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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. You originally posted: 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. I am simply trying to point out that based on the current tax law, it is basically impossible to pay 0% on an entire roth conversion, even given infinite years, because the window is so small that even at $500k between a married couple your growth is always outpacing the 0% window. The only reason I pointed it out was so that other people who read the forum aren't confused into skipping over their 15% window, which in my opinion is still very worth doing because it is literally impossible to achieve an entire conversion at 0% for anyone with enough assets accumulated to consider early retirement. Honestly, it's like you are saying that people don't need jobs because they can just roam the street picking up nickels. While technically true, it is not a very realistic way to do it.
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# ? Dec 9, 2016 02:53 |
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# ? May 17, 2024 15:09 |
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Droo posted:I am simply trying to point out that based on the current tax law, it is basically impossible to pay 0% on an entire roth conversion, even given infinite years, because the window is so small that even at $500k between a married couple your growth is always outpacing the 0% window. The only reason I pointed it out was so that other people who read the forum aren't confused into skipping over their 15% window, which in my opinion is still very worth doing because it is literally impossible to achieve an entire conversion at 0% for anyone with enough assets accumulated to consider early retirement.
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# ? Dec 9, 2016 03:39 |
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Surely there has to be a way to calculate what % income you need to have coming from tax-free investments (Roth IRA/401k, and then taxable investments minus gains) to then allow you to convert the maximum traditional -> roth while staying at 0%, right? Like what if I had 99% roth 401k and 1% traditional 401k. at that point im pretty sure we could convert at 0%. What does this number actually have to look like? I realize this has to do with how much you want to spend per year so use whatever number. I assume it's something like $2-$4k/month pending single vs married and location and whatnot.
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# ? Dec 9, 2016 03:39 |
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Blinky2099 posted:Surely there has to be a way to calculate what % income you need to have coming from tax-free investments (Roth IRA/401k, and then taxable investments minus gains) to then allow you to convert the maximum traditional -> roth while staying at 0%, right? Sometimes it can be tricky to predict your taxable income well in advance, but you don't really need to get it exactly right anyway.
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# ? Dec 9, 2016 03:42 |
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Droo posted:You originally posted: A retired friend of my dad regularly converts 50k+ a year of his IRA into to Roth without paying any taxes due, mostly due to large deductions for medical costs and property taxes. So there are circumstances where its possible.
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# ? Dec 9, 2016 03:51 |
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Ralith posted:I'm genuinely mystified by your confusion here. You keep talking about your imaginary couple with $500k in a Traditional IRA/401(k) and not a cent elsewhere, but sometimes people have large amounts of after-tax savings too. Believe it or not, this impacts tax planning. I've explained the significance of this like three different ways and linked a detailed article. You're entitled to your opinion that it's "literally impossible" to do that, I guess. Let's try a different approach. Hypothetically, my wife and I have about $1,000,000 in tax deferred retirement accounts. I have another $1,000,000 in an after tax brokerage account. I am 35. If both my wife and I quit our jobs right now and started converting our traditional retirement accounts to roth accounts using only 0% conversions, how old would I be before I had no more money in traditional accounts and it had all been moved to Roth accounts? Run it three times, assume growth rates of 1%, 5%, and 8%.
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# ? Dec 9, 2016 03:54 |
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Struensee posted: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. I am Danish, but haven't lived in, or been taxed in Denmark for the last 4 years. And Hong Kong has 0% tax on capital gains, which I would assume is a benefit. I'm not staying in Hong Kong forever, and do hope to eventually move to the US, either with my current employer or with a new job. So I'm not quite sure what the best way to do this, if I'm only here for another year or two. I guess with a worldwide online broker, my physical location shouldn't matter too much, and if I move to the US eventually, I can move it all to a Vanguard fund. I'm still a bit confused, being completely new to this investing business... Does it matter at all which broker I buy a Vanguard ETF at? I know there is a fee for buying, but besides that, will the costs and benefits be the same?
