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Cast_No_Shadow posted:Any substantial increase in average life expectancy will totally rock the financial world. I started with mortgages, if you live to 10,000 (actual life expectancy if we ever cure old age, cancer and associated chronic confitions) why have a 30 year mortgage when you can get one for 300 or 3000 years and let inflation do its job. But that would probably increase purchasing power which would increase prices and what about loans, savings, retirements. I bet if they ever came up with something like this it would be insanely expensive, at least at first. I'm willing to forgo consumption now if it helps my chances of becoming an immortal lich king / robber baron.
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Nov 2, 2016 05:47
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Cast_No_Shadow posted:Any substantial increase in average life expectancy will totally rock the financial world. I started with mortgages, if you live to 10,000 (actual life expectancy if we ever cure old age, cancer and associated chronic confitions) why have a 30 year mortgage when you can get one for 300 or 3000 years and let inflation do its job. But that would probably increase purchasing power which would increase prices and what about loans, savings, retirements. Oh man, our ancestors would think we were crazy. "Oh sure, they made their bodies indestructable, achieved immortality, and generally lived like characters in their fairy tales, but for some reason thought it prudent to keep the whole 'lifetime of debt in exchange for shelter' thing." Living to 10,000 would have some pretty awful ecological consequences, since it'd be like instantly increasing the birth rate by the replacement rate of 2.0 or thereabouts. You'd need more housing for everyone, which in practice means more land, which would drive the species-area relationship in the bad direction. I hope they never figure it out.
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Nov 2, 2016 08:14
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I think it's pretty safe to say there'd be some cultural shifts about having children if people lifespans increased dramatically. Your view is pretty short-sighted. Could you imagine encountering an alien species that was immortal and pitching them on death?
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Nov 2, 2016 08:17
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Jeffrey of YOSPOS posted:I think it's pretty safe to say there'd be some cultural shifts about having children if people lifespans increased dramatically. Your view is pretty short-sighted. Could you imagine encountering an alien species that was immortal and pitching them on death? Unfortunately the amount of additional housing isn't proportional to the final birth rate, after cultural shifts. It's proportional to the integral of the birth rate curve, the population. And unless the culture shifts to zero births, a 10,000 year lifespan means that integral gets larger every year until 12,000 AD. Mofabio fucked around with this message at 08:35 on Nov 2, 2016 |
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Nov 2, 2016 08:33
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You'll just need some massive wars to bring it all down. Stock up on ammo, canned goods, and gold now!
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Nov 2, 2016 13:25
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SpelledBackwards posted:You'll just need some massive wars to bring it all down. Stock up on ammo, canned goods, and gold now! Don't forget lentils, rice and beans!
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Nov 2, 2016 13:55
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Neo-bitcoin is the only currency I need.
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Nov 3, 2016 02:04
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What have people been using for - Withdrawal rate? - Inflation-adjusted growth rate? Withdrawal rate: I've heard 4% thrown around but then I also saw some studies from the boglehead wiki that suggests 4% might be 95-100% safe using previous market trends but there's a reasonable scenario where people go broke at 4% too, and that 3 to 3.5% should be used instead...? Inflation-adjusted growth rate: No idea here, other than that it seems like I'd want to assume the growth rate is about equal to my withdrawal rate, no? I've also heard people throw around 7% gains pre-inflation, 4% adjusted, but I feel like I might want to be slightly more conservative than these numbers...? Not sure. At 3.5% withdrawal and inflation-adj growth rate, I'm at ~17 years until FI. Getting this number accurate seems difficult; my rent is going to increase soon, but so will my pay. Mandatory vs discretionary spending is tough too. I should probably just assume all of the discretionary spending will stay to be safe. edit: I suppose there's not much I can do about the inaccuracies except predict future income and expenses the best I can; it'll get more accurate as I approach FI. FWIW, this thing says I need ~$915,000 to be FI based on $2,660/month spending. I might want to bump it up to $3k/month for another safety factor, not sure. Blinky2099 fucked around with this message at 19:10 on Dec 1, 2016 |
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Dec 1, 2016 01:13
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I use similar figures except being in NZ I tend to apply 1% inflation as our inflation (for now) is almost 0%. I do tend to use these figures to give me an idea of what I need to save. However using the retirement calculator on wolfram alpha the random walk gives an interest retirement savings distribution. There are a few settings to play around with and the potential distribution is worth looking at. https://www.wolframalpha.com/input/?i=retirement It's like I will be FI with certainty in 14-15 years when my mortgage will be paid off. Things could change in that time but things are always uncertain. Although I don't necessarily plan on retiring when I'm FI. Most likely I'll just change the nature of the business and restrict what clients I take one, and maybe quadruple my fees.
