Financial Independence Daily FI discussion thread - October 09, 2019 |
- Daily FI discussion thread - October 09, 2019
- UPDATE: Hidden Taxes! We pay 6.34% in Federal Income Tax, but we still pay another 13.78% in State Income Tax, FICA Payroll Tax, Property Tax, and Sales Tax.
- Seems like something is off here...
- Weekly Self-Promotion Thread - October 09, 2019
- Roth 401(k) vs Traditional + Conversion Ladder
- Polarizing F.I.R.E. movement sparks debate among financial professionals [Globe and Mail]
| Daily FI discussion thread - October 09, 2019 Posted: 09 Oct 2019 01:07 AM PDT Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  | |||||||||||||||||||||||||||
| Posted: 09 Oct 2019 07:20 AM PDT Over the weekend I made this post: https://www.reddit.com/r/financialindependence/comments/ddqua0/we_make_150kyear_yet_our_effective_federal_tax/ Initially I was pleasantly surprised to find out that our Effective Federal Income Tax Rate on $150,000 of income was only 6.34%. My wife and I both max our Traditional 401(k)s and HSAs to help reduce our federal tax burden. I always assumed we paid closer to 20% in taxes (which is the assumption in my FIRE spreadsheet), so this was good news! This would means that our FIRE date would potentially move up by a couple years! But then a few members of this fantastic community pointed out that I shouldn't forget things like the 7.65% FICA payroll tax, our state's income tax, property tax, and even sales tax. This encouraged me to try and calculate the TOTAL amount of ALL taxes that we pay in a given year. Below is a breakout of each major type.
I was then very surprised to find out that our federal income taxes accounted for a much smaller amount of our total tax burden than I would have originally thought! Our Total Effective Tax Rate ended up being 20.12% ($30,187/$150,000). Which is actually SLIGHTLY HIGHER than my FIRE spreadsheet assumption of 20.0%! I figured this would be a helpful finding to share with the community because some of the "smaller" taxes we pay (like state, city, FICA, property, and sales taxes) can really add up and potentially have a big effect on our FIRE calculations. EDIT: As a few of you have pointed out, in retirement taxes should be a bit lower (No FICA payroll taxes, untaxed Roth withdrawals, and lower income taxes for dividend and long-term capital gains in taxable account. So to get an accurate tax number for your FIRE spreadsheet, you would want to account for those changes. [link] [comments]  | |||||||||||||||||||||||||||
| Seems like something is off here... Posted: 09 Oct 2019 07:31 AM PDT https://nypost.com/2019/10/08/inside-the-strange-secretive-lives-of-rich-millennial-cheapskates/ The first guy is 36 with 400k saved but supposedly makes over $270k and expects to retire within 3 year. He later admitted that his cheap ways ended a relationship. It seems rather extreme on all accounts, especially his retirement expectations. The second person interviewed just had a child and talks about riding a suffocating subway while 8 months pregnant, putting back 50% of their salary yet feeling as if they can already retire. The third couple has a $50k nest egg and one lady quit her job to pivot to a new career. All well and good, but to do so on $50k in savings at 32 years old and have a previous salary of over $100k? Again, the numbers just don't add up. Am I missing something here or did the Post go out of their way to find the worst examples possible? [link] [comments]  | |||||||||||||||||||||||||||
| Weekly Self-Promotion Thread - October 09, 2019 Posted: 09 Oct 2019 01:08 AM PDT Self-promotion (ie posting about projects/businesses that you operate and can profit from) is typically a practice that is discouraged in /r/financialindependence, and these posts are removed through moderation. This is a thread where those rules do not apply. However, please do not post referral links in this thread. Use this thread to talk about your blog, talk about your business, ask for feedback, etc. If the self-promotion starts to leak outside of this thread, we will once again return to a time where 100% of self-promotion posts are banned. Please use this space wisely. Link-only posts will be removed. Put some effort into it. [link] [comments]  | |||||||||||||||||||||||||||
| Roth 401(k) vs Traditional + Conversion Ladder Posted: 09 Oct 2019 02:42 PM PDT Is there an advantage to using a Traditional 401(K) over a Roth 401(K) when planning for early retirement? Why rely on the conversion ladder strategy if you have access to contribute to a Roth 401(k)? I understand why you wouldn't contribute to a Roth IRA, however, this link (and most other sources) suggest contributing to a Traditional account during your working years and disregards the possibility of employers offering a Roth 401(k). [link] [comments]  | |||||||||||||||||||||||||||