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# ? Dec 9, 2016 03:59 |
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Droo posted:Let's try a different approach.
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# ? Dec 9, 2016 04:09 |
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Ralith posted:"Convert all your money" is not the goal, and your second imaginary couple no more represents everybody than the first did. What is wrong with this imaginary couple? You are describing a group of people who have saved so much money that they have "significant after tax savings" as you keep saying. So presumably they maxed out all their retirement space every year while saving even more money on top of that. If you call the couple 45 or 55 instead of 35, it just makes it more likely they will die before being able to spend down all their retirement accounts without paying any tax on them so that doesn't help you. You also keep saying how important it is to consider their after tax accounts, but ironically that only makes it harder to convert retirement assets at 0% because the after-tax investments will at the very least kick out dividends which are taxed in their own way.
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# ? Dec 9, 2016 04:23 |
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Droo posted:What is wrong with this imaginary couple? You are describing a group of people who have saved so much money that they have "significant after tax savings" as you keep saying. So presumably they maxed out all their retirement space every year while saving even more money on top of that. If you call the couple 45 or 55 instead of 35, it just makes it more likely they will die before being able to spend down all their retirement accounts without paying any tax on them so that doesn't help you. It's a fair goal to minimize and time shift taxes by dribbling out long term capital gains and making tax advantageous Roth conversions to the extent it is possible to do so. Eventually RMDs will catch up to you if you live long enough so it's not really possible to live an actuarially long life and die with a pile of unconverted Roth assets.
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# ? Dec 9, 2016 15:53 |
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Also does anyone else think this is a huge overcomplicated mess and maybe we should consider making tax brackets about cumulative lifetime earnings instead of resetting each year? How much human brain power is used on moving taxes around from year to year?
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# ? Dec 9, 2016 16:03 |
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Jeffrey of YOSPOS posted:Also does anyone else think this is a huge overcomplicated mess and maybe we should consider making tax brackets about cumulative lifetime earnings instead of resetting each year? How much human brain power is used on moving taxes around from year to year? Sounds like a bad deal for anyone who retires or suddenly loses a job. There is no fair, uncomplicated, and ungameable taxation scheme that is also compatible with the multiple complicated layers of government for a country with a $20T GDP and 320 million people.
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# ? Dec 9, 2016 16:09 |
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BEHOLD: MY CAPE posted:It's a fair goal to minimize and time shift taxes by dribbling out long term capital gains and making tax advantageous Roth conversions to the extent it is possible to do so. Eventually RMDs will catch up to you if you live long enough so it's not really possible to live an actuarially long life and die with a pile of unconverted Roth assets. The other dude's original statement was that people shouldn't ever pay tax on conversions because they can just wait until a 0% year and convert then. My reply to that was that, while technically possible, the circumstances are hard to achieve and the dollar amount is so small that you wouldn't be able to actually convert a large account in your lifetime at 0%, and that people should covert up to 15% as well. You add a good point, which is that RMD's will force you to convert assets above the 0% threshold at some point in your life anyway. Based on the tax law today, these forced distributions will result in a conversion tax rate of at least 15% (either for you in retirement or your heirs in the inherited IRA, which also has forced distributions) but possibly 25%+, which is just more reason to take advantage of 15% conversions (as well as 0% conversions obviously) while you can.
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# ? Dec 9, 2016 16:24 |
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BEHOLD: MY CAPE posted:Sounds like a bad deal for anyone who retires or suddenly loses a job. There is no fair, uncomplicated, and ungameable taxation scheme that is also compatible with the multiple complicated layers of government for a country with a $20T GDP and 320 million people. How so? That scenario would only impact people who have been high earners for a significant period, at which point putting the onus on them to do some basic tax planning is not unreasonable. At the same time, it gets rid of a lot of the nonsense income shifting people do for tax avoidance.