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Dec 2, 2016 05:41
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Blinky2099 posted:What have people been using for The historical average S&P500 annual return is ~10%. 7% is the post-inflation, i.e. real, return. You do not want your expected growth rate to equal your withdrawal rate, because the expected growth rate is averaged over a period longer than your lifetime, whereas your withdrawal rate will (hopefully) be fairly consistent from year to year. The Trinity study determined that annually withdrawing 4% if your initial balance, adjusted for inflation, meant you would be very safe even in the event of a long down-market based on historical data, because the more numerous years with above-4% gains would make up for it. An interesting corollary of this is that if you're able to reduce your spending in down-markets, you can safely increase it above 4% of your initial adjusted balance in up-markets. People usually find out too late that reducing spending is much harder than increasing it, though, so beware.
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Dec 2, 2016 06:41
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<nevermind>
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Dec 2, 2016 09:38
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You also have to remeber that nearly all of these studies and models by definition are really strict and make huge assumptions you as a singular human being dont have to make. Also you have potential added complexity in the difference between you savings and retirement accounts (so our fi money has to last at x until I hit an age I can legally withdraw from retirement accounts when it gets a boost). Similarl you have the option of keeping you hand in the work arena either start up some kind of low effort business or work part time for a while to add more security or make the numbers work in a different way. Tldr: These are all rules of thumb, 4% is pretty safe, you have other options, dont think in absolutes.
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Dec 2, 2016 10:13
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Also remeber that studies will increase your withdrawl by whatever measure of inflation is every year. Arr you really going to increase you withdrawl by 1.6% or whatever exactly or more likely use the same amount until it becomes to tight due to rising prices and then re-review. It may not sound much but that extra couple of % adds another slightly reduction in risk.
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Dec 2, 2016 10:17
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Great resource, thanks. I'll especially want to use that for analyzing probability of going broke if I retire at X dollars.Ralith posted:4% would have worked for almost any US citizen in the time for which the stock market has existed Cast_No_Shadow posted:You also have to remeber that nearly all of these studies and models by definition are really strict and make huge assumptions you as a singular human being dont have to make. This all helps a lot. Just trying to come up with a number that's fairly balanced between "fairly safe" and "too safe". By this discussion I'll go with 4% total account gains (post-tax/post-inflation), target 3% withdrawal rate at $3k/mo or $36k/yr = $1.2MM in todays-dollars savings required... looks like I should be there in ~20 years, with a ton of potential variance.
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Dec 2, 2016 10:30
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Cast_No_Shadow posted:Also you have potential added complexity in the difference between you savings and retirement accounts (so our fi money has to last at x until I hit an age I can legally withdraw from retirement accounts when it gets a boost). Similarl you have the option of keeping you hand in the work arena either start up some kind of low effort business or work part time for a while to add more security or make the numbers work in a different way. Good point about returning to work occasionally. Most hobbies, when given the kind of attention that you can afford in retirement, can naturally produce some income and even a very small profit can give you lots of extra breathing room. Blinky2099 posted:Great resource, thanks. I'll especially want to use that for analyzing probability of going broke if I retire at X dollars. Blinky2099 posted:That all makes sense. 7% post-inflation S&P500 seems reasonable, but I'll have bonds/cash/lots of taxable account savings. Maybe ~4% or 5% post-inflation avg gains across all acounts is more reasonable than the 7% SP500, but as you mention, maybe that means I should lower my withdrawal rate from 4% to 3 or 3.5% to compensate...? or no?
