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Discuss Latest POF Blog Post: Everyone is Using The 4% Rule Wrong

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  • Discuss Latest POF Blog Post: Everyone is Using The 4% Rule Wrong

    Calculating your FIRE figure is easy. Just apply the 4% and sail off into the sunset with nary a care ... Read more

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    Helping those who wear the white coat get a fair shake on Wall Street since 2011

  • #2
    Always remember taxes in your planning.

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    • #3
      this is a sherlock post....

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      • #4
        “Everyone”

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        • #5
          I thought that because the standard deduction for a married couple is $24,400 based on online data from 2019 (if both are under 65 years old) and the top of the no-tax bracket for capital gains is $78,750. Most married couples can make a total of $103,150 per year without paying federal taxes? In addition there may be a child tax credit.

          So why are federal taxes so high in the example in the post?
          Last edited by Dusn; 03-12-2021, 12:14 PM.

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          • #6
            Originally posted by Dusn View Post
            I thought that because the standard deduction for a married couple is $24,400 in 2019 (if both are under 65 years old) and the top of the no-tax bracket for capital gains is $78,750. Most married couples can make a total of $103,150 per year without paying federal taxes? In addition there may be a child tax credit.

            So why are federal taxes so high in the example in the post?
            Apparently is a state level rule, says Oregon, all retirement is taxable, which...there are better options and a big giant "it depends" goes here really.

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            • #7
              I long ago came to the same conclusion. The higher the earner and bigger the saver, the larger the balance in tax-deferred retirement accounts, the greater the embedded capital gains in taxable accounts, the more money in employer deferred comp accounts, and if you are lucky enough to throw in a pension, the bigger the bite taxes will take on the distribution side.

              If you are counting on spending $30,000 per year from a $750,00 portfolio, the tax bite will be very small, maybe negligible or zero. If you are counting on spending $300,000 per year from a $7.5M portfolio, well, be prepared to spend $200,000.

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              • #8
                Originally posted by Zaphod View Post

                Apparently is a state level rule, says Oregon, all retirement is taxable, which...there are better options and a big giant "it depends" goes here really.
                The author states he is withdrawing from a cash balance plan and an IRA, with no taxable brokerage account. So Dusn’s scenario still holds true for federal tax.

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                • #9
                  Originally posted by TheDangerZone View Post

                  The author states he is withdrawing from a cash balance plan and an IRA, with no taxable brokerage account. So Dusn’s scenario still holds true for federal tax.
                  Agree, these are always written so strangely, even months long series that are just such tail events as to not make sense.

                  I agree I still dont see how theyre paying 24% effective on withdrawals, this is a 400k income level its a bit absurd.

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                  • #10
                    Great. I’m glad to see I wasn’t missing something major here. And since part of the withdrawal from the retirement account will be principle, you could theoretically live off of even more than $103k per year without incurring federal taxes because the principle that you’re withdrawing will not be taxed, correct?

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                    • #11
                      Reading the comments below the linked article made me revise my assessment of the accuracy of the headline to the article. Now I think the author can write round 2 of "everyone's doin' it wrong" using inflation instead of taxes.

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                      • #12
                        Maybe he is single. That is the only way to get his federal effective rate that high.

                        Also in reality most early retirees will have a large taxable account

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                        • #13
                          Originally posted by Lordosis View Post
                          Maybe he is single. That is the only way to get his federal effective rate that high.

                          Also in reality most early retirees will have a large taxable account
                          Right, and if you are an early retiree physician that taxable account will mostly be filled by contributions, not decades of gains.

                          POF had a really informative post at some point on how early retirees who are reasonable spenders can expect to pay little to no income tax.

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                          • #14
                            Originally posted by dayman View Post

                            Right, and if you are an early retiree physician that taxable account will mostly be filled by contributions, not decades of gains.

                            POF had a really informative post at some point on how early retirees who are reasonable spenders can expect to pay little to no income tax.
                            Especially if we wise up and leave high tax states!

                            Comment


                            • #15
                              Originally posted by Lordosis View Post
                              Maybe he is single. That is the only way to get his federal effective rate that high.

                              Also in reality most early retirees will have a large taxable account
                              I actually think he was talking about his marginal rather than effective rate.

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