state government can negotiate a pretty good package when they represent several hundred thousand employees and the state is paying the premiums every month. And it is free... sometimes free isn't really free but so far it sure looks like it is.
we have no plan g in our area but i did go with a high deductible f .
Rule # 1: You never have "enough." Enblazen that in your mind, like, right now.
Rule # 2: Going back to work in case you "underestimated" is difficult for various reasons.
Rule #3: Expenses in general have been undergoing all sorts of completely unpredicted changes - especially in the past 10 years. It isn't 1990 anymore. Far from it. Way too complicated to specify here - just take my word for it. Calculate what you think it will cost - than times it by 2. My COL in the past 8 years has gone up over 1.5X without me doing anything different! Very important to note!
Rule # 4: Once you set, in your mind, a "standard of living" suitable to you, fully realizing that it's "suitable as long as I don't have to go to work," then stick to it. I know more than one person(s) who didn't do that, and today, when I visit with them, they are often in tears, still don't get why they are broke (it's obvious to me) and keep repeating the same financial behavior. It is NOT unusual, btw. Just difficult to reverse that hole you dug.
Last edited by TwinbrookNine; 05-23-2015 at 01:31 PM..
^^^^^^this all quite true! If your life has ben a struggle to save and maintain a standard of living, you are either living a standard you can't afford (too little income or too high a standard, take your choice) or make much less than you think you are relative to your standard, because you refuse to do the math and live by it, choosing instead to "wing it". Sadly, almost everyone I know just "wings it", by living to a standard that others around them "appear" to live by.
As you said, very very few people save too much, which turns out to be enough. Most calculate what SHOULD be enough and want to retire as soon as they can so badly, they believe their optimistic numbers. It is very hard to be objective when you are inside and emotionally invested in the decision. I cant tell you how many times my wife has asked me "don't we have enough saved already? So and so is retired, how are they making it when we made so much more and lived so much more frugally?"
^^^^^ I am not afraid of cutting back standard of living and that is something we started doing about 10 years ago when we moved to a home exactly twice the size of what we had. Who needs four bedrooms and three baths anyway?
Rule #3 sounds like it was written by me. I have a budget that is not poverty stricken, it's comfortable enough with good medical and a decent food budget... we can get along on that but anything special, like a cruise in Hawaii, would be out of the question.
To arrive at an amount of money I feel we need I exactly doubled it. If our bare bones budget is $2,200 after we pay our Part B, Part D, supplements and dental insurance, I felt we could live rather well on $4,400/month which would be actual cash to us because that $4,400 is AFTER we pay all the medical associated premiums and stuff.
With these rules I feel we can live very comfortably on $3,000 and bank $1,400 because all of this is not taxed.
Financially I feel I am ready, more than ready matter of fact, but it is mentally that I have to prepare for now. What do you do when you don't work?
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I am fine with paying taxes and am in the 2nd highest tax tier.. If you want to never pay taxes go live in a 3rd world country and tell us later how that worked for you BTDT it sucks after a while..