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# ? Dec 9, 2016 17:13 |
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Droo posted:The other dude's original statement was that people shouldn't ever pay tax on conversions because they can just wait until a 0% year and convert then. My reply to that was that, while technically possible, the circumstances are hard to achieve and the dollar amount is so small that you wouldn't be able to actually convert a large account in your lifetime at 0%, and that people should covert up to 15% as well. AreWeDrunkYet posted:How so? That scenario would only impact people who have been high earners for a significant period, at which point putting the onus on them to do some basic tax planning is not unreasonable. At the same time, it gets rid of a lot of the nonsense income shifting people do for tax avoidance. Taxing people on net worth gets around that issue, but you probably don't want to incentivize the rich to emigrate en masse, even if it was politically feasible to do so.
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# ? Dec 10, 2016 01:25 |
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Nevermind, clearly there is no point.
Droo fucked around with this message at 01:52 on Dec 10, 2016 |
# ? Dec 10, 2016 01:36 |
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He said predict, not calculate. Are you capable of predicting what your capital gains (either from play trading or instantly selling ESPP's)/taxed dividends are going to be every year?
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# ? Dec 10, 2016 01:55 |
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Rurutia posted:He said predict, not calculate. Are you capable of predicting what your capital gains (either from play trading or instantly selling ESPP's)/taxed dividends are going to be every year? In this case the context was in order to figure out the ideal amount of an IRA to convert while staying in a specific tax rate. The deadline to do that conversion is December 31st. So to answer your question - yes, typically at least a week before December 31st I know the exact amount of my taxable dividend income for the year. My brokerage is even pretty good at telling me YTD qualified vs unqualified numbers.
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# ? Dec 10, 2016 02:01 |
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Oh, I misread the argument then. I thought we were talking about forecasting the plan over a series of years for maximum efficiency.
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# ? Dec 10, 2016 02:26 |
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Rurutia posted:Oh, I misread the argument then. I thought we were talking about forecasting the plan over a series of years for maximum efficiency. You can, and you should, and for some levels of expenses, after-tax holdings, and tax deferred holdings, you end up with next to no additional tax liability under current law. A real world example of this is the blogger I linked earlier. This might be surprising but it shouldn't be contentious.
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# ? Dec 10, 2016 03:11 |
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Do not mind me, I just wish to mark this thread for reading in the future. https://www.youtube.com/watch?v=GHPkLuVBQ1Y
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# ? Dec 10, 2016 05:03 |
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Droo posted:Let's try a different approach. Essentially there's no reason to convert more than the amount you need to cover your living expenses every year?
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# ? Dec 10, 2016 09:04 |
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Yes, but the way IRAs work you will eventually be subject to RMDs, or you will die and your beneficiary heirs will be subject to RMDs at regular income rates.
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# ? Dec 10, 2016 11:47 |
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Ralith posted:You can, and you should, and for some levels of expenses, after-tax holdings, and tax deferred holdings, you end up with next to no additional tax liability under current law. A real world example of this is the blogger I linked earlier. This might be surprising but it shouldn't be contentious. Of course I do, and it's not that surprising or contentious to me. It's why we diversify our retirement tax account types. I was just agreeing that it's difficult to forecast exactly due to variability of returns.
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# ? Dec 10, 2016 13:59 |
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Thinking of pulling the trigger on FI again, but I don't really want all the hassle of starting my own business (I'm in big-data software at the moment). When I get bored, I tend to do silly and non-productive things, but maybe that would change if I didn't have a job? Anyone out there who has pulled the trigger who can talk about how their priorities changed and such? My wife and I are looking at our first kid sometime next year, so continuing to have 100% subsidized insurance through work is a nice to have if things go badly, but unless our expenses skyrocket (as they easily could if a kid were to be born hosed up enough), we're good to go financially. My wife is 100% stopping work when she gets pregnant, just my employment is in question.
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# ? Dec 27, 2016 15:27 |
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baquerd posted:Thinking of pulling the trigger on FI again, but I don't really want all the hassle of starting my own business (I'm in big-data software at the moment). When I get bored, I tend to do silly and non-productive things, but maybe that would change if I didn't have a job? Anyone out there who has pulled the trigger who can talk about how their priorities changed and such? My wife and I are looking at our first kid sometime next year, so continuing to have 100% subsidized insurance through work is a nice to have if things go badly, but unless our expenses skyrocket (as they easily could if a kid were to be born hosed up enough), we're good to go financially. My wife is 100% stopping work when she gets pregnant, just my employment is in question. Hard to know exactly what you're asking here.. Does 'good to go' financially mean you've crossed your minimum FI mark? If so, is starting your own business a necessity or something you'd just like to do? I left full-time work this year, a kid on the way (next Feb), and running a small business to cover our expenses - silly non-productive things still continue in the evenings but you'll find other stuff to do during the day. Personally I find that self-motivation will never give me the same productivity level as having to be up and at a job every day - but that level of productivity normally comes at the cost of my health and sanity. I prefer a more sustainable, leisurely approach to getting things done. Priorities during the last six months have been on preparing ourselves/household for incoming child, more time with family, health and diet. I've done a fair bit of work on the business as well but new ideas roll out over a month or two, I don't really give myself deadlines or anything remotely resembling stress. I did pick up some temp work for a four week period to cover all the stuff she wanted to get for baby - I didn't really need to but more than that I didn't want my financial momentum to be affected. It worked out well and I'll probably do it again in future when big purchases crop up. Very easy to find short-term work in my industry, yours may be different. Keep in mind though I'm in Australia so I don't really have to think about health insurance.
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# ? Dec 28, 2016 22:04 |
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Sanity check, part a million Assumptions 4% withdrawal rate, 5% inflation-adjusted growth rate (doesn't seem that safe considering it's an average growth rate between stocks and bonds including when you're actually retired and need to have some additional money in cash/bonds for safety) If I were to live off of $2000/month for the rest of my life, Required savings = $600,000 before I'm FI (need to withdraw $24k a year at 4% of total balance) $2500/month, required savings = $750,000 $3000/month, required savings = $900,000 $4000/month, required savings = $1,200,000 Too safe, too aggressive, somewhere in the middle? Blinky2099 fucked around with this message at 03:01 on Jan 7, 2017 |
# ? Jan 7, 2017 02:54 |
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Blinky2099 posted:Sanity check, part a million How old are you?
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# ? Jan 7, 2017 03:03 |
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oh god dammit, I'm not taking into account income tax during withdrawals so i really need to add like 25% or something to those numbers rightVendaGoat posted:How old are you?
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# ? Jan 7, 2017 03:08 |
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Blinky2099 posted:oh god dammit, I'm not taking into account income tax during withdrawals so i really need to add like 25% or something to those numbers right Calm the gently caress down and live your drat life for a little while.
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# ? Jan 7, 2017 03:09 |
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4% withdrawal rate and $2000 per month both seem incredibly optimistic to me. Health insurance alone is probably going to cost you an average of $500-$1000 per month until you get to medicare, if it's even there anymore.
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# ? Jan 7, 2017 03:10 |
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Blinky2099 posted:oh god dammit, I'm not taking into account income tax during withdrawals so i really need to add like 25% or something to those numbers right Do you? I was under the impression that long term cap gains withdrawals under 35k/yr are untaxed.
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# ? Jan 7, 2017 03:10 |
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VendaGoat posted:Calm the gently caress down and live your drat life for a little while. Droo posted:4% withdrawal rate and $2000 per month both seem incredibly optimistic to me. Health insurance alone is probably going to cost you an average of $500-$1000 per month until you get to medicare, if it's even there anymore. Pompous Rhombus posted:Do you? I was under the impression that long term cap gains withdrawals under 35k/yr are untaxed.