| Polarizing F.I.R.E. movement sparks debate among financial professionals [Globe and Mail] Posted: 09 Oct 2019 01:42 PM PDT "When it comes to retirement planning, financial advisers have a lot of experience building portfolios for people ready to leave the work force in their 50s, 60s, or even their 70s. But what happens when a client walks through the door with a plan to retire in their 30s or 40s? It's rare, but not unheard of among younger people today seeking to be part of the "financial independence, retire early" (F.I.R.E.) movement. F.I.R.E. seekers aim to save aggressively and spend very little with a goal to leave the work force decades earlier than their parents' generation. The movement has gained momentum during the past decade through online communities and social media as more young people share their F.I.R.E. goals and success stories – ranging from never having to work again to seeing paid work as optional. F.I.R.E. is a polarizing concept that sparks fierce debate among those who praise the hard work and frugality that comes with retiring young and those who believe these people are sacrificing too much to exit their working life early – only to wind up bored without a job to go to every day. Regardless of where advisers stand on the F.I.R.E. movement, any client who's saving more than they're spending should be lauded, says Chuck Grace, a lecturer at the University of Western Ontario's Richard Ivey School of Business who teaches courses on personal investing, and a consultant to the wealth-management industry as managing partner and president at Bigger Picture Solutions Inc.. "You have a client walking in and saying, 'My plan is to save a lot of money.' How can that be a bad thing? One of the cornerstones to building wealth is that people who are wealthy save more than people who don't. You can't invest until you have savings," Mr. Grace says. The wrong response, he says, is when advisers challenge investors and tell them they're too young to retire or that their goal is naive. "Most professionals are going to look at anyone who walks into their office and say, 'What are your goals and objectives – and how can I help you?' Whether it's to save or to do something else. Professionals will always approach it that way." A few years ago, Mr. Grace had a 21-year-old student at Ivey who presented his plan to retire in his late 20s as part of a school assignment. Mr. Grace was skeptical at first. He even asked the student to redo the assignment to make it more realistic. Four years after the student's graduation, he came back to Mr. Grace to say he had met his retirement goal through a combination of extreme savings and real estate investing and was ready to stop working at the age of 27. Today, that student's experience is used as a case study in Mr. Grace's classroom, where students critique and debate this F.I.R.E.-inspired financial plan. "It's very unusual," Mr. Grace says of people who retire young successfully – or to have "fired," as the movement describes it. (To be "firing" is when you're cutting expenses to reach that goal.) "To make that choice, you have to be incredibly disciplined." Retiring young can also be risky, especially for those on a fixed financial plan, says Jason Heath, an advice- and fee-only certified financial planner at Objective Financial Partners Inc. in Toronto. He's concerned F.I.R.E. followers may not be factoring in surprise expenses such as healthcare bills if a family member becomes seriously ill, or the possibility of parents needing financial support. These are the same risks that someone retiring in their 50s and 60s faces, only heightened by the longer retirement time frame. "There's already all of this uncertainty, let alone the uncertainty of [potentially] having a 60year retirement," Mr. Heath says. Another risk for someone focused on savings and cost-cutting is they might forgo wealthprotection measures – such as purchasing life, disability or critical illness insurance – while working to meet their retirement goals. "A death, disability or critical illness could derail a F.I.R.E. plan – or anyone's financial plan," Mr. Heath says. Warren MacKenzie, head of financial planning at Optimize Inc. in Toronto, believes advisers should challenge F.I.R.E. adherents on why they want to retire early. Their responses to an adviser's difficult questions could prompt them to rethink their plans. "Sometimes, you really get people thinking about their goals," says Mr. MacKenzie, who has had a few clients who retired early and then complained about being bored and feeling unfulfilled. "I would ask [people looking to retire early], 'What are you going to do when you retire?' If they say, 'I'm going to play golf,' I would point out that I know people who got bored silly doing things like playing golf every day. It becomes like work," he says. "I would talk to them to ensure they're clear on their goals." As an adviser, Mr. MacKenzie also believes it's his job to point out that sacrificing personal enjoyment when you have a young family in order to retire early could be a mistake. "By all means, save and be financially secure, but the idea of sacrificing your best years by working overtime and not enjoying things like travel and time with your family so you can retire at age 40? Then what will you do?" he says. "I think it's wrong to sacrifice your life for financial independence at age 40 or 50. It's not how much money you have that makes you happy. … If you're sacrificing everything just thinking about the future, how are you living in the moment? How are you enjoying life?" " -Brenda Bouw, Globe and Mail, Oct. 9 2019 [link] [comments]  |
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