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Dec 2, 2016 21:46
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Ralith posted:Are you not investing your taxable account savings? Sure, there'll be some tax drag on dividends, but your expected gains shouldn't be much lower. Think hard about whether you really want large cash/bond holdings in a long-term investment account when you're in the accumulation phase. There's definitely benefit to being more conservative in the first 5-10 years of retirement if safety margin is initially narrow, but when you're not planning on touching the money for at least a decade, it's a different situation. 7% SP500 - 15% = 6%, and then add in 20% of bonds at some other return (4?) and it's down to about 5.5% average. Then decrease that even more because during retirement I'll have less stock allocation, some amount cash, and more bonds, I would think. And then I guess the decision is between assuming 5.5% but saving enough to be safe, or assuming lower than 5.5% as part of the safety factory (such as 4 or 5%). Again I really don't know what's reasonable and what's too safe, which is why I ask. Blinky2099 fucked around with this message at 22:18 on Dec 2, 2016 |
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Dec 2, 2016 22:07
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Blinky2099 posted:No, I currently have all SP500 in taxable (but that's only sitting at around 20k or so.) I plan to deposit about $30-$35k a year into retirement, so $23.5k in IRA/401k and the rest taxable. My point was more that I'd end up having to pay 15% long-term capital gains tax (I think?) on that money upon withdrawal, so I guess we would decrease the 7% by 0.15 = 6% instead. My current allocation is 50% US stock 30% int stock 20% bonds and I plan on keeping it at least this aggressive if not more in the future 5 or so years. I'm not sure what the expected bond ROI should be but I assume less than the 7% of SP500.
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Dec 2, 2016 22:16
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Ralith posted:You pay long-term capital gains when you sell, so that doesn't impact your growth rate. edit:vvv Ralith posted:Furthermore, when you do sell, the long-term capital gains rate is 0% if your taxable income is in the 15% bracket, which if your spending is $36k/y you will easily satisfy even if you're using a Roth ladder for all your income--and if you're married, you get double the breathing room. You can even use whatever extra breathing room you do have for tax-gain harvesting to further reduce future tax liability. I guess with everything all considered I'll stick to a ~5.5-6% total gains assumption after the need to pay some amount of taxes and hold more bonds/cash during retirement. Thanks for all of the good info; I think I have a much better understanding now. Blinky2099 fucked around with this message at 22:29 on Dec 2, 2016 |
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Dec 2, 2016 22:24
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Blinky2099 posted:It doesn't matter, right? If that tax was upfront, then gains are reduced by 15%. If the tax is after, then gains grow tax-free but then still are 15% less upon withdrawal. Blinky2099 posted:edit:vvv e: To be clear, it is better to contribute to Traditional and convert to Roth than it is to contribute to Roth directly or to take distributions from Traditional directly because it saves on your higher pre-retirement marginal tax rate while still allowing any excess funds to continue receiving tax-free gains in the Roth. The ideal situation is to be surviving on your post-tax assets for as long as possible while continually laddering into a Roth account to build up an ever-larger buffer you can get at penalty-free whenever necessary but which still enjoys tax-free growth. Ralith fucked around with this message at 22:54 on Dec 2, 2016 |
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Dec 2, 2016 22:44
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Ahh duh, that makes sense. Converting the growth rate is clearly the wrong way to do that. And you're right, it looks like long-term capital gains tax would be 0% up to $37,650 of income this year. So if I converted $30,000 trad -> roth I'd have $30k income, plus whatever I withdraw from taxable account minus contributions... yeah, 0% seems very realistic. Even if I withdrew $44k that year, a good amount of the taxable account withdrawal would be no-tax contributions anyway. In that way, my taxable account might as well be identical to a Roth tax-advantaged account, it seems.Ralith posted:e: To be clear, it is better to contribute to Traditional and convert to Roth than it is to contribute to Roth directly or to take distributions from Traditional directly because it saves on your higher pre-retirement marginal tax rate while still allowing any excess funds to continue receiving tax-free gains in the Roth. The ideal situation is to be surviving on your post-tax assets for as long as possible while continually laddering into a Roth account to build up an ever-larger buffer you can get at penalty-free whenever necessary but which still enjoys tax-free growth. Edit: Withdrawal rate: 4% Inflation-adjusted growth rate: 5% Current spending: ~$3,000/month to be safe, but closer to $2,600 actual. ($900k required) Predicted future spending: ~$4,000/month to be safe (currently pay $750/m rent, expecting around $1600 + utilities in future. $1.2MM required.) Although I could simply retire somewhere cheaper. Plugged into wolframalpha and there's a 10% probability I end up being poor as poo poo when I'm older, assuming I reduce spending throughout my life, which seems a little high. But can always move to a cheaper area / make side income so I think ~$1-1.2MM seems fine. Blinky2099 fucked around with this message at 05:50 on Dec 3, 2016 |
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Dec 3, 2016 01:40
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Blinky2099 posted:Oh... weird. I thought roth was typically better when maxing because it allows you to contribute more of your annual salary in. But if you're able to just end up converting all of traditional to roth while tax rates are super low (like the 5 year period post-retirement living off of taxable accounts only, perhaps) then it's basically the exact same thing as a roth only you've now paid fewer taxes than you would have if you originally deposited that money as roth...? Be careful with the amount you convert from Traditional to Roth. Again, these are taxed as income, so you want to draw them out as long as possible, not just 5 years--ideally you can keep your taxable income below the threshold at which any tax is due whatsoever. (around $10k-$20k depending on whether you're married, IIRC). Of course you need to plan this carefully so as not to run out of post-tax money. Go Curry Cracker! has a nice writeup on the whole process, though it's from 2013 so the exact numbers will have drifted a bit. Ralith fucked around with this message at 08:20 on Dec 3, 2016 |
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Dec 3, 2016 08:17
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As an aside your future spend appears high. Is it inflatiom adjusted?
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Dec 3, 2016 10:52
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Cast_No_Shadow posted:As an aside your future spend appears high. Is it inflatiom adjusted? Ralith posted:As far as I know, contribution limits are never specific to Traditional or Roth, but blanket against all of a certain class of account (such as $5.5k for IRAs or $18k 401(k)s). You might be thinking of after-tax Traditional contributions, which are a separate thing and probably not a good idea unless your 401(k) plan supports mega-backdoor Roth contributions, in which case you can (ab)use them to cram something like $50k into a Roth IRA every year. Blinky2099 fucked around with this message at 17:56 on Dec 3, 2016 |
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Dec 3, 2016 17:34
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Blinky2099 posted:no I'm thinking traditional vs Roth. If you max 401k as traditional you can put in 18k pretax. By maxing 401k as Roth you are putting in 18k post tax aka like 26k pretax in my case. Bigger contribution allowed. But maybe if you convert it all to Roth at very low tax rates, traditional could be better...?
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Dec 3, 2016 17:59
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Ralith posted:Yes, if you're able to max out your 401(k) and IRA and still accumulate significant after-tax investments, then proper tax planning will allow you to pay 0% tax on Traditional to Roth conversions spread out over sufficiently many years, which makes it by far the best option.
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Dec 4, 2016 02:23
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Ralith posted:Yes, if you're able to max out your 401(k) and IRA and still accumulate significant after-tax investments, then proper tax planning will allow you to pay 0% tax on Traditional to Roth conversions spread out over sufficiently many years, which makes it by far the best option. How would you pay 0% on that conversion? The only way I could think of is if you have absolutely $0 income for the whole year, you could convert $10,350 completely tax free (as a single person) by filling up the personal exemption and standard deduction - but after that you are paying at least 10% on the conversion. If you are trying to convert a 7 figure balance, that $10k isn't going to go very far.
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Dec 4, 2016 02:53
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Droo posted:How would you pay 0% on that conversion? I assume it's a matter of converting $10,350 in traditional every single year which can then be withdrawn 5 years later, and then the rest of your $20-$30k would come from other zero-tax savings (the only ones I can think of are taxable investments, and long-term gains that are 0% if we stay within the 10-15% tax bracket or something due to tax gain harvesting at the 10-15% tax bracket..? http://www.gocurrycracker.com/never-pay-taxes-again/ Also something about qualified dividends that I don't think I understand. From that article he posted it's $19,500 for married couples (but even if I'm married I still expect to need to pay at least $3k/month in retirement for myself personally so that doesn't exactly help.)
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Dec 4, 2016 03:29
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Well if you make $0 you can convert almost $100k as a couple and stay within the 15% tax rate, so that's still pretty good. I just didn't see how you would get to 0% in any realistic way. I must admit, I overlooked the "learn to live happily on $19,000 per year as a couple" strategy.
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Dec 4, 2016 03:37
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I finally made it into the debt-free club, and have begun saving enough up to start investing. I'm a Euro living in Hong Kong, and I've got bank accounts in Denmark, England and Hong Kong. I'm paid in HK, and all my money are here. Since I'm not a US citizen, I can't open a Vanguard account, so their Index funds seem out of the question. Are Vanguard ETFs through an online broker my best option here, and is it just a matter of finding the cheapest broker and dump as much as possible into the S&P 500 ETF? I appreciate most of you are US and probably don't know much about alternatives for us filthy foreigners, but most of the internet seems to be aimed at US citizens.
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Dec 8, 2016 09:03
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Are you Danish? If so, I'm pretty sure you can use Nordnet and have the automatic taxation cancelled. They're good and cheap in fees. I've personally bought vanguards total market ETF as part of my portfolio.
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Dec 8, 2016 12:06
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Droo posted:Well if you make $0 you can convert almost $100k as a couple and stay within the 15% tax rate, so that's still pretty good. I just didn't see how you would get to 0% in any realistic way. Ralith fucked around with this message at 21:55 on Dec 8, 2016 |
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Dec 8, 2016 20:31
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Ralith posted:As I emphasized, the 0% tax strategy only works if you have significant after-tax investments that you can draw down. If for whatever reason the sum total of your net worth is in Traditional IRAs and 401(k)s, then yes, it won't be as useful a strategy, but if you do have enough post-tax savings to live on for a while, then every single year you can do such a conversion saves you thousands of dollars in taxes. This was made clear both in the article and in the posts you replied to. It also only works as long as there's a 0% LTCG rate, which could be going away as soon as next year if the house republicans get their way.
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Dec 8, 2016 22:12
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Ralith posted:As I emphasized, the 0% tax strategy only works if you have significant after-tax investments that you can draw down. If for whatever reason the sum total of your net worth is in Traditional IRAs and 401(k)s, then yes, it won't be as useful a strategy, but if you do have enough post-tax savings to live on for a while, then every single year you can do such a conversion saves you thousands of dollars in taxes. This was made clear both in the article and in the posts you replied to. My point was that $19k a year isn't a big enough dollar amount to be able to roll over an entire retirement account for a person who retires early. Someone with $500k in retirement assets wouldn't even be covering the expected growth of the investments at that point.
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Dec 8, 2016 22:36
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Blinky2099 posted:... Also something about qualified dividends that I don't think I understand... I believe this is in reference to the dividends you receive from your index funds. They count toward your total investment income even if you choose the option for those dividends to be re-invested automatically.
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Dec 8, 2016 23:26
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HomerCSM posted:I believe this is in reference to the dividends you receive from your index funds. They count toward your total investment income even if you choose the option for those dividends to be re-invested automatically.
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Dec 8, 2016 23:39
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Jeffrey of YOSPOS posted:Qualified dividends are taxed as capital gains whereas ordinary dividends are regular income. This means that stocks issuing ordinary dividends are kind of bad to hold (assuming no growth) because a lot of your gains are going to always get the short term rate instead of the long term one, because a dividend being issued will lower the stock price by the amount per share. It doesn't make much sense to me because, for liquid instruments, it seems like you'd always want to sell the stock before the dividend issuance day and buy it back after but maybe I'm missing something. The stock price is adjusted down, by both the exchange and the free market/arbitrage forces, to make trading stocks around the dividend date pointless. Edit: Qualified dividends started with the Bush tax cuts in order to encourage people to buy and hold Amurrcan stocks. Droo fucked around with this message at 00:05 on Dec 9, 2016 |
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Dec 9, 2016 00:02
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Droo posted:The stock price is adjusted down, by both the exchange and the free market/arbitrage forces, to make trading stocks around the dividend date pointless. With a qualified dividend, the capital gain is offset by the capital loss in the share price. With a nonqualified dividend, the capital loss is not enough to compensate for the more-highly-taxed dividend. It certainly seems like "avoid holding stocks which issue ordinary dividends" is good advice if you're right.
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Dec 9, 2016 00:10
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Jeffrey of YOSPOS posted:Qualified dividends are taxed as capital gains whereas ordinary dividends are regular income. This means that stocks issuing ordinary dividends are kind of bad to hold (assuming no growth) because a lot of your gains are going to always get the short term rate instead of the long term one, because a dividend being issued will lower the stock price by the amount per share. It doesn't make much sense to me because, for liquid instruments, it seems like you'd always want to sell the stock before the dividend issuance day and buy it back after but maybe I'm missing something. Droo posted:My point was that $19k a year isn't a big enough dollar amount to be able to roll over an entire retirement account for a person who retires early. Someone with $500k in retirement assets wouldn't even be covering the expected growth of the investments at that point. The only really important thing is that even if you have the ability to live entirely off after-tax assets, you still keep running that conversion, because it's free and improves your flexibility.
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Dec 9, 2016 02:06
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Ralith posted:I think this would convert all appreciation to short-term gains, which would be pretty terrible. Ralith posted:Which is why it's a good tactic for people who have significant after-tax savings, i.e. people who do not have a pressing need to access their entire tax-deferred holdings ASAP. What part of this is unclear? The magnitude of your tax-deferred holdings isn't even relevant. All that matters is whether the shortfall (if any) between your safe withdrawal rate on your after-tax holdings and your desired lifestyle is not too far above $20k. If so, great, enjoy your 0% conversions. If not, then don't.
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Dec 9, 2016 02:22
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Jeffrey of YOSPOS posted:Trading stocks to try to ensure you get the dividend obviously won't work for those reasons. Does the same apply to trading stocks to ensure you don't receive the dividend for tax purposes? If the price gets lower before the dividend date, then you could get the cheap stock and the dividend, whereas if it doesn't decrease until after, then you could sell before and buy after to avoid the extra tax. I guess before the date, it probably drops the amount you'd save on taxes, and then after, drops the rest of the way. There are some exceptions but basically every regular company in the US and a long list of other developed economies in the US pay out qualified dividends to allow investors with buy-and-hold strategies to treat dividends like long term capital gains. If you try to buy and sell stocks for the express purpose of avoiding dividend payouts the net effect is that you will pay short term capital gains rates (i.e. ordinary income rates) on your transactions in perpetuity rather than paying LTCG rates on dividends.
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Dec 9, 2016 02:32
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