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# ? Jan 7, 2017 03:14 |
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Blinky2099 posted:yeah i dont think $2000 is possible unless i live in a shack and eat rice and beans, I'm more thinking $3000-$3500? I didn't even think about how expensive health insurance is going to be I'm not sure if it's possible to know your retirement budget at 25. Seems like who you marry, what she does for a living, where she wants to live, if she wants kids etc etc etc can all have a huge impact on that. And what you want out of life at 25 is very different than what you want at 40 or 50 for most people. And based on my coworkers who have kids, the last place you will want to be is retired at home, so you might end up working a long time anyway!
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# ? Jan 7, 2017 03:20 |
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Droo posted:I'm not sure if it's possible to know your retirement budget at 25. Seems like who you marry, what she does for a living, where she wants to live, if she wants kids etc etc etc can all have a huge impact on that. And what you want out of life at 25 is very different than what you want at 40 or 50 for most people. There you go, glad I didn't have to be the one to dad it out.
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# ? Jan 7, 2017 03:21 |
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Droo posted:4% withdrawal rate and $2000 per month both seem incredibly optimistic to me. Health insurance alone is probably going to cost you an average of $500-$1000 per month until you get to medicare, if it's even there anymore. A 4% withdrawal rate is based on the idea that at some arbitrary point you decide you are "retired" and take 4% of your portfolio out for expenses, and every subsequent year, you take out 4% of your original portfolio at retirement, adjust for inflation, and withdraw it. You never contribute anything new, you never reduce withdrawals. Historically, following this exact protocol, a blended 75/25 stocks/bonds portfolio has a success rate of 95% over 30 years and 82% over 50 years. That's pretty darn safe considering the givens applied aren't very given at all. Blinky2099 posted:oh god dammit, I'm not taking into account income tax during withdrawals so i really need to add like 25% or something to those numbers right No, not really. It's complicated, but basically your taxes paid on LTCG are either 0% or 15% of the gains, until you're making over $400k or so a year. Not only that, but not all of your withdrawals will be LTCG, some will be non-taxed principle, and some will be tax sheltered (see roth ira ladder et al.). Then there's your standard deduction among others that reduces the gross taxable amount. As a married couple, you can clear almost 90k in income, in your pocket, tax-free, in an optimal scenario comprising mostly LTCG.
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# ? Jan 7, 2017 03:24 |
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I don't really want to talk personal finances but I think I can retire by 35 at the latest. if I marry someone who insists on a million dollar house I hope the bwm thread shames me for the rest of my life. is there other better estimates people have of X dollars withdrawn per month in retirement vs. desired account balance before FI?
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# ? Jan 7, 2017 03:26 |
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Blinky2099 posted:I don't really want to talk personal finances but I think I can retire by 35 at the latest. if I marry someone who insists on a million dollar house I hope the bwm thread shames me for the rest of my life. You want to be retired and do basically gently caress all for 36 years of your life? If you live to the average of 71. It could be much longer then that.
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# ? Jan 7, 2017 03:27 |
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Blinky2099 posted:I don't really want to talk personal finances OK, cya
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# ? Jan 7, 2017 03:27 |
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# ? May 17, 2024 15:09 |
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baquerd posted:A 4% withdrawal rate is based on the idea that at some arbitrary point you decide you are "retired" and take 4% of your portfolio out for expenses, and every subsequent year, you take out 4% of your original portfolio at retirement, adjust for inflation, and withdraw it. You never contribute anything new, you never reduce withdrawals. The origin of the "4% rule" was based on a high likelihood of not completely running out of money within 30 years when looking at a portfolio of US investments. I consider it optimistic for a 25 year old because 30 years is not long enough, and in my opinion it is unrealistic to expect global returns over the next 200 years to look like they did over the last 200 years in the United States. It is a very common viewpoint if you read the dedicated early retirement boards - people seem to assume 3% or even 2% much more commonly than 4%.
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# ? Jan 7, 2017 03:30